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Administration will introduce bill to convert Fund earnings

The slide in crude oil prices is continuing, and transforming Alaska’s state finances to revenue sources more predictable and sustainable than oil income has taken on more urgency. Year-to-date prices for North Slope crude oil were at an average of $49.98 per barrel as of Nov. 17. That’s since July 1, the start the current fiscal year, and it is $16 per barrel less than the price of $66.03 per barrel predicted by the state last March and used as the basis for budget planning. Year-over-year production numbers are better, with an increase of about 3.7 percent since the start of the fiscal year through Nov. 15. Daily production in November is averaging about 555,000 barrels per day compared to about 537,000 barrels per day in November 2014. How much the price shortfall will balloon the state budget deficit is uncertain, but a deficit well greater than $3 billion is certain. Is there a better way? State officials have been quietly working since last January on a plan to transform Alaska’s fiscal system and some concepts have been rolled out in recent weeks before legislative and business leaders.  State Attorney General Craig Richards surfaced the concept, still a work-in-progress, in a recent briefing to state legislators and, more recently, to the Alaska business policy group Commonwealth North. The plan, being labeled a “sovereign wealth” fund, would replace oil revenues with earnings from the $53 billion Alaska Permanent Fund. Richards warned, however, that the idea if implemented next year would still leave an estimated $1 billion gap that would require new revenues, most likely new taxes. A preliminary estimate for the idea allows for about $3.1 billion per year to be paid to the general fund from Alaska Permanent Fund earnings, and have about $1 billion paid additionally from other state taxes, for a total of $4.1 billion. This assumes a status-quo state budget of about $5.1 billion in unrestricted general fund spending, leaving the $1 billion remaining gap. However, legislators are likely to reduce the budget to less than $5.1 billion next year. Legislators were briefed on the idea in Juneau during the recently-concluded special session of the Legislature, which had been called to consider Gov. Bill Walker’s idea to buy TransCanada Corp.’s share of the Alaska LNG Project, which lawmakers approved. Members of the administration’s working group have not been identified except that it includes economists from the Department of Revenue and other state agency officials as well as Richards. The administration officials confirmed that there will be a bill introduced for the 2016 session outlining the plan. The concept basically involves bulking up the Permanent Fund by diverting some oil revenues to the Fund that now go to the state general fund. Income earned by the Fund would flow into its Earnings Reserve Account, as it now does. Currently there is about $9 billion in the earnings account. Withdrawals would be made annually from the earnings account by the Legislature to support the state budget, using some as-yet-undetermined formula. The state constitution prohibits spending money from the principal of the Permanent Fund but income that has accumulated in the Earnings Reserve can be appropriated by the Legislature. An important change in the plan is that it would indirectly reduce the amount of money available for the Permanent Fund dividend. If the plan were in place next year the 2016 dividend would be $1,000, about half the 2015 amount, Richards told the legislators. The effect of that would be, indirectly, to put more money into the Permanent Fund, creating more earnings that would support the state budget. John Tichotsky, chief economist in the state Department of Revenue, told members of Commonwealth North’s fiscal task force recently that a major goal of the plan is to take the volatility of oil revenues out of the state general fund, which is now 90 percent dependent on oil, and place it into the Permanent Fund, which can smooth out the volatility because of its sheer size. There would also be a more stable source of revenues for the state general fund. Other key goals include keeping the Permanent Fund on a sustainable basis in terms of its real, or inflation-proofed, value, Tichotsky told the Commonwealth North group. Legislators have voiced few opinions about the plan but some who did speak were cautious. Sen. John Coghill, R-Fairbanks, who is Senate Majority Leader, attended the Juneau briefing and complimented the governor for stepping forward with a plan, but had some mixed views. “I think it’s complicated. It doesn’t really bring in more money, but just rearranges the plumbing,” he said. Coghill’s point was that the same goals can be accomplished in simpler ways that would be more understandable by the public, and possibly more transparent. For example, just appropriating a portion of the Fund’s annual earnings and capping the dividend might achieve the same results. Others who have looked at the concept are intrigued, however. Cheryl Frasca, a former state budget director who chairs Commonwealth North’s fiscal policy task force, is open to the new ideas. “I think it’s an interesting approach for a couple of reasons,” she said. One is the proposal, in the plan, to fund the annual citizen dividend with a percentage of oil royalties rather than earnings from the Permanent Fund, as happens now. “It ties a ‘royalty dividend’ (now the Permanent Fund dividend) directly to oil and gas development instead of Wall Street investment returns,” the current system, she said. “That changes the dynamic of support and creates a constituency that supports future oil and gas development. After all, it’s claimed that it’s ‘our oil.’” A second interesting point, she said, is that it would require a limit on the amount of revenue taken annually from the earnings account, although the mechanism for that is still being developed. “This could be a good tool to control spending. I believe Anchorage’s municipal tax cap (a somewhat similar mechanism) is a very efficient tool that has limited Anchorage’s spending swings over the years,” Frasca said. “This means that if the Legislature wants more money it will have to go to other tax sources,” which will encounter resistance. “Other taxes become the wild card in terms of generating additional revenues to support increased spending. Lots of constituencies protecting sources for these revenues, so it creates a counter-balance against increasing spending,” Frasca said. In a recent talk before the Alaska Miners Association’s annual convention, Northrim BanCorp CEO Joe Beedle said he likes overall concept the Walker administration is advancing. “Whether it’s called an endowment, a sovereign wealth fund or Permanent Fund, I believe the concept is very good,” Beedle said. He also liked the direct connection between the dividend and state oil and gas income, he said. There are other views on that, however. Some see a severing of the connection between the Permanent Fund and the dividends having the effect of reducing citizens’ interest in the Fund and their role as watchdogs on any imprudent investments or a Legislature’s way to “raid” the fund indirectly by using it as loan collateral, which can be done. Linking the dividend to the Permanent Fund performance was central to the idea of the dividend advanced in 1980 by former Gov. Jay Hammond, who saw it as a way of developing safeguards for the Fund. There are also many features of Walker’s fiscal plan that are not yet developed, however, and details are important. Tichotsky, of the Department of Revenue, told Commonwealth’s fiscal task force that a crucial decision yet to be made is whether to use some form of Percent-of-Market-Value, or POMV, formula to annually draw funds for the budget or to develop a fixed yearly payment, perhaps inflation-adjusted. The Percent-of-Market-Value payout method is commonly used by large endowments like those held by universities and large charitable funds. It makes a payment based on the overall market value of the endowment. The payment is typically less than the projected average total earnings, such as a 4 percent payment from earnings averaging 8 percent, with the remaining 4 percent of earnings are retained to adjust for inflation. One problem with the POMV is that, assuming a steady growth of market value, it would tend to automatically increase the amount of revenue available to the Legislature, which would inevitably lead to greater spending. One advantage of the fixed-draw is that this would be a true cap on spending, although there would have to be periodic “reopeners” of the cap to make adjustments, such as for inflation or population growth. Eric Wohforth, co-chair with Frasca of the Commonwealth North task force, said he is concerned about a fixed-draw because any necessary adjustment mechanisms would be complex, difficult for the public and inevitably less transparent. “There’s total transparency to percent-of-market value. Everyone can see what the market value is, so it’s very simple,” Wohlforth said. Wohlforth is an Anchorage attorney and a former Permanent Fund trustee and state Revenue commissioner.

Ferry system braces for cuts; state funds down 15% since ‘14

“There is no money, so our approach should not be ‘How do we get more money?’” Marine Transportation Advisory Board chair Robert Venables said. “While there may not be money, there are solutions.” Venables’ remark, which opened the Nov. 16 Marine Transportation Advisory Board, or MTAB, meeting, was specific to the Alaska Marine Highway System but could have been directed to countless state functions. As references to the state budget deficit grow from $3 billion, to $3.5 billion to more, the state ferry system and the public board are working on ways to optimize ferry service and revenue. The Alaska Marine Highway System, which operates 11 ferries for 35 ports from Dutch Harbor to Bellingham, Wash., is projecting a $25.5 million budget cut in the 2017 fiscal year compared to 2014, according to Deputy Transportation Commissioner Mike Neussl. “That’s a huge hit,” he said. In fiscal year 2014, the Marine Highway System was appropriated $162.6 million by the Legislature. It will have a budget of about $137 million in the 2017 fiscal year, which begins next July 1, if the administration’s projection holds true. The current fiscal year 2016 system operating budget is $14.6 million less than the 2015 fiscal year, which ended June 30.  “Extra” amenities, such as gift shops and bars on the vessels that have them, have been closed to save money over the past couple years. This year, 45 positions were eliminated and significant service cuts are starting. The Marine Highway System measures its service level by the sum of the weeks its 11 ships are sailing. From 2011-2013, the state ferries provided more than 400 combined weeks of service; the last two years service declined to about 378 weeks as several vessels returned to work late after winter overhauls. Most notably was the M/V Tustumena in the spring of 2014. This fiscal year’s operating plan calls for 350 weeks of service as vessels are laid up to save money. The fast ferries Fairweather and Chenega are scheduled to enter layup May 1 after coming out of federally-funded winter capital improvement programs. The M/V Taku will be in layup for the entirety of fiscal 2016 because a pot of state capital money used for repairs to assure the ferries pass annual U.S. Coast Guard inspections shrank from $12 million to $10 million this year, which left the Taku tied to a dock, according to Neussl. “We’re starting with less (money) than we normally do with vessels that are older and need more work than years ago,” Neussl said. Nearly every vessel had “discovery work,” or additional repairs that were found when the inspections began, straining that budget item even more, he added. Further harm could come from the federal government, if ferry formula funding for capital projects is cut for Alaska, as proposed in the Senate version of the long-term transportation funding bill, according to Neussl. Taking vessels out of service to save money isn’t free, either. Laid-up ferries must be manned with minimal crews while dockside. The 352-foot Taku, a mid-sized Alaska ferry, will cost the system $3.6 million to sit idle this year, Neussl said. The proposed 2016 summer schedule reflects the anticipated 2017 fiscal year funding hit that will take effect July 1. Most notably, Sitka’s service is reduced from near daily fast ferry service last summer to twice-weekly visits from mainline vessels next summer. Also, Prince William Sound ports will not have service for six weeks beginning in mid-September under the draft schedule. Neussl said he was pleased to see the public focus on the tangible impacts of reduced service in public comments on the proposed 2016 summer schedule, which he called “bleak.” Solutions to managing Alaska’s ferry fleet on a shrinking budget need to be locally based with an emphasis on providing basic transportation for Alaskans, while working to at least narrow the system’s internal budget challenges, Venables said. The Alaska Marine Highway System never has been and never will be a profitable venture for the state. Making money was never its intent. Since the current 11-vessel fleet took shape in 2006, the system’s “fare box recovery rate” has been between 30 percent to 35 percent of its overall budget. Getting back to the 50 percent recovery range achieved in the early 2000s would be a success, system officials have said. That likely means reducing the fleet size and compressing traffic onto fewer sailings, according to Neussl. At the same time, providing some level of service to all 35 port communities is the Alaska Marine Highway System’s first goal, he said. From there, providing tourism and commercial opportunities, while maximizing revenue, becomes a challenging mix. While ferry ridership remained fairly steady, the number of sailings continued to increase when the state was flush with cash in the mid- to late-2000s. Southeast Conference Executive Director Shelly Wright also said at the Nov. 16 meeting that striking a balance between service and budgets starts at the local level. The Southeast Conference, a regional development organization, is organizing a series of community meetings with DOT to discuss the importance of the system directly with the public. Senate Transportation Committee chair Sen. Peter Micciche of Soldotna held an Alaska Marine Highway System listening session in Sitka Oct. 23 and said during the MTAB meeting that he hoped hold additional meetings to hear from other coastal Alaska communities. Legislators from areas not served by the ferry system have been blamed for dismissing the transportation service and quickly looking to it when state budgets need to be tightened. “I believe (legislators) are ready for a change; they’re ready to listen to something new; they’re ready to support the Marine Highways as long as they know that it’s not going to be just business as usual — ‘please give us more money and we’ll figure it out,’” Wright said. She added that legislators need to know about the social and cultural importance of the system beyond the bottom line “because we all know the bottom line is never going to be a black one.” AMHS General Manager Capt. John Falvey said the system commissioned a study to examine the economic impact the system has on the entire state, not just the regions it serves. The last such study was done in 1995. The final report should be done in time for the upcoming legislative session that begins in late January, he said. It’s widely understood that communities along the Marine Highway rely on the ferries to bring tourists and serve as a freight carrier to communities without barge service, but the actual benefits have been anecdotal. A new online reservation system, set to go live in May, should also help the system collect data on its riders and eventually develop a fare formula, both of which will help optimize revenue, Falvey said. Historically, fares have been set at the discretion of the DOT commissioner and that has led to a disjointed structure of more than 20,000 fare combinations. Falvey and Neussl admitted there is no rhyme or reason to the fare structure and the new reservation system should be a good starting point to overhaul fares and get to a system-wide fee-per-mile structure. Fares on a majority of routes were increased 4.5 percent earlier this year to bring them more in line with the most expensive ferry trips, but the fares are so disjointed that much more work is needed. New ferries A bright spot for the beleaguered Marine Highway System, construction of its Alaska class ferries, or day boats, at Vigor Alaska’s shipyard in Ketchikan is on schedule and going well, Neussl said. The pair of $60 million, 280-foot ferries is destined to serve Haines, Skagway and Juneau in Lynn Canal. The first of the twin vessels is scheduled for completion in October 2018, with the second coming shortly thereafter. Replacing the 51-year old Tustumena, the only ship that can adequately serve the Homer, Kodiak and Aleutian ports, is off to a good start, too. Falvey said the final design of the 330-foot vessel is coming in at about $6 million, less than the $10 million set aside for it in the state’s Vessel Replacement Fund. Overall replacement of the Tustumena has been pegged between $211 million and $237 million. The final design is expected in January from Glosten, a Seattle-based marine engineering firm. Elwood Brehmer can be reached at [email protected]

Huge Inlet, Bay sockeye forecasts in face of price slump

Next year promises to be a big year for sockeye harvests. Both Bristol Bay and Upper Cook Inlet are forecast to have sizable sockeye returns in the midst of global and domestic market hostile to U.S. higher sockeye prices detailed in a new economic report.  In Cook Inlet, the second-largest sockeye producing region in the United States’ largest seafood producing state, the Alaska Department of Fish and Game forecasts a run to the major rivers of 7.1 million salmon, with 4.1 million available for commercial harvest. This exceeds the most recent 20-year average by 1.1 million fish. The biggest gain for the area is on the Kenai River. ADFG forecasts a Kenai River run of 4.7 million fish, exactly 1 million more than the 20-year average. The Kasilof and Susitna rivers both have run forecasts 13 and 12 percent lower than the 20-year average, respectively, at 861,000 and 372,000. Fish Creek, the fourth major Upper Cook Inlet spawning river, is forecast to see 31 percent more sockeye than the 20-year average at 110,000. Sockeye escapement on the Kenai and Kasilof rivers has exceeded the maximum escapement goal several years running. Between 2011 and 2015, the Kenai River sonar counted an average 285,000 sockeye beyond the maximum goal. For the Kasilof River, the 2012-15 average sonar count was 104,000 over the maximum goal. Commercial fishermen in the region argue the management framework has needlessly slashed their fishing opportunities for the sake of sportfishing opportunities. Taking the average pounds per fish, along with the average annual ex-vessel price per pound of sockeye, United Cook Inlet Drift Association calculated $30.5 million dollars of ex-vessel value foregone, or approximately $60 million in first wholesale value. Bristol Bay, Alaska’s most valuable fishery and the world’s largest wild sockeye salmon run, is forecast for its third straight massive run and commercial harvest. ADFG biologists are forecasting 46.5 million sockeye in the 2016 Bristol Bay run, with an escapement of 15.3 million and commercial harvest of 31.2 million. The run size and the harvest prediction surpass both recent and long term averages. The run forecast is 15 percent greater than the previous 10-year average, and 41 percent greater than the long-term average of 32.9 million. The projected harvest is broken down between 29.52 million fish in Bristol Bay and 1.72 million fish in the South Peninsula fisheries. A Bristol Bay harvest of 29.52 million would be 8 percent greater than the previous 10-year average of 27.3 million, and 46 percent greater than the long-term average of 20.2 million. This would make 2016 the third-biggest sockeye crop in as many years. In 2015, the total Bristol Bay harvest was 36.7 million, which is second only to 2014 in the last 20 years. This year, ADFG had predicted a run of 48 million and a harvest of 37.6 million. Bristol Bay’s fishermen in particular had a difficult 2015 season, with a massive but oddly timed run preceding a 50-cent per pound ex-vessel price, half the average for the region. To examine the marketplace factors affecting this price, the Bristol Bay Regional Seafood Development Association contracted McDowell Group, a Juneau economics firm, to produce a research paper. The paper’s author Andy Wink said 2014 harvest particulars blended with 2015 market conditions and geopolitics to create an the exceptionally low ex-vessel price. Fishermen got paid less in 2015, the report claims, partly to correct an overpayment in 2014. Ex-vessel prices usually correspond to first wholesale prices; between 2006-2015, fishermen received an average 25 percent of the first wholesale price as their base ex-vessel pay. In 2014, the ex-vessel percentage of first wholesale was 30 percent. In 2015, it was 17 percent. “Bristol Bay processors paid significantly higher ex-vessel prices in 2014, relative to average first wholesale value per pound of product sold, due to lower than expected wholesale prices and sales volumes,” according to the report. “Overall gross processing margin declined 44 percent during the 2014 sales cycle and inventories increased. This resulted in a very weak ex-vessel price for 2015 sockeye, as processors acted conservatively to protect capital and minimize risk from declining wholesale prices.” Other sockeye producing areas did not suffer the same drop in fishermen’s pay. Bristol Bay’s ex-vessel price was not only low in comparison to its own historical average, but also low in comparison to other areas. Wink wrote that Bristol Bay’s uniquely rising volume output for 2014 and 2015 accounts for the locality of the price drop. “Bristol Bay sockeye harvests increased 75 percent in 2014 and another 16 percent in 2015, compared to a decline of 1 percent and an increase of 13 percent, respectively, for all other Alaska sockeye fisheries combined,” according to the report. “Given the difference in regional harvest volume, market destination, and product forms, a larger difference in ex-vessel price compared to other regions is understandable, though still unfortunate.” Sockeye, despite a large U.S. consumer base, is primarily an export product. The U.S. dollar’s strength relative to key foreign markets and exports is cited as yet another reason for the overall decline in sockeye value, with the value of relevant currencies declining between 18 and 49 percent in the last two years. Despite the loss of export value, however, exports for 2015 sockeye rose instead of dropping. “U.S. sockeye exports following the Bristol Bay season (July-September) are up 51 percent in 2015 over the same period last year,” according to the report. “Exports of frozen (head and gutted) sockeye increased 81 percent, while year-to-date export volumes of canned sockeye increased 16 percent.” DJ Summers can be reached at [email protected]

Statoil quits the Alaska Arctic OCS, following Shell’s exit

Norway-based Statoil has quit its Alaska Arctic program in the Chukchi Sea, becoming the second company to officially withdraw from the region.  ConocoPhillips, the remaining holdout among the Chukchi Sea explorers, has not indicated its intentions but said the company’s Arctic offshore plans had been on hold for some time. Earlier this fall Shell announced disappointing results on Chukchi Sea drilling and said it would end its program. Statoil is returning its leases, however, while Shell is retaining its Chukchi holdings, as is ConocoPhillips, although all leases expire in 2020. The U.S. Department of the Interior refused a request by the companies to suspend the clock on the leases. In a statement, Gov. Bill Walker said, “We are disappointed in Statoil’s decision not to pursue further offshore development in the Chukchi, and understand it is largely tied to Shell’s decision to terminate its offshore drilling efforts in Alaska as well. This further emphasizes the need to develop our onshore opportunties, such as the 1002 section of ANWR.” Environmental groups reacted positively. Oceana, which focuses on the offshore, said, “Decisions made by oil companies in the Arctic Ocean are finally starting to make sense. First Shell and now Statoil abandoning offshore leases sends a strong message to decision-makers meeting in Paris next month,” on climate change, said Susan Murray, Ocean’s Deputy Vice President for the Pacific. “Pursuing oil and gas development in the Arctic Ocean is too risky.” Statoil said its leases in the Chukchi Sea are no longer considered competitive. The company also closed its office in Anchorage on Nov. 16, laying off two employees who were still here. Statoil will also drop 16 leases that were 100 percent owned by the company and also a part ownership, with ConocoPhillips, in 50 other leases in the Chukchi Sea.  “Since 2008 we have worked to progress our options in Alaska. Solid work has been carried out, but given the current outlook we could not support continued efforts to mature these opportunities,” Tim Dodson, Statoil’s executive vice president for exploration, said in a statement. Statoil U.S. spokesman Peter Symons said the company is in discussions with ConocoPhillips on the disposition of Statoil’s shares of the 50 jointly-owned leases, in which Statoil holds varying percentages. ConocoPhillips spokeswoman Natalie Lowman, based in Anchorage, said it is possible that if Statoil surrenders its share of leases that portion of ownership would revert to ConocoPhillips, but that the matter is not clear. As for ConocoPhillips’ own position, she said, “Our plans for the Chukchi Sea were on hold prior to Statoil’s announcement and they remain on hold.” Statoil’s last Alaska employees had expected the office closure. “Statoil is a great company but there were just too many obstacles placed in the path of drilling, and low oil prices don’t help,” said Ella Eide, who until Nov. 16 was Statoil’s spokeswoman in Alaska. The company had been gradually winding down its Alaska presence, and its workforce in the state, for some time. Statoil acquired its Arctic offshore leases in the Interior Department’s 2008 OCS lease sale in the Chukchi Sea along with, Shell, ConocoPhillips and Repsol. Statoil and ConocoPhillips began environmental and early planning for drilling but decided to let Shell take the lead in clearing regulatory obstacles and legal challenges. After about $7 billion in expenditures including over $2 billion spent for the OCS leases in 2008, Shell was finally able to drill a well into potential oil formations in 2015, but the results were disappointing. Randall Luthi, president of the National Offshore Industry Association, a trade group, said, “Statoil’s decision to withdraw from the Alaskan Arctic is disappointing yet understandable given current tough economic and regulatory conditions. These are challenging times for the oil and gas industry with continued low commodity prices making for hard choices, and I know this was a difficult one for Statoil.  “The company has a substantial investment in the U.S. Arctic and had hoped to become a producer of both energy and economic growth there for Alaskans and for our nation. Hopefully, another company will step in to fill the void left by Statoil, but given the harsh economic climate and the difficulty obtaining lease extensions, the outlook is rather bleak.” Kara Moriarty, president of the Alaska Oil and Gas Association, said Statoil’s decision is a stark reminder of the importance of regulatory certainty in the oil and gas business. “While lawmakers and policymakers cannot control an oil basin’s geology, they can control permitting and regulatory policies to make the region competitive for exploration and development,” Moriarty said in a statement. “Unfortunately, Alaska is an expensive place to do business, and the federal regulatory environment is known for being difficult and unpredictable. Coupled with oil prices staying stubbornly low and expected to remain so for the foreseeable future, taking huge financial risks in Alaska is just not feasible for most oil companies, even large ones like Statoil and Shell.” The decisions by the two companies to depart will not have a large adverse economic impact on the state, although had Shell had better results and continued with drilling in 2016 it would have generated work for many Alaska-based support companies. There is no effect on state finances either, since it would have been a decade or more before any offshore oil flowed into the Trans-Alaska oil pipeline. Also, oil and gas from federal offshore waters pay no production taxes or royalties to Alaska, although state taxes on onshore property, like pipelines, would have been a benefit.  Offshore production would mainly have helped keep the TAPS pipeline viable by providing more oil. That would lower TAPS’ operating costs, which would have lowered costs for transporting oil produced on state lands. That would have resulted in new revenues to the state.  Tim Bradner can be reached at [email protected]

ConocoPhillips greenlights $900M Greater Moose’s Tooth-1

It was an announcement that lifted spirits at the annual Resource Development Council conference on Nov. 18. ConocoPhillips Alaska President Joe Marushack said his company will proceed with construction of its Greater Moose’s Tooth No. 1 oil project in the National Petroleum Reserve-Alaska. “GMT-1 has been approved for funding. It is expected to cost about $900 million and follows our recent completion of CD-5,” which is also in the NPR-A, Marushack said. The new project will be in production in late 2018 and will produce 30,000 barrels per day at peak, he told the RDC annual conference in Anchorage. The timing likely means that construction activity will begin in 2016, a boost for North Slope contractors and their workers. “We are pleased to have been able to work through key permitting issues with the Corps of Engineers and BLM (Bureau of Land Management) that now allows us to move into the development phase,” he said. GMT-1 is in the northeast NPR-A about seven miles west of the reserve’s eastern boundary with state-owned lands. The producing Alpine field and now the CD-5 project near Alpine are owned 78 percent by ConocoPhillips and 22 percent by Anadarko Petroleum Corp., as is the planned GMT-1. CD-5 began producing ahead of schedule in October, and will have peak production of about 16,000 barrels per day. ConocoPhillips’ Drillsite 2-S in the Kuparuk also began producing and will add about 8,000 barrels per day at peak. GMT-1 will be connected by road and pipelines with CD-5 and the Alpine field. The project has long been in the planning stages and was approved following an extended environmental and regulatory proceeding by the U.S. Bureau of Land Management. Although GMT-1 is within the federal NPR-A, parts of the mineral rights are owned by Arctic Slope Regional Corp., the Alaska Native corporation based in Barrow. ASRC received rights in the reserve as a part of the Alaska Native Claims Settlement Act approved by Congress in 1971. ConocoPhillips is also at work on a planned GMT-2 project a few miles farther west in the NPR-A from GMT-1. The petroleum reserve is a 23-million-acre federal enclave that dominates the western part of the North Slope. It was created in 1923 by President Warren Harding as a future oil reserve for the U.S. Navy, However, after years of exploratio, no commercial oil deposits were found until ConocoPhillips and Anadarko made the discoveries now being developed in the northwest part of the reserve. Marushack also told RDC that ConocoPhillips now has six rigs at work in the North Slope fields it operates, the most since the mid-1980s. The company’s capital budget for 2015 is about $1.4 billion, down slightly from $1.6 billion in 2014. “Our capital budget in Alaska remains strong and the reason is that the projects we do here are what ConocoPhillips does well,” which are large, conventional oil and gas projects, Marushack told the RDC. No capital spending figures for 2016 have been announced.  Journal reporter Elwood Brehmer contributed to this article.

Independents win big acreages in state North Slope lease sale

Some people in industry still have a lot of faith in the North Slope, even with crude oil prices skidding. Independent companies bid aggressively for acreage Dec. 18 in the state’s North Slope “area-wide” sale, acquiring acreage at rock-bottom prices. The bulk of the offers were rock-bottom bids but with the exception of two high bids by Denver-based Armstrong Oil and Gas on tracts near a discovery Armstrong plans to develop with Repsol. Armstrong beat out competing bids by ConocoPhillips, in fact. The Alaska Department of Natural Resources auctioned off 131 tracts on 186,400 acres with high bids totaling $9.51 million. Armstrong was the highest bidder in the sale, offering $1.92 million on two tracts near the Colville River, the area of the Repsol/Armstrong discovery. ConocoPhillips offered the only competing bids in the sale of $160,000 for those two tracts. Two other parts of the North Slope were put up for bid, the “foothills” area of the southern Slope and state offshore acreage in the Beaufort Sea, but drew no bids. About 2.2 million acres of 5.1 million acres in the state’s central North Slope area were up for bid, not including the southern foothills and Beaufort Sea state acreage where there were no bids. In a big surprise, Armstrong Oil and Gas offered $3,007 per acre on the high-bid tracts through its affiliate, 70&140 LLC. The discovery area by Repsol and Armstrong is to the north of the tracts just acquired but the high bids reinforce a belief that the two companies have found a significant new discovery. Repsol, the operator for itself and Armstrong, has filed applications for development permits with federal and state agencies for facilities capable of producing 120,000 barrels per day.  The bulk of the leases sold Nov. 18 were to two small independents bidding together, Accumulate Energy Inc. and Burgandy Xploration LLC in a potential shale oil belt south of the Prudhoe Bay field where 88 Energy, an affiliate of Accumulate, is now drilling an exploration well to test shale prospects. The two companies bid together with Accumulate at 77.5 percent and Burgandy Xploration at 22.5 percent on the leases. The offers were a few cents above the state’s minimum bid of $25 per acre on most of the leases acquired. 88 Energy and another independent, Great Bear Petroleum, are exploring shale oil prospects in a wide area south of the Prudhoe Bay and Kuparuk River fields that are now producing conventional oil. The oil accumulated in the existing North Slope fields originated in deeply-buried shales to the south, which has led Great Bear and 88 Energy to a theory that these could produce oil similar to that now produced in the Eagleford and Bakken plays of the Lower 48 states. Tim Bradner can be reached at [email protected]

Current LNG buyers’ market not dooming AK LNG Project

It is a good time to be an LNG buyer on the global market. Long-term contracts with Asian buyers — the prospective market for the Alaska LNG Project — are almost exclusively tied to the price of oil through an energy equivalent formula. While a flooded oil market has helped liquefied natural gas buyers dependant on its price, there is simply a lot of LNG right now, too. “Today’s global LNG market is dreadful,” Kenai Peninsula Borough Oil and Gas Special Assistant Larry Persily said in an interview. “It’s just like oil; it’s way oversupplied.” Persily served as the federal pipeline coordinator for Alaska natural gas projects before joining the borough. In just a few years, delivered LNG prices in Asian markets has gone from nearly $20 per million British thermal units, or mmbtu, to less than half that. Japanese and Korean LNG buyers were paying $14.95 per mmbtu in May 2013; by last June, those prices were down to $7.25, according to the Federal Energy Regulatory Commission. In China, it was a little cheaper, at $7.10 per mmbtu on average. The cause for the current bloated market is fairly simple: high demand for natural gas several years ago pushed producers worldwide to develop LNG projects. The 2011 Japan earthquake and subsequent Fukushima nuclear disaster drove the country to shut down its nuclear energy program, forcing utilities to buy LNG for electricity production, further straining the market and driving prices up. Domestically, shale gas production exploded at roughly the same time and turned some Gulf Coast LNG import terminals into export facilities. Most analysts expect it to remain an LNG buyers’ market for several years, along the same lines as oil, Persily said, but the value of those projections are always up for debate. Eiji Hashio, a Tokyo-based vice president of Resources Energy Inc., said Japan is now buying about 90 million tons of LNG per year and about a quarter of that is on the spot market rather than long-term contracts. Japan is viewed as a primary market in Asia for Alaska LNG. The country accounts for about 35 percent of the global LNG market, which stood at more than 240 million tons in 2014, according to the International Gas Union. Worldwide demand grew about 2 percent last year. Combined, Japan and South Korea demand almost exactly half the world LNG market. Resources Energy Inc. is an Alaskan-Japanese consortium looking to develop a smaller Cook Inlet LNG export project. In July, the Japan Economy, Trade and Industry Ministry set a goal to resume nuclear power generation and increase renewable energy use — to the point where nuclear power meets 20 percent of the country’s electric demand by 2030 and renewable energy supplies another 20 percent. Eiji said “industry is very suspect of those targets,” because the nuclear target would require restart of more than 30 of the country’s 43 reactors, many of which are aging facilities. Japan produced no nuclear power in 2014. Still, he said the spot LNG market in Japan would likely diminish by 2020 as some nuclear power is brought back online. Today about 35 percent of LNG is traded on the spot market, according to Damian Bilbao, BP’s business development director for the Alaska LNG Project, the $45 billion-plus North Slope LNG export proposal that partners the State of Alaska with BP, ConocoPhillips and ExxonMobil, the gas suppliers for the project. Also in about 2020, many legacy contracts Japanese utilities have with gas suppliers will be expiring and a push towards decoupling LNG prices from oil will be emphasized, as will efforts to mirror the Henry Hub gas market of North America, Persily and Eiji said. Doing so would hopefully relieve LNG buyers from the volatility of the markets, according to Eiji. “The days of, ‘I’ll pay you whatever oil is with an energy equivalent factor; just send me the bill;’ those days are over,” Persily said. Linking to Henry Hub — at least these days — would also mean very low LNG prices. Henry Hub natural gas was up 13 cents from the day prior Nov. 16, at $2.14 per mmbtu. The prime advantage for Alaska LNG over Gulf of Mexico produced LNG is shipping. Tankers heading out of the Gulf must first go south through the Panama Canal and then traverse the entirety of the Pacific, adding days and “a couple bucks” per mmbtu to the final price of Henry Hub-linked Gulf LNG, Persily said. Eiji also noted that not all contracts will be structured the same, even amongst a single portfolio. Buyers want a blend of LNG sources, which leads to a blend of pricing. “What we would like to do is just cost-plus reasonable margin for the producers and developers,” he said simply. More LNG supply is also being developed in Australia. Persily said three export projects began production within the last year and another three are in construction. In total, the new LNG projects down under should add about 10 billion cubic feet, or bcf, of natural gas to the market per day, he said. Pegged at 20 million tons of LNG per annum, the Alaska LNG Project would add about 3 bcf per day to the world market over its 25-year initial design life. At 90 million tons per year, Japan’s LNG demand roughly equates to 13.5 bcf of natural gas per day. Worldwide capacity is expected to increase by about 50 percent over the next three years, Bilbao said. Where does all that leave the Alaska LNG Project, hoping to move first gas around 2025? Persily called today’s LNG market a “war of attrition” for export projects, which has likely helped Alaska with less feasible projects in British Columbia, Africa and other places falling out of sight. The work going on in Australia is not in competition with Alaska because those projects are further along and already have sale and purchase agreements in place, Persily noted. “After the dust settles later this decade, when hopefully the market begins to recover, the stronger projects will still be in the running. That’s the hope,” he said. A report from the Department of Natural Resources consultant firm Black and Veatch estimated the AK LNG midstream costs alone at $7.30 per mmbtu. Today’s global LNG prices simply aren’t workable for the Alaska LNG Project, but they don’t have to be, Black and Veatch consulting director Deepa Poduval said. On its current schedule, the Alaska LNG Project won’t be in production for another 10 years and hopes are to keep the pipeline full of gas for another 25 years at minimum after that. “You’re looking at a 50-year time horizon and you can’t make that decision based on a five-year forecast in prices,” Poduval said. Realistically, there isn’t a specific price that makes the project feasible from the state’s perspective, according to Poduval. The state’s benefit will not only come from the sale of its gas, but also from corporate income taxes and property tax revenue, among other sources. The Revenue Department announced in September that the producers had agreed to pay $15.7 billion to the state and local governments in PILT, or payments in-lieu of taxes, relating to the Alaska LNG Project. Those payments would be made over the operating life of the project. As a result, the state’s requirement for gas revenue is almost certainly well below what the producers will need, Poduval said. And among the three, varying financial positions will undoubtedly leave them with different perspectives as to what is a favorable project and LNG market. Among the biggest variables is the capital cost of the project. Current cost projections between $45 billion and $65 billion leave a capital swing of more than 40 percent. Next comes project financing. “What you probably need is (an LNG) price basis that works for the least common denominator. In effect it represents a level where everyone is basically happy — some are fairly happy, others are quite happy, but at that point where everyone believes uniformly that the project can be economical,” Poduval said. Even with a push in Japan and other markets to separate natural gas prices from oil, the fortunes of the Alaska LNG Project will still lie somewhat in the value of crude. Higher oil prices will improve the health of the producers’ financials, if nothing else. “I would think somewhere in the $70 (per barrel of oil) threshold would be important for our project,” Poduval said. “It probably needs to be higher than that to be confident for everyone and it will depend on the different pieces coming together.” The producers will not be too worried with the LNG market and how it impacts the Alaska LNG Project for several years, according to statements from ExxonMobil and ConocoPhillips. Purchase and sales agreements will be negotiated during the front-end engineering and design, or FEED, process, which should begin late next year and continue for several years, based on the current project timeline. ExxonMobil spokeswoman Kim Jordan wrote in a statement that the company expects LNG imports to Asia Pacific countries to grow by 60 percent by 2025, which could well position the Alaska LNG Project. BP’s Bilbao said China, which hasn’t historically been an LNG player, will continue to grow its demand. He also said that the current market gives the Alaska project partners an opportunity to drive down capital costs and continue to improve the project’s financials. The fact that three of the world’s largest, reliable oil and gas producers are partnering with the State of Alaska is a major benefit to the project and can’t be ignored by potential customers looking for national energy security through LNG contracts, according to Bilbao. When looking for buyers, LNG marketers want to “brand” their projects, he said, and Alaska LNG has credibility through its participants. “You want buyers in the market looking to transact with your project,” Bilbao said. Elwood Brehmer can be reached at [email protected]

Movers & Shakers 11/22/15

Alyeska Pipeline Service Co. President Adm. Tom Barrett, U.S. Coast guard (ret.), joined First National Bank Alaska’s board of directors. He previously served as deputy secretary of the U.S. Department of Transportation and the first administrator of the U.S. Pipeline Hazardous Material Safety Administration, directing the agency’s national safety programs for hazardous materials and liquid, natural gas, petroleum, and other hazardous liquid pipelines. Prior to that, Barrett served 35 years in the U.S. Coast Guard where he commanded Coast Guard operations in Alaska and the North Pacific from 1999 to 2002. Other Alaska tours included Kodiak and Juneau. Barrett earned a bachelor’s degree in biology from LeMoyne College, Syracuse, N.Y., and a juris doctor with honors from George Washington University. He is a Vietnam veteran. Joining Barrett on the board are FNBA President Betsy Lawer, Fran Ulmer, Dr. Maurice Coyle, Perry Eaton, Margy Johnson, Jane Klopfer, Loren H. Lounsbury and Lucy Mahan. Credit Union 1 announced several personnel moves. Erica Kemp was promoted to employee education manager. Kemp was initially hired in January 2003 as a full time teller I at the credit union’s Soldotna Branch. Since that time she has held the positions of teller, senior teller, member services assistant, member service officer, assistant branch manager, branch manager and lastly service and culture manager, the position she has held prior to her promotion. Shane Gustin was promoted to branch service manager in its Branch Operations Department. Gustin has been with the credit union for over 20 years. During this time, he has worked as a teller, interim collector, member services representative, assistant branch manager, member service center assistant manager, member service center manager, branch manager and regional branch manager. Victoria Worley was promoted to senior member assistance manager in its Member Assistance Department. Originally hired in 2004, Worley began as a teller and has subsequently held the positions of consumer loan clerk, consumer loan processor, assistant branch manager, branch manager, and most recently account recovery manager. Benjamin Heckert was promoted to branch manager at its Eagle River Branch. Heckert was initially hired in 2014 as the credit union’s member assistance manager, the position he has held prior to this promotion. Amy Jo Meiners, who teaches extended learning at Auke Bay Elementary and Riverbend Elementary in the Juneau School District, has been named Alaska Teacher of the Year for 2016. Frances Roberts, who teaches mathematics at Homer High School in the Kenai Peninsula Borough School District, has been named Alternate Teacher of the Year. The Alaska award is given by the Alaska Department of Education & Early Development as part of a nationwide program sponsored by the Council of Chief State School Officers. Meiners has taught for 26 years, nine in her current position. She holds a bachelor’s degree from Whitworth University. Roberts, the Teacher of the Year alternate, has taught for 22 years, all in her present position. She holds a bachelor’s degree from the University of Alaska Anchorage and a master’s degree from Montana State University. Roberts became an educator after a career as a meteorologist and co-owner of a sheep and cattle ranch. Morgan Vann has been selected to manage KeyBank’s Kenai branch. Vann has more than three years of financial service and sales management experience. She has been a personal banker at the Kenai branch since joining KeyBank in 2014. Vann, a long-time Kenai Peninsula resident, lives in Kenai with her husband and daughter. Craig Tornga has assumed the role of Crowley Maritime Corp. vice president of stakeholder relations for Alaska, and will coordinate with all of Crowley’s Alaska business units to leverage relevant company relationships. Tornga will relocate from Houston to Anchorage, and continue to report to Rocky Smith, senior vice president and general manager, petroleum distribution and marine services. Tornga began his career with Crowley in July 1977 as an ordinary seaman in Seattle. Over the years he held supervisory and managerial roles for the company in marine dispatch and customer service. In 1994, he was promoted to director of contract services, and in 1996 he was appointed general manager, oil industry services, and he relocated to Anchorage with his family. He later went on to manage the company’s petroleum distribution, Valdez marine services, and North Slope energy support operations. In 2011, Tornga was tapped to lead Crowley’s new marine solutions group in Houston, and earlier this year, he was appointed vice president of business development in Alaska. Tornga is a past recipient of the Thomas Crowley Award, the company’s highest honor. The Alaska Chamber selected lifelong Alaskan Curtis Thayer as president and CEO. He replaces Rachael Petro, who moved out of state after guiding the Chamber for almost five years. Thayer’s first day with the Chamber was Nov. 16. As President and CEO, Thayer will oversee the Chamber’s operations as well as work with staff to ensure Chamber programs and services run with a high degree of excellence that its membership has come to expect. Thayer brings more than 20 years of experience in the private and public sectors, and has unique qualifications, connections and perspectives that will be of great value to the diverse membership. Thayer served as commissioner of the Alaska Department of Administration and as the deputy commissioner of Commerce, Community and Economic Development. Prior to joining state government, he was special assistant to Congressman Don Young. He also brings private-sector experience, having served on the management team of Alaska’s largest utility, ENSTAR Natural Gas, as well as with the Alaska Gas Pipeline Team. He owned his own small business and is licensed in real estate. A graduate of the University of Alaska Fairbanks, Thayer has served on many boards, both public and non-profit, and was selected as a “Top Forty under 40” community leader.

Resource heavyweights gather at momentous time for Alaska

It’s November, and time for the big Resource Development Council annual conference. This year, more than any other, huge issues loom for Alaskans including the proposed $50-billion plus North Slope gas pipeline and liquefied gas project and the state’s fiscal troubles, with $3 billion-plus annual deficits. All will be discussed at the conference. RDC is a pro-development advocacy group representing all of Alaska’s industries that touch on use of the state’s rich natural resources. That includes tourism, which relies on an unspoiled wilderness landscape as its prime attraction. Tourism companies work side-by-side with oil and gas, minerals, fisheries and forest products companies in RDC, which demonstrates how these industries are not only compatible but reinforce each other. Organized labor is active in RDC too, because the state’s human resources, its labor force, are critically important. Municipalities are members and participants, too, because what happens in the state’s basic industries, which are mainly resource-driven, affects them. The annual meeting held in November is where all of this comes together, where all the state’s business and political movers and shakers rub shoulders, trade information and frequently move off into side-meetings. If there’s any one place where one can see who drives the state’s economy, this is it. This year’s conference, scheduled for Nov. 18-19 at the Dena’ina Civic and Convention Center in Anchorage, is expected to attract about 1,200, as it has in recent years. Briefings on all the state’s major industries are on the agenda as well as economic trends and updates on key federal and state regulatory issues. Joe Marushack, president of ConocoPhillips Alaska, will discuss his company’s positioning for the future in Alaska; Steve Butt of ExxonMobil, senior project manager of the Alaska LNG Project, will update the conference on the proposed North Slope gas pipeline and LNG export project; Dan Fauske, president of the Alaska Gasline Development Corp., will discuss the state’s role in Alaska LNG, and Kenai Peninsula Borough Mayor Mike Navarre will discuss how his municipality is preparing to deal with a huge construction project, although it is still some years off. There will also be briefings on activities of smaller oil and gas companies, such as BlueCrest Energy with its Cosmopolitan oil project in Cook Inlet; Caelus Energy with a new North Slope oil project, and Hilcorp Energy on that company’s work in redeveloping Cook Inlet oil fields and several mature North Slope fields acquired from BP. Mining companies will also talk about their operations and plans, including Eric Hill, general manager at the Fort Knox gold mine near Fairbanks, and Jan Trigg, community relations manager at the Kensington gold mine near Juneau. RDC’s members include several hundred businesses and groups and a large number of individual members, according to Marleanna Hall, the newly-appointed executive director. As an organization, RDC is unique in a number of ways. There are few, if any, similar organizations in other states that represent diverse interests and with a focus on responsible development of natural resources. Beyond its big annual conference, RDC is known, at least in Anchorage, for its biweekly breakfast meetings that typically feature presentations by business and agency leaders. All of these are posted on RDC’s website, Hall said. The group also offers a unique service to its members by representing them before federal and state agencies on often-complex regulatory and environmental issues. Many of these — endangered species is one example — may or may not have immediate effects on company operations but the potential of disruption is there. Through its engagement with the regulatory agencies RDC makes its members’ views known and also keeps its members informed on regulatory actions. The organization has also takes a leadership role at times in advocating legislative solutions to problems, one example being how state agencies allocated costs to private firms when development permits were applied for. In this case the solution worked out by RDC and its members, a framework on how agency staff costs are allocated, was enacted into law. A recent RDC initiative is with the state Department of Natural Resources’ decision on granting in-stream flow reservations to non-governmental groups. Hall testified in hearings on the issue, which has raised many concerns, and RDC has also submitted detailed comments to the state DNR. In another effort, RDC helped get its members out to support Hilcorp Energy’s planned Liberty offshore project in the Beaufort Sea. The U.S. Bureau of Offshore Energy Management is taking public comments on the application by Hilcorp to do the project. “This is very important because now that Shell has left the Arctic, at least for now, there are opposition groups that are shifting away from Shell to target this proposal,” Hall said. Another past effort was in combating the U.S. Environmental Protection Agency’s new “Waters of the United States” rule, which threatens to sharply expand that federal agency’s role in regulating Alaska development projects. In response to a lawsuit from 13 states including Alaska, a federal judge recently issued an injunction prohibiting the EPA from administering the rule.   The 36th Annual Alaska Resources Conference  November 18-19, 2015 • Dena’ina Civic & Convention Center, Anchorage, Alaska Resource Development Council - Growing Alaska Through Responsible Resource Development. For more information, visit akrdc.org. Wednesday, Nov. 18 7 a.m. Registration/Check-in/ Exhibits Open Eye-Opener Breakfast in Exhibit Area – Sponsored by Wells Fargo 8 a.m. Opening Remarks Ralph Samuels, RDC President, Vice President, Government and Community Relations, Holland America Line Governor Bill Walker (invited) Alaska Economic Trends: 2016 Outlook Neal Fried, Economist, Alaska Department of Labor Alaska Industry 2015 Year in Review and 2016 Outlook Oil & Gas: Kara Moriarty, President and CEO, Alaska Oil and Gas Association Fisheries: Glenn Reed, President, Pacific Seafood Processors Association Forestry: John Sturgeon, President, Koncor Forest Products Mining: Karen Matthias, Managing Consultant, Council of Alaska Producers Tourism: Scott Habberstad, Director of Sales and Community Marketing, Alaska Airlines 10 a.m. Gourmet Break – Sponsored by ConocoPhillips Alaska, Inc. 10:30 a.m. ConocoPhillips Alaska: Positioning for the Future Joe Marushack, President, ConocoPhillips Alaska, Inc. Global LNG Market Update and Framing the Opportunity for Alaska Felipe Arbelaez, Chief Commercial Office, BP Supply & Trading 11:30 a.m. Networking Break Noon Keynote Luncheon: Sponsored by Northrim Bank It’s Still North to the Future: Moving Ahead in the Arctic Wayne Westlake, President and CEO, NANA Regional Corporation Rex Rock Sr., Chairman and President, Arctic Slope Regional Corporation 1:30 p.m. Alaska Can’t Quit Now: Why the Arctic Still Matters Randall Luthi, President, National Ocean Industries Association Marine Freight Transportation: Safety and Environmental Stewardship Charlie Costanzo, Vice President, Pacific Region, American Waterways Operators What Alaskans Need to Know About Federal Overreach Bill Kovacs, Senior Policy Advisor, U.S. Chamber of Commerce 3 p.m. Gourmet Break – Sponsored by Colville, Inc. 3:30 p.m. Pebble vs. EPA: Finally Some Real Progress Tom Collier, CEO, Pebble Partnership Point Thomson: Dawn of a New Era Gina Dickerson, Point Thomson Project Manager, ExxonMobil 4:30 p.m. VIP Networking Reception – Hosted by ExxonMobil open to conference registrants and speakers Thursday, Nov. 19 7 a.m. Exhibits Open Eye-Opener Breakfast in Exhibit Area – Sponsorship Available 8 a.m. Real Solutions to Alaska’s Budget Crunch Cheryl Frasca, Former Director State of Alaska Office of Management and Budget, 2002-2006 Mike Navarre, Mayor, Kenai Peninsula Borough Give the State Some Credit: How Oil Tax Credits Are Changing Alaska’s Investment Game Benjamin Johnson, President, BlueCrest Energy, Inc. Casey Sullivan, Director, State Public Affairs, Caelus Energy Alaska, LLC Hilcorp: Boosting Efficiency and Production in Alaska Greg Lalicker, President, Hilcorp 10 a.m. Gourmet Break – Sponsored by Stoel Rives LLP 10:30 a.m. Communities and Mining: Why it Works Eric Hill, General Manager, Kinross – Fort Knox Mine Jan Trigg, Manager, Community Relations and Government Affairs, Coeur Alaska – Kensington Gold Mine Wayne Hall, Manager, Community and Public Relations, Teck Alaska Incorporated Lance Miller, Vice President, Resources, NANA Regional Corporation 11:30 a.m. Networking Break Noon Keynote Luncheon: Sponsored by Holland America Line Navigating Alaska’s Inside Passage and Policy Linda Springmann, Vice President, Deployment and Tour Marketing, Holland America Line 1:30 p.m. Progress Report on the AKLNG Project Steve Butt, Senior Project Manager, Alaska LNG Project Dan Fauske, President, Alaska Gasline Development Corporation Mike Navarre, Mayor, Kenai Peninsula Borough 3 p.m. Grand Raffle Drawing Send-off Champagne Toast – Sponsored by CLIA Alaska

Pebble conflict moves to Capitol Hill following latest report

The fight over the proposed Pebble mine at times makes politics look tame. That impassioned battle resumed on Capitol Hill Nov. 5 when the House Committee on Science, Space and Technology heard from those on the front lines of both sides. The committee also received testimony from former Maine senator and Defense Secretary William Cohen, whose recently published report about the Environmental Protection Agency’s involvement in the matter has once again made Pebble a topic of national debate. Published Oct. 6, “The Cohen Report,” as it is known, questions the objectivity and scientific process of the EPA’s Bristol Bay Watershed Assessment. The assessment is the baseline document used by the EPA to justify its attempt to block Pebble development through its Clean Water Act Section 404(c) authority, which gives the agency the power to prohibit projects that would have an “unacceptable adverse effect” on fish, wildlife or wetlands habitat. The title of the hearing, Examining EPA’s Predetermined Efforts to Block the Pebble Mine, leaves little wonder about the sentiment of committee chair Rep. Lamar Smith, a Texas Republican. “Secretary Cohen’s report lays out evidence that shows collusion and a cozy relationship between the EPA and groups actively opposed to the Pebble mine,” Smith said in a statement to open the hearing. In its ongoing lawsuit against the EPA in U.S. District Court of Alaska, Pebble contends the agency violated the Federal Advisory Committee Act by working with anti-mine groups to develop the Bristol Bay Watershed Assessment and shunning Pebble from the process. Additionally, the mine developers claim the agency had already determined it would use its 404(c) authority to prohibit a large mine on Pebble’s copper and gold claims before the multi-year assessment process officially began in 2011. The judge in that case, Judge H. Russel Holland, granted Pebble an injunction about a year ago, halting the 404(c) process until the suit is resolved. The EPA argues it met with Pebble representatives 30 times while drafting the assessment and that Pebble had additional opportunities to have its voice heard. The Federal Advisory Committee Act, or FACA, requires government agencies remain impartial and hold open meetings — published in the Federal Register — with both sides of contentious issues represented. Pebble Limited Partnership board of directors chair John Shively, a former Alaska Department of Natural Resources commissioner, said Nov. 5 at the Alaska Miners Association annual meeting in Anchorage that EPA Region 10 Administrator Dennis McLerran lied to him in a letter sent when the assessment began by claiming it was not aimed at stopping Pebble. Shively also asserted that the EPA lied to the public about how the movement to stop Pebble began. “I spent a fair amount of time in rural Alaska and I never believed that Tribal governments out in Southwest Alaska had any idea what Section 404(c) of the Clean Water Act was,” Shively said. Pebble insists it has evidence obtained through Freedom of Information Act Requests that prove the EPA helped draft the petition submitted by six Bristol Bay-area Tribes that urged the agency to invoke its 404(c) power and spurred it to begin the assessment. “Unfortunately, it appears that the Pebble mine project is another victim of this EPA’s extreme agenda,” Smith stated. “In fact, one of the former EPA employees who this committee found to have colluded with environmental groups to stop the Pebble mine project fled the country when Congress attempted to interview him.” The employee Smith referenced is former Kenai-based EPA biologist Phillip North, who was scheduled to be deposed in Anchorage Nov. 12 by Pebble and EPA attorneys. Pebble has said it believes North is in Australia, but his exact whereabouts are unknown. In an interview with the Redoubt Reporter published July 17, 2013, North said he planned on sailing around the world with his family after his retirement from the agency. The 364-page Cohen report supports Pebble’s claims. At the same time, groups opposed to the mine have hammered Cohen’s assertion that it is an independent document because Pebble Limited Partnership commissioned it. Former Republican Alaska Senate President Rick Halford testified to the House committee that before learning of Pebble he had never opposed a mine project. However, the size and location of the proposal by Pebble Limited Partnership forced him to take a stand against its development. “The size of the Pebble deposit is beyond imagination,” Halford said. “The pit would be well over a mile deep in places, and the footprint would cause the direct loss of between 24 and 94 miles of stream; 1,200 to 4,900 acres of wetlands; and 100 to 450 acres of ponds and lakes. The waste would be stored on site in perpetuity.” While not directly responding to Halford, Shively said Nov. 5 back in Anchorage that the impact of the mine has been vastly overblown. “The idea that you could build something (on) several thousand acres, with the kind of grade that we have — over 99 percent of what we take out of the ground is basically just dirt — how we could devastate a fishery is beyond me, but that’s what people have been told,” Shively said. He described the mines the EPA drafted as “fantasy mine plans.” Shively added that the EPA’s requirements for an acceptable mine in Bristol Bay are for a project that is uneconomically small. “(The EPA) designs mines that fail; we’re going to design a mine that succeeds,” he said. Halford also cited more than a dozen claims by Pebble that it would begin the federal permitting process, the first of which came in 2004. He called those claims “empty promises” to start the public review process which would bring resolution to the issue for area residents. Cohen’s report omits the fact that Pebble itself has been the only thing stopping the project from entering the National Environmental Policy Act review process, Halford said. Sen. Lisa Murkowski, who has been a harsh critic of the EPA under President Obama, also criticized Pebble back in 2013 for not releasing a formal mine plan that could be reviewed. Shively insisted Pebble Limited Partnership will enter the review process on its own timeframe, not the opposition’s timeframe. Halford added that the EPA’s involvement in evaluating what would be the largest open-pit mine in the country that would lead to obvious environmental impacts should not be a surprise. “As a resident of Bristol Bay, I can tell you that nothing seems predetermined to me in EPA’s actions,” Halford testified. “EPA collected information and data, met with and listened to both sides, and engaged in extensive outreach to all the stakeholders. I do not believe that EPA’s engagement itself was out of the ordinary as it is common for developers and the public to seek EPA’s perspective in advance of formal project initiation.” Elwood Brehmer can be reached at [email protected]

Final Interior gas decision by AIDEA approaches

FAIRBANKS — Interior Energy Project pitches were made to the Fairbanks public Nov. 4; now it’s up to the Alaska Industrial Development and Export Authority to pick the right project partner. IEP manager Bob Shefchik said he feels both goals of the meeting were accomplished: sharing the proposals from the project finalists with the community they hope to serve with natural gas, and verifying with the community that the process to select a viable private partner is moving forward. While the Interior Energy Project revolves around its namesake region, AIDEA’s public board meetings are held at the authority’s headquarters in Anchorage. Open seats at were hard to come by at Fairbanks’ Pioneer Park Civic Center when the three-hour open house started. Presentations were heard from four of the five IEP finalist teams. “We figure there were 150 people that showed up on a Wednesday night to listen to five PowerPoints, so that’s a good turnout,” Shefchik said in an interview. Hilcorp Energy’s LNG subsidiary Harvest Alaska was a last-minute scratch from the agenda. A Hilcorp spokeswoman declined to comment as to why the independent producer and IEP finalist was not represented at the Fairbanks meeting. Harvest Alaska’s proposal includes options to simply liquefy natural gas at a Southcentral plant for a tolling fee of $4.95 per thousand cubic feet, or mcf, of natural gas; provide a Cook Inlet gas supply and liquefaction for $12.25 per mcf; or deliver LNG to the Fairbanks “city gate” at $15 per mcf equivalent. Harvest wrote in its Sept. 3 proposal summary that the project could deliver either 3 billion cubic feet, or bcf, of gas per year or 6 bcf, and is planned with private financing, but using AIDEA’s IEP-dedicated grant-loan-bond package could lower those costs. The gas supply and all-in proposals include a 10-year contract with utilities. AIDEA’s IEP team plans to recommend a project partner to the authority board at its Dec. 3 meeting. Shefchik reminded those attending the Nov. 4 meeting that the goal is not only to lower energy costs in the Interior, but also to improve winter air quality, which is dangerously poor at times due to large numbers of Fairbanks and North Pole residents who heat their homes with wood, a cheaper option to fuel oil. The IEP will also provide a ready market if the Alaska LNG Project, or another large North Slope gasline project comes to fruition. Before either happens, he noted, AIDEA’s purchase of Fairbanks Natural Gas will lower natural gas prices by about 13 percent for the small group of area residents and businesses that are the utility’s customers by removing tax and profit obligations associated with the formerly private business. From there, the IEP will bring natural gas to more residents cheaper yet, if it ultimately meets the $15 per mcf “burner tip” price. “The goal with every step is to drop the price of gas incrementally until we can” get energy prices competitive with Anchorage, Shefchik, an Interior resident, said. The last step to get the Interior on par with Anchorage would be a large gasline. Phoenix Phoenix Clean Fuels LLC Chief Operating Officer Chris DeBerry was first to pitch his company’s plan. Phoenix Clean Fuels is a consortium of five companies: General Electric Oil and Gas, a LNG plant manufacturer; Alaska Industrial, a North Pole-based trucking company; TDX Power, which operates a North Slope electric utility; and Scimation and SLR, project management and engineering firms. “We’ve tried to pull together a team that can execute this project, not just the liquefaction, but from start to finish — get (LNG) to the city gate just to make AIDEA’s job easier and provide a clearer picture to customers of how the project works,” DeBerry said. All told, Phoenix is projecting a delivered LNG price of $9.65 per mcf equivalent from the North Slope, at least 25 percent cheaper than AIDEA’s first attempt at a North Slope gas trucking operation could achieve with MWH Global Inc. as it private partner. That price would allow for $4 to $5 to be added to the gas price for storage, regasification and distribution and still meet the $15 per mcf customer price goal. Phoenix plans to control transport costs through buying the LNG trailers outright, DeBerry said. GE’s liquefaction plant design is being used at 30 other places worldwide, he noted. “Everybody knows GE; it’s a household name,” DeBerry said. “GE has a modular plug-and-play solution that lends itself to a quick and easy installation in the harsh environment of the North Slope.” LNG plant capital costs were a major impediment to the first Interior Energy Project attempt, which began to fizzle out about a year ago. The GE plant would be assembled, broken down and shipped on 35 skids from a production facility in Texas. That mobility would allow Phoenix to use the plant other places on the Slope or around the world. There is little risk of it being a stranded asset if the state’s gasline wishes come true, according to DeBerry. Phoenix, and the other North Slope proponent Spectrum LNG, modeled prices with a gas feedstock price of $2.10 per mcf. That is the current price of natural gas — tied to oil prices — in an unused contract Golden Valley Electric Association has with BP for North Slope gas, according to Spectrum LNG CEO Ray Latchem. Indentifying the cheapest source of gas was Phoenix’s first task in developing its proposal, DeBerry said, and the roughly $4 per mcf premium for a Cook Inlet supply over the North Slope made the decision simple. The Phoenix operation could be up and running by September 2017 on the current IEP timeline, according to DeBerry. Salix Salix Inc., a subsidiary of Pacific Northwest utility company Avista Corp., is proposing a Cook Inlet liquefaction plant with a “cost of service” tolling fee, versus a firm price contract, Salix President Bob Lafferty said. “Our part is just the liquefaction part,” he said. A cost of service fee includes a utilities energy supply or generation cost, operation and maintenance expenses and a rate of return. Lafferty said the cost of service route provides transparency for customers. Salix projected an initial liquefaction cost of $2.87 per mcf in its proposal summary. The company also said it expects to enter into 20-year tolling service agreements with Interior utilities. Salix estimates first commercial projection in early 2018. Spectrum Spectrum LNG’s Latchem highlighted his company’s experience in the LNG arena. “We’re the only finalist that has produced LNG,” he said. Spectrum developed Fairbanks Natural Gas’ LNG supply chain in the late 1990s before selling the company and currently produces LNG for vehicle use in Arizona. Latchem said his company could produce North Slope LNG for $5.06 per mcf equivalent, leaving $10 available for trucking and distribution costs, while still meeting the project goals. He added that Spectrum would postpone its management fee for the first year of operation to keep retail costs down while a customer base is built. “Our commercial agreement with AIDEA would be a revenue requirement divided by how much the plant produces, so if we sell more LNG it doesn’t make our company any more money — what it does is it drops the unit price to the end users,” Latchem described. “It’s a simple enough deal; we just need to sell as much LNG as possible.” He added that Spectrum has negotiated a feedstock price of about $2.10 per mcf with ConocoPhillips as well, and he feels that price could ultimately drop lower yet. Spectrum could be ready to supply the Interior fairly quickly — in January 2017 — according to its proposal. WesPac WesPac Midstream LLC’s proposal would start with either a new LNG plant at Port MacKenzie, a project the company has been investigating for more than a year, or expansion of the Southcentral Titan LNG plant owned by AIDEA as part of the Fairbanks Natural Gas sale. WesPac is building LNG plants in Tacoma, Wash., and Jacksonville, Fla., to supply Totem Ocean Trailer Express, or TOTE, vessels with fuel. TOTE is in the midst of revamping its cargo ships that serve Anchorage and Puerto Rico to run on LNG. Both of WesPac’s Interior Energy Project LNG plant proposals include 500,000 gallons of on-site LNG storage, which could reduce the need for storage in Fairbanks or North Pole. Anchorage-based oil and gas attorney Jon Katchen, who represented WesPac at the public meeting, said the company chose a Cook Inlet gas source primarily because of the location, despite a higher feedstock price. WesPac also has a 100 percent working interest in a Cook Inlet gas reserve. “Perhaps the biggest advantage Cook Inlet provides is access to additional markets in the event demand doesn’t show up in Fairbanks,” Katchen said. WesPac has expressed interest to serve coastal Alaska communities with LNG, and demand there could help mitigate costs to Interior residents. WesPac pegged its final, delivered LNG price at $12.25 per mcf equivalent in its proposal summary and it could be operating by January 2018. More LNG capacity for Alaska Railroad The Alaska Railroad Corp. now has approval from the Federal Railway Administration to haul enough LNG to meet projected Interior Energy Project demand. In a Nov. 2 letter, the Railway Administration, or FRA, wrote that the Alaska Railroad’s expanded LNG transport authorization is for up to 12 portable tanks of LNG per train on up to three round-trip trains per week from Jan. 1, 2016, through the end of 2017. Beginning in 2018 and through 2020 the railroad can haul up to 60 tanks on one train every four days. The letter came less than a month after the FRA approved the Alaska Railroad for hauling eight, 11,000-gallon LNG tankers on up to two trains per week through two years. This first authorization would have allowed the railroad to prove its ability to transport LNG for the Interior Energy Project, but would not have met projected capacity needs once the project is up and running. The Alaska Railroad is the only railroad in the country approved to transport LNG. Alaska Railroad CEO Bill O’Leary said in an interview that the railroad went back to FRA and explained the situation after the first approval. The subsequent approval would allow the railroad to meet that need. “The governor (Bill Walker) was extremely helpful, as was our congressional delegation in emphasizing the importance of this” capacity increase to the FRA, O’Leary said. Moving LNG from Southcentral to the Interior by rail could potentially cut transportation costs for the IEP by more than 50 percent over the cost of trucking the fuel, according to railroad estimates. However, LNG by rail would add complexities to what is already a challenging logistical project.

Draft EIS nearly ready for Donlin, in the works for Chuitna

Mining companies involved with several important projects aren’t ready to press the button on construction just yet, but they are positioning things to be ready to go when metals and commodity prices tick up, as they surely will. One large project being watched closely is Donlin Gold in the mid-Kuskokwim River region west of Anchorage, a potential $6.7 billion surface gold mine. After years of work the U.S. Army Corps of Engineers is expected to publish a draft environmental impact statement, or DEIS, later this month, James Fueg, Donlin Gold’s technical services manager, told the Alaska Miners Association at its annual convention in Anchorage Nov. 5. Publication of the DEIS would be followed by a series of community meetings in the Yukon-Kuskokwim region, including one hearing in Anchorage. If things proceed as hoped, the final EIS would be published in early 2017 following by a Record of Decision later that year. The big question following that is whether the mine will be economic and profitable enough for its developers, Barrick Gold and NovaGold Resources, to commit to spending several billion dollars on construction. Communities in Southwest Alaska have a lot riding on the decision. Calista Corp., the Alaska Native regional corporation for the Y-K delta, is the subsurface minerals owner. The Kuskokwim Corp., a consortium of local village corporations, owns surface lands at the mine site. If Donlin Gold is developed it will be a major employer in the region, now one of the state’s most economically-depressed areas. The prospect itself has 34 million ounces of gold in the measured-and-indicated reserve category, a classification that means companies have a high degree of confidence in the estimate, and another 11 million ounces that are “inferred” resources, or gold estimated to be present but requiring more definition. Chuitna Another large mine project closer to Anchorage that is inching along in its regulatory approvals is the Chuitna coal project, on the west side of Cook Inlet. The mine is planned by PacRim Coal, the owner of coal leases on state-owned lands. Dan Graham, manager of the project, told the Alaska Miners Association convention that the U.S. Army Corps of Engineers expects to have a draft EIS by late April or early May 2016, a milestone in a regulatory process that has taken several years. Graham said the Corps recently completed its internal review of a draft of the document, an important step, and has turned the draft over to other federal and state agencies that are cooperating in the EIS. “We also received our first permit Sept. 25, a minor air quality permit from the state,” Graham told the conference. If the Chuitna project receives final regulatory approval and is approved by its owners for development, construction would require two to three years and the mine itself would have a 25-year production life, Graham said. It is likely that would be extended by new resource additions, which is common with mines. Chuitna has been in the news recently because of an active opposition campaign by environmental groups who protest the company’s plan to mine through a creek that is salmon habitat. Graham said the company plans to create alternative habitat and in any event to restore the habitat along the creek when mining is complete, a procedure that has been used elsewhere in Alaska in disturbed areas. Also, PacRim can work with a decision by the state Department of Natural Resources to award a water rights application to a nongovernmental organization in a lower area of creek outside the mine area, Graham said. The principle of the DNR’s decision, the first award of water rights to an entity other than a government agency, is disturbing as a precedent, he said, but PacRim will ensure that adequate water is flowing through the lower part of the creek. The Chuitna project has had a long and tortured history and not all of the problems and delays can be laid at the feet of government agencies and opposition groups, Graham told the miners. Some of the blame is shared by the company, he said, which made several changes in scope and design. While these are overall improvements, the result has been delays and complications for the regulators, he said. “There are lessons to be learned from this,” Graham said, The state coal leases were originally awarded in 1968 to the Wilson-Bass-Hunt group, who were exploring in Alaska at the time. In the 1980s the Bass-Hunt group, which now owns PacRim Coal (Wilson has dropped out) entered a joint-venture with Diamond-Shamrock. The groups did substantial development work for a large surface coal mine. Major permits were granted in 1987 and an environmental impact statement was approved in 1990. However, the Pacific coal market had meanwhile slumped. Diamond-Shamrock exited the project and Bass-Hunt regrouped to continue working. There were changes in the project design and a relocation of a proposed port, all which meant changes to the permit applications. A major event occurred in 2010, however, when the U.S. Army Corps of Engineers took over as lead agency on a new EIS effort, replacing the Environmental Protection Agency. That was in the ninth year of planning under the revamped development plan, Graham said, and it also meant the Corps had to gear itself up to supervise a major Alaska mining project, which it had previously not done. “We had a situation where we were working with two different lead agencies, and over nine years there were 21 changes in key personnel associated with the project,” Graham said. It took some time, but the Corps rose to the challenge. “They scrambled to get up to speed on coal mine permitting. They were able to bring in specialists from other coal-mining states and to send Alaska personnel outside for training,” he said. The draft EIS is now in its final stages. Long lead times Donlin Gold has had an incubation period almost as long. The mid-Kuskokwim has been a historic placer mining area, which meant that explorers knew it was a good place to look for gold, mainly the lode gold sources of the placers. The gold prospect at Donlin Creek was actually discovered in the 1970s by prospecting crews working with Calista Corp., which had just selected lands under its Alaska Native Claims Settlement Act entitlements. After gold was found, Calista worked to get a mining company interested and after several unsuccessful attempts succeeded in attracting Placer Dome, a mid-sized mining company, for a more extensive exploration. Exploration drilling began in the 1980s and a very large gold resource was defined. However, a plunge in gold prices caused the company to suspend exploration. A small “junior” exploration company, NovaGold Resources, stepped in with a plan to invest and continue exploration in return for a share of the project. Placer Dome accepted, and NovaGold’s work resulted in more gold being located. Eventually the smaller company earned a 50 percent share. Meanwhile, in 2006, Barrick Gold, a major mining company, acquired Placer Dome and took over as operator and as NovaGold’s partner. Barrick poured in more funds for exploration and in 2006 and 2007, at the peak of exploration, the project was spending $2 million a week, Fueg told the AMA. Local hiring and contracting was a priority and even in its exploration phase the project became an economic stimulus for villages in the region. The engineering and design efforts were substantial and an initial capital cost estimate of $4 billion grew to $6.7 billion as the project scope changed, including the addition of a 314-mile 14-inch pipeline from Southcentral Alaska that would bring natural gas to the project. Energy costs were always a major concern and the project team investigated alternatives like wind and peat-fueled power generation along with barging large volumes of diesel up the Kuskokwim River. Finally the gas pipeline was decided on as the most practical alternative. Livengood Another big mine project is making progress, although it has been under the radar for a while. This is International Tower Hills’ Livengood gold project, a potential large surface gold mine on the Elliot Highway 70 miles north of Fairbanks. There are 15 million ounces of measured-and-indicated gold resources, a category in which mining companies have a great deal of confidence, and another 4 million ounces of inferred gold resources, where further exploration is needed. “We are one of North America’s largest known, undeveloped gold resources, and we’re right on a paved, all-weather highway,” said ITH President Tom Irwin. Irwin is a mining veteran who led the development of the Fort Knox mine, and who is also a former state Natural Resources commissioner. If it were developed the Livengood mine would be similar to the Fort Knox gold mine also near Fairbanks but larger, Irwin said. ITH is reworking a plan for a mine the company developed in 2013 but which proved too expensive for current gold prices. The cost estimate was in the range of $2.8 billion to $2.9 billion for a mine that would process 100,000 tons of ore per day. The project team went back to the drawing boards and is now reworking the plan to fit a lower gold price environment. “We’re looking at everything, the ore body, our mining procedure, water management and tailing disposal, and a one-stage as well as two-stage mill. We’re looking at how to optimize value,” Irwin said. Among two areas of focus in the new planning, Irwin said, is a possible acceleration of processing of higher-grade ore, leaving lower-grades until later, a plan also followed at Fort Knox in its initial production. Another area of scrutiny is how to manage water most efficiently and minimize its on-site storage, which would reduce capital costs as well as environmental risks. Energy is a major cost for the mine and ITH is still looking at two options, purchasing power from Golden Valley Electric Association, the Interior power cooperative, or generating power at the mine. If a North Slope natural gas pipeline is built it would pass nearby, and could possibly supply the mine with gas. Meanwhile, metallurgical testing and engineering is still underway to find an optimal mine process, Irwin said. What may emerge is a somewhat smaller, more efficient mine that could be profitable even at today’s gold prices, he said. ITH expects to release its revised mine plan in the first quarter of 2016, Irwin said. Tim Bradner can be reached at [email protected]

Nerland retires; McCaffrey named KeyBank Alaska president

Brian Nerland will retire from KeyBank at year-end and Commercial Banking Executive Lori McCaffrey will succeed him as Alaska market president. With his retirement, Nerland will complete a 30-year career at KeyBank in Alaska and will transfer leadership to McCaffrey, whom he hired 20 years ago to work with him in commercial banking. “We’ve been a great team,” said Nerland, “and we’re both proud of the long-term and loyal client relationships that our seasoned bankers have cultivated on behalf of Key.” As market president, McCaffrey becomes the voice of KeyBank in Alaska and will continue leading the commercial banking line of business. “Lori has extensive knowledge of the market and understands Key’s commitment to building client relationships, growing our business and demonstrating our dedication to the communities here,” said Pacific Region Executive Carol K. Nelson in announcing the change. “Her industry experience and leadership skills make her the ideal candidate for the role of market president.” McCaffrey joined KeyBank in 1995 as a commercial lender, having begun her career in 1979 at Mellon Bank in Pittsburgh, Pennsylvania. Over the years she became a senior lender and in 2010 assumed leadership of the commercial banking team. She took on interim management of the private banking group two years later. During her tenure, McCaffrey has earned numerous recognitions including Key’s Chairman’s Award, Signature Circle, and Extraordinary Leadership Award. Her support for Key initiatives has included Key’s Executive Women’s Network, Key4Women, Neighbor’s Make the Difference Day, and KeyBank’s United Way campaign. Community work includes participation in the Anchorage Chamber of Commerce, the Eagle River Chamber of Commerce, the Association of General Contractors, and the YMCA. She and her husband of 32 years originally moved to Alaska for the outdoor adventure it offered and they continue to enjoy hiking, hunting, and fishing with their two children. “Alaska is our home,” says McCaffrey. In an announcement to KeyBank employees, Key Community Bank Co-Presidents EJ Burke and Dennis Devine joined Nelson in praising Nerland’s distinguished career and hailed his leadership, dedication and enthusiasm. Nelson acknowledged Nerland’s “many contributions to the Pacific Region and the Alaska Market and his proven track record of leading successful, client-focused teams.” A fourth generation Alaskan, Nerland plans to remain active in the community and intends to consider new challenges and business opportunities. He currently serves as a board member of the Alaska Bankers Association and as past chair and board member of the Anchorage Economic Development Corporation. During his career he has been active in various roles with the Anchorage Centennial Advisory Committee, United Way of Anchorage, Anchorage Rotary Club, Resource Development Council, Anchorage Community YMCA, Junior Achievement, Anchorage Concert Association and the University of Alaska Anchorage GCI Great Alaska Shootout Basketball Tournament. During his tenure as market president, KeyBank Alaska twice achieved the national District of the Year title. Also during that time, Nerland championed the Neighbors Make the Difference Day annual community service project and built it into an Alaska tradition that was later adopted by the entire KeyBank network in 12 states. Neighbors Day, invented in Alaska, observed its 25th anniversary in May.

Movers & Shakers 11/15/15

Wells Fargo has named Adam Anderson and Leslie Dahl as Juneau business relationship managers. They will focus on meeting the unique financial needs of business owners and managers in Juneau and helping their businesses succeed financially. Anderson brings 10 years of title industry experience in Alaska to his role with Wells Fargo. He holds a bachelor’s degree in speech communication from Colorado State University. Anderson serves in the community as a Juneau Chamber of Commerce and Ducks Unlimited member. Dahl has 34 years of experience working in the financial services industry in Juneau, including service as chief lending officer for Alaska Pacific Bank. She is actively involved in the Glacier Valley Rotary Club, serving as co-chair of the Pillars Speaker Series. Dahl is a Juneau Douglas High School graduate and former head coach of the award-winning JDHS dance team. Jeff Roach has been appointmented as airport manager of Fairbanks International Airport, with an official start date of Nov. 12. Roach has a career of more than 30 years of aviation experience in Alaska, most recently as Alaska Department of Transportation and Public Facilities Northern Region Planning Manager, Aviation and Highways, where he was responsible for planning and programming for more than 100 airports. The Wilson Agency recently hired Cherie Hendrix for the position of senior advisor of national accounts. Hendrix will be providing strategic support for developing and implementing employee benefits plans for large, national accounts. Hendrix is a top industry expert with more than 16 years of experience in the benefits industry. Her experience includes benefit program strategy, health care reform guidance, financial analysis, account management and customer service. Prior to joining The Wilson Agency, she worked as principal and senior consultant for Mercer Health and Benefits where she focused on mid-sized to large employers with benefit plans ranging from 200 to more than 15,000 employees, multi-state employers and professional services companies.

GCI grows 3Q income, still absorbing acquisition costs

General Communications Inc. had another strong quarter in terms of revenue, particularly broadband subscribers and tourist season roaming fees, but the company is still absorbing last year’s major purchase of wireless business in its bottom line. GCI reported $19.9 million in net income in the third quarter of 2015 compared to $9.9 million in the third quarter of 2014 following the acquisition of wireless customers and infrastructure from Alaska Communications Systems Group Inc. that was finalized in February. For the nine months ended Sept. 30, however, GCI reported a net income loss of $12.9 million compared to positive net income of $16.9 million for the first nine months of 2014. The net income loss is related to expenses from GCI’s purchase of all wireless subscribers and 33 percent of the Alaska Wireless Network from Alaska Communications, as well as the comparative loss of revenue from the 2014 Alaska election season, executives claim. GCI paid $300 million for the acquisition announced December 2014. In the second quarter of 2015, GCI folded the 87,000 acquired wireless subscribers into its coverage. The deal has yielded results for GCI’s total revenue. GCI raised third quarter consolidated revenue by 7.4 percent from 2014, from $240.7 million to $258.6 million, and $10 million greater than second quarter 2015. Transition costs from the Alaska Communications deal bled some of GCI’s numbers where gains could have been even larger. GCI increased its earnings before interest, taxes, depreciation and amortization, or EBITDA, from to $96.6 million, after deducting $4 million in transition costs from the Alaska Wireless Network purchase. Despite the $4 million expense, third quarter EBITDA was $3 million greater than same quarter 2014. In the wireline segment, revenues grew but transition costs still took their toll. Wireline revenue grew to $178 million, up 14 percent year over year. Wireline EBITDA, however, declined $7 million since last year. Chief Financial Officer Peter Pounds said the “decline is primarily due to $4 million in transition costs, and a $6 million decline in cable advertising revenues.” The 2014 elections, both for state offices including the governor and in particular the Alaska U.S. Senate race between Mark Begich and Dan Sullivan, produced a $50 million campaign that bolstered GCI’s video revenue, Pounds said. GCI owns KTVA and several broadcast stations around the state. In a conference call, CEO Ron Duncan attributed much of the overall EBITDA growth to roaming fees. Traditionally, third quarter results incorporate much of the tourist season in late Alaska summer, he said. Roaming and backhaul contributed an overall $45 million in revenue. Duncan said customers have been increasingly willing to purchase equipment installment plans from GCI, which has benefited the company’s EBITDA numbers but lowered the average revenue per user, or ARPU. GCI has earned $7 million and $8 million in the last two quarters from installment plans, compared to no revenue from such plans in 2014. The effect was a smaller ARPU for wireless customers by $3.33 year-over-year, from $49.93 to $46.60. Cable modem ARPU, however, rose from $80.20 to $84.87 year over year, along with video ARPU, which rose from $77.91 to $83.24. The company said its 2015 guidance numbers will not change. Total revenue will be between $920 million and $970 million. Adjusted EBITDA will be between $310 million and $335 million, excluding the $20 million transaction cost to transition ACS wireless customers. Core cash capital expenditures will be approximately $170 million, $45 million of which will go to wireless network projects and $85 million on other network and infrastructure projects. DJ Summers can be reached at [email protected]

Alaska Communications’ bottom line boosted after sale

Alaska Communications System Group Inc. revenue is down after selling off its wireless business to its fellow Alaska telecom GCI, but net income through nine months has sharply increased. Net income through three quarters of the year for Alaska Communications was $12.6 million compared to just $2.6 million for the same nine months of 2014. That is despite total operating revenues declining to $54.7 million from $78.4 million in the third quarter of 2014. In the third quarter ended Sept. 30, net income was $1.2 million compared to $1.9 million in the same period of 2014. Adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, of $12.6 million in the third quarter of 2015 decreased 46.5 percent, from third quarter 2014 from $23.5 million to $12.6 million. CEO Anand Vadapalli said Alaska Communications is essentially a different company than it was last year during the same time, and third quarter results reflect what the business focuses on now. Comparing current revenues to last year’s is like comparing apples and oranges, he said. “We see ourselves as a fiber-based broadband and managed IT services company focused on business and wholesale customers,” said Vadapalli. “Our income now reflects that.” In this light, ACS presents the 2015 third quarter as a success. Broadband revenue grew of 7.6 percent from $17.3 million to $18.6 million in 2015, making four straight quarters where its broadband revenue has surpassed the industry average. Business broadband average revenue per user, or ARPU, was key in revenue growth. Business broadband ARPU increased to $218.54 in the third quarter of 2015 from $195.04 in the third quarter of 2014. Consumer broadband ARPU also increased to $59.16 versus $54.18 year-over-year. Business and wholesale, which make 54 percent of ACS’s total revenue, grew 6.2 percent from $28 million to $29.6 million. Vadapalli said during a conference call that the company’s entry into the oil and gas industry was paying off. In December 2014, Alaska Communications agreed to sell its wireless subscriber business and its 33 percent share of Alaska Wireless Network to GCI for $300 million in cash. Alaska Communications and GCI launched the network jointly in July 2013, intending the combination of their wireless networks to compete more effectively with national carriers AT&T, which accounts for roughly 50 percent of the current Alaska wireless market, and Verizon, which entered the market in September 2014. Alaska Communications closed the sale on Feb. 2 and completed the transition April 17. After taxes, Alaska Communications received $276.4 million from the wireless sale, and used $240.5 million to pay down its debt. Alaska Communications now has a comparatively low debt level among other telecommunications companies. ACS net debt stands at $156.6 million for the third quarter, down from $162.7 million in June. This resulted from a debt restructuring largely authored and coordinated by Chief Financial Officer Wayne Graham, who is leaving ACS to be replaced by Laurie Butcher.

EDITORIAL: Sturgeon case vital for Alaska’s sovereignty

The case of John Sturgeon versus the National Park Service and the Department of the Interior is strikingly important with regard to the sovereignty of the State of Alaska. The lawsuit brought by Mr. Sturgeon, an Anchorage resident, in September 2011 is a fairly straightforward one and at 21 pages can be considered brief. It is now in the hands of the U.S. Supreme Court. The lawsuit’s central contention is this: Mr. Sturgeon and his many supporters argue that the National Park Service does not have the authority to enforce its regulations on state waterways that pass through lands under control of the federal agency. The point of debate is a phrase in the Alaska National Interest Lands Conservation Act, approved by Congress in 1980. Section 103, subsection (c) of the act reads as follows: “Only those lands within the boundaries of any conservation system unit which are public lands (as such term is defined in this Act) shall be deemed to be included as a portion of such unit. No lands which, before, on, or after the date of enactment of this Act, are conveyed to the State, to any Native Corporation, or to any private party shall be subject to the regulations applicable solely to public lands within such units.” Mr. Sturgeon, in his lawsuit, alleges the National Park Service abided by that language for 15 years, limiting its authority on state lands — the term includes the submerged land of the waterways —within federal conservation units. But it was in July 1996, the lawsuit says, Park Service leaders chose to extend their authority to encompass navigable waters within conservation unit boundaries “without regard to whether these navigable waters were owned by the state of Alaska.” In doing so, the Park Service decision suddenly made numerous regulations applicable in Alaska. One of those regulations prohibits the use of hovercraft on public lands within boundaries of Park Service conservation units. Mr. Sturgeon at the time owned a hovercraft and had since 1990 regularly used it to access moose hunting grounds within the Yukon-Charley Rivers National Preserve and upriver of the preserve, traveling on the Yukon and Nation rivers. The genesis of his lawsuit came in September 2007, when on a moose hunting trip, Mr. Sturgeon needed to bring his hovercraft to a gravel bar to repair a steering cable. Three armed Park Service law enforcement employees approached him, according to the lawsuit, and told him it was illegal to operate a hovercraft within the Yukon-Charley’s boundaries. “When plaintiff advised the NPS employees that the hovercraft was being operated on a state-owned navigable river and thus the NPS water regulations did not apply, the NPS employees advised plaintiff that he was incorrect,” the lawsuit reads. Following that 2007 incident, Mr. Sturgeon met with Park Service personnel and, because of the Park Service personnel warnings, did not hunt in the area from 2008 to 2010. He sued in 2011, and Alaskans should be glad that he did. A federal judge in Anchorage ruled against him, though, as did the 9th U.S. Circuit Court of Appeals. In both instances, the language in Section 103 of ANILCA may have fallen subject to a version of understanding not in line with the intent of Congress. The state of Alaska submitted a brief in support of Mr. Sturgeon’s view during his appeal to the full 9th Circuit Court. In it, the state argues a ruling against Mr. Sturgeon “upsets ANILCA’s delicate balance between state and federal authority, but it also could be interpreted to impair the ability of Alaska Native corporations to utilize their vast inholdings to secure their economic and cultural well-being as Congress intended.” Further, the state’s filing details the intent of Congress, noting a Senate report accompanying the final version of ANILCA “plainly explains Congress’ intent to prohibit the Park Service from regulating non-federal land as if it were part of a national park and to not allow the Park Service to decide which of its regulations would apply where.” The position of Mr. Sturgeon, the state and others appears strong. Now the matter will be for the Supreme Court to decide. The outcome of the appeal will, regardless of which way the decision comes down, have a direct affect on Alaskans traveling on state waterways that transit units of the National Park System. Alaskans must hope the justices read the language as Congress intended. If not, the Last Frontier, with its promise of freedom and expanse, will lose a little more of itself to the multitudinous pages of a rulebook.

Walker thanks Legislature for pulling together to advance a gasline

This was an historic week for Alaska. Thanks to our state legislators, we took a significant step toward controlling our own destiny. The Legislature held about two weeks of hearings to examine my proposal to buy out TransCanada’s interest, then almost unanimously approved my request to exercise our option to take over Alaska’s share of the gas pipeline project. This is not just a financial or contractual arrangement. It’s so much more. For the first time in a long time, Alaska is stepping up and taking out the middleman between us and our future. Under a prior agreement, TransCanada held the State’s ownership interest in two components of the Alaska Liquefied Natural Gas (AK LNG) Project — the gas treatment plant on the North Slope and the gas pipeline itself. While TransCanada has been a valuable partner in the AK LNG project, taking over the company’s interest gives Alaskans greater control over our share of the gasline project. It ensures that we maximize the economic return on the production of our natural gas resources. To successfully build a gas pipeline transport system and market our gas, we must pull together as a team. The next step is to ensure North Slope gas is available for a gasline project. While some of our AK LNG partners are developing multiple LNG projects around the world, we have just this one. The united front shown by the Legislature’s approval of the TransCanada buyout goes a long way toward getting us a pipeline project that secures our economic future and benefits all Alaskans. The benefits of an LNG pipeline system include short-term construction jobs; long-term careers running the pipeline and developing oil and gas reserves; opportunities to help meet the state’s energy needs; and a long-term revenue source for public infrastructure and services. Long before construction begins, this project will jumpstart Alaska’s economy. It will create thousands of jobs. Billions of dollars will be spent and circulated throughout the state. Every project dollar has a multiplier effect—supporting local businesses, retailers and contractors who in turn support other businesses. To ensure those jobs go to Alaskans, we have already begun training local workers in preparation for the type of work that will come with the pipeline. As of 2014, more than 1,600 Alaskans have received training in pipeline construction and maintenance. Once the pipeline is built, we will see hundreds of long-term career opportunities in which Alaskans can run and maintain the pipeline system. And we can expect even more jobs and state revenue from reinvigorated oil and gas exploration on the North Slope. This economic activity boosts local economies and helps provide a base for economic diversification. There will be at least five pipeline off-take points, which means the potential of lower energy costs for Alaskans as natural gas is made available to communities throughout the state. This will enable communities to replace wood and oil with natural gas, which will reduce air pollution and carbon emissions. Approval of the TransCanada buyout is another stepping stone toward making the gas pipeline a reality. Standing united together, we can do this. I thank you, Alaska legislators, for pulling together to provide overwhelming support of this important project advancement.   

Promise seen for wireless pacemakers placed without surgery

ORLANDO, Fla. (AP) — Researchers are reporting encouraging results for a new generation of pacemakers — miniature, wireless ones that can be implanted through a leg vein without surgery. In a study of 725 patients, one of these devices, made by Medtronic, was successfully implanted 99 percent of the time, with a low rate of complications compared to traditional pacemakers. Leaders of the company-sponsored study discussed the research Nov. 2 at an American Heart Association conference in Orlando. Results also were published online by the New England Journal of Medicine. Two months ago, the journal published a study of a similar device made by St. Jude Medical. Both of these mini pacemakers are already sold in Europe and the companies are seeking Food and Drug Administration approval to sell them in the U.S. Roughly 200,000 people in the U.S. each year get a pacemaker, a device to regulate their heartbeats. Pacemakers are implanted just under the skin in the chest, with wires called leads that go into the heart. The wires can break, wear out or become infected and are the main weakness of these pacing systems. The mini pacemaker is the size of a large pill and can be placed without surgery, through a tube into a blood vessel in the groin, and attached to the right side of the heart. “I think it is a breakthrough,” said Dr. Douglas Zipes, an Indiana University School of Medicine heart rhythm expert and past president of the American College of Cardiology. “Leads have been the Achilles’ heel of our implanted devices. To get rid of them will clearly benefit patients.” That said, this is the first version of these devices, and they don’t do everything conventional pacemakers do. Only about one quarter of people who get pacemakers now would be candidates for the new mini ones. Future versions are expected to help more patients, and companies also are designing defibrillators that can be implanted without surgery as well. Dr. Dwight Reynolds of the University of Oklahoma Health Sciences Center led the study on the new Medtronic mini pacemaker. Four percent of patients had major complications, including the device poking into the heart. Although the study did not test the device against a traditional pacemaker, previous studies involving nearly 2,700 patients suggest this is roughly half the rate of complications usually seen. In the previous study on the St. Jude device, the implant success rate was 96 percent and the complication rate was 6.5 percent. The two studies show leadless pacing “is feasible and relatively safe, at least in the short term,” Dr. Mark Link of Tufts Medical Center in Boston wrote in a commentary in the medical journal. Many questions remain, though, including how to remove an infected or failed device, and whether the batteries really will last more than a decade as the companies project. Dr. Jagmeet Singh, a Harvard Medical School professor and spokesman for the American College of Cardiology, called the results “really good” but echoed the concerns about long-term safety. In Europe, “they’re markedly more expensive than a simple, conventional pacemaker,” said Singh, who has consulted for many device makers. A pacemaker without wires into the heart is an advance, but “there are downsides.” Marilynn Marchione can be followed at http://twitter.com/MMarchioneAP.

The Bookworm Sez: How to spell M-O-N-E-Y

There’s a little jingle in your pocket, and you can’t wait to spend it. So what will you buy? Will you purchase candy or a toy? Is there enough for a present for Mom or Grandma? Or, after you read “M is for Money” An Economics Alphabet” by Debbie & Michael Shoulders, illustrated by Marty Kelley and learn a little more, will you put the jingle in your bank? Why do we even have money? The answer starts with farmers… About 10,000 years ago, when humans decided to stay in one place and grow crops, someone eventually had an (A for) Abundance. In their little (C for) Civilization, then, they were able to trade crops for food and other items. Because it’s kind of hard to carry a bushel of grain in your pocket, money was created as a stand-in. This all has to do with (E for) Economics, which is “the study of how we get things we want and need,” how barter works, and how businesses operate. It’s “the way people obtain items that may be scarce or in-demand.” Let’s say you have (G for) Goods and Services, like lemonade and brownies to sell. The kid next door is selling milk and cookies. You can lower your price to attract customers but you’ll want (I for) Income from your lemonade and brownies, so you won’t want to sell too cheaply. On the other hand, you can raise prices if it’s a hot day and people are hungry. The kid next door can do the same, if she wants — which is a basic definition of a (F for) Free Market. So what do you do if you want more (M for) Money? You can ask your family, friends and neighbors to pay you for special chores, which makes you a (P for) Producer. You can cut your (S for) Spending, and put your money away for interest, which you get when your bank makes a (L for) Loan to someone. You could try making something at home out of the (R for) Resources you already have, and you’ll have (Z for) Zero Profit Condition. Or you could just ask for a bigger allowance. How easy is that? As a parent, that’s a question you have: how easy should it be to explain economics to a child who knows what money is? The answer is inside “M is for Money.” Starting at the earliest possible point, authors Debbie and Michael Shoulders give kids thorough lessons on supply and demand, housing markets, quotas, taxes, and other facets of economics in a way they’ll understand — particularly if you’re around to help fill in the blanks they may still have. It might fill in the blanks that you have, too. Though this book may seem like it’s meant for small children (and the illustrations by Marty Kelley support that), the concepts here could be quite advanced for them. No, “M is for Money” is best for 8-to-11-year-olds. Those are the kids who’ll want to spend time with it. Terri Schlichenmeyer is the author of The Bookworm Sez, which is published in more than 200 newspapers and 50 magazines throughout the U.S. and Canada. Schlichenmeyer may be reached at [email protected]

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