DALLAS – After years of uncertainty about federal funding for a long-sought dredging operation, the Port of Corpus Christi Authority is planning a bond issue to get the Texas project underway.
The commission that governs the nation’s fourth-largest port by tonnage and the number-one crude oil export port in the United States voted in March to issue up to $400 million of bonds to dredge the Corpus Christi Ship Channel. The port has been seeking the promised federal funds for 28 years.
By issuing debt on its own, the port aims to meet a 2021 target date that coincides with completion of a higher Harbor Bridge by the Texas Department of Transportation that will allow larger tanker ships to enter the harbor.
“Over $5 billion in new pipelines from the Permian Basin to Corpus Christi alone are underway,” the port’s chief executive Sean Strawbridge told the U.S. House Subcommittee on the Interior, Energy, and Environment on March 6. “We anticipate these new pipelines to be completed by 2020-2021. When this new production take-away capacity is completed, the Port of Corpus Christi must also be ready to handle the anticipated increase in volume. We cannot become the constraint in the continuing growth of energy exports with a Channel Improvement Project that is stymied by lengthy delays and cost overruns.”
The subcommittee that Strawbridge testified before in March was chaired by Corpus Christi’s Rep. Blake Farenthold, a once-powerful House Republican who has since resigned in a sexual harassment scandal.
Without Farenthold in their corner, Port of Corpus Christi officials have relied on Texas Gov. Greg Abbott and other officials to make their case for federal funding.
“The benefit to our economic and national security is unrealized because of the bottleneck caused by ports unable to transport the very materials that promote national and energy security,” Abbott told the Corps in a letter. “In fact, ships leaving energy dominant ports must short fill their vessels at the refineries and facilities then move offshore to get to capacity because the bulk carriers are unable to pass through Texas channels without dragging.”
To accommodate the larger ships, the port plans to dredge the 36-mile channel to a depth of 54 feet, about nine feet deeper than it is now. The channel must also be widened.
The channel project would give POCCA a seven-foot draft advantage over the Port of Houston, which has a limited ability to deepen its channel beyond the current 45 feet due to the layout of the Continental Shelf. POCCA’s share of the project’s was expected to be $140 million with federal funding covering the remainder of the $350 million cost.
After a feasibility study in 1990, the U.S. Army Corps of Engineers’ Chief’s Report on the project was completed in 2003, 13 years after commencement of the feasibility study, Strawbridge said. The Office of Management & Budget approved the project in 2007. The Channel Improvement Project, as it is formally known, received congressional authorization in 2007 and again in 2014.
Initial estimates of the project’s cost were placed at $188 million, Strawbridge told the subcommittee.
“In the 10 years it took to finally execute the Project Partnership Agreement with the Corps in September of 2017 that cost estimate had ballooned to $327 million,” he said.
Funding the project through its own bonds is a “fallback” position in the event federal funding does not come through, port commissioners said.
Paul Jack, the port’s municipal advisor from Estrada Hinojosa & Co., said the initial bond issue is not expected to cover the full cost of the project but will fall closer to $200 million, still a record for the port.
“It’s a sizable transaction,” Jack said. “We’re hopeful to get something done this summer.”
Port commissioners selected Wells Fargo Securities, led by managing directors Kevin Carney and Laura Powell, as senior manager on the deal with six co-managers.
The port authority's bonds carry ratings of A1 from Moody's Investors Service with a stable outlook, and A-plus from S&P Global Ratings with a positive outlook.
The port authority's 2015 revenue bonds are the only debt outstanding, at about $111 million. Debt service is level at $8.5 million annually through maturity.
The port had sought $60 million from the Corps of Engineers in each of the next three fiscal years' budgets, with an additional $45 million in Corps Work Plan monies over the same period. The port expected to fund the rest, according to Strawbridge. However, President Trump’s Fiscal Year 2019 budget recommended only $13 million for the project.
“At that funding stream, this project could conceivably take over a decade to complete, and at the same inflationary formula that increased the project cost over the past decade, the cost of the project could balloon to $528 million or more, and continue to frustrate American energy exports,” Strawbridge told the subcommittee.
With an annual budget of about $7 billion, the Corps estimates its project backlog at about $96 billion. On top of that, the Corps expects to handle about $80 billion worth of projects stemming from hurricanes Harvey, Irma and Maria.
POCCA’s pursuit of additional funding comes during an unprecedented boom in the port’s business, fueled by the development of oil and gas in the Eagle Ford Shale of South Texas and the Permian Basin of West Texas.
“Although energy is certainly a factor in volumes through the Port, it is less about oil and gas drilling at present (although that will likely change over time with increasing crude exports and LNG facilities) than it is about production and refining,” economist Ray Perryman, founder of The Perryman Group, told The Bond Buyer. “The area's large and growing base of petrochemicals facilities generates exports and imports even when drilling activity is sluggish. In addition, a variety of non-energy goods make their way through the port. The volume of cargo through the port has been increasing, and there is reason to believe that will continue.”
Major manufacturers, including a Chinese steel pipe producer, have poured billions of dollars of investment into the port.
Pipelines from the Permian Basin to the port are increasing from the current one to four. In March 2017, Epic Pipeline began planning for a new 730-mile pipeline that will transport crude oil and condensate from the Permian Basin.
In April 2017, Exxon Mobil Corporation and project partner Saudi Basic Industries Corporation announced plans to build a $10 billion ethylene plant on the north side of Corpus Christi Bay, near the port's La Quinta terminal.
"All of these projects have the potential to drive further improvement in the port's finances and add diversity to the port's customer mix, and we continue to monitor these developments and their potential to positively impact the port's credit profile," wrote Moody's analyst Moses Kopmar.
