Wyoming to submit bid for Occidental land
July 8, 2020
CASPER — Wyoming is expected to bid on 5 million combined acres of land sometime this week after the State Loan and Investment Board authorized the treasurer’s office Monday to make a play on the Occidental Petroleum property.
The language of the bid process, which was approved by the state’s top-five elected officials after eight hours of deliberations, gives Wyoming Chief Investment Officer Patrick Fleming the authority to make a formal bid on the lands, which include 1 million acres of checkerboarded surface parcels in southern Wyoming and an additional 4 million acres in mineral rights stretching across several counties and into corners of Utah and Colorado.
It will likely be weeks until the public learns whether Wyoming was successful in the process and, if so, what amount of money the state intends to offer the troubled oil giant for the property.
Monday was the first public meeting on the possible transaction. After numerous comments from the public criticizing the level of secrecy that has surrounded the deal, the five-member State Loan and Investment Board decided it will move forward with slightly more transparency as it works to finalize the deal. A pair of late amendments by Secretary of State Ed Buchanan and Auditor Kristi Racines outlined a process to engage the public and to release any non-confidential information about the land prior to final approval.
Throughout the day’s meeting, the State Loan and Investment Board – which counts Buchanan, Racines, Superintendent of Public Instruction Jillian Balow, Treasurer Curt Meier, and Gov. Mark Gordon as members – took pains not to reveal too many details about the purchase, for fear of losing an edge to other parties who might potentially be competing for the land.
However, state leaders did attempt to assuage a fear held by many in the public who have, to this point, been skeptical of the deal: whether the state can make a profit on the land and, potentially, earn investment income during an economic downturn.
“We looked at expected return risk and diversification it could bring the portfolio and feel that it would have a favorable return,” Rebecca Gratsinger, CEO of Wyoming’s investment consultant RVK, told board members. “We want to assure board and public we believe this analysis is prudent and believe it could be beneficial.”
Monday’s meeting was the first-ever public hearing on a proposal to use an as-of-now unknown amount of money from the state’s Permanent Mineral Trust Fund to participate in what could potentially be the largest public land purchase since the acquisition of Alaska in the 19th century.
Pitched by Gordon as an investment in the state and its future, the deal has taken new importance in recent months as the state faces an unprecedented budget shortfall in the wake of the COVID-19 pandemic, a collapse in coal, gas and oil, and a burgeoning worldwide downturn. It represents a possible lifeline for a state on the verge of hundreds of millions of dollars in budget cuts.
While Wyoming has long-managed to balance the cost of doing business using money from the Permanent Mineral Trust Fund, the state’s earning potential on those dollars have been hurt by a weak bond environment and a recession that, over the next several years, will severely limit the money the state can earn.
This is where the land deal comes in: rather than using the mineral trust fund to invest in bonds and equities, the state would sink those dollars into land it feels could generate new revenue that potentially outpaces the amount of money it is currently earning on the stock market.
While many who commented expressed concerns about the costs of maintaining the land and keeping up pre-existing tax obligations to counties long-grown accustomed to regular payments, early indications seem to show that the land could potentially be a prudent investment for the state. In a presentation to board members, Gratsinger said that the trona-rich land is likely to return yields of anywhere between 7.5 percent if the mineral is mined and 11.1 percent if it isn’t, a significantly higher rate of return than most of the holdings currently within the state’s investment portfolio.
Mined trona ore can be refined into soda ash or baking soda, among other products. Soda ash is a critical ingredient in several common products, such as glass, detergent and even electronics.
Though a trona-heavy operation would likely have less earning potential for the state, it would also be subject to far less volatility, experiencing potential gains or losses of 12 points or fewer compared to swings in value of up to 23 percent without trona mining, whose value closely tracks the health of the global economy.
However, some expressed concern that potentially shifting more than 10 percent of the state’s current investment dollars into one area – trona – could potentially backfire, particularly as the state seeks safe investments at a time where its traditional approaches are likely to earn even less money to support schools and other critical infrastructure.
“This investment may be a good idea,” said Rep. Clark Stith, a Republican from Rock Springs. “But to me, this investment seems to be the opposite of diversification. The state’s investment policy says that we should avoid investments in natural resources. This is doubling down on trona.”
The deal could come with other baggage, warned Rep. Chuck Gray, R-Casper, including a potentially politicized process in selling the land to interested parties once under state ownership. Others were concerned with the precedent it would set to use the state’s constitutionally-protected Permanent Mineral Trust Fund – which has long been a critical source of K-12 funding – to acquire land in what essentially boils down to a mortgage.
“It’s our promise to those future generations that fund will be there forever,” Shannon Anderson, an attorney for the Powder River Basin Resource Council, told the board.