Elwood Brehmer

Oil Search planning two new wells into southern Pikka Unit

A company new to Alaska developing one of the state’s largest oil prospects is planning to further delineate the field by drilling two more wells this coming winter into what has become the hottest play on the North Slope. Australian-based Oil Search applied with the state Division of Oil and Gas Sept. 28 to drill two well and sidetrack combinations into the shallow, conventional Nanushuk formation from the southern portion of the Pikka Unit on the central North Slope in February, according to the company’s plan of exploration for the unit. The wells will be the first drilled into the southern half of Pikka and “are critical to the delineation of this area and have the potential to have significant impact on the subsurface basis of design” for future field infrastructure according to the document signed by Oil Search Alaska President Keiran Wulff. Oil Search took over as operator of Pikka and the associated Nanushuk project in March. The wells were originally scheduled to be drilled by Armstrong Energy last winter, but the change in control of the field brought logistical challenges that delayed the work. A final environmental impact statement is expected later this year for the Nanushuk project at Pikka, which is expected to produce up to 120,000 barrels per day at peak production. Oil Search agreed to buy a 25.5 percent stake and the operating role in the Pikka Unit from Armstrong Energy and Denver-based GMT Exploration Co., a silent partner in the unit, in October 2017 for $400 million. The deal also included a 37.5 percent share of Armstrong’s prospective “Horseshoe” leases to the south. Oil Search can fully buy Armstrong and GMT out of Pikka for another $450 million by July 2019, an option Wulff has said the company is “highly likely” to exercise. The Pikka B and C wells Oil Search intends to drill will reach depths of 6,513 feet and 4,923 feet, respectively. The company plans to drill the wells concurrently with two drilling rigs and will build ice roads and mobilize from the equipment from the Mustang development pad in the nearby Southern Miluveach Unit. Oil Search is currently in the preliminary front-end engineering and design, or pre-FEED, stage of developing the Nanushuk project and the results from the B and C wells will inform the company’s work during the FEED phase of the project, according to the plan of exploration. First oil is expected in the early 2020s and full development of the field will entail 146 wells and cost up to $5 billion to bring online. Armstrong Energy drilled a well-sidetrack combination roughly 20 miles south of Pikka into the Nanushuk formation in early 2017. CEO Bill Armstrong said at the time that he believed the positive results from that work indicated a long, continuous play that could hold twice as much oil as originally estimated. While official estimates are more conservative, Armstrong has consistently said he believes more than 1 billion barrels can be produced from the Pikka Unit. ConocoPhillips also drilled two successful exploration wells into the Nanushuk south of Pikka last winter. A separate Nanushuk play is also the basis for the company’s large Willow prospect to the west in the National Petroleum Reserve-Alaska. Further, a consortium of small exploration companies led by Australian-based 88 Energy is planning to drill a Nanushuk exploration well this winter just to the east of ConocoPhillips wells south of Pikka. Elwood Brehmer can be reached at [email protected]

NPR-A oil flow means major money for Slope communities

A federal grant program aimed at helping North Slope communities offset the impacts of oil development is about to become flush with money. ConocoPhillips’ Oct. 9 announcement that oil began to flow from its Greater Mooses Tooth-1 project in the 23 million-acre National Petroleum Reserve-Alaska also marked the start of consistent revenue to the NPR-A Impact Mitigation Grant Program. Written into federal statute, the money it disperses is the State of Alaska’s 50 percent share of oil royalties, drilling lease rentals and bonus bids from the reserve; the North Slope communities of Anaktuvuk Pass, Atqasuk, Nuiqsut, Wainwright and Utqiagvik as well as the North Slope Borough are eligible for it. While based on higher-than-current oil prices, the GMT-1 project, expected to peak at roughly 30,000 barrels per day, was estimated to generate more than $1 billion in royalty revenue over its life in the project’s final environmental impact statement; half of that would go to the mitigation grant program. The federal royalty in the reserve is 16.67 percent of the wellhead value of the oil. Arctic Slope Regional Corp. also holds subsurface rights to a majority of the oil-bearing leases, but the project is the first of three progressively larger oil developments ConocoPhillips is working on. About eight miles further into the reserve from GMT-1, Greater Mooses Tooth-2 — largely expected to be sanctioned by the company this winter — is expected to peak at upwards of 38,000 barrels per day. ConocoPhillips Alaska officials have said it could produce oil in 2021 if it’s greenlit soon. Department of Natural Resources Commissioner Andy Mack said the largest influx of grant revenue would come from the $4 billion to $6 billion Willow project, not only because it is pegged to peak at upwards of 100,000 barrels per day but also because the Bureau of Land Management controls the mineral rights there. The North Slope Borough is projecting there will be about $17 million available to fund grants in fiscal year 2019, according to NSB Deputy Finance Director Fadil Limani. He said that’s a purposefully conservative estimate that does not include production from GMT-1 or the annual fall NPR-A lease sale. Revenue generated from the lease sales is generally unpredictable. BLM netted $18 million in the December 2016 NPR-A sale but that fell to just $1.1 million — all from ConocoPhillips — last year despite the agency opening all available tracts to leasing and strong indications that there is a lot more oil in the reserve than previously thought. ConocoPhillips discovered the Willow prospect, which is largely a Nanushuk oil play, at a time when the most current U.S. Geological Survey mean estimate for recoverable oil in the reserve was less than 900 million barrels. “Now we’re suddenly looking at another area that has billions of barrels of oil,” Mack said in an interview. The USGS subsequently updated its mean NPR-A oil projection to more than 8.8 billion barrels for the reserve and adjacent state lands late last December. If remotely accurate, most of that oil is expected to come from the geologically related Nanushuk and Torok formations that are driving what ConocoPhillips Alaska leaders are calling a “renaissance” on the Slope. BLM allocates funding for the grant program to the state twice per year. That money is then appropriated by the Legislature to the communities, which submit grant proposals to the state Department of Commerce Community and Economic Development. The amount of money available for the grants has varied widely since 2002 mostly due to lease sale results. It peaked at $25 million in 2004 when 30 projects were funded; however, most years it has been in the $2 million to $5 million range. Commerce Commissioner Mike Navarre said during a joint House and Senate Resources committee meeting in September that $13.5 million had been deposited in the state’s account for the program so far in fiscal year 2019. An annual report to the Legislature on the grant program issued in January listed 16 applications totaling $11.6 million for the current fiscal year 2019, but Navarre said his department could make a mid-year supplemental budget request if more money is available than first thought and more proposals are submitted. “It’s fairly broad funding in order to make sure that the communities that are affected (by development in the NPR-A) — their concerns and the impacts are addressed,” he told legislators. The current year projects recommended for funding are for community and youth center upgrades in several of the villages, a new John Deere loader tractor for Utqiagvik and a youth program in Wainwright, among others. The borough requested funds for fish, wildlife, water and air quality studies as well as $3.5 million for a winter trail network. Any additional money not consumed by the grants is split between state uses with 25 percent of what’s left going to the Permanent Fund, 5 percent to the Public School Trust Fund and the remainder going to rural power programs, and, lastly the General Fund for public infrastructure appropriations, according to the Commerce Department report. According to department officials, to date no funds have been left over for state purposes in the history of the program. Whether or not that trend will continue to hold true when more money is available is unknown. North Slope officials are also aware of the fact there is rarely enough money to go around statewide. “There’s going to be other municipalities, other regions, legislatures in the state that are certainly going to want to see opportunities for these resources but, as expressed in the federal statute, the intent of these resources is to be reserved for the impacted communities these (oil) resources are being extracted from,” Limani said, adding the North Slope Borough “absolutely” expects to use all of the money available for the program. The borough’s longer term projections are for $40 million to $50 million per year to be available for grants, noting that the estimates could well be “on the lower end of the spectrum” if Willow comes online as expected in the mid-2020s, he said. The borough has yet to closely examine the large but early-stage project. Regardless of exactly how much money is available in a given year, the North Slope Borough and the eligible communities within it will reliably find uses for it, according to Limani. He emphasized borough Mayor Harry Brower Jr.’s focus on community assistance and development, highlighting the fact that unemployment rates in the villages can be close to 40 percent in some cases. The borough usually has a capital budget of about $80 million per year but gets somewhere in the neighborhood of $400 million worth of project requests from its communities, according to Limani. “A lot of the infrastructure out there is dilapidated, it’s aged, so (Brower) wants to make resources available for that. While we focus on development of oil and gas resources, it does have impacts on the social side, too,” Limani said. “I think that’s another area he wanted to use resources to make sure that we’re monitoring — knowing the drug and alcohol epidemic that’s facing the state as a whole and especially the North Slope communities. “The mayor’s very sensitive to that; wants to deploy resources to be able to address that.” Longer term, borough officials are likely to look at transportation infrastructure, namely road development, which Gov. Bill Walker supports, and possibly getting natural gas from NPR-A oil developments to nearby communities as well as dealing with the impact of climate change. Limani said money should eventually be made available to deal with coastal erosion in communities that might not be directly eligible for the grants but are within the borough boundaries. And none of that addresses the omnipresent concern about the ability for residents to continue traditional harvests amid oil projects. “Subsistence is the pillar of the culture, so when you’re looking at all this one of the key components is make sure the development doesn’t impact the subsistence way of living,” he said. Money talks Mack noted that North Slope officials generally support offshore developments such as Hilcorp Energy’s proposed manmade island Liberty oil project, which sits just beyond the state waters boundary. As a result, the state would be eligible for 27 percent of royalties derived from Liberty, but the borough cannot levy its property tax on the offshore infrastructure as it does for other onshroe developments. The North Slope Borough’s oil and gas property tax is its primary revenue stream. “They’re a little uncomfortable because (Liberty) is placed outside their jurisdiction and even though the state gets 27 percent of the rents, royalties and bonus bids, the borough doesn’t enjoy some of the property tax that it is accustomed to and in many cases is used to mitigate impacts,” Mack said. Borough and state officials have started having high-level conversations about the grant funds given the newfound abundance of oil in the NPR-A, according to Mack. “We have to grapple with the issue that there is a bundle of great news and along with that great news comes great expectations and also at some point we have to talk about money. And right now, with respect to royalty in the NPR-A, the state is not a recipient of a significant amount of that. So at some level we’re hoping that we can work with the North Slope Borough,” he said. The state can levy its oil production tax on NPR-A projects, but that tax revenue will likely be relatively minimal for years given the multi-layered deductions companies are able to apply to new projects. Mack stressed that Walker and Lt. Gov. Byron Mallott both grew up in small Alaska communities and thus understand the realities and challenges of living outside the state’s urban centers. “We want a program that is sustainable, that allows for the communities to mitigate impacts and adapt to the change but honestly, we want a fair shake just like everybody else does,” he said, adding there is ample time to find an amenable solution. “We’re not demanding anything; we’re all similarly situated.” Resources Committee chair Sen. Cathy Giessel, R-Anchorage, noted during the September hearing that Rep. Don Young has a proposal in Congress to split Arctic National Wildlife Refuge oil and gas revenue 50-50 between the state and the feds, with 3 percent of the state’s share then going to Alaska Native corporations. She speculated whether or not some sort of similar plan could work for the NPR-A. In an interview, Giessel said more available money will always lead to more competing uses for it, adding any changes to how the NPR-A funds are distributed “would be up to Congress to thread that needle.” However, she also contended that resource development, at its core, is about improving people’s lives, which the NPR-A Impact Mitigation Grant Program is intended to do. “I just want to make sure it all balances out,” Giessel said. Elwood Brehmer can be reached at [email protected]

Eklutna hydro power a piece of puzzle as Chugach, ML&P refine sale

Officials are on the clock to hash out the all-important details of the $1 billion sale of Anchorage Municipal Light and Power to Chugach Electric Association in time for the necessary approvals. Nearly two-thirds of Anchorage voters consented in April to a proposal from Mayor Ethan Berkowitz’s administration to sell the municipality-owned electric utility to the neighboring Chugach cooperative, but that vote was just the start of the real work in a deal Municipal Attorney Becky Windt Pearson called “immensely complicated.” The resolution voters approved requires the Anchorage Assembly and Chugach board of directors to subsequently approve the final terms of the sale by Dec. 31. That ostensibly sets a much sooner deadline for final negotiations, as both bodies will need time to review and debate the purchase and sale. Windt Pearson said the negotiating teams have committed to getting an asset purchase agreement done by Oct. 24 in advance of Assembly public meetings and work sessions expected in November, adding that about half of the transaction documents have been negotiated. “We started with a very rudimentary set of terms and we’ve been working towards something that is more nuanced and we’re really pleased with how far we’ve come,” she said. The Assembly is tentatively scheduled to vote on the sale Dec. 4. The utility consolidation is also subject to approval by the Regulatory Commission of Alaska, which could require changes to the structure of the deal. As it stands now, the all-in price for ML&P has gone down slightly from $1.024 billion to $1.009 billion, mostly because of lower-than-expected costs to execute the deal. Chugach has also committed to municipal requests to not lay off any ML&P employees or raise customer rates because of the sale, Anchorage officials said. CEO Lee Thibert said Chugach would find similar senior-level positions for those currently in leadership positions at ML&P. Ekluta hydro shift The biggest change to the original proposal is a shift away from Chugach making 30 years of unsecured payments totaling $170 million. Instead, the utility has agreed to a 35-year power purchase contract from the 39-megawatt Eklutna hydroelectric plant, which Anchorage will remain a partial owner of. How much power Chugach buys from the Eklutna facility will depend on whether or not Matanuska Electric Association agrees to increase its stake in the hydro plant through a separate but related deal with Anchorage, according to Windt Pearson. Currently, the municipality holds a 53.3 percent stake in Eklutna hydro, Chugach is a 30 percent owner and MEA owns the remaining 16.7 percent. Anchorage officials have put forth an offer for MEA to own up to 35.7 percent of the plant or remain a 16.7 percent owner and buy more power from it, according to the power purchase term sheet. If that happens, Chugach would have rights to the remaining 64.3 percent of Eklutna power. If MEA declines, Chugach would simply buy more power from Anchorage, which would remain the majority Eklutna owner. In the event MEA accepts, Chugach’s power purchase payments would start at about $2.5 million per year and gradually increase to more than $3.5 million in year 35, the term sheet states. Without greater participation from MEA, Chugach would start by paying $3.9 million for more power in year one and end with a $5.4 million payment by the end of the power purchase agreement. Windt Pearson said the municipality will keep title to Eklutna either way and the power purchase arrangement puts Anchorage in a better position than the originally contemplated payments that amounted to a 30-year unsecured loan. “(Eklutna) is our asset. If there’s a default under the agreement we keep it and can do something else with it,” she said. MEA spokeswoman Julie Estey said the utility officials are in preliminary conversations with their municipal counterparts to discuss a possible Eklutna deal. Municipal Manager Bill Falsey described the Eklutna proposal as the “correctly shaped puzzle piece to fit the hole” of the less desirable direct payment option. “It’s clean, so rather than retaining a single generation unit at (ML&P’s plant) 2A, with this we could retain the entirety of the MOA share of the Eklutna plant,” Falsey said. Chugach will also be responsible for operating and maintaining the Eklutna hydro infrastructure, which could be a significant point given major changes are likely coming to the Eklutna River watershed over the next decade. A 1991 agreement in which the U.S. Department of Energy sold the Eklutna hydro plant to the utilities included a mandate for the plant’s owners to start studying options to restore fish and wildlife habitat in the Eklutna River in the coming years. Eklutna Lake, with its large earthen dam, also provides the vast majority of Anchorage’s water supply in addition to fueling the hydro plant with water diverted away from the Eklutna River. Environmental studies on how to mitigate the impacts of the dam and power plant must start by 2022; the work must be done by 2032, but the Assembly has urged the utilities to start the process sooner. “Some form of restoration is going to happen,” Anchorage Assembly member Forrest Dunbar said at the work session. If the only option is to shut down the hydro plant, Chugach will continue to make the power purchase payments, according to the agreement term sheet. Clearing debt, PILT Windt Pearson said defeasance costs on the $542 million of ML&P debt Chugach agreed to pay off at closing will be $13.3 million less than originally calculated and the annual payment-in-lieu-of-taxes, or PILT, that Chugach will pay the city for the assets it acquires also won’t be quite as much as once thought based on ML&P’s latest electric rate case determination by the RCA. The debt retirement will account for the vast majority of $767.8 million in cash Chugach will pay the municipality at closing. The PILT, which will replace ML&P’s municipal utility service area, or MUSA, payments, will also be paid over 50 years versus the 30-year term originally contemplated. MUSA payments are a substitute for property taxes on publicly owned utilities and are accounted for in ML&P’s customer rates. Recent MUSA payments have been in the $6 million per year range for ML&P. “There will still be the question at the end of that (50 years) as to how that revenue source is replaced but we have a longer time to consider how to do that, what kind of structure to put in place,” Windt Pearson said. The PILT has also been structured to prevent legacy ML&P customers from bearing the brunt of paying for the transaction, she added. Because it is a calculation based on the assets located in the ML&P service territory, primarily Midtown and Downtown Anchorage, there were concerns that if it continued to be calculated based on actual asset investment it could create a disincentive for Chugach to make future investments in the area. As a result, the same payments will be due regardless of what Chugach does there, Windt Pearson said. That structure will remain until 2033 — while former ML&P customers are getting the benefit of the utility’s ownership stake in the Beluga River natural gas field — at which point the PILT will shift to all Chugach customers, she said further. The Beluga River field is expected to produce feedstock natural gas through 2033. Financing With the major points worked out, Chugach’s Thibert said the utility has retained three financial advisors to help it secure the necessary cash to close the deal. Thibert said that while near-term interest rates are gradually rising, rates on 10-year terms have been flat. “I think the market looks very good right now for co-op financing. The yield curve has been very flat, so that’s encouraging,” he said. “We’ve been talking to financiers out there; there is interest in the market. We feel that this will get plenty of subscriptions once we put this thing out for bid.” Chugach is ready to finish the deal, he added. “We put a lot of time and energy into it and we still have some more work to do but we feel very good about where we’re at. We think it’s been a good process and we look forward to a successful transaction,” Thibert said.   (Editor's note: This story has been updated to correctly note the owners of the Eklutna hyroelectric facility are required to study ways to mitigate its evironmental impacts, but are not immediately required implement mitigation based on the 1991 agreement.) Elwood Brehmer can be reached at [email protected]

Judge orders briefings in suit challenging tax credit bonds

Parties to a lawsuit challenging the constitutionality of the state’s plan to use bonds to pay off oil tax credits are going backward to move forward after the first oral arguments in the case were heard Oct. 1. Alaska Superior Court Judge Jude Pate ordered former University of Alaska regent Eric Forrer and his attorney Joe Geldhof to submit a brief by Oct. 8 opposing the state’s motion to dismiss the suit on grounds it failed to state a claim upon which relief can be granted. State attorneys will then have until Oct. 12 to respond. During the informal, conversational arguments that lasted about 90 minutes, Geldhof said that he and Forrer had not responded to the June 25 dismissal request because he read it as a motion for summary judgment. “It went extensively into the merits of the state’s arguments and beyond what I, at least, thought was a dismissal for failing to state a claim,” Geldhof told Pate, while noting the state has not answered the original or amended complaints. Both sides have made numerous other filings in the case, including a back-and-forth over Forrer’s request for jury trial to which the state objects. Geldhof has insisted state attorneys have not followed normal briefing procedure in the case, which has greatly slowed its progress. He also contends Walker administration officials, in debates over House Bill 331 in the Legislature, made differing statements over what kind of debt the tax credit bonds would be and how stringent an obligation the tax credits are to pay off in the first place. Assistant Attorney General Margaret Paton-Walsh, in turn, questioned whether Geldhof understands what the state’s motion for dismissal means from a procedural perspective. She said the case raises “purely legal questions. What does the (Alaska) Constitution mean, what does the statute do; does the statute violate the Constitution?” She continued to say that standard procedure would be for Forrer and Geldhof to file an opposition to dismiss and a cross motion for summary judgment. The plaintiffs would generally move for an injunction to block the state from implementing the law, Paton-Walsh said, adding that in this case the suit itself is a de-facto injunction because its mere existence prevents the state from offering bonds to investors. The state filed the motion to dismiss in order to move the case quickly, she said. Geldhof said he believes it’s premature for rulings on his request for a jury trial because there are still outstanding issues of fact surrounding the specifics of the bonds that could be answered through the state answering the complaint, discovery or other ways. For his part, Pate dismissed motions from both sides regarding a jury trial and fact discovery without prejudice, meaning they could be filed again at a later time. He also agreed with the state’s position that the lawsuit is a pretty straightforward one. “I’m not interested in the factual arguments. I’m interested in the law, the language of the statute, the Constitution, that’s it,” Pate said. However, he did not indicate how he might rule on the constitutionality of HB 331. The lawsuit alleges the bond sale would commit the state to debt beyond the restrictions the Alaska Constitution puts on the Legislature’s ability to incur financial liabilities. Administration officials contend the plan is legal because the 10-year bonds would be “subject to appropriation” by the Legislature, which the bond buyers would be aware of, and therefore would not legally bind the state to make the annual debt payments. They would be sold by the Alaska Tax Credit Certificate Bond Corp., which would be established solely for the purpose of managing the bond money. The state Constitution generally limits the Legislature to bonding for debt through general obligation, or GO, bonds for capital projects, veterans’ housing and state emergencies. In most cases the voters must approve the GO bond proposals before the bonds are sold. State corporations can also sell revenue bonds, but those are usually linked to a corresponding income stream and only obligate the corporation to make payments, not the State of Alaska as a whole. Geldhof called the entity — run by a small group of Revenue Department employees including Commissioner Sheldon Fisher and with no income other than the Legislature’s annual appropriations to pay the bond debt — a “shell corporation” that is part of an elaborate constitutional workaround. State attorneys contend the plan is legal because it does not bind the state to pay the bonds, just the corporation, because paying the debt would be “subject to appropriation” by the Legislature and that risk is “baked into the price of the bonds” via a higher interest rate,” Paton-Walsh said. The constitutional sideboards on borrowing are there to prevent the state from exposure to bankruptcy, which she said HB 331 does through the subject to appropriation stipulation. “If you sued the State of Alaska on one of these bonds we would come in and move to dismiss and say we didn’t issue these bonds; they are not a debt of the state,” she elaborated. Geldhof responded that the state’s position ignores the real-world implications to the state’s overall credit rating of not paying the debt. “If the state defaults on these (bonds), if they don’t make the appropriation, there’s significant and obvious fiscal impacts on the State of Alaska, not just the shell corporation,” he said. “The Legislature, in year two, three, four, essentially has what amounts to a gun to their head if they don’t appropriate this money because the credit rating of the State of Alaska is immediately harmed.” Pate noted that state attorneys cited similar actions in other states that have been deemed constitutional, but asked Paton-Walsh if there was precedent in Alaska. She acknowledged there is not. Pate pushed to refocus the attorneys near the end of the hearing, noting that Forrer needs to rebut the state’s dismissal motion. “Heck yeah he’s stated some great claims,” he told Geldhof, “but can relief be granted under the law? That’s the issue.” Geldhof insisted a finding that HB 331 is unconstitutional would be proper relief in the public interest case and stressed his belief that a ruling to dismiss the case for failure to state a claim would undoubtedly be overturned upon appeal. Pate said he expects to issue a ruling on the matter in early November. Elwood Brehmer can be reached at [email protected]

Trustees keep up push for inflation-proofing Permanent Fund

Those closest to the Permanent Fund are beginning to talk more openly about their wishes for the $65 billion endowment as its management becomes increasingly politicized. Alaska Permanent Fund Corp. staff recommended to the Board of Trustees Sept. 26 that the board approve a resolution urging legislators to fortify protections against gradual degradation of the Fund’s value. The resolution reemphasized two that the seven trustees approved during their 2017 annual meeting. Last year’s resolutions requested legislation to prioritize the amount needed to inflation-proof the corpus of the Fund before the tally of its statutory net income — gains or losses — every year. Permanent Fund Corp. CEO Angela Rodell said the current state law definition of the Fund’s “net income” is not accounting based. “This would subtract inflation-proofing from the statutory net income and allow it to stay back” in the corpus, Rodell explained. Rodell has expressed concern — as several of the trustees did during the meeting — that not making an annual transfer from the Earnings Reserve Account to the corpus puts the Fund’s long-term health in jeopardy. The Earnings Reserve Account is where the Fund’s annual earnings are deposited in most years, and where investment losses are pulled from in rare bad years. It can be spent via a majority vote of the Legislature; the corpus is constitutionally protected from being spent. APFC Trustee and former Natural Resources Commissioner Marty Rutherford said the board needs to remind legislators that they have a responsibility to manage the fund for future Alaskans, not just present-day challenges. For years, the Legislature made the inflation-proofing appropriation without issue. However, legislators declined to approve the transfer in fiscal years 2016-2018 as they debated whether or not to utilize a portion of the Fund’s earnings for government spending. And while they made $942 million inflation-proofing payment to the corpus last year, they rejected Gov. Bill Walker’s proposal to make the retroactive payments and now the precedent to not make they appropriation has been set. “I think what we’re saying is because you haven’t inflation-proofed for three years we want the law to change so that inflation-proofing occurs automatically,” trustee and former Attorney General Craig Richards said. Richards was also elected chairman of the APFC board on Sept. 27. The board ultimately tabled the issue until a later date, which was done at Richards’ request despite his support for the resolution. He asked for a one-day late October work session for the board to draft additional recommendations for the Legislature on how it deals with the Fund. In a brief interview, Richards said he wants the trustees to form a concise message about the need for sticking to sustainable draws from the Permanent Fund, avoiding ad-hoc appropriations from the Earnings Reserve and predictability in how the Fund will be used. “Follow whatever formulas are on the books,” he said. In May, legislators passed legislation establishing an annual 5.25 percent of market value, or POMV, draw from the Fund to pay both Permanent Fund dividends and support government services. The POMV draw will automatically be reduced to 5 percent per year after three years, but several of the trustees noted that changes are likely coming to Senate Bill 26 — the law that established it — in the next legislative session that starts in January. While the Alaska Supreme Court ruled unanimously in August 2017 that the Legislature’s power of appropriation supersedes it’s need to follow other laws it has passed, Permanent Fund managers have consistently stressed a worry that shifting politics will play into how the state spends money from the Earnings Reserve. Not knowing what will be asked of them and how much money will be needed at a given time hampers their ability to protect the Fund’s investments and maximize its earning potential, they contend. ^ Elwood Brehmer can be reached at [email protected]

Karl seeks federal OK to pave way for Chinese charters

Bernie Karl just needs one signature to add tens of millions of dollars to Alaska’s tourism industry. The irrepressible Fairbanks entrepreneur and former owner — it’s now employee-owned — of the popular Chena Hot Springs Resort is waiting on Department of Homeland Security Secretary Kirstjen Nielsen to sign off on a travel visa waiver before he puts a plan into action that will bring a Boeing 787 with about 300 Chinese tourists directly to Fairbanks every week of the year, Karl said. “This is a pilot project only good for the state of Alaska, not good for the United States; it’s only good for Alaska. That’s what we’re asking for,” he said. The special visa would be good for 30 days and require Chinese travelers to have a nontransferable, nonrefundable round-trip ticket. It would also require the tour company consortium to post a $1 million bond with DHS, which, according to Karl, has been taken care of. “We give them a bond so that there’s no doubt these people will be back on the airplane,” he said. “The big deal with Homeland Security is they want to make sure people get back on the plane and we have no problem with that.” The reason it hasn’t been done is it can take up to six months for prospective Chinese tourists just to get an interview through the U.S. embassy for a travel visa. Conversely, Karl noted that it took him a little more than a day to get a visa good for three years for a trip to Russia. Explore Fairbanks CEO Deb Hickok, who, along with Karl, participated in Gov. Bill Walker’s trade mission to China in late May, described the challenges a successful Chinese tour operator she talked to had in getting a visa to the U.S. “He had to provide his marriage license, his diploma; things we’re never asked when we apply to go to China. There is this very real concern with the Department of State for anybody that may defect, so they’re very cautious,” Hickok said. Karl quipped, “They name streets after what we do — one way.” Travelers would be able to obtain the special Alaska visa in five days, he said. Karl is confident the flights would be full and estimates they would have an economic impact of between $35 million and $50 million per year on the state. Alaska visitors from Asia spend an average of $1,442 once in the state, according to the Commerce Department’s 2016 Visitor Statistics report. “They have our money; I want it back. You want to talk about helping our (trade) debt, well this is how you do it,” he said. “You bring their money here and they want to travel and they want to come to Alaska.” Karl and Adriel Butler, owner of Borealis Basecamp, met with Feng Bin, the primary owner of Beijing UTours and leasing agents for Hainan Airlines while on Walker’s trade mission and established a relationship that grew into the charter plans. Beijing UTours averages 1.2 million customers per year, according to Karl. He promptly went to Washington, D.C. after returning from China and asked the Alaska congressional delegation for help navigating DHS. Karl lauded each member of the delegation for their help. While the waiver has not been approved yet, he said Nielsen has had to cancel meetings with Sens. Dan Sullivan and Lisa Murkowski, which included a trip to the Chena Energy Fair with Murkowski in August. Another DHS representative who came in her stead said the waiver shouldn’t be an issue, according to Karl. Spokespersons for Sullivan and Murkowski didn’t respond to questions for this story. Confident he and his partners will get the visa waiver, Karl said more Chinese visitors could be in Alaska in about a month. “All the legwork’s been done,” he said. He highlighted the opportunity the Chinese market presents Alaska’s tourism industry, with its 300 million-strong middle class, which Hickok said is expected to hit 600 million by 2020. Explore Fairbanks signed a business partnership with East West Marketing Crop. while Hickok was on the trade trip. She said aurora viewing is the primary attraction for Chinese visitors to Fairbanks, as is the case with Korean and Japanese tourists, but noted those that come to Alaska during the summer months are obviously here for other reasons. Karl said he pitched the state as “the world’s largest oxygen bar” while in China. “You come to Alaska to get healthy. You come to Alaska to breathe our oxygen. It’s the world’s largest oxygen bar and let me tell you China has problems with breathable oxygen,” he said. Regardless of the outcome of the visa waiver, Hickok noted that Alaska, and Fairbanks in particular, has greatly increased connectivity to East Asia. Alaska Airlines has a new partnership with Hainan Airlines and Delta Airlines, with its international routes, now flies daily to the Interior. She said airport space is hard to come by in Beijing, but the charters could originate from most any major city in China. Karl sees them as the beginning of much more travel between Alaska and China. “It’s just an unbelievable opportunity for the future of Alaska. Our real future is in selling nature, but you get to keep it,” he said. “It’s the damndest thing.” As if potentially bringing roughly 15,000 new visitors to Alaska isn’t enough, Karl added that he’s confident he can use the extra 30,000 pounds of cargo capacity in a 787 to export Alaska seafood through relationships he has with processors. “There’s no problem getting all the king crab and all the salmon I want to go on the plane. It just makes sense that the plane leaves full,” he said. Elwood Brehmer can be reached at [email protected]

Alyeska tests latest spill response gear at Shotgun Cove

WHITTIER — With flat seas, gentle clouds playing hide-and-seek with the mountains and marine life aplenty, it was a perfect scene to reemphasize just how important a place Prince William Sound is to protect. About 20 small commercial fishing vessels were joined in Shotgun Cove near Whittier by large barges and state-of-the-art tugs practicing to do just that with the latest in oil spill response equipment. Smaller craft towed “current buster” oil booms in tandem with larger fishing boats practiced deploying skimmers that would collect the oil out of the boom before it would be transferred to a barge tank. On first glance it appeared to be a kind of carefully orchestrated aquatic slow dance, set to the tune of barking sea lions. While indeed diligently planned, it was one in a continuous series of training exercises by the Alyeska Pipeline Service Co. annual $8 million Fishing Vessel Response Program. “Without these fishing vessels you don’t have a response plan,” said Jeremy Robida, the spill prevention and response manager for the Prince William Sound Regional Citizens’ Advisory Council, or RCAC. Two RCACs, another in Cook Inlet, were formed by Congress in the wake of the Exxon Valdez spill. In all, the program includes roughly 400 boats with crews totaling 1,600 people from six Southcentral ports, Alyeska Ship Escort/Response Vessel System Manager Mike Day said. The Sept. 25 training was not an emergency-style drill; it was a methodical annual testing of equipment to make sure that if the worst happened, everyone knows their role and how to perform it. Boats towing booms in formation focused on following tide rips and other areas oil would concentrate in the event of a tanker spill. Day said the new booms can be towed several times quicker — up to about four knots — than older versions before they begin losing the oil they’ve trapped. Robida added that new skimmers take a “real minimal cut of water,” meaning less oil-fouled seawater would need to be stored in the barges. Additionally, new internal pumps installed on the barges eliminate the need for lowering the whole pump system to the water level. Now it’s just a hose that goes overboard, Robida said. The water routines were preceded by a day of classroom training in the Whittier school. Robida said some of the Fishing Vessel Response Program participants have been involved in the spill response efforts since the Exxon Valdez grounding nearly 30 years ago. Day joked that the longest-tenured members of the program are sometimes tasked with teaching the classes to keep them from nodding off in class when they’d rather be on the water. The Prince William Sound RCAC contracted with Stan Stephens Wildlife and Glacier Cruises out of Valdez for a tour boat to observe the training. Council staff then invited Whittier school children to join them on the three-hour field trip. After observing the training, the tour vessel cut across the mouth of Passage Canal to Pigot Bay, the head of which has been deemed an area of special ecological importance and as such has its own geographical response strategy, or GSR, Robida said. Salmon spawn in the stream that feeds Pigot Bay and numerous similar areas around the Sound have been identified for additional protections with spot-specific equipment, according to council and Alyeska officials. If an oil spill or cruise ship or fishing vessel accident resulting in a large fuel release were to occur, a sensitive area protection team would be sent out immediately to those nearby places, whether it was already contaminated or not. “The whole concept of the sensitive area protection is to get ahead of the oil slick,” Robida said. “The goal is not so much recovery; it’s keeping the area sectioned off.” The FVRP training is separate, but in addition to ongoing training Alyeska continues to conduct with Edison Chouest Offshore, its new SERVS operator, out of Valdez. While Edison Chouest took over the SERVS operation from Crowley Maritime in early July, Day said, “We’re still doing a lot more training exercises than normal.” About 200 tanker towing, escort, docking and other practice routines have been conducted since Edison Chouest vessels began arriving to Valdez in March, compared to the roughly 35 exercises that would be done over that time in a normal year, Alyeska representatives said. Day added that an Alyeska official is still onboard each tug to monitor each tanker escort out of Valdez. Two of the new tugs towed the spill response barge to the scene of the drill. State House Resources Committee co-chair Rep. Andy Josephson, D-Anchorage, who joined the tour as the Legislature’s liaison to the council, said he was impressed by what he saw, adding he got the sense from talking to various people that Edison Chouest “is settling in, understanding the culture and the environment.” One of the primary ongoing challenges is helping Edison Chouest employees settle in to Valdez, said Day, who is a lifelong resident of the quiet little Prince William Sound port town. Josephson acknowledged that there is still an open question as to whether Alyeska and Edison Chouest should seek to train in adverse weather conditions at times — the council believes so — while Alyeska contends it would be an unnecessary risk. He commended Alyeska for the advanced spill response program, which gives local fishermen “some ownership and involvement” in protecting where they work. “Apparently the Scotts are interested in what we’re doing” with oil spill cleanup techniques, Josephson said. He later added, “I only wish that we would’ve had all this in March 1989.” Elwood Brehmer can be reached at [email protected]

Industry group’s salmon initiative complaint to be heard Tuesday

State campaign regulators on Monday afternoon agreed to hear arguments Tuesday morning over a complaint alleging that the groups pushing the contentious Stand for Salmon voter initiative committed multiple fincancial disclosure violations. Commissioners with the Alaska Public Offices Commission concluded Stand for Alaska-Vote No on 1’s Sept. 20 complaint against Yes for Salmon-Vote Yes on 1, Stand for Salmon and The Alaska Center warranted an expedited hearing with Election Day 43 days away. The hearing will be held at 8:30 a.m. Tuesday at APOC’s Midtown Anchorage offices. The roughly two-hour Monday hearing over whether to expedite the complaint was largely a debate over the merits of the complaint against the groups advocating for Ballot Measure 1, which would establish stringent new permitting requirements for development projects in salmon habitat. Stand for Alaska, funded primarily by oil and mining companies, alleges in its Sept. 20 complaint that the three groups are coordinating their campaign efforts without admitting as much to APOC and Alaska voters. The complaint notes that the same individuals are in leadership positions in both Stand for Salmon and Yes for Salmon and all three share the same Downtown Anchorage office space. Matt Singer, an attorney with Holland and Knight representing Stand for Alaska, claimed further that The Alaska Center has not disclosed the source of nearly $270,000 it has spent supporting the Ballot Measure 1 efforts. Stand for Alaska insists much of the money behind Ballot Measure 1 has come from Outside environmental groups. “Alaskans are entitled to know who’s spending money to influence their votes,” Singer said, adding that the matter needs to be resolved quickly because post-election fines would do little to help voters. Earlier this month APOC levied a $1,925 fine against Stand for Alaska for having a name that did not clearly indicate the group’s position on the issue; that led the group to add “Vote No on 1” to its official name. Stand for Alaska’s complaint against Yes for Salmon also points out that the group didn’t add “Vote Yes on 1” to its name until Aug. 15 despite the fact that Stand for Salmon filed its complaint about Stand for Alaska’s name July 6. Birch Bittner Horton and Cherot attorney Jack McKenna, representing the salmon advocates, said Yes for Salmon didn’t change its name because its position on the Ballot Measure 1, which is also referred to as the Stand for Salmon initiative, is right in its name. The organizations don’t have to file as a single group with APOC because The Alaska Center and Stand for Salmon have missions that go beyond Ballot Measure 1, according to McKenna. To the primary funding sources, McKenna questioned why The Alaska Center should have to disclose where its contributions to the Ballot Measure 1 effort came from if the three largest donors to Stand for Alaska — BP, ConocoPhillips and Donlin Gold — don’t have to explain the sources of their money, whether it’s from investors, or profits made inside or outside of Alaska. He also contended that Stand for Alaska had roughly “$2 million missing from its books” until it fixed its APOC filings Saturday. McKenna insisted the complaint is a political maneuver aimed at derailing the campaign. “There’s a reason the media had this complaint before APOC did,” he said. Singer responded that technical issues prevented Stand for Alaska representatives from filing the complaint with the commission as soon as they originally planned.   Elwood Brehmer can be reached at [email protected]

AGDC chooses route for Kenai Spur Highway around LNG plant

State gasline officials have picked their plan to reroute a highway around the site for the massive LNG plant they hope to construct, but now they need to pay for it. In June, Alaska Gasline Development Corp. leaders selected the shortest and least expensive route to bend the Kenai Spur Highway around the roughly 800-acre LNG plant site in Nikiski. They are currently working to determine what it will cost to secure the right-of-way for the 3.4 miles of new road before further work can begin, said Frank Richards, AGDC vice president and Alaska LNG Project manager. The “West LNG” route was picked from six alternative paths for the Kenai Spur Highway, in part because of its cost, but also because it will impact the least number of Nikiski residents, according to Richards. The $20 million highway project will require AGDC to purchase seven residential properties and portions of two commercial parcels along the route, which, as its name implies, would curve the highway around the western edge of the LNG plant property. The highway currently parallels the Cook Inlet shoreline and bisects the plant site. “Really, what we saw (in public meetings) is people wanted the least impact to the community, the least impact to neighborhoods and wanted the shortest distance to be able to do that,” Richards said in an interview. The other options considered would have meant building between five and 12 miles of new road for $33 million to $85 million. A reroute option suggested by a group of residents would have required AGDC to purchase just five full properties, but the nearly 10-mile corridor would have affected 57 parcels in some way and cost $72 million to construct, according to AGDC estimates. The resident-suggested route would have also impacted 126 acres of wetlands, which likely would have necessitated a substantial additional environmental review of the road construction. The West LNG alternative does not cross any wetlands, Richards noted. ExxonMobil purchased most of the approximately 800 acres needed for the plant, LNG storage tanks and marine terminal in 2014 and 2015 when the company was leading the project in a partnership with BP, ConocoPhillips and the state. Richards acknowledged that the Legislature gave AGDC the authority to invoke eminent domain to secure land for the $43 billion Alaska LNG Project, but said there are no plans to use it. He added that he personally contacted the landowners that will be most directly impacted by the new road before AGDC made its selection public. “Our process is going to be, we go through a negotiation and discussion with the private landowners; we’re going to do an appraisal process to determine fair market value and negotiate a sales agreement with them,” Richards said. “We want to be good neighbors in terms of the property acquisition.” The state-owned corporation has hired an engineering and surveying firm to delineate the exact right-of-way for the new stretch of highway. That is likely to continue through the rest of the year before more detailed design work and property acquisition can begin. As someone who has had a highway routed through a parcel of family property, Richards said he understands this situation some Nikiski residents are being put in, but money will be available for those with properties in the path of the highway and not individuals on the edges of the work. “We are concerned about the impacts to people’s lives and how they’re being impacted by this but we aren’t in a position to be able to provide any monetary relief to folks that aren’t directly impacted by the right-of-way necessary for the project,” he said. “That being said, we want to hear how folks are being impacted, specifically if their lands are directly adjacent to it. Once the right-of-way is settled, AGDC plans to advance the road design to about 30 percent complete, at which point a design-build proposal will be put out to bid for a guaranteed not-to-exceed contract amount, according to Richards. The corporation is consulting with the state Department of Transportation as well to make sure the highway it builds will meet federal standards, thus continuing its eligibility for federal maintenance funding, Richards said. DOT Commissioner Marc Luiken serves on the AGDC board of directors. He added that geotechnical and soil surveys done at the plant site indicate the nearby road work should be relatively straightforward process without any significant engineering hurdles. AGDC is also working to determine just how much it will cost to purchase the parcels it needs for the highway, which will be in addition to the $20 million construction cost, he said. Those costs are all rolled into the $43 billion price tag for the Alaska LNG Project. However, AGDC needs to find a way to pay for it all before the properties can be purchased and the work can be put out to bid. “The next phase will be contingent on us have the money to be able to ultimately go forward with construction,” Richards said. AGDC has contracted with the Bank of China and Goldman Sachs to help it solicit investments for the LNG project, but last session the Legislature opted not to give the agency the authority to accept outside funding, at least for now. The Federal Energy Regulatory Commission, which is writing the environmental impact statement for Alaska LNG, does not have direct say over the highway work, but because it is a “non-jurisdictional connected action,” actual highway construction cannot be done until FERC approves the overall project, according to Richards. FERC expects to issue its decision on the project by February 2020. At that point, road work will start in earnest as AGDC wants to be able to needs to be able to shift traffic onto the new road before most of the foundational work can begin on the plant, Richards said. ^ Elwood Brehmer can be reached at [email protected]

A family affair lives on at GBR Oilfield Services

Billy Reynolds is often short on words but long on hard work. It’s a combination that has helped him navigate 50 years in Alaska’s oil industry, most of which have been spent working for and running the Reynolds’ family business, GBR Oilfield Services. One might question Reynolds’ Alaskan bona fides when he does speak, as his West Texas roots come through in every word as if he flew up from Midland yesterday. That is, until you get past the drawl and listen to the decades of history he recounts matter-of-factly. “I came up in ’67 when I was 17 years old,” Reynolds said of his arrival to Alaska. “First I went to the Inlet in ’68 to work for Reading and Bates. Then I went to work up on the Slope on Rig 20 and Rig 25 for Reading and Bates — roustaboutin’, roughneckin’, you know.” Reynolds’ mother Rita Reynolds and his three brothers Jim, Bobby and Mike made the trek north from Midland a few months later with the family’s German shepherd in tow. “Man, that was a trip I could never forget,” Rita recalled while chatting in GBR’s South Anchorage offices. “I think I asked God every step that I wouldn’t have a flat (tire) because the backseat of that car was filled with clothes and boxes.” “Miss Rita”, as everyone in the GBR office affectionately calls her, arrived with her sons to a trailer home in Anchorage’s Mountain View neighborhood on Christmas Eve 1967. Instead of toys, her children got winter coats and galoshes that year, she said. Rita’s husband John Reynolds had already been in Alaska about a year working on the platforms in Cook Inlet for Reading and Bates Drilling. After a few years as a “company man” with BP, John joined with fellow oil hands Jim Gribbons and Jack Barr to form a tool rental company, GBR Equipment, in 1973. Barr soon moved on to other work but Gribbons and Reynolds kept the original name. And when Gribbons passed away in 1976, GBR became the Reynolds’ family business. By 1984 John was able to recruit his sons Bobby and Billy away from industry giant Parker Drilling to help their brother Jim run the well casing services the family business had expanded into a few years prior. The challenges of the oil business in Alaska have chased off some of the biggest players in the industry and doomed numerous smaller companies, but the Reynolds have navigated GBR through the ups and downs. Now president of GBR, Billy acknowledged the price crash of the mid-1980s was a struggle— oil went from about $30 per barrel in late 1985 to $9 in 1986 — but the small company continued getting at least some work. “We had to cut back on wages. We had to cut back on our prices for the oil company,” he said. “We were able to keep most of our hands. Some of them quit; you can’t blame for that but we were able to keep going.” Well casing is still GBR’s primary business, but the Reynolds added welding services to the company’s work in early 1994, Billy said. When patriarch John passed away in 1997, Billy and Bobby took over the operation. GBR’s business has generally followed that of most of the industry in recent years, Billy said, noting the last couple years have been slow but demand for the company’s services is gradually picking back up. Over the years GBR has had a hand in developing the iconic Prudhoe Bay and Kuparuk River oil fields. The company has also done substantial work at the Endicott field, according to Billy, and its 20 employees are now split between working on Italian major Eni’s ultra long-range exploration wells at the offshore Nikaitchuq field and for ConocoPhillips at various locations. “Now that the price is going back up more oil companies are interested in the finding,” Billy said of the status of exploration on the Slope. As someone who has witnessed North Slope oil go from literally nothing to powering the largest state in the union, he said most of the evolution in the industry has been for the best. “It used to — back in the ‘60s — take almost a year to drill a well. Now it takes about two weeks,” Billy said, noting that personal safety requirements have gone hand-in-hand with equipment comforts. “Back then they didn’t make you wear ear plugs or safety glasses and the clothes wasn’t really qualified for that cold, cold weather up there,” he added. “I’ve seen a crew from Oklahoma came up and was supposed to relieve us on the drilling rig so we’d go home, but they got off that airplane in cowboy boots and a Levi jacket,” Billy recalled. “The only time they got out of that airport was to get back on that airplane back to Oklahoma, you know. They just caught it at the wrong time.” As someone who at times spent six months on the Slope at a time and was regularly there for six-week stints, he said one of the biggest advancements, aside from environmental sensitivity, was shortening the work rotation. What started as six weeks on and three weeks off was first cut to four-and-two, Billy said, and eventually the current two-and-two split to prevent workers from becoming homesick, which can lead to accidents caused by wandering minds while working. “Two and two really hurt the wages, but that’s the way it’s going to be,” he said simply. Billy still travels to the Slope occasionally, but he now spends as much time as he can fishing on his boat out of Seward, particularly since his son-in-law Jim Wohlers, GBR’s general manager, took over the day-to-day operations about 10 years ago. Despite semi-retirement, Billy said he doesn’t see himself returning south; 50 years in Alaska has made Texas just “too hot” for him, even though his drawl still says he should be at home there. And while they won’t say it, Billy and Rita are clearly but quietly proud of the business they’ve helped support over 45 years. “Man, has it been that long? I quit counting somewhere along the line,” Rita said when asked to reflect on GBR’s 45th birthday. “GBR’s been up here for a long time and I’ve got to say that we’ve been pretty blessed to keep going like we’re doing,” Billy said. “One thing I like to say is — like I tell my hands, I said, ‘You know, you don’t talk bad about nobody; you don’t talk bad about our competitor, you know.’ To me, it’s bad karma to do that. Just keep your nose clean and do your job.” Elwood Brehmer can be reached at [email protected]

Siemens-led consortium plans to test old Houston well for gas

A pair of Alaska Native organizations and a multinational industrial technology firm believe they can find the missing link to the natural gas supply chain for Fairbanks in an old exploration well near Houston. Knikahtnu Inc., an Alaska Native village corporation, in a partnership with Siemens Government Technologies and the Knik Tribe, has applied to lease about 6,200 acres north of Big Lake from the Alaska Mental Health Trust Land Office on the prospect that the tract holds commercial quantities of natural gas. The consortium presented a competing plan to the Alaska Industrial Development Authority’s Interior Energy Project to supply LNG to the Fairbanks area via rail to the Interior Gas Utility Board of Directors in late August. Siemens representatives told the IGU board they are in talks with multiple Cook Inlet gas producers and believe they can secure feedstock gas for $5 per thousand cubic feet, or mcf, of gas, which would be significantly cheaper than the gas price Southcentral gas and electric utilities have been able to secure on much larger volume contracts. However, contracting for gas on favorable terms for the Interior could also be challenging because it is for a relatively small demand, likely starting at a little more than 1 billion cubic feet per year range and growing as Interior residents and businesses sign up for gas. As a result, the partners are also looking to source their own gas — giving them control over the feedstock cost — which could cut the cost of the biggest variable in the supply chain in half, they contend. AIDEA and IGU currently have a three-year supply contract with Hilcorp for $7.72 per mcf, while the Knik-Siemens proposal before the IGU board lists a “conservative” feedstock price of $4 per mcf for their own gas supply. Getting additional natural gas supplies to the Interior has long been seen as a way to reduce at times crippling home heating costs, but supply chain and conversion expenses, combined with a relatively small gas market, have challenged the economics of making it happen. The gas could also go a long way towards improving the air quality that often reaches unhealthy levels during winter in the Fairbanks area if it is cheap enough to get residents who currently burn wood or heating oil to convert their home systems. Knikahtnu owns roughly 3,000 acres near Houston and the Alaska Railroad tracks that would be the site of a Siemens modular LNG plant, and, Knikahtnu leaders hope, eventually an industrial park fed by the gas. The Knik Tribe is part of the plan on the premise that the Tribe is eligible for federal funding streams that could help improve the economics of the project. Knikahtnu CEO Tom Harris said in an interview that the Mental Health Trust parcel and surrounding area has been explored for oil for nearly 50 years, but drillers kept finding gas. “If you look at the drill history there’s been a significant amount of gas there,” Harris said. There are coal seams in the area that are gradually being pushed downward in a geologic action called subduction with every one of the frequent, often unnoticed earthquakes that occur in Southcentral, Harris described. The subduction leads to “natural fracking” and coal bed methane production, he said, and that led the group to believe it is worth investigating further. That’s where the Mental Health Trust land comes in. Harris estimated it would cost $3 million to $5 million for each new well in the area, but the parcel the consortium wants to lease for 10 years — at $10 per acre per year — already holds the Northern Dancer-1 well. Trust Land Office Executive Director Wyn Menefee said the Northern Dancer well drilled by now bankrupt Storm Cat Energy in 2006 was cased but never tested. “It’s basically closed, but it’s not plugged and abandoned so it can be reopened and tested,” Menefee said. Prior investigations into coal bed methane in the Big Lake-Houston area were met with resistance by residents who didn’t want industrial activity in and around neighborhoods, Menefee said, so it never materialized. In this case, however, the trust parcel is far enough away from populated areas that the “urban interface problem” shouldn’t arise again, he said. Menefee added that there’s no telling whether or not the group will be successful, given the fickle nature of oil and gas exploration, but the lease application says the partners must either bring the well into production or finally plug and abandon it. “There was enough interest to drill the well the first time; sure the finances for the company didn’t work out. Right now, with Knikahtnu considering it, (if) certain things come together — the location, the potential resource, proximity to transportation infrastructure — all of those things start working well together,” he said. Harris commented that if the state Legislature had fully funded the Mat-Su Borough’s half-finished and now stalled rail spur to Port MacKenzie, the whole Knik-Siemens proposal would be moot because the rail would go right past the existing LNG plant now owned by IGU. ^ Elwood Brehmer can be reached at [email protected]

North Slope bustling with projects of all sizes

With the aid of stabilized oil prices, North Slope operators are ramping up activity on prospects in all stages of development. In all, industry observers note that the numerous projects beyond simply the exploration phase could incrementally add nearly 400,000 barrels of production on the Slope. ConocoPhillips is leading the way with startup of its roughly $1 billion Greater Mooses Tooth-1 oil project scheduled for later this year, other projects in permitting and plans for another robust winter exploration season. The oil major is focused on the western edge of Slope activity; most of its greenfield work is in the federal National Petroleum Reserve-Alaska. When production commences at GMT-1, it will be the first commercial oil to flow from federal Slope acreage. GMT-1 is expected to peak at up to 30,000 barrels per day. However, the company has also identified additional potential for oil on the southern flanks of its large Alpine and Kuparuk River fields on state lands. Plans are to drill into the Cairn and Putu prospects in the remainder of 2018, ConocoPhillips Alaska Vice President Scott Jepsen said Sept. 10 during a joint meeting of the House and Senate Resources committees. The Cairn prospect in the southwest corner of the Kuparuk field will be drilled from an existing drill site and the third Putu well — after a main well and sidetrack were drilled last winter and found oil — will target another nearby area identified by a seismic survey, according to Jepsen. Located just about three miles from the Native Village of Nuiqsut, the first Putu well and sidetrack were drilled from an ice pad near the community after ConocoPhillips agreed to extensive impact mitigation protocols. The third well will be spud from the CD-4 drill site in the Alpine field. Overall, the company plans to drill between six and eight exploration and appraisal wells this coming winter and additionally conduct at least that many tests on wells in its 100,000-plus barrels per day Willow prospect in the NPR-A utilizing two drilling rigs, Jepsen told legislators. “As we move into the (February-April) exploration season we want to focus really on Willow. We’re going to be drilling some horizontal wells out there to better understand what the productivity might look like for the type of wells that will be used to develop it,” he said. ConocoPhillips initiated permitting for Willow, which could cost up to $5 billion to fully develop, in August with the Bureau of Land Management. Jepsen said Willow alone could add several thousand construction jobs and several hundred permanent Slope jobs once it is complete. The company is also likely to sanction its Greater Mooses Tooth-2 project this year as well, presuming it receives a favorable record of decision from BLM in the coming weeks, Jepsen added. The company recently increased its peak production estimate for GMT-1 from 30,000 to 38,000 barrels per day. Pikka, Oil Search: Meanwhile, the U.S. Army Corps of Engineers continues to work on the final environmental impact statement for the Pikka project, also from the Nanushuk formation, which Australian producer Oil Search took over from Armstrong Energy in July and has estimated production of 120,000 barrels per day. Nanushuk, 88 Energy: A consortium of small independents led by Australian-based 88 Energy is planning to drill an exploration well into the Nanushuk formation near the Putu wells and other successful Armstrong Energy exploration wells early next year as well. Mustang, Brooks Range Petroleum Corp.: Brooks Range Petroleum Corp. has also promised state Division of Oil and Gas officials that its Mustang oil project on the west edge of Kuparuk should begin producing around the New Year, according to regulatory filings with the state. Brooks Range has opted for small-scale, modular production facilities to expedite the long-delayed project, which has the potential to produce up to 6,000 barrels per day until permanent facilities are installed, at which point the production could double. Nikaitchuq, Eni: Just to the east and a little offshore from Alpine, Italian major Eni is in the midst of a four-well exploration program based from the company’s Nikaitchuq development. Eni started drilling the first long-reach well in December 2017 from its manmade Spy Island dill site in state waters. The wells are targeting prospects identified underneath federal waters further offshore. In 2017 the Bureau of Ocean Energy Management approved the company to drill up to four wells — two main bores and two sidetracks — through March 2019. According to documents filed with BOEM, the main wells in the Nikaitchuq North project were planned to depths of about 7,500 feet and 8,300 feet with the offshoots extending more than 20,000 feet to reach the targeted areas in the federal leases. An Eni spokesman declined to provide details on the progress of the drilling, but said via email that the company intends to resume drilling at the start of 2019 to reach the target depths. The approvals from BOEM give the company flexibility to re-enter the well bores for appraisal drilling and tests if needed. The company currently produces about 20,000 barrels of oil per day from the Nikaitchuq field. On Aug. 29 Eni also revealed it has acquired about 350,000 acres of state leases south and east of Prudhoe Bay from Caelus Energy. A release announcing the deal states “Eni will apply its business model and experience through a fast-track exploration with a short time to market of the potential new discoveries;” however, a spokesman said the company does not plan to conduct any seismic surveys or exploratory drilling on its new acreage this coming winter. Hilcorp, Milne Point and Liberty: Back onshore, Hilcorp Energy is almost done installing production facilities at its $400 million Moose Pad project in the Milne Point Unit. As soon as the facilities are complete Hilcorp will begin lots of drilling and first oil from the Moose Pad is expected in the first quarter of next year, according to Hilcorp Alaska spokeswoman Lori Nelson. The project has space for up to 70 wells and production is expected to peak at 16,000 to 18,000 barrels per day. Hilcorp also has an ongoing polymer flood pilot project at Milne Point in hopes of increasing recovery of heavy, viscous oil. Adding polymers to injected water increases the water’s viscosity and helps it “push” oil out of the reservoir more effectively by preventing the heavier oil pool from dispersing and comingling with the water as easily. “Experts have estimated that polymer use on the Slope could enhance recovery from an average rate of 15 percent up to 35 percent,” Nelson wrote. Hilcorp’s major Slope project — a 50-50 partnership with BP — is awaiting a record of decision after BOEM released the offshore Liberty manmade island oil development EIS Aug. 23. Liberty is expected to peak at up to 70,000 barrels per day. “I don’t think we’ve seen this much potential activity in decades,” Jepsen commented of the North Slope to legislators Sept. 10. In Cook Inlet, where Hilcorp is the dominant operator, the company is within weeks of wrapping up its $75 million-plus cross-Cook Inlet oil pipeline project, Nelson wrote in an email. She said the pipeline being converted from a gas pipeline to an oil line should be operational early in the fourth quarter. The project will extend the life of oil production in the Inlet and eliminate the need for Hilcorp to transport oil via tanker from its west Cook Inlet facilities to the now-Marathon refinery in Nikiski. Elwood Brehmer can be reached at [email protected]

Candidates talk ballot measure, funding capital projects at forum

With everyone in Alaska’s crowded gubernatorial race for more oil and less crime, the candidates are trying to highlight what separates them in the final two months before the Nov. 6 election. The candidates took the stage together during a lunch forum held by the Anchorage Chamber of Commerce Sept. 10. Democrat candidate and former U.S. Sen. and Anchorage Mayor Mark Begich set himself apart from independent Gov. Bill Walker, former Republican state Sen. Mike Dunleavy and Libertarian candidate Billy Toien by noting he is the only one in the crowded field supporting Ballot Measure 1, which would overhaul the state’s permitting requirements for development projects in salmon habitat. Resource industry and development groups oppose the measure, contending it would add unnecessary time and cost burdens — if not outright stop some projects, particularly large mines — to a regulatory process that has worked well for decades. Ballot Measure 1 sponsors, led by the nonprofit Stand for Salmon, insist the voter initiative would largely codify in law best practices already used by the Department of Fish and Game’s Habitat Division and insulate science-based permit evaluations from political influences. They also note the initiative would add public notice and comment period requirements to what currently is one of the only public resource-use permits the state issues without such input. Begich said the Alaska Supreme Court stripped the proposed law change of its most prescriptive language Aug. 8, when the court removed an outright prohibition on permitting substantial damage to salmon habitat, calling it mostly a “right to know” measure after the ruling. “If there’s going to be a megaproject the public gets to be involved from a state perspective; they get to have comments,” Begich said. Dunleavy said he “doesn’t know what’s going to become of Alaska” if policies such as Ballot Measure 1 are enacted because it will hamper the state’s ability to approve projects and create jobs. Toien’s message was similar. Walker noted that he is still opposed to the measure even after the Supreme Court removed the provision it deemed unconstitutional for usurping the Legislature’s authority to appropriate state resources.. He more generally characterized the voter initiative process as a “blunt instrument,” and said that the new requirements would add a new layer of unwanted permitting uncertainty. “If there’s improvements that need to be made, let’s have that discussion in the proper forum and that forum is in the committee rooms in Juneau so everybody has an opportunity to weigh in and participate,” Walker said. Begich responded to that by drawing attention to the fact that legislators did not act on House Bill 199 — very similar to the ballot measure — last session, but did pass House Bill 44 when it became clear another voter initiative aimed at tightening legislative pay and per diem allowances was gaining steam. The Alaska Constitution allows a legislative action to nullify an initiative if the intent of the change is substantially similar to that of the voter proposal. “The back-and-forth the governor talks about is a great idea, but where were these guys when the debate was supposed to be happening?” Begich questioned. “Why weren’t they talking about this? Instead, 45,000 people (who signed the Ballot Measure 1 petition) got a little upset about it. That’s how the initiative process works.” A question as to how the candidates feel the state should deal with the aging Anchorage port — which despite decaying dock infrastructure is still the entry point for the vast majority of goods entering the state — also illuminated how they plan to tackle the state’s broader capital project and deferred maintenance issues. It’s generally accepted among state politicians that the $100 million to $150 million the state has spent from the general fund on capital budgets in recent years is unsustainably low, particularly as the state’s deferred maintenance bill approaches $2 billion. In this case, it was Dunleavy who departed the most from his main competitors, though they all stressed the obvious need for rebuilding the docks. Port officials have said the reconstruction project will likely require more than $500 million in new money to complete. The Municipality of Anchorage is currently attempting to recoup some of the more than $300 million in federal and state funds used on the failed expansion project in a lawsuit against the U.S. Maritime Administration that was tasked with supervising the effort that was halted in 2010. The former Wasilla legislator said the main question is whether the money should come directly out of the state’s General Fund for the city-owned port. He wants to see if private investors would be interested in putting money into the port. “I believe that there are equity funds and there are pension funds that would like to invest in the Port of Anchorage,” he said, using the former name for the facility. The Anchorage Assembly renamed it the Port of Alaska in 2017 to emphasize its importance to the state overall. Port Director Steve Ribuffo said in a 2017 interview that municipal officials have discussed the prospect of attracting private capital to fund the work, but noted that option would likely raise usage fees to cover investment returns — fee hikes that would invariably be passed on to Alaska consumers. On broader capital projects, Dunleavy said he would push for more thorough vetting of state-funded projects and wants to see municipalities share capital costs with the state, ideally on a 50-50 split whenever possible. Walker and Begich said they prefer voter-approved general obligation, or GO, bond packages as a means of growing the capital budget with low-interest debt, a way to fund construction that is common for local and state governments nationwide. Begich is floating a one-time, $2 billion-plus GO bond package that would be dispersed over six years. He said up to about $100 million in General Fund money the state already spends on direct capital appropriations could be used for annual debt service, meaning the plan would not require any new state money, stressing accountability in project success and a need to prevent legislators from slipping pet projects into the capital budget. “Deferred maintenance just alone for the State of Alaska is enormous and we just continue to close our eyes and hope it will magically disappear; that’s not how you do it,” Begich said. Walker noted the latest capital budget included $20 million for the Port of Alaska on the expectation the municipality, which settled several lawsuits against contractors who worked on the project for just less than $20 million in January 2017, would provide matching funds. He also said now that the state is using Permanent Fund earnings to greatly reduce annual deficits, which has also stabilized the state’s credit rating, it is time to revisit the $500 million biannual GO bond plan he submitted early in his tenure as governor but did was mostly ignored by the Legislature. The governor called the port the “tip of the iceberg” of capital needs across the state. “We have $1.8 billion of deferred maintenance that needs to be done across the state. It’s disappointing to me that the Legislature went through $14 billion of savings before we got to the SB 26 (Permanent Fund earnings) vote, which is unfortunate because that would’ve fixed literally every capital project across the state three times over,” Walker said. Toien, the Libertarian, stressed that all state departments and quasi-government agencies and funds need to be put through a “comprehensive financial audit” and all revenue streams need to flow into the General Fund to get the best, true assessment of the state’s fiscal situation before any money goes to the port or any other major project. Toien said he believes bringing “off-budget” revenues into the General Fund would also close the remaining roughly $700 million budget deficit that has been projected for the current fiscal year. “I’m the only one addressing the comprehensive finances of the state, not just the corner called the budget or the (Constitutional Budget Reserve) and it’s because it’s necessary,” he said of his plan for balancing the budget. Toien, in the unusual position of being the alternative fourth candidate in a race with an independent incumbent, closed his remarks with a pragmatic assessment of his situation. “If everyone threw their vote away and voted for me I would win,” he said to a collective chuckle from the crowd. ^ Elwood Brehmer can be reached at [email protected]

Suit against tax credit bonds bogs down over jury trial motion

A lawsuit challenging the constitutionality of a state law to pay off nearly $1 billion in oil and gas tax credits has slowed to a crawl as attorneys squabble over whether or not a jury should decide the matter. Former University of Alaska Regent Eric Forrer requested a jury trial July 19 in the public interest lawsuit he filed May 14 against Gov. Bill Walker’s administration with the Juneau District of state Superior Court. The request has resulted in each side filing multiple briefs in the debate over a trial, exemplified by the latest in the series filed by state attorneys Aug. 20 entitled, “Defendants’ Reply to Plaintiff’s Response to Defendants’ Motion to Strike Demand for Jury Trial”. That filing, signed by Assistant Attorney General Bill Milks, contends the issue at hand is a matter of the reading of law and therefore is not eligible for determination by a jury of 12. “This case is a facial challenge to a statute. A jury cannot determine what the words of a statute mean. A jury cannot determine what the words of the Alaska Constitution mean. Those are questions of legal interpretation solely within the authority of the judiciary,” Milks wrote. He continued to note that House Bill 331, the administration-sponsored legislation authorizing the bond sale that passed June 20, has not yet been implemented. The Department of Revenue has not sold any bonds yet. A bond sale was originally planned for sometime in August, but Deputy Revenue Commissioner Mike Barnhill said in June that the administration would hold off on marketing the bonds while the lawsuit progressed. Barnhill referred questions for this story to the Department of Law; officials there did not respond to requests for comment. Pushing ahead with the sale during the litigation would undoubtedly increase the state’s cost of borrowing greatly and damage the underlying economics of the plan to pay off the credits with borrowed money while not incurring additional costs. Under the plan, the companies and banks holding credit certificates would take a up to a 10 percent discount on the amount they are owed to get the money right away and thus insulate the state from borrowing costs. Forrer filed the lawsuit on the belief that such sale would violate the Alaska Constitution, which has tight sideboards on what the state can incur debt for and how it must be done. The state Constitution generally limits the Legislature from bonding for debt to general obligation, or GO, bonds for capital projects, veterans’ housing and state emergencies. In most cases the voters must approve the GO bond proposals before the bonds are sold. State corporations can also sell revenue bonds, but those are usually linked to a corresponding income stream and only obligate the corporation to make payments, not the State of Alaska as a whole. Legislative Legal Division attorneys in an April 13 opinion questioned whether the Alaska Tax Credit Bond Corp. — that HB 331 authorizes Revenue Commissioner Sheldon Fisher to set up — would truly have a revenue stream that could pass legal muster given it would rely on annual legislative appropriations to fund the debt payments. Administration officials contend the plan is legal because the 10-year bonds would be “subject to appropriation” by the Legislature, which the bond buyers would be aware of, and therefore would not legally bind the state to make the annual debt payments. Forrer’s attorney, Joseph Geldhof said in an interview that they are not trying to “slow roll” the legal process by asking for a jury trial to further delay a bond sale, but rather insisted the state’s attorneys have been “enormously uncooperative” and have not engaged in the typical case process. Geldhof emphasized that the Department of Law has not yet filed an answer to the original May 14 complaint or a July 19 amended complaint. “They won’t even admit, for example, that the tax credits are not a form of debt,” Geldhof said. What exactly the tax credits are and how they should be treated is one of several similar material facts that should be decided by a jury, according to Geldhof. He wrote in response to the state’s motion to strike the trial request that without an answer to the complaint or resolution of the facts in the cast that it’s too early for Judge Jude Pate to rule on the trial motion. The state has “steadfastly ignored” the insistence that there are factual issues to resolve in the case, according to the Aug 8 response to the state. Geldhof argued that if the facts of the case can be settled, both sides could move for summary judgment, but that hasn’t happened yet. Forrer wrote in an Aug. 9 affidavit that Revenue Commissioner Sheldon Fisher and other state officials have referred to the bonds as an “obligation” of the state as well as “subject to appropriation” and “revenue” bonds, thereby clouding how they should be viewed relative to constitutionality issues. Forrer also stressed that it’s unclear what entity would be responsible for repaying the bonds, the State of Alaska or the Tax Credit Bond Corp., which could go a long way towards determining what would happen to the state’s credit rating if the Legislature eventually opted not to make the bond payments. “Representatives of the state have not explained how, if the credit of the state is at risk, the faith and credit of the state is not implicated under HB 331,” Forrer wrote. “In fact, the bill does not include express language stating that the faith and credit of the state will not be pledged.” Judge Pate has not yet ruled on the state’s June 25 motion to dismiss — based on the failure to make a claim for relief. Geldhof made a request for oral arguments on the state’s motions to dismiss and the opposition to a jury trial Aug. 23. Regardless of the outcome in Superior Court, the case appears primed for an appeal to the Alaska Supreme Court. Elwood Brehmer can be reached at [email protected]

ExxonMobil signs gasline agreements with state

Two out of three ain’t bad, but there is still a lot of work ahead for the Alaska Gasline Development Corp. The state agency in charge of putting together the $43 billion Alaska LNG Project signed a gas sales precedent agreement with ExxonMobil on Sept. 10, meaning two of the three major North Slope natural gas holders have now agreed to key gas pricing and volume terms with AGDC. Those exact terms are confidential, but Gov. Bill Walker said in a formal statement the agreement “means Alaska is one step closer to monetizing the North Slope’s vast and proven natural gas resources.” ExxonMobil operates the Point Thomson gas field and holds a 62 percent stake in the unit (with BP owning nearly all of the remaining share), which sits east of Prudhoe Bay on state land near the edge of the Arctic National Wildlife Refuge. The company also holds a 36 percent interest in the Prudhoe Bay field. With roughly 28 trillion cubic feet of gas available from Prudhoe and another 8 tcf in Point Thomson, ExxonMobil has rights to nearly 15 tcf of North Slope gas. “This precedent agreement is good for Alaska and ExxonMobil and represents a significant milestone to help advance the state-led gasline project,” ExxonMobil Alaska President Darlene Gates said in an AGDC release. “As the largest holder of discovered gas resources on the North Slope, ExxonMobil has been working for decades to tackle the challenges of bringing Alaska’s gas to market.” The announcement with ExxonMobil means ConocoPhillips is the only major North Slope producer to not yet sign a preliminary gas deal with AGDC. BP and AGDC reached a similar agreement in early May on binding price and volume terms; however, there are numerous finer financial and technical points to be addressed before final gas sales agreements are signed. ExxonMobil’s gas sales precedent agreement — like BP’s — calls for gas to be sold into to the large North Slope gas treatment plant that would be the start of the 807-mile gas pipeline and LNG export project. AGDC spokesman Jesse Carlstrom said the state-owned corporation is actively engaged in similar discussions with ConocoPhillips. Department of Natural Resources Commissioner Andy Mack said in an interview that final gas sales agreements would likely be signed nearly in concurrence with a final investment decision on the overall Alaska LNG Project. “It brings the firepower and brand name of ExxonMobil to the project,” Mack said as AGDC officials begin their major push to attract third-party investors to the project. In a separate but related development, Mack and Attorney General Jahna Lindemuth also signed what is being called a “letter of understanding” with ExxonMobil and BP Alaska leaders on Sept. 10 to suspend key provisions of the 2012 Point Thomson Settlement Agreement as they work on Alaska LNG. The letter removes the requirement for ExxonMobil, as the Point Thomson operator, to move forward with a plan to expand production at the field in a way that doesn’t jive with feeding the LNG project. Before ExxonMobil signed the letter with the state, the 2012 Settlement Agreement signed by then-DNR Commissioner and current Sen. Dan Sullivan required the company to make a final decision on how to increase production at Point Thomson by Dec. 31, 2019. Specifically, it prescribes that the company choose to either increase production at Point Thomson to more than 50,000 barrels per day of natural gas liquids, or condensates, and pipe up to 920 million cubic feet of natural gas per day into Prudhoe Bay, or simply grow condensate production to 20,000 barrels per day and reinject the gas into the Point Thomson reservoir. The current Point Thomson facilities have a production capacity of about 10,000 barrels of condensates and 200 million cubic feet of gas per day. However, the technical challenges of producing gas from and reinjecting into the ultra-high pressure field have hampered ExxonMobil’s production ability. A third, untenable option would be for ExxonMobil and BP to relinquish the leases back to the state, but that would seem unlikely given they spent upwards of $4 billion between 2012 and 2016 to develop the gas field in accordance with the settlement. In July 2017, ExxonMobil submitted a long-range development plan to the Division of Oil and Gas outlining plans to pipe gas more than 60 miles to Prudhoe for injection into the oil field to aide in oil recovery. That plan was initially rejected, but eventually approved by state regulators. Despite that, the Point Thomson development was always meant to feed a large gas project. Some former state officials and Alaska LNG experts have questioned the economics of piping Point Thomson gas to Prudhoe. Mack characterized all the settlement alternatives other than a major gas project as “suboptimal” for the state and the companies, noting the prospect of moving and injecting gas into Prudhoe is not as attractive as it seemed in 2012. With the Sept. 10 letter, the state retains the ability to reinstate the 2012 Settlement provisions at any time, Mack said, stressing that the preferred option is for the companies to help the state be successful with the Alaska LNG Project. “The whole idea is to redirect the (Point Thomson) project back to major gas sales,” he said. If at some point state officials decide Alaska LNG is not going to be successful or ExxonMobil backs away from it, the settlement provisions can be brought back with a 30-month window for the company to comply. Mack said the extra time — versus the 16 months between now and the end of December 2019 — is to allow ExxonMobil to restart its Point Thomson expansion engineering team and work out other related issues with the state. The engineers that have been working on that project will hopefully be put towards advancing the Alaska LNG Project, he said. Mack added that the gas sales precedent agreement and the letter “are definitely related,” noting the signing of the former is a significant show of commitment by ExxonMobil to the state-led LNG project. “This is another critically important step, but there’s many more steps in this process,” Mack said. Elwood Brehmer can be reached at [email protected]

Pebble permit scoping report first step toward EIS

The summary released Aug. 31 by the U.S. Army Corps of Engineers of the topics the public wants studied in the lead up to a permitting decision for the proposed Pebble mine was met with criticism from groups who feel the mine review is being fast-tracked. The comments that make up the scoping report are, as the name implies, intended to guide the scope of analysis in the environmental impact statement, or EIS, the Corps is in the midst of drafting for the large mine project. Not meant to be a referendum on the controversial mine plan, the Corps received 174,889 comments during the 90-day scoping period that ran until June 29, according to the report. The Corps extended the original 30-day comment period shortly after it opened April 1 following requests to do so from Sen. Lisa Murkowski and Gov. Bill Walker’s administration, who suggested the month-long comment period could be insufficient given the scale and complexity of the project. Public meetings were also held in nine communities during scoping, but mine opponents contended more should have been held in the numerous remote villages and small towns across the Bristol Bay region that have the potential to be impacted by the project. Much more than a large surface mine, the Pebble project would stretch over 187 miles from the start of a natural gas pipeline near Anchor Point on the Kenai Peninsula, across Cook Inlet to a new port that would be built near Amakdedori on the west side of the Inlet. From there, the transportation corridor would include 53 miles of new road plus a ferry across massive Iliamna Lake that would lead to the mine itself. “The input we received is insightful and helpful, informing our analysis and potential alternatives to be included in the draft EIS,” Corps Project Manager Shane McCoy said in a prepared statement. Though the Corps received nearly 175,000 submissions during scoping, just 3,653 were considered individual comments, with the remaining roughly 171,000 being various form letters, according to the report. More than one-third of the non-form comments focused on the potential socioeconomic impacts of the project; the rest were split roughly evenly between suggestions and concerns regarding the National Environmental Policy Act process, the proposed tailings dam facility and prospective project impacts to fish and wildlife. More than half of the form letters focused on the NEPA process. Groups opposing the project were critical of the 37-page scoping report, alleging it glosses over many important issues that need review in the EIS. United Tribes of Bristol Bay, Commercial Fishermen For Bristol Bay and Trout Unlimited Alaska all called for state and federal leaders, particularly Murkowski, to pressure the Corps to slow or stop the EIS until a more thorough review of the project’s potential impacts is done. Trout Unlimited Alaska stated in a press release responding to the publication of the report that more than 400,000 comments were submitted that raise concerns about Pebble’s permit application. Pebble Limited Partnership spokesman Mike Heatwole said simply via email that the company will continue to work closely with the Corps to help the complete the draft EIS in a timely manner. The totality of the Corps’ review is unclear at this point given the draft EIS has not yet been published, but the aggressive schedule set for the Pebble EIS has also been a point of contention. Pebble Limited Partnership submitted its project plan to the Corps for review in late December 2017 and Corps officials plan to have a draft EIS finished in January 2019, or between six and seven months after the scoping period closed. Comparatively, it took the agency nearly three years to draft the first version of the EIS for the Donlin Gold mine permit application, a large surface mine proposal with extensive support infrastructure similar to Pebble. Corps regulatory officials insist they are applying best practices learned during the Donlin review to the Pebble EIS, allowing them to speed up the process while performing the same level of analysis. Aside from expected comments highlighting the economic opportunities the project could provide to a region with few year-round jobs and the potential harm a tailings dam failure could have on salmon habitat downstream of the mine, many commenters stressed the need to study possible impacts to subsistence activities not only in the Bristol Bay area but also near the gas pipeline origin on the Kenai Peninsula. Some noted the mine could reduce out-migration from the region, helping to maintain enrollment in small schools in the area, while others contended the mine — with a 20-year initial life — would simply create a greater boom-and-bust economic cycle that would end with lost jobs when the mine closed. Suggestions were made to require an economic assessment of the project be conducted to determine if Pebble Limited Partnership’s plan is financially viable. Pebble CEO Tom Collier said in an April interview with the Journal that the company plans to release a preliminary economic assessment of its latest project plan by the end of the year. Heatwole said in a Sept. 4 email that he had no further information to provide about the status of the economic report. Elwood Brehmer can be reached at [email protected]

Second CP project advances as subsistence concerns unsettled

Alaska officials within the Bureau of Land Management are generally on board with ConocoPhillips’ plan for the Greater Mooses Tooth-2 project, but the best ways to minimize the $1 billion-plus oil development’s impacts to subsistence activities are still unsettled. BLM selected ConocoPhillips’ proposal as its preferred option for developing the oil prospect just inside the eastern boundary of the federal National Petroleum Reserve-Alaska in the project’s final supplemental environmental impact statement released Aug. 30. The $1.5 billion GMT-2 project is expected to produce upwards of 30,000 barrels oil per day at its peak, with construction commencing this coming winter and startup scheduled for late 2021 barring unforeseen delays, according to ConocoPhillips representatives. Its near mirror-image predecessor project, GMT-1, is expected to come online late this year with a similar peak production rate. Sen. Lisa Murkowski and Rep. Don Young lauded the preliminary decision to move towards additional development in the NPR-A through statements in a BLM news release. Assistant Interior Secretary and former Alaska Natural Resources Commissioner Joe Balash said GMT-2 is proof the Trump administration is following through on its commitment to make Alaska a central player in increased domestic energy production. “Oil and gas development in the NPR-A is important to meeting our nation’s energy needs and this analysis provides a responsible path forward in balance with resource protections,” Balash said in a formal statement. “And, throughout the process we are proud of our efforts of involving the people most affected by development activities on the North Slope of Alaska.” ConocoPhillips Alaska spokeswoman Natalie Lowman said via email that the company is reviewing the final EIS and as a result is unable to comment on it at this time. Presuming an acceptable record of decision — issued at least 30 days after the final EIS is published in the Federal Register — ConocoPhillips executives could make a funding decision on GMT-2 later this year, according to Lowman. The final supplemental EIS for GMT-2 is a follow-up from one done in 2004 when the project was first proposed as a satellite to the company’s large Alpine field on state acreage just to the east of the NPR-A. The footprint of ConocoPhillips’ updated plan for GMT-2 is larger than what it got approval for in 2004, with an oil pipeline paralleling an 8.2-mile access road and a 14-acre drill pad capable of holding up to 48 wells, according to the proposal submitted to BLM. The road and pipeline would connect the project to GMT-1, which is about eight miles to the northeast. Alternative development options considered in the EIS include a longer road and pipeline to avoid the Fish Creek and Tinmiaqsiugvik River drainages with the intent to keep traffic and oil farther away from the water bodies and hopefully reduce the impacts of a major spill if one were to occur. Another option contemplated a 5,000-foot airstrip with a 47-acre footprint to eliminate the need for a gravel road. With no year-round surface connection, the third alternative would also require a larger 19-acre gravel drill pad to and an 18-acre camp pad to accommodate workers unable to leave each day. The oil pipeline in that scenario would follow the company’s desired route. Subsistence impacts While some of Alaska’s political leaders praised BLM’s conclusions in the review document, the agency also acknowledged in the EIS that “development of the GMT-2 project may significantly restrict subsistence activities for the village of Nuiqsut, and the cumulative effects of GMT-2 and other development on the North Slope may significantly restrict subsistence activities for the villages of Nuiqsut, Anaktuvuk Pass, Atqasuk and Utqiagvik.” To that end, Native village of Nuiqsut President Margaret Pardue wrote in comments to BLM on May 17 asking the agency to stop permitting on GMT-2 for at least five years after GMT-1 is complete. Nuiqsut — a village of about 400 people roughly 15 miles from the proposed GMT-2 site and closer to GMT-1 and other ConocoPhillips developments in the area — has been “inundated with development proposals and planning exercises,” according to Pardue. She contends the full effects of the Alpine field satellite projects have not been fully felt or understood by Nuiqsut residents and development should be slowed until those impacts can be quantified. Pardue noted that other federal agencies are evaluating permit applications for the very large Nanushuk oil development just north of the village and the offshore Liberty project being done by Hilcorp Energy, which is in an area Nuiqsut residents use for whale hunts. Also, on Aug. 7 BLM issued a notice that ConocoPhillips had submitted development plans for its Willow oil prospect northwest of the village in the NPR-A, which would be a major, $4 billion-plus project with multiple drilling pads and its own oil processing facility. “(The Native village of Nuiqsut) strives to be an active and engaged entity in these review processes, but the amount of planning currently underway in the region presents serious capacity challenges in our ability to have constructive and meaningful involvement,” Pardue wrote. “By delaying GMT-2, the true impacts of development will be more understood and NVN will have greater time to consider the risks of development and rigorously engage in this proposed project.” Last winter ConocoPhillips adhered to a lengthy list of mitigation measures aimed at reducing noise, light and air pollutants from an exploratory drill site about three miles from Nuiqsut at the behest of Kuukpik Corp., the community’s Native village corporation. That drilling went well and the mitigation efforts were successful by all accounts, but how those could translate into a permanent development is unclear. Kuukpik also has in-holdings within the NPR-A that would be crossed by the GMT-2 road-pipeline corridor. Pardue insisted in her letter that GMT-2 will push wildlife resources such as caribou and wolverines away from the community, forcing hunters to travel farther to reach them and putting the villages food security at risk. “With active exploratory drilling to the east, west, and south, our community is on the verge of being surrounded by oil and gas development. BLM has taken no actions to meaningfully protect subsistence resources and our remaining subsistence use areas from the impacts of oil development within the region,” Pardue wrote. She continued to assert that human health impacts, particularly air quality, were not adequately addressed in the draft EIS, which was published in March. GMT-2 is the continuation of a lack of government response to the air quality impacts of ongoing oil development, according to Pardue. She added that the potential impacts of development on residents’ mental health and nutrition need comprehensive evaluation as well. Arctic Slope Regional Corp., the regional Native corporation for North Slope communities, supported ConocoPhillips’ development plan in its own May EIS comment letter. However, ASRC Development Vice President Teresa Imm wrote that company leaders believe the potential impacts of GMT-2 to locals’ subsistence activities need to be fully evaluated before the project is approved. BLM will evaluate and potentially apply new mitigation measures as stipulations in its record of decision, which is likely to be published this fall, according to the EIS document. Elwood Brehmer can be reached at [email protected]

No favorite so far for competing Interior natural gas plans

Interior Gas Utility leaders were largely measured in responding to a late pitch from Siemens Government Technologies on a new option for getting an additional natural gas supply to the Fairbanks area. Pamela Throop, chair of the startup utility’s board of directors and a longtime Fairbanks commercial real estate developer said the Siemens proposal is “neck and neck in some ways” with the Alaska Industrial Development and Export Authority’s $330 million comprehensive gas distribution and supply build out financing package. AIDEA’s plan also included IGU purchasing Fairbanks Natural Gas and its sister LNG supply chain companies for nearly $60 million — a purchase made predominantly with $42 million in state Interior Energy Project grant funds. Siemens representatives laid out their LNG supply chain plan to IGU officials Aug. 21. Throop and other utility board members said the Siemens turnkey proposal, which includes a partnership with the Southcentral Knik Tribe, is attractive for its simplicity to the utility — it could provide LNG by rail to Fairbanks for a contract price without IGU investing in added liquefaction capacity. However, they noted that the company still needs to secure the first, critical link in its LNG supply chain: a contract for natural gas. “We have questions above and beyond dealing with the dollars — security of supply, transportation, all those kinds of things that we have to deal with. We have to make sure that they’re capable of doing what they say they can do,” Throop said in an interview. “They don’t have a gas supply yet, either. They’re working on one; so they can’t really give us a firm price until they have a gas supply and that’s really going to make all the difference in the world, depending on what they can bring that gas supply in for, in my opinion.” Siemens is in talks with Cook Inlet gas producers and believes it can get feedstock natural gas for approximately $5 per thousand cubic feet, or mcf. That would be a marked improvement over the $7.72 per mcf price IGU and AIDEA negotiated with Hilcorp Alaska on a short, three-year contract that runs into 2021, but would also be a significantly cheaper gas price than Southcentral utilities have inked of late on longer deals for much larger volumes of gas. Recent contracts for a firm gas supply from Cook Inlet have been in the $7 per mcf range. Former AIDEA board member Gary Wilken, now a member of the IGU board, said it took AIDEA and IGU 18 months of negotiations to finalize the $7.72 per mcf price with Hilcorp. Getting a gas contract with favorable terms for the Interior could also be challenging because it is for a relatively small demand, likely starting at a little more than 1 billion cubic feet per year range and growing as Interior residents and businesses sign up for gas. What’s problematic for the greenfield project is the fact that no one really knows how quickly that new gas demand will materialize. It is dependent upon a variety of factors including the cost of alternative heating supplies, namely fuel oil and wood, as well as the number of customers willing to invest in new natural gas appliances and how quickly gas distribution infrastructure can be built out. Converting to a new natural gas home heating system can cost residents upwards of $10,000 without any sort of assistance program, AIDEA officials have long noted, which is a major potential hurdle for the Interior Energy Project. “The question is: Is that (gas supply) real?” IGU board member and former Golden Valley Electric Association CEO Steve Haagenson said in an interview. The company insists it could be shipping LNG to Fairbanks by early 2020 if it can reach an agreement with IGU by the end of the year. Siemens is also investigating the prospect of sourcing its own gas directly from the Houston area where its modular LNG plant would be sited. Controlling the gas supply could bring the cost down to the $4 per mcf range, according to company representatives, but that would appear to be a longer term venture as well. AIDEA and FNG have estimated their plan, with its state financing support, would result in an initial $17.30 per mcf burner tip price to consumers in 2020. That price could drop to the $15 per mcf IEP goal by 2022 as more customers are brought online. Using IGU’s contract price, Siemens would get LNG to the Fairbanks storage tank for $17.98 per mcf, according to the company — plus $5 to get it all the way to customers. The Siemens cost would drop into the $16 per mcf range with $5 per mcf wholesale gas, according to the company, but that again would be delivered to the large LNG storage tank FNG is currently building and require costs for storage, regasification and distribution totaling about $5 to be added on to the customers’ final price, Wilken highlighted. Company representatives said the LNG cost could drop further if other industrial users — either in the Interior or Southcentral — could be secured. Throop said the prospect of having another entity assume LNG plant construction and operational and transportation risks is particularly appealing. “We don’t care what their capital construction costs are; all we care about is the gas price in the contract,” Throop said. The Siemens plan starts with the company’s modular “LNGo” liquefaction units that can produce up to 30,000 gallons of LNG per day. The plan is to initially install two LNGo units at a proposed industrial park near Alaska Railroad Corp. tracks in Houston. The fuel would travel by rail to Fairbanks Natural Gas’ 5.25 million-gallon LNG storage tank currently under construction in south Fairbanks for regasification and distribution to residents and businesses. Once gas demand grew to where more than four of the LNGo units were needed the company would look at installing a single, larger LNG facility, according to Siemens officials. Under the plan, IGU would sign a 20-year liquefaction services agreement, or LSA, with the Knik Tribe but the responsibility for executing the contract would flow to Siemens through a separate contract with the tribe. IGU would also sign a transportation contract with the Alaska Railroad, but that cost would be rolled into the LSA terms. The company is partnering with the Knik Tribe because the federally recognized Tribe has access to federal loan and grant programs that could provide lower-cost financing to the project, according to Siemens officials. It would be located on land owned by Knikatnu Inc., a Native village corporation. Wilken said that while Siemens is generally a well-regarded company with significant resources it currently has just one LNGo plant in operation in Dawson Creek, British Columbia, so the reliability of the system is still somewhat an open question. “We need to be sure we’re getting a plant that’s going to work in an Arctic environment,” he said. Haagenson said managing a utility is a constant balance between cost and reliability, but added that “a utility in Fairbanks is kind of held to a higher standard,” because a home can go from warm to frozen in less than eight hours when the heat is cut off at 40 below zero. Wilken emphasized that he wants Siemens representatives to pull back the curtain on the details of their supply chain costs. A Siemens spokesman said via email that the company has “confirmed pricing from feedstock providers at a quoted rate less than the current IGU contract price,” but declined to provide details on the specific supply chain costs. “While the comprehensive pricing will be fully visible and transparent to the IGU prior to entering into any long-term contract, we first need IGU to advise us if they are willing to enter into preliminary negotiations culminating in a memorandum of understanding, at which time we’ll carefully review all pricing along the entire supply chain,” the Siemens statement reads. Throop said IGU leaders will be talking with Siemens and Knik representatives and try to stay on the company’s timeline of reaching a deal — or not — around the end of this year. “We need to make a decision one way or the other and that’s what I’d like people to know,” she said. Picking the Siemens plan would also require approval by the AIDEA board of directors, as it would be a major change to the Interior Energy Project development plan IGU and the authority have already agreed to. AIDEA spokesman Karsten Rodvik said authority officials committed to reviewing alternative gas supply plans in the IEP financing agreement and are in the process of reviewing Siemens’ plan with IGU leaders. ^ Elwood Brehmer can be reached at [email protected]

MARAD ordered to hand over port study

Federal Claims Court Judge Edward Damich didn’t take long to rule that the U.S. Maritime Administration must produce a previously proprietary report on the failings of the former Port of Anchorage Intermodal Expansion Project. Damich ruled Aug. 23, just two days after arguments on the matter, that a root cause analysis engineering report done in 2012 by the international consulting and management firm AECOM will become part of the court record in the Municipality of Anchorage’s lawsuit against the federal agency commonly known as MARAD. Justice Department attorney Jeffrey Regner argued on behalf of MARAD in an Aug. 21 telephonic hearing that the report was commissioned by MARAD’s legal office in September 2011 to, as its name implies, uncover the underlying issues as to why the construction project went awry. The facility is the entry point for the vast majority of goods that are dispersed throughout Alaska. It was renamed the Port of Alaska after an October 2017 vote by the Anchorage Assembly and is owned by the municipality. Anchorage officials in 2003 signed an agreement for MARAD to oversee the project as a way to direct federal funding to the project; the port is also designated as a national strategic defense facility. MARAD, in turn, hired Integrated Concepts and Research Corp. to manage the project. ICRC settled a separate lawsuit with the municipality in January 2017 for $3.75 million, one of seven settlements totaling $19 million with design and construction contractors in the project. MARAD paid ICRC $11.3 million in project funds as part of a September 2012 settlement to a Civilian Board of Contract Appeals complaint the company filed against the federal agency. Anchorage attorneys claim MARAD purposefully settled the dispute with ICRC secretly and without the municipality’s knowledge, while federal attorneys say city officials were made aware of the deal within days after it was reached. Judge Damich agreed with municipal attorneys who argued that the AECOM report is likely the only place to find specific information on the project’s problems. Damich said during arguments that there is no indication in the court record that MARAD told the municipality it was preparing to settle the contract case. “(T)hat the case was settled without the knowledge of Anchorage leads the Court to conclude that Anchorage’s argument regarding ‘evasion’ are compelling enough to hold that Anchorage has a substantial need to review AECOM’s work-product to understand what prompted MARAD to settle ‘surreptitiously’ with ICRC without first consulting Anchorage as Anchorage asserts MARAD was required to do pursuant to the 2011 Agreement (between Anchorage and MARAD),” he wrote in the eight-page order. “Furthermore, Anchorage has a substantial need to obtain testimony and documents from AECOM because of AECOM’s unique position in the project.” Damich continued to state that MARAD and AECOM are the “gatekeepers” of information that could help the city understand what motivated the agency to settle with ICRC. Damich additionally granted the municipality’s motion to subpoena AECOM principal Brad Erickson, noting in his order that MARAD “has not provided any argument regarding its opposition to the deposition, only that it titles its motion ‘Motion to Quash the Subpoena of Brad Erickson,’ without more, the Court permits the deposition.” MARAD has 14 days from the issuance of the order to produce the report. Work stopped on the port reconstruction in 2010 after extensive damage to the sheet pile dock structure that was being installed was discovered. Roughly $300 million in public money was spent on the project that yielded little; most of the sheet pile has been removed. A construction worker was killed at the port in 2011 when the ground beneath the bulldozer he was operating collapsed, causing the bulldozer to fall into the water and trap him as he tried to escape, according to news reports of the accident. The worker was employed by a subcontractor hired to stabilize the damaged sheet pile dock structure while project officials determined a path forward. Port leaders are now moving forward with a scaled-back modernization of the corroding dock infrastructure, some of which is approaching 60 years old. The municipality sued MARAD in February 2014 in federal contract court, a lawsuit with four years of discovery that has progressed slowly as the private-party suit was ongoing. It is seeking up to $370 million from the federal government in the suit, according court documents. MARAD was also blasted for its alleged inattention to managing the Anchorage project as well as other Pacific port projects in an August 2014 Inspector General report. Regner contended the root cause analysis was done strictly for MARAD’s internal legal use, was left in draft form and was paid for with agency funds and not port project funds, making it a privileged document. He said further that it was compiled at the same time and largely with the same information that can be found in a public CH2M (formerly CH2M Hill) suitability study to determine whether or not the patented Open Cell Sheet Pile dock design was appropriate for the unique seismic conditions at the Anchorage port. CH2M’s study concluded that the design and construction in the project were both problematic and led in large part to the municipality suing the contractors in 2013. During the roughly four years of discovery in the case MARAD has produced approximately 360,000 documents consisting of over 2.3 million pages, according to Damich. The sides have also taken 28 depositions, with another 30 expected in addition to an unknown tally of expert depositions. Discovery is set to conclude in March 2019, although a trial schedule has not been set. ^ Elwood Brehmer can be reached at [email protected]

In defense of King Cove deal, federal attorneys argue swap legal under ANILCA

Federal attorneys insist an environmental coalition wildly misconstrues several federal laws in its suit against Interior Secretary Ryan Zinke over a land swap that would facilitate a road out of the Alaska Peninsula community of King Cove. Filed in U.S. District Court of Alaska Aug. 22 with Judge Timothy M. Burgess, Justice Department attorneys argued that the land exchange announced in January complies with the Alaska National Interest Lands Conservation Act but falls outside the purview of other environmental laws in a 42-page opposition response to the coalition’s July 11 summary judgment motion. Friends of Alaska Wildlife Refuges, the Alaska Wilderness League, The Wilderness society and six other national conservation groups sued Zinke in late January shortly after the he signed a land exchange with King Cove Corp., an Alaska Native village corporation. The agreement has the company trading up to 500 acres of its land for an equal-value chunk of a Wilderness-designated section of the Izembek Wildlife Refuge, or enough refuge land to build an 11-mile, single-lane gravel road that would complete the connection to community of Cold Bay and its 10,000-foot, all-weather runway. Building a road between King Cove and Cold Bay has long been a contentious issue between the state and federal governments. Alaska legislators threw bipartisan support behind it in 2017 via a unanimous resolution; it has also been a priority of multiple governors Alaska’s congressional delegation. Proponents stress, as Zinke did when announcing the agreement, that the road would greatly improve access to medical care for King Cove’s roughly 800 year-round residents as the isolated town’s small airport is regularly rendered unusable by harsh North Pacific storms and medevacs requiring risky operations by the Coast Guard. At the same time, the road has garnered opposition from conservation organizations and prior Interior leaders in presidential administrations of both parties, who fear it would not only damage critical waterfowl and wildlife habitat in the Izembek Refuge but also set the dangerous precedent of developing an area previously designated by Congress as Wilderness, the strongest protection given to public lands. To the court filings, the conservation coalition alleges the land exchange, which has yet to be finalized, violates the 1980 public lands bill commonly known as ANILCA. Signed by President Jimmy Carter, ANILCA established or expanded many of the national parks, wildlife refuges and other federal conservation areas in the state. Section 1302 of the milestone law grants the Interior Secretary the authority to make such land exchanges but also mandates they must be done to “carry out the purposes of this act.” The attorneys for Interior acknowledge Congress passed ANILCA to protect natural public lands in the state, but add that it also allows for the “adequate opportunity for satisfaction of the economic and social needs of the State of Alaska and its people,” according to the Interior brief. “In agreeing to the land exchange, the (Interior) Department is establishing a ‘proper balance’ between the interests of the people of Alaska and the conservation of Alaska’s natural resources, as intended by ANILCA,” the brief states. It further notes that Zinke signed the agreement so King Cove Corp. could pursue construction of a gravel road primarily for health and safety reasons. However, the federal attorneys also contend Title XI of ANILCA, which lays out the process for approving a transportation system through federal conservation lands and includes requirements for inter-agency consultation of such a plan, doesn’t apply in this case because the agreement does not guarantee a road will be built. In June 2017 Interior granted the state Department of Transportation approval to conduct several weeks of surveys over the yet-to-be swapped Izembek lands to identify the least impactful road route through the refuge. Title XI of ANILCA also mandates an environmental impact statement under the National Environmental Policy Act also be drafted to evaluate a proposed transportation system through federal conservation areas. They additionally contend that because the agreement does not authorize road construction and “any future road would not be built through a conservation system unit, but through private land, and Title XI would not apply,” the brief states. Arguments that Zinke violated NEPA by not first having an Interior agency conduct an EIS for the land exchange are also irrelevant, according to the department, because the swap will result in a conveyance to a Native corporation. King Cove Corp. also agreed to relinquish 5,430 acres of lands it had selected for conveyance as part of the agreement. In late 2013, then-Interior Secretary Sally Jewell rejected land swap deal passed by Congress in 2009 after a U.S. Fish and Wildlife Service environmental impact statement urged against it; the EIS deemed the road would irreparably damage critical waterfowl habitat in the refuge. King Cove Native organizations and the State of Alaska subsequently sued Jewell over her decision to block the road, but the suit was dismissed in federal District Court and an appeal to the 9th Circuit Court of Appeals was later dropped. That swap would have traded 206 acres of Izembek land and 1,600 federal acres outside the refuge for about 56,000 acres of state and King Cove Corp. land. Finally, Interior’s attorneys insist Zinke did not need to consult with U.S. Fish and Wildlife Service officials regarding potential impacts to endangered species and their habitats — specifically Steller’s eider ducks and northern sea otters — before signing the agreement, again because the agreement does not authorize road construction. They note that in 2013 the Fish and Wildlife Service concluded a land exchange would have “no effect” on Endangered Species Act-listed species or critical habitat and as a result no consultation was required. “Road construction, if any, can proceed only after King Cove passes numerous significant hurdles like funding, planning, any state approvals and permitting, and any federal approvals and permitting, including any required ESA review and compliance,” the brief states. Elwood Brehmer can be reached at [email protected]

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