LOS ANGELES -- Despite its remote location 500 miles north of the Arctic Circle, North Slope Borough, Alaska, had no trouble finding investors for more than $214 million of general obligation bonds, priced yesterday, morning.
The isolated borough, about the size of Minnesota, will use the proceeds to finance capital improvements, including the construction of water and sewage systems in four villages that currently have no such facilities.
The issue includes $114.8 million of current interest bonds with a 2001 maturity, and $99.3 million of capital appreciation bonds with a 2005 maturity. Each has an overall yield of 6.867%.
The voter-approved bonds were rated A-minus by Standard & Poor's Corp. and Baal by Moody's Investors Service, based primarily on the capital investment plans of two major oil companies operating in the borough's massive Prodhoe Bay oil field.
A Standard & Poor's analyst said the bond issue is unique because most rural communities do not have the resources to allow for such sophisticated financing. The borough has two other multi-million-dollar bond issues outstanding.
"They have the resources because that's where the oil is," said Michael Forrester, a director with Standard & Poor's public finance department in New York.
"The Prudhoe Bay field is so large and generates so much revenue that the borough is in an enviable position to tax it and benefit from it," Forrester said.
The operators of the north slope oil fields -- Atlantic Richfield Co. and British Petroleum Co. -- make up more than 85% of the borough's $12.2 billion tax base.
Principal and interest on the bonds are expected to be paid from taxes levied on improvements to oil and gas properties.
The borough tax audit division estimates that property values will increase from $12.2 billion to $12.5 billion for fiscal 1996, with a decline thereafter to $8.3 billion for fiscal 2005.
Current oil production is averaging 1.6 million barrels a day, with an expected annual decline rate of about 10%.
Prodhoe Bay alone generates a quarter of all U.S. domestic oil production. The field contains 29% of the country's confumed oil reserves and 13% of natural gas reserves.
Before the 1968 discovery of oil and gas at Prudhoe and the subsequent construction of the Alyeska Pipeline, economic activity in the harsh and remote environment was limited to subsistence hunting, fishing, and maintenance of the Pentagon's Strategic Air Command Distant Early Warning division.
Barrow, the largest city, located on Alaska's northern-most tip, has a population of 3,500. In all, the borough has about 12,000 residents, most of who are Eskimos.
Further economic diversification is not likely because of the icy climate and lack of public roads leading into the area, Standarr & Poor's said in its Nov. 7 credit report. Access to the entire north slope is severely limited by the Brooks Mountain Range.
In the same report, Standard & Poor's affirmed its ratings for the borough's two outstanding bond issues -- $102.5 million in GO parity debt rated A-minus, and $677.2 million in insured GO bonds rated AAA.
An additional $123 million remains authorized and is expected to be issued in fiscal 1996. The funds will go toward water and sewer facilities, school additions, airport upgrades, and other capital improvements.
"Basically, what the borough has been doing over the last 10 to 15 years is developing an entire infrastructure," said Jim Sharpe, the borough's director of administration and finance. "Roads, airports, utilities, schools, everything."
