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: Did the State of Wyoming withdraw its bid to pursue the purchase?
A: Yes. Governor Mark Gordon and the members of the State Loan and Investment Board (SLIB) participated in the bid process to pursue a once-in- a-generation opportunity to purchase land for the public and diversify Wyoming’s investments. The goal was to bring the lands originally given to the Union Pacific Railroad under state control and bring in additional revenue to the state. The land for sale included roughly 1 million acres of surface land and 4 million acres in mineral rights.
On August 19, 2020 Occidental Petroleum, the owner of those lands and minerals, announced that it has signed a purchase agreement with Orion Mine Finance for those land and minerals in southern Wyoming. Although not a final sale, Governor Gordon said he has formally withdrawn Wyoming’s bid.
Q: Why is the Governor disappointed in not purchasing the Oxy lands?
A: The Governor believes Wyoming worked hard to prepare a responsible, good faith bid, which he believes would have augmented Wyoming’s investment returns, bringing in more revenue to keep taxes in Wyoming low. Had Wyoming’s bid been accepted, the rate of return was expected to be in the range of 8% to 12%, depending on the assets and how quickly the economy recovers. This predicted rate of return is currently better than our current average rate of return.
The purchase also would have provided many other benefits to Wyoming citizens by making it easier to manage checkerboard lands in southwestern Wyoming, furnishing more and better public access for recreation and hunting, and giving Wyoming more tools to oversee development assuring multiple use, including grazing and development of traditional and non-traditional energy resources.
Q: What did the proposed land purchase encompass?
A: The State of Wyoming was 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 developments in this sale process occurred before Wyoming withdrew its bid?
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.
That bid was withdrawn on August 19, 2020.
Q: What did the Governor say in response to Occidental finalizing a purchase sale agreement with another bidder?
A: I am disappointed that Wyoming was not the ultimate buyer of the Union Pacific Land Grant lands and minerals. We worked hard to prepare a responsible bid, which we believe would have augmented Wyoming’s investment returns, bringing in more revenue at a critical financial time and helping to keep taxes in Wyoming low. It also would have provided many other benefits to Wyoming citizens by making it easier to manage checkerboard lands in southwestern Wyoming, furnishing more and better public access for recreation and hunting, and given Wyoming more tools to oversee development thereby assuring many compatible uses including grazing, mining and all types of energy development. I thank Occidental Petroleum (Oxy) for considering the State as an unconventional potential buyer and for being patient with a complex but valuable public process.
All in all, taking the disciplined approach that we did, members of the State Loan and Investment Board (SLIB) offered $1.2 billion for the entirety of the Oxy property, and in the alternative, $225 million for the land and all minerals other than trona. Our bid was carefully researched and shared with the leadership of the legislature and members of the State Loan and Investment Board before being put forward by Treasurer Meier and myself.
Opportunities like this one do not come around often and need careful consideration. That was why we brought it to the attention of the Legislature during the last budget session and why they spent as much time as they did evaluating the proposition.
Q: How did the Governor work with the Legislature on this bid? Did he veto a bill?
A: Both the Legislature and the Executive branches decided that pursuing this purchase was an appropriate thing to do for the future of the people of Wyoming. From the beginning, there was strong support from the legislative and the state-wide elected leaders. Communication between the branches has been constant and consistent. Moreover, there was never any doubt that any decision to pursue the sale would be fully and publicly disclosed. Furthermore, any presumed offer would be squarely based upon its investment potential for the state as determined by a solid and thorough analysis. Many concerns were well vetted in legislative deliberations last February. The decision to go forward or not was ultimately resolved in SF0138, which passed both houses, but that the Governor did veto.
Many of the elements of that legislation called attention to public process, transparency, information on the nature and cost of the purchase, what portfolios should house which portions of the asset, where revenues would go, how assets would be managed and so on. Although the Governor vetoed the bill in March, he was committed to follow to the greatest extent possible the parameters laid out in the bill. The bill simply described a process that was unwieldy and inefficient. Moreover, most of the provisions either recommended what should happen if we were able to purchase the asset or what we should do before purchasing it. Our bid was not a purchase, it simply was an invitation -- if accepted -- to start negotiating a “Purchase and Sale Agreement” or PSA. Moving forward as the SLIB did was not a way to short circuit any of these considerations.
Q: What was the role of the State Loan and Investment Board?
A: Our task was to evaluate the investment potential of the asset and determine whether, and at what price, a bid should be made. As such, our bid was based on the well-researched analysis of the asset and a well-reasoned estimation of what it could add to our portfolios. Importantly, our analysis was focused on the value of the marketable aspects of the proposed purchase, not supposed adjunct benefits such as improved public access or easier management. Nor did the review anticipate revenues from renewable energy development in the area. The Development potential of wind and solar is not fully understood at this juncture, thus estimating tax revenue from that source would be highly speculative. Our analysis furthermore considered the added costs of management, making up for lost tax revenue for counties, possible environmental liabilities, and the potential for other unforeseen complications. Our evaluation was not influenced by conjecture about potential resale of any of the assets. It was simply an ‘as is’ analysis of return and cash-flow.
Q: Did the Governor and the SLIB consult with other experts?
A: To effect the necessary analysis of this purchase, the State sought the wisdom of several individuals with insight and experience in all aspects of the proposed sale: from the Wyoming Geological Survey, the Treasurer’s Office, and the Office of State Lands to friends of Wyoming like Greg Hill (Hess), Chad Deaton (Baker-Hughes), Bob King (former OGCC Supervisor) and Steve Farris (Apache) for oil and gas, to Fred Parady (FMC Trona), and Jim Taylor (Hall and Hall Ranch Real Estate) for other aspects of the sale. All advised the State to seek the assistance of an investment bank before proceeding.
Accordingly, the State spoke to Jeffries, Citi Bank, Tudor Pickering, Holt, and Barclays, most of whom had knowledge of this asset. All had experience with and were qualified to value a transaction as large as this one would be. Bids to advise the State were submitted from three finalists. Our decision was not based on price alone, nor was it influenced by any one individual. The decision was made by a collective assessment of all the advisers of which bank would be most able to provide the best and most comprehensive valuation of the asset for the State.
No other state has ever contemplated a purchase such as this one and the public process enshrined in statute posed additional hurdles for any legal arrangement that a private sector concern might be accustomed to. Ultimately, we negotiated an agreement with Barclays wherein they would analyze the asset for a set fee (in this case $2.5 million) with additional consideration should our purchase be successful.
Barclays provided us with a robust analysis and a range of returns for given prices. This material was then presented to the Investment Funds Committee (IFC) for their consideration and recommendation to the SLIB. Their recommendation was not unanimous but did offer additional perspective on an appropriate offer range and suggestions on component parts. The IFC’s analysis also pointed out potential dangers such as concentration risk and the possibility of purchasing someone else’s PR risks.
Q: What did Wyoming bid for this land?
A: The SLIB met and considered the full advice of the IFC, the thoughts of the special advisers assembled to assess the asset and the advice given by others, the analysis of Barclays, as well as a robust review by RVKuhns, Wyoming’s investment consultant, and, last, but certainly not least, public comment from the people of Wyoming. It decided to authorize a bid starting at $1.05 billion all-in and $225 million without trona. Later, within the parameters set by the SLIB, Treasurer Meier and the Governor raised Wyoming’s bid to $1.2 billion -- slightly below the SLIB’s highest authorized range allowing for the addition of closing costs, etc., necessary to complete the purchase.
Q: What did the State's review and the outside analysis indicate the return on investment for Wyoming would be?
A: The review suggested that the State could anticipate a rate of return in the range of 8% to 12%, depending on the assets and how quickly the economy would recover. This predicted rate of return is currently better than our current average rate of return.
This was a once in a generation opportunity. It is very different for a State to be involved in a sale of private assets of this magnitude and Oxy should be thanked for establishing an approach that allowed for Wyoming to participate.
While Wyoming was not the successful bidder, all was done in good faith.
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 received $1.25 billion from the Federal Government under the The Coronavirus Aid, Relief, and Economic Security (CARES) Act. Could any of those funds been 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: If the State had used investment funds for this purchase, would that have meant 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: Was the State considering doubling down on fossil fuels, in which we are currently heavily invested?
A: No. This investment opportunity looked at the economic value of the entire package. The potential of diversifying the State’s investment portfolio is one of the reasons elected officials considered 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 have occurred, 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: Did the Governor go around the legislature when he decided to use investment funds for the purchase of this asset? Shouldn’t the legislature be involved in a deal of this magnitude?
The Governor 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. Prior to this purchase occurring, the investment would have been part of that portfolio and subject to publicly available reports issued by the Treasurer’s office. If the SLIB decided to purchase this property, it would have provided 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 IF the bid was accepted, he would have held public meetings and provide an online process to receive comment from the public. In addition, the SLIB must approve any final deal and would have done so in the full light of a public meeting.
Q: Why did the State enter into a contract with Barclays Bank?
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. Barclays was 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 have been foolish to pursue this opportunity without the assistance of such an adviser. In addition, the information provided by Barclays was vital to the determination of whether this was a prudent investment to consider.
Similar to real estate agents, Barclays’ fee was partially based upon the eventual purchase price of the property. Since there is no purchase, the majority of the fees will not paid. The Governor has consistently stated that if the purchase price was too high for this to be a prudent investment, no purchase would occur. That is what happened. Barclays did not set the purchase price– that is a decision between Occidental and the successful bidder.
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: 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 was the State of Wyoming interested in this property?
A: The State was 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 saw 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 have needed 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 have shown that this was a prudent investment, bringing in appropriate returns.
Q: Why was 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 was 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: What interest would the affected counties have in this potential sale?
A: Should the purchase have occurred, Wyoming would have owned 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 have occurred, it was 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 had occurred, how would the state have managed 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 was 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 purchase have meant for outdoor recreation?
A: Adding 1 million acres of surface within the federal checkerboard holdings could have opened up broad stretches of our land for hunting and outdoor recreation.
Q: How could this purchase have impacted the state’s revenue picture? What is the potential of revenue from trona?
A: It appeared the major income possibilities were 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 purchase have meant 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 have been an owner of more of these lands, the state could have provided additional input on promotion and site selection for these projects.
Q: How would this have affected 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 have occurred, the State Government would have been on a more equal footing (area-wise) with the Federal Government and private owners would have had State Government as a partner when seeking permits from the Bureau of Land Management.
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 the State should always be an accessible good neighbor, dedicated to the principles of multiple use of public land.