Frequently Asked Questions about the state's proposed Occidental Land Purchase
In response to the great interest in the potential land and mineral purchase by the State of Wyoming from Occidental Petroleum, the Office of the Governor provides the following Frequently Asked Questions (FAQs) and answers.
Q: What does the proposed land purchase encompass?
A: The State of Wyoming is considering the purchase of roughly 1 million acres of land, and 4 million acres in mineral rights, along the Union Pacific Railroad corridor (near Interstate 80). The property is currently owned by Occidental Petroleum Corporation. This tract of land is commonly referred to as the Union Pacific checkerboard. It is interspersed with owns managed by the Bureau of Land Management (BLM). The State sees it as a rare opportunity to acquire minerals, recreation, and other types of assets in Wyoming.
Q: What are the latest developments in this sale process?
A: On May 1, 2020 the State of Wyoming entered into a contract with an investment bank to provide guidance and analysis of the potential purchase. Barclays was chosen as the investment bank.
On July 6, 2020, the State Loan and Investment Board, (SLIB) in a public meeting, after receiving public comment, voted to authorize the Governor, Treasurer and the Chief Investment Officer to submit a non-binding bid to Occidental Petroleum for the purchase of the land and minerals. The SLIB further directed that there could be a bid for the entire tract with all assets, and alternative bids for specific assets. In general, the assets were identified as surface, trona, oil and gas, and minerals. The confidential bid letter was submitted to Occidental on July 8th.
Prior to the vote, the members of the SLIB discussed the investment possibilities of the potential purchase. The approved motion to proceed included the parameters that the non-binding bid must not exceed an amount that would meet the standards of the State’s prudent investor rule. In other words, should the Occidental land and minerals be purchased by the State, it is expected that revenue received by the people of Wyoming will meet or exceed the current returns received by the State on other financial assets.
The non-binding bid authorized by the SLIB is confidential to protect the integrity of the bid process. The Governor understands that there are other potential bidders and their knowledge of the State bid would provide an advantage to the other bidders, should there be further negotiations.
Q: Why did the Governor decide to recommend that the potential purchase price come from the State’s investment funds?
A: From the beginning of the process, and as was discussed at the Governor’s Press Conference in February of 2020, Wyoming would only pursue the potential purchase if it was a good financial deal for the people of Wyoming. Other funding options included, but are not limited to, using the Legislative Stabilization Reserve Account, often referred to as the Rainy Day Account, or borrowing the money through the use of bonds.
Since the end of the legislative session, Wyoming’s economy was impacted by the perfect storm of the Saudi/Russian oil war and the devastating effect of the COVID-19 pandemic. After carefully examining the economic situation, the Governor determined that it would be better for the Legislature to have the option to use the Rainy Day Account as it determined necessary for the payment of state programs, without the pressure of also trying to fund a potential purchase of the Occidental land and minerals. He also concluded that it would be better that the State of Wyoming not go into debt to purchase these lands. Finally, it is important to note that currently, the investment funds cannot be used to directly pay for the costs of running State Government. In other words, neither the Legislature, nor the Governor, without a constitutional or statutory change, could use the principle of the investment funds to pay the expenses of running the State Government. However, revenue derived from the investing of those funds can and are used to fund the administration of government and state programs.
To re-emphasize, the members of the SLIB received advice from the State’s financial advisors and Barclays. Notably, Barclays is assisting Wyoming with determining the value of the potential purchase. Based on that advice and Barclays’ estimates of future yield and rate of return, the board members determined to take the next step of submitting a non-binding bid. Simply put, the financial experts are predicting that should the bid be accepted, the financial return is expected to be equal to or higher than the return on the current investments.
Should the State end up purchasing the property, the Legislature could decide to replace the investment funds through appropriations from the LSRA or decide to bond to replace that amount.
Q: The State of Wyoming just received $1.25 billion from the Federal Government under the The Coronavirus Aid, Relief, and Economic Security (CARES) Act. Can any of these funds be used to make up lost revenue due to the State, or used to purchase the Occidental property?
A: No. To date Congress has prohibited the use of these funds to replace lost revenue to the State. CARES Act funds can only be used to reimburse costs and losses to private businesses and individuals directly related to the COVID-19 pandemic.
Q: Should the State use investment funds for this purchase, doesn’t that mean that we lose the short term investment value of those funds until that revenue stream is replaced?
A: Yes, there will be transaction costs such as these. However, again, based upon the experts’ advice, it is projected that short-term losses would be more than made up within a reasonable period of time should Wyoming purchase the assets.
Q: Isn’t the State just doubling down on fossil fuels, in which we are currently heavily invested?
A: No. This investment opportunity looks at the economic value of the entire package. The potential of diversifying the State’s investment portfolio is one of the reasons to consider this proposal. Currently only a very small percentage of the State’s investment funds on the S&P index are energy-related. In addition, there is the potential of additional surface property that could be managed for multiple-use including grazing, hunting, recreation, wind, solar and other economic possibilities.
The State currently receives income through severance tax and a share of the Federal Mineral Royalties on coal, oil, gas and trona. Should the purchase occur, the State would still receive its share of the Federal Mineral Royalties on Federally owned assets. Should the State become the owner of Occidental mineral assets, the revenue received from those assets could increase several fold.
Q: Hasn’t the Governor gone around the legislature by deciding to use investment funds for the purchase of this asset? Shouldn’t the legislature be involved in a deal of this magnitude?
The Governor has kept the legislative leadership, both the majority and minority, briefed and involved since the end of the session. Long ago, the duty of managing the investment funds of the State was specifically designated by the Legislature through the SLIB. The investment funds are held by the Treasurer’s Office and the SLIB decides on the investment policy. Billions of dollars within the investment portfolio are continually being evaluated, invested and withdrawn from various investment accounts to maximize the State’s return. This has always been an Executive duty. Investment decisions are not directly approved by the Legislature.
However, the Legislature, through the Select Committee on Capital Financing and Investments, works with the SLIB on investment issues and will continue to do so.
Should a deal be reached for the purchase of this property, the Governor will provide a report similar to the one requested by the Legislature in SF 0138, even though the Governor vetoed that bill for other reasons.
Q: Some have stated that the Wyoming public have not been adequately involved in this process, what about the promise of transparency?
A: The Treasurer’s Office manages approximately $20 billion of investments. Should this purchase occur, this investment will be part of that portfolio and subject to publicly available reports issued by the Treasurer’s office. Should the SLIB eventually decide to purchase this property, It will provide for public involvement,as required by law.
In addition, to date, valuation estimates, potential bid amounts have been confidential so that Wyoming has a level playing field with the other potential bidders. The Governor, in various press conferences and through the veto letter sent to the legislature, has stated that once, and IF, the bid is accepted, he will have public meetings and provide an online process to receive comment from the public. In addition, the SLIB must approve the final deal and would do so in the full light of a public meeting.
Q: Why did the State enter into a contract with Barclays Bank that could cost the State millions of dollars?
A: The Governor sought the best advice and guidance available. Investment banks are used by sellers and potential buyers for projects of this magnitude. The Governor and his advisers received proposals from three investment banks. It was the opinion of the Governor’s advisers that Barclays had the resources and knowledge to provide the state with the most accurate and useful information. All three proposals contained similar fee proposals. Barclays referred to the assignment as Project Bison.
While not on the same scale, most home or real estate purchasers and sellers rely upon the advice of a real estate agent. The concept is the same. Here, Barclays is using its significant resources to examine and value the assets located in one million surface acres and four million subsurface acres. The State of Wyoming would be foolish to pursue this opportunity without the assistance of such an adviser. In addition, the information provided by Barclays is vital to the determination of whether this is a prudent investment.
Similar to real estate agents, Barclays’ fee is partially based upon the eventual purchase price of the property. If there is no purchase, the majority of the fees are not paid. The Governor has consistently stated that if the purchase price is too high for this to be a prudent investment, no purchase will occur. Barclays does not set the purchase price– that is a decision between Occidental and the successful bidder. Should this purchase occur and meet the estimated economic projections, the transactional costs, including the investment bank fees, will be recouped in the near future.
Q: Doesn’t Barclays have investments in oil and gas and even Occidental? Isn’t this a conflict of interest?
A: Before entering into any contract the State runs a conflict check. The State did not have any conflict as it relates to the Barclays contract. Private or publicly owned companies do their own conflict checks before entering into any contract. The State was informed that Barclays’ conflict check allowed Barclays to enter into the contract with the State of Wyoming.
Q: Are there other bidders in the purchase of this property willing to purchase the entire tract of land and minerals?
According to Occidental, there are several bidders. While Occidental has stated it is their desire to sell the entire tract to one party, once the bids are considered, Occidental may find it more profitable to sell different assets to different bidders. The manner in which Occidental will sell the property has yet to be determined.
Q: What is Occidental Petroleum Corporation?
A: Occidental Petroleum Corp or Oxy is an international oil and gas exploration and production company. Oxy has operations in the United States, Middle East and Latin America. It operates through three segments: Oil and Gas, Chemical (OxyChem) and Midstream and Marketing.
Q: How did Occidental acquire the land in the first place?
A: Occidental acquired the parcels after merging with the previous owner of the land, Anadarko Petroleum Corporation in August 2019.
Q: Why is the State of Wyoming interested in this property?
A: At this point, the State is only interested in what it would take for the State to buy the property. The Governor, Legislative Leadership, and the other four state-wide Elected Officials see this as an opportunity that should be carefully explored. Approximately 48% of the land in Wyoming is owned by the Federal Government. The land and mineral rights in this tract were originally owned by the Federal Government, but were subsequently sold to the Union Pacific Railroad (UP). UP later sold their interest to Anadarko. Occidental purchased Anadarko’s assets through a merger of those companies. To move forward, due diligence must show that this property could be a meaningful long-term investment, providing state revenues for generations to come. This purchase would also need to prove to be an opportunity to open up vast acreage to multiple-use, including grazing, recreation, public access, energy (including wind, solar, coal, oil and gas), and mineral (trona and other minerals) development. These natural resources could be developed by private companies, not the State, and provide additional revenues to the State. The purchase would have to show that this is a prudent investment, bringing in appropriate returns.
Q: Why is Occidental Petroleum Corporation exploring the opportunity to sell to the State of Wyoming?
Since this is such a large tract of land with multiple minerals and surface use, there are few potential purchasers willing to consider the entire tract. The current owner is motivated to sell assets that are not considered core to its business. Those non-core assets include: trona, sheep and cattle grazing, etc. Given current market conditions, other energy or mineral related companies might be interested in cherry-picking parts of the tract, but not the entire parcel. Other private entities might also look at buying the property.
Q: Why is there such a difference in the amount of surface and mineral acres?
A: Like many Western states, in Wyoming it is possible to own the surface and not the mineral estate, and vice versa. Over the years since Union Pacific was granted the property, much of the surface acreage has been sold off, while retaining the mineral interest. This split estate phenomenon is well known throughout Wyoming. These mineral rights are often leased to a company to explore for oil, gas, coal, trona, etc.,
Q: Are there existing commitments to complete negotiations?
A: No. Either the State of Wyoming or Occidental could terminate interest at any time.
Q: Is there a hard deadline to complete negotiations?
A: No. However, both the State and Occidental are attempting to make a decision in the next few weeks.
Q: What interest would the affected counties have in this potential sale?
A: Should the purchase occur, Wyoming would own surface acres within the affected counties. Normally, states do not pay property tax to the counties. Thus, counties could see a decrease in revenue. However, should the purchase occur, it is the Governor’s intention that the State would pay all taxes that Occidental had been paying to the counties. Thus, the counties would remain whole.
Q: If the purchase occurs, how will the state manage these lands and minerals?
A: The state, through the Board of Land Commissioners currently manages millions of surface and mineral acres throughout Wyoming. Since this purchase is also being viewed as an investment, further discussions will occur to determine if this property will be managed under a different portfolio through the State Land and Investment Board and Board of Land Commissioners. The five state-wide elected officials (Governor, Secretary of State, Treasurer, Auditor and Superintendent of Public Instruction) make up both of these boards. They will continue to be responsible for the overall management of all state lands and minerals.
Q: What could this potential purchase mean for outdoor recreation?
A: Adding 1 million acres of surface within the federal checkerboard holdings may open up broad stretches of our land for hunting and outdoor recreation.
Q: How could this potential purchase impact the state’s revenue picture? What is the potential of revenue from trona?
A: At this time, it appears the major income possibilities are from energy and minerals. There are varying amounts of coal, oil, and gas in the identified tract. If preliminary information from news reports is correct, existing royalties from trona production constitute the majority of the mineral revenues. Trona is a feedstock for a variety of consumer products. This land encompasses the largest naturally occurring trona deposit in the world, with thousands of years of reserves.
Q: What could this potential purchase mean for wind and solar resources in Wyoming?
A: Some of the state’s best prospects for wind development are located in the corridor where this land is located. In addition, many solar companies are looking at property within the corridor. Should Wyoming be an owner of more of these lands, the state could potentially provide additional input on promotion and site selection for these projects.
Q: Should this purchase occur, how would this affect current land and mineral owners other than Occidental Petroleum?
A: Right now, those private owners work with the Federal Government, State Government and a large corporation. Should the purchase occur, the State Government would be on a more equal footing (area-wise) with the Federal Government and private owners will have State Government as a partner when seeking permits from the Bureau of Land Management.
Q: How will Wyoming be sure the title for the lands it purchases are clean and marketable?
A: The chain of title on this asset is very simple relative to the issues on mineral ownership and split estates in the rest of the state. The lands were granted by President Lincoln in 1862 to the railroad and then sold in 2000 to an oil company. In 2019, those lands were acquired by the current owner, Occidental Petroleum Corp. Land and mineral title experts will be consulted to determine the status of all properties being considered.
Q: Why should Wyoming own more land? Is it not better to leave these lands in private hands?
A: The Governor is very aware of the concerns surrounding State ownership of additional lands. He believes that this is certainly worth the policy debate. He also believes, should this purchase occur, that it will be important for the State to be an accessible good neighbor, dedicated to the principles of multiple use of public land.
Q: Who will be doing the actual negotiations of this potential land purchase?
A: Under the leadership of the Governor, the responsibility to negotiate the purchase would be left to the Board of Land Commissioners and/or State Loan and Investment Board, comprised of the state’s top five elected officials with final approval by the State Legislature.