Elwood Brehmer

State says revenue to get worse

The bad budget news keeps coming. The Alaska Department of Revenue is predicting unrestricted general fund revenue of $2.6 billion for the current 2015 fiscal year. For the 2016 fiscal year the outlook is worse; the state is expected to take in $2.2 billion in unrestricted cash. By comparison, the state took in $5.4 billion of unrestricted revenue in fiscal 2014, which ended June 30. The State of Alaska’s total revenue for fiscal 2014, including investment income, was $17.2 billion. The state released its forecast Dec. 10 in the Revenue Sources Book Fall 2014. The projections are alarming, but not surprising. Alaska North Slope oil prices have tumbled in recent months from $110 per barrel in July to $63.67 as of Dec. 8. In fiscal 2014, approximately 88 percent of unrestricted state revenue came from oil, according to the Revenue Department. A year ago the department forecasted $4.5 billion of unrestricted revenue in fiscal 2015. Gov. Bill Walker released former Gov. Sean Parnell’s fiscal 2016 budget Dec 5., without endorsement, which laid out $5.5 billion in unrestricted general fund spending. That would put the state in a roughly $2.9 billion deficit for 2016. Walker plans on releasing an amended budget proposal to the Legislature early next session, which begins Jan. 20. Reigning in state spending was a cornerstone of Walker’s campaign. Despite the currently collapsing oil market, acting Revenue Commissioner Marcia Davis is forecasting what could be seen as a dim light at the end of the tunnel. “After (fiscal year) 2016, we believe that oil prices will recover above $90 per barrel and remain higher throughout our forecasted period to (fiscal year) 2024,” Davis said in a department release. Long-term revenue projections are for annual unrestricted state income between $3.6 billion and $4.8 billion from fiscal 2017-2024 after bottoming out in 2016 at $2.2 billion. Also on the bright side, North Slope oil production is expected to increase after this fiscal year, Davis said. Following a decline of 22,000 barrels per day in fiscal 2015, Revenue anticipates production will increase 15,000 barrels per day in 2016 and 10,000 barrels per day in 2017, keeping average production rates above 500,000 barrels per day for the next three fiscal years, she said. North Slope production was flat between the 2013 and 2014 fiscal years, bucking a historic trend of roughly 6 percent annual decline. “Although, in the short term, lower oil prices lead to lower revenues, our long-term view is optimistic,” Davis said. “Greater investment by the oil and gas industry on the North Slope and solid performance of state investments makes Alaska’s overall financial health sound.” Elwood Brehmer can be reached at [email protected]

Knik bridge study indicates minimal population impact

Other than changing the view to the north, the Knik Arm Crossing would not impact the look of Anchorage much at all, even in the long term, according to the latest study of the proposed bridge released Dec. 8. Alaska’s population hub will likely be home to nearly 302,000 people by 2040 if the bridge is never built, according to the Knik Arm Bridge and Toll Authority’s Comprehensive Traffic and Revenue Study. If built, there would be a few less people, about 296,300 residing in the City of Anchorage by 2040. The city had a population of 259,300 in 2012, the baseline year for all study data. The rest of the Municipality of Anchorage would see about 3,200 less people if the Knik Arm bridge is built, but still nearly double its population from 35,400 in 2012 to 60,700. Some local and state leaders have viewed the bridge as a relief valve for Anchorage, which has escalating housing prices and diminishing developable land. Bill Reid of Cardno Entrix, which compiled socioeconomic data for the study, said the bridge would encourage some businesses to move as well, but not many. “The isolation (of Alaska) bumps up the growth economically, but not substantially,” he said, when compared to the impact major infrastructure projects can have in the Lower 48. The entire Municipality of Anchorage would lose about 1,500 jobs from the bridge, less than 1 percent of the 203,600 by 2040 projected without it. The up to $900 million project would build a 1.7-mile bridge from Anchorage to Point MacKenzie; an 800-foot tunnel underneath the North Anchorage Government Hill neighborhood; and about 4.5 miles of total connections to existing roads on either side. Population forecasts for the Matanuska-Susitna Borough are inverse of Anchorage, but similar in that they are impacted little by the bridge. Without the second link between the jurisdictions, the Mat-Su Borough population is expected to more than double from about 90,000 in 2012 to nearly 197,000 residents by 2040. If the bridge is completed by the state’s current 2020 goal,there will be about 207,000 people in the borough, a difference of about 9 percent, according to the study. The borough’s population has grown by about 6 percent annually since 1990; the Municipality of Anchorage has grown about 1 percent per year over the same period. People and subsequent jobs from Anchorage and the broader Mat-Su Borough would meet at Point MacKenzie. The bridge would add more than 33,000 people and 8,000 jobs by 2040 to the rural area that had a population of less than 2,000 a couple years ago. As soon as 2025, it is estimated that Point MacKenzie’s population would grow nearly seven-fold with the crossing. Given the area’s close proximity to Anchorage, that would provide for a significantly shorter commute — 20 to 25 minutes as opposed to 45 minutes or more in other parts of the Mat-Su Borough — to the city’s Downtown. The Mat-Su Borough is in the concept stages of planning two new town sites between the proposed bridge corridor and the Parks Highway to the north. Traffic projections from the study indicate the toll bridge would get used enough, even in early years after construction, to pay for federal loans that would fund a third of the project, KABATA Executive Director Judy Dougherty said. With the $5 one-way toll for passenger vehicles that KABATA and the state Department of Transportation have proposed, it’s estimated 7,600 vehicles would cross the two-lane bridge each day immediately in 2020. That would be about 15 percent of the 50,700 trips projected between the borough and Anchorage that year. Without the toll the daily traffic jumps to 10,200. By 2040 the bridge would handle 40,700 trips per day, 37 percent of the traffic between the areas, according to the study. Dougherty told the Senate Finance Committee in April that about 10,000 vehicles per day would be needed to pay for the federal loans and operations and maintenance of the bridge. The latest study estimates that the 10,000 daily crossings threshold would be met sometime before 2025, when the bridge should handle 16,700 crossings per day. A traffic forecast done in 2011 projected 16,200 vehicles per day would cross the bridge in 2020 but that assumed a 2016 completion, which would be the start of construction as the project stands now. The state’s latest funding plan for the project is to take advantage of U.S. Transportation Department Transportation Infrastructure Finance and Innovation Act, or TIFIA, loans to cover $300 million of the project. Another third would be paid for with state bonds and the remaining roughly $300 million would come from the Federal Highway Administration with a roughly 10 percent state match. Overall, the state would pay about $30 million in general fund appropriations for construction. KABATA has spent about $80 million on the project since its inception in 2003. The Legislature approved $55 million for early construction of the project last session — largely federal money with the required state match. If traffic does not materialize as quickly as forecasted Dougherty has said the 20-year TIFIA loan could be refinanced out to 35 years. Since the Legislature transferred the funding and construction responsibilities from KABATA to state DOT last session there has been some delay in drafting the loan application documents, according to Dougherty. KABATA retains its role as the toll collector and maintainer of the bridge if the project is completed. A letter of interest to the Federal Highway Administration, the first major step in the loan application, has been revised to include DOT as the borrower, she said. Additionally, DOT and Revenue needed to be brought up to speed on operations and maintenance projections, $7 million to $8 million per year, and benefit-cost analyses, Dougherty said. It still needs to be worked out with the Highway Administration whether the operations and maintenance costs can come off the top of the toll revenue, or if the loan payments are serviced first by the money. Working as a part of DOT’s bridge team, she said, the revised work was ready for submission just prior to the election, but now will need to be held back as members of Gov. Bill Walker’s administration are familiarized with the details of the plan. The hope now is to submit the letter of interest documents sometime in January, Dougherty said. Once it is sent off, the state’s initial eligibility for the loan should be determined within two months. She said the entire process, which includes a plan for toll collection — the state will do it electronically — and submission of contract documents, could take a year to 15 months. Regardless of financing, construction cannot begin until outstanding environmental permits are secured. Dougherty said the state asked the U.S. Army Corps of Engineers to close its pending application for a Clean Water Act wetlands permit because of the delays in the project. It can be reopened at the state’s request. A permit application needs to be approved by the National Marine Fisheries Service as well. NMFS is responsible for assuring construction will not significantly impact the endangered Cook Inlet Beluga whales. Dougherty said the current construction plan is to suspend pile driving from August through October, when the whales commonly use the upper portions of the Inlet to feed on salmon. “It’s specific to noise, and noise at those decibels that is anticipated to affect the behavior of the Belugas,” she said. It’s one of several conservation recommendations NMFS has made to the project team. NMFS officials have said a decision can be expected by early 2015, according to Dougherty. She noted that there has never been a case in which NMFS has issued a “no jeopardy” biological opinion after a proposal has gone through the National Environmental Policy Act process, as is the case with the Knik Arm bridge, and not been approved for construction. If the bridge is the first, Dougherty said the state would likely challenge the decision. Elwood Brehmer can be reached at [email protected]

Transboundary issues remain thorny

Alaska groups concerned about the impact of British Columbia mines on Southeast fisheries continue to push for federal intervention in Canada’s project review process. Leaders from Rivers Without Borders, the Southeast Alaska Conservation Council, Salmon Beyond Borders and the United Tribal Transboundary Mining Working Group urged attendees of the Dec. 2 Bureau of Indian Affairs Tribal Providers Conference in Anchorage to sign a petition requesting Secretary of State John Kerry to initiate the International Joint Commission process — the only way the Alaskans can have their voices heard they said. The commission, or IJC, consists of five commissioners, two from Canada and three from the U.S., who review transboundary watershed issues. The IJC can only get involved when called upon by both governments. In the U.S., the State Department makes that call. Rivers Without Borders Alaska Campaign Director Chris Zimmer said there are about a dozen proposed mines in British Columbia that his organization is concerned about. However, the Kerr Sulphurets Mitchell, or KSM, gold proposal on the British Columbia side of the Unuk River drainage seems to be top priority for most individuals worried about the issue. The Unuk empties into the Pacific between Wrangell and Ketchikan and supports runs of all five Pacific salmon species. KSM received preliminary provincial approval earlier this year. It would be a combined above and below ground mine. KSM’s tailings facility would be 18 miles away in the Upper Nass River drainage, which flows south and is not a transboundary river. The groups at the BIA conference said their fears are not heard in the Canadian provincial and federal environmental assessments. “The Canadian oversight process really isn’t design or capable of protecting interests downstream,” Zimmer said. Transboundary concerns are something that have bound Southeast tribes together like few issues have in the past, he said. The working group is made up of 12 of the region’s 19 tribes, according to Zimmer. Carrie James of the United Tribal Transboundary Mining Working Group said it was formed from in March from a two-day Transboundary Mining Summit held in Craig, which brought together tribes, state agencies and others to discuss cross-border development. “It was during this time that the tribes decided our best approach was to unite and find our strength in numbers to address the transboundary issues,” James said. The working group sent formal comment letters regarding KSM to Canadian agencies and also requested the U.S. Agriculture and Interior departments, Environmental Protection Agency and the National Oceanic and Atmospheric Administration engage the Canadian governments. “Alaska as a whole is under attack; our watersheds are under attack and we must band together to protect our economy and our way of life,” James said. After the Mount Polley tailings dam failure in August, Sens. Lisa Murkowski and Mark Begich sent letters to Kerry asking him to urge Canada to initiate a “panel review” of KSM. Neither specifically requested the activation of the IJC. Zimmer said mines proposed today are of particular concern because changes to Canadian review processes have reduced environmental protections to speed up permitting. Alaska Department of Natural Resources Large Project Coordinator Kyle Moselle said British Columbia and federal Canada water quality standards are “quite robust” and on par with Alaska’s requirements. “We measure the same constituents. They’re more stringent on a few constituents than we are and we’re more stringent on a few compared to them,” Moselle said. “We use the same approach and have defined standards that an effluent into a water body must meet.” Moselle acts as a liaison between Canada and Alaska on transboundary watershed development projects. “(The State of Alaska) has a seat at the table. It’s extremely important for us to have a seat at the table,” he said. “The Canadian First Nations and treaty nations are also at that table and that’s why I feel their process is quite robust.” He said that he understands the concerns Alaskans have about making sure their voices are heard in the provincial and federal reviews of British Columbia mines because he has had the same worry when representing Alaska before U.S. federal agencies. The comments of all stakeholders are addressed, regardless of their country of origin, Moselle said. Canada’s overall environmental assessment process mirrors the National Environmental Policy Act procedures domestic development projects are subject to, he said. Moselle and British Columbia Minister of Energy and Mines Bill Bennett said the province struggles with the perception that Alaskans feel they are not being heard when that’s not the case. In a November interview with the Journal, Bennett said it is the province needs to do a better to highlighting the public involvement portion of mine reviews to quell Alaskans’ fears. Moselle said the environmental assessment reports for KSM list dozens of comments from stakeholders and how each comment is addressed or mitigated in the mine plan. “There is significant discussion about the downstream concerns that were raised by Alaskans” in the public comment period, he said. Moselle set up a Canadian Large Projects page on the state DNR website devoted to shedding light on the work that goes on between the governments regarding British Columbia mines. It also contains links to the comments the state submitted after its review of the KSM proposal. Part of the problem could be some individuals do not feel they are being heard unless their requests are granted, he said. In an interview, Zimmer said that despite the state’s best efforts Canadian officials can still do what they want without IJC intervention. “Canada is fully within their right at the end of the day to say ‘Thanks, but no thanks’” to the State of Alaska, he said. Moselle said he doesn’t know if IJC intervention is warranted in the case of KSM, but he encouraged Alaskans to take advantage of the public comment periods afforded them by during Canadian mine reviews just as they would for in-state projects. Elwood Brehmer can be reached at [email protected]

Business outlook positive amid oil price drop

“Slow and steady” was the motto for most of Alaska’s banks and credit unions in the third quarter. Total assets grew 3 percent combined at five of the major state banks for the quarter. Similar asset growth was 5.9 percent year-over-year. Northrim Bank had the largest year-over-year asset growth at 20.6 percent, following its acquisition of Juneau-based Alaska Pacific Bank. With 2.8 percent growth in the third quarter, First National Bank Alaska assets grew to more than $3.2 billion. All of the state’s major credit unions also saw year-over-year asset growth for the quarter as well. The largest percentage increase was at Denali Alaskan Federal Credit Union with an 8.7 percent asset expansion. Net income results were mixed compared to the second quarter but positive year-over-year at the banks. FNBA pushed its third quarter income to more than $9.3 million, an 11.5 percent increase quarter-to-quarter and had a 12.2 percent increase year-over-year. Northrim saw its income decline 9.6 percent from earlier in the year but achieved 16.6 percent income growth from the third quarter of last year. Fairbanks institutions Mt. McKinley Bank and Denali State Bank saw income growth on both comparisons. Mt. McKinley CEO Craig Ingham has a positive outlook on the year overall. “We’re projecting for 2014 to have a better year on net income after tax, but very comparable to last year,” Ingham said. The mixed results also extended to the credit unions. Alaska USA Federal Credit Union had a 28.7 percent decline in year-to-date income, while Credit Union 1 grew its net earnings more than 35 percent. The most significant increase was at Juneau’s True North Federal Credit Union, which had a 41.1 percent increase in income. Loan activity picked up slightly from the second quarter when businesses around the state waited for voters to settle the oil tax debate in August. Wells Fargo Alaska Regional Business Banking Manager Darren Franz said his company’s state portfolio will likely end up growing about $80 million when all of the third quarter loans are funded. “We’re still hanging in there at about $1.8 billion in commitments,” Franz said. While the retention of Senate Bill 21’s oil tax structure was generally viewed as positive in the business community, he said there is always a lag in investment, which occurred in the third quarter. Franz said he expects to see more investment by the first quarter of 2015. Loan portfolios grew year-over-year at nine of 10 major state banks and credit unions, with an 8.1 percent decline at Denali State Bank being the lone outlier. The number of small business loans increased at Wells Fargo, Franz said, and deposits did too. “We continue to see deposits coming in so that’s an indicator to us that companies in Alaska are definitely operating increasingly more profitably,” he said. He attributed the deposit growth to an overall conservative business climate lingering from the financial crash of 2008-09. “We had a bunch of people keeping a bunch of dry powder in the bank waiting to see how Senate Bill 21 would go and we’re over that,” Franz said. “All of a sudden we’re worried about how this political race might go; now we’re over that and all of a sudden oil prices are throwing the state in some red operations probably.” Past due loan totals — those up to 90 days late — decreased 7.7 percent overall at Alaska banks quarter to quarter, but grew about 50 percent at Mt. McKinley and Denali State Bank. Ingham said there is some seasonality to late loan payments and that while the percentage increased sharply it was not significant in terms of total dollars. The past due total at Mt. McKinley increased about $600,000 in the third quarter. “Some of the people that are past due when they get their PFD (checks) or whatever, they bring it current,” he said. According to Franz, Alaska’s economic climate should remain strong for the near term despite Alaska North Slope oil prices approaching $70 per barrel. “I continue to maintain I would rather be a banker with Wells Fargo here in the great state of Alaska than anywhere else in the world right now for a lot of reasons, but for one its pretty fun,” Franz said. “Things are moving forward and (are) a lot better than a lot of other places.” In Fairbanks Ingham said the bright side of low oil prices is the hope that the community could see a “pass through” that would lower heating oil prices for the winter. Elwood Brehmer can be reached at [email protected]

Sealaska nears completion of land deal in Defense act

Sealaska Inc. might finally be whole after the Dec. 3 announcement of a lands package agreement between the House and Senate. The broad package of lands bills would allow the Southeast Native corporation to select about 70,000 acres of the Tongass National Forest for timber production and historic preservation, according to a release from Sen. Mark Begich’s office. A release from Sen. Lisa Murkowski said the bill, which will be attached to the National Defense Authorization Act of 2015, is a balanced approach to land management that would support economic growth. Sealaska leaders have said for years the conveyances are critical to reviving the region’s fading timber industry. The latest Sealaska land bill, submitted in February 2013, allocated slightly more than 70,000 acres to the corporation; acreage owed to it under the Alaska Native Claims Settlement Act. Sealaska Vice President and General Counsel Jaeleen Araujo said in an email that the company is thankful for the work that went into the bill. “Sealaska is pleased that its land entitlement bill is included in the omnbibus lands package that is attached to the National Defense Authorization Act. We can now only wait in anticipation, along with the rest of the public, for further developments on the (act) as it moves through the process,” Araujo said. Sealaska requested nine timberland tracts totaling 68,400 acres. Both Begich and Murkowski sponsored the bill, which omitted about 26,000 acres of selections from northern Prince of Wales Island that had been in previous versions because of concerns raised by conservation groups about timber harvest in the area. “This package includes important provisions that will boost communities throughout our state, including the settlement and finalization of lands issues in Southeast Alaska; the conveyances of land for community development in Anchorage and at Wainwright,” Murkowski said in a formal statement. Murkowski is the ranking Republican on the Senate Energy and Natural Resources Committee and will chair the committee in the new Congress. About 150,000 acres of the Tongass will be put into “protected status,” Begich’s release states. “While this overall bill and this package are not perfect, through negotiation and hard work we have been able to move forward on development interests that advance Alaska’s economy,” Begich said. “This is a big win for Alaska and the regional communities in Southeast and Northwest Alaska.” The federal government will also sell the Wainwright DEW, a former radar station on the North Slope, to the Olgoonik Corp. if the bill passes. The legislation package was nearly six years in the making, according to Begich’s office. The first Sealaska land bill was submitted in 2007. Elwood Brehmer can be reached at [email protected]

Repsol plans $240M in drilling, seismic work for winter

Repsol is continuing its North Slope exploration with $240 million of drilling and seismic planned this winter company Alaska manager Bill Hardham said. The Spanish major will drill three wells and test two. It will also conduct a 360 square-mile 3-D seismic program, what the company calls the Horseshoe project. The Horseshoe area is south and west of the Colville River Unit and mostly south of the Greater Moose’s Tooth Unit. The Colville River bisects the area and a large portion of it is in the National Petroleum Reserve-Alaska. Hardham said Repsol will build 30 miles of ice road into its “focus area” that is the Colville River delta. “To date, we’ve invested approximately $650 million on our North Slope projects and we have another significant campaign planned,” Hardham said at the Resource Development Council for Alaska conference. All three of the wells will be in the Colville delta area on the eastern edge of the Colville River Unit, roughly the same area that Repsol has drilled most of its wells in previous years. Of the three wells it drilled during its 2014 winter program, two were on the delta and one was south of the Kuparuk River Unit to the east. Permits have been submitted for the drill areas and an ice airstrip at the head of the delta will allow the company to transport crews directly to the area, he said. Work on the seasonal infrastructure will commence as soon as conditions allow. This winter’s activity will require a largely contracted workforce of more than 500 people on the North Slope, Hardham said. Repsol operates in more than 30 countries and its U.S. headquarters are in Houston. When the 2015 winter season is over the company will have drilled nine wells on the Slope over the last three seasons, based on its current plans. Along with the three wells drilled last winter, Repsol tested two wells and conducted two 3-D seismic programs. The company had success with its 2013 drilling program. “We did end up discovering oil in all three wells” Repsol drilled in 2013 on the Colville delta, Hardham said. Repsol is the second-largest leaseholder on the North Slope, with more than 650,000 acres under lease. Its holdings are around the Colville and Greater Moose’s Tooth units on the western part of the developed Slope and south of the Kuparuk River Unit. Repsol became a player on the Slope in March 2011 when it partnered on about 500,000 acres of leases with Denver-based Armstrong Oil and Gas. It completed its first drilling campaign about a year later in April 2012. The company also has offshore leases in the Beaufort and Chukchi seas. Hardham said back in 2011 the state’s projected willingness to overhaul the oil tax structure was “instrumental in Repsol’s decision to enter Alaska.” Repsol’s $240 million is a small chunk of the large investment pool currently on the North Slope. Caelus Energy, which agreed to purchase Pioneer Resource’s Alaska operations in late 2013, announced a $550 million capital budget for 2015 on its Oooguruk and Nuna developments at the RDC conference. Meanwhile, ConocoPhillips’ 2014 capital plan for the state will total about $1.6 billion, according to the company’s Alaska president Trond-Erik Johansen. ConocoPhillips has also announced plans this year to add two drilling rigs to the Kuparuk River field. Each rig requires about 100 direct and indirect positions to operate it. Elwood Brehmer can be reached at [email protected]

Clean Air Act regulations could render Healy plant obsolete

Federal efforts to reduce greenhouse gas emissions could hit particularly hard in Fairbanks according to Alaska Department of Environmental Conservation Commissioner Larry Hartig. Golden Valley Electric Association’s Healy 1 coal-fired plant could be regulated off the Railbelt power grid if the Environmental Protection Agency implements its proposed Clean Air Act carbon standards. As is often the case, federal regulations designed to fit a Lower 48 model do not translate well to Alaska, Hartig said. The EPA first unveiled its proposed Clean Air Act Section 111 guidelines for limiting carbon emissions in June. The proposal sets a national goal for reducing carbon emissions from power plants by 30 percent of 2005 levels by 2030 as part of President Obama’s larger Climate Action Plan released in 2013. An extended public comment period on the pending regulations ended Dec. 1. It doesn’t fit Alaska because the state’s carbon emissions come from different sources than the Lower 48, where 32 percent of carbon greenhouse gas emissions were a direct result of power generation in 2012, according to the EPA. In Alaska, about 6 percent of greenhouse gases come from electrical generation. The difference is due to an overall denser population and more coal burning Outside, Hartig said. About half of Alaska’s emissions are from North Slope processing plants that burn natural gas and those are already efficient, he said. “It’s not a statement about the environmental performance of the oil and gas industry in Alaska by any means; it’s just that you have world-class facilities in a state that has relatively low population so it’s going to kind of dwarf everything else,” Hartig said. The Healy coal plant comes into play because it is one of the five plants in the state that fit the proposed regulation — at least 25-megawatt capacity, fossil-fuel burning plant that sells more than one-third of its power to a grid. The others are fairly efficient and generally newer Southcentral natural gas-fired plants. Another “major stumbling block for Alaska,” Hartig said, is the fact that the state has six small Railbelt utilities and piecemeal ownership of its antiquated transmission grid. That limits the ability to sell cheaper, cleaner Southcentral power to Fairbanks, he said. State studies have put about a $900 million price tag on needed upgrades to Railbelt transmission lines, which choke to just a single line in some places. Additionally, the coal-fired power from Healy is some of the cheapest Golden Valley has and the plant is not ready for retirement, according to Hartig. It still carries debt. In the event that a new plant would have to be built, he said, “You’re paying for the new plant; you’re paying for the old plant; you’re paying for transmission and if you’re in Fairbanks you already have some of the highest costs in the country for power.” The president’s plan calls for final regulations to be issued no later than June 1, 2015, and for states to submit how they plan to hit the goal by the end of June 2016. If the regulations are implemented as currently proposed by the EPA, it would force a transformed relationship between the utilities and the Regulatory Commission of Alaska to come up with a suitable plan, Hartig said. “What the state’s doing is we’re working collaboratively with the Alaska Power Association; we’re working with utilities, the Regulatory Commission, The Alaska Energy Authority, the (Attorney General’s) office to carefully review this rather complex proposed rule and the impact it could have on Alaska,” Hartig said. If the State of Alaska is to reach its goal of 50 percent of Railbelt electricity being produced from renewable sources by 2025, which would almost certainly require construction of the $5.2 billion Susitna-Watana dam, Hartig said more focus would have to be put on power generation projects. Rural renewable projects often sponsored by the Alaska Energy Authority’s Renewable Energy Fund would not lower emissions based on the Section 111 proposal because they are not tied into a grid. While the state has put resources towards energy efficiency in urban areas much of it has been for heating efficiency, such as the Alaska Housing Finance Corp. energy rebate and loan programs. “We may think we’re doing all these great things, but they don’t impact greenhouse gas emissions as they’re being regulated under this proposal,” Hartig said. Elwood Brehmer can be reached at [email protected]

Federal judge orders EPA to halt pending Pebble action

The Environmental Protection Agency’s proposal to block Pebble mine is on hold after a Nov. 24 federal court ruling. U.S. Alaska District Court Judge H. Russel Holland ordered a preliminary injunction be put in place on the EPA’s Clean Water Act Section 404(c) process in the Bristol Bay region. The ruling came immediately after oral arguments on a motion for the injunction filed by Pebble Limited Partnership in its lawsuit against the EPA. Pebble claims the 1,000-plus page Bristol Bay Watershed Assessment, the document on which the EPA based the need to take action against mine development, is biased and flawed. Pebble CEO Tom Collier said in a formal statement the ruling is important because it prevents the EPA from continuing its process to ban the mine. If a final agency determination were reached prior to a final ruling in the case, the court could not repeal the agency’s action. “The court today granted our preliminary injunction blocking EPA from taking any further steps in the 404(c) regulator process it has initiated at Pebble before Judge Holland is able to issue a final decision on the merits of our case,” Collier said Nov. 24. “We expect this case may take several months to complete. This means that for the first time EPA’s march to preemptively veto Pebble has been halted.” The EPA has the authority under Section 404(c) of the Clean Water Act to ban specific development projects it deems would cause a significant adverse impact on fish and wildlife because of fill placement. Trout Unlimited Alaska Director Tim Bristol said in a formal statement the ruling does not prevent the EPA from eventually using the science in the assessment. Trout Unlimited has been a lead organization in the fight against Pebble. “This decision is far from damning, but it does nonetheless represent an unfortunate example of Pebble throwing up legal and procedural road blocks against scientific fact and the will of Alaskans, which has consistently spoken out against Pebble mine,” Bristol said. “Moving forward, we hope the legal process is quickly and fully resolved so the people of Bristol Bay can get back to living their lives, running their businesses and making investments with an eye on a fish-filled and mine-free future.” It is the second suit Pebble has brought against the agency heard by Holland. He dismissed a prior case Sept. 26 on several of Pebble’s claims because the EPA has not made a final decision. The State of Alaska intervened on Pebble’s behalf in that case. The agency announced its intent to begin the 404(c) process in late February, about a month after the final Bristol Bay Watershed Assessment was released. It typically takes about a year to complete. EPA Region 10 officials are quick to note the authority has only been used 13 times since the Clean Water Act was enacted in 1972. While the law does not specify when the agency can use its authority, the copper-gold Pebble project would be the first instance in which it was used prior to a formal project plan being released. Pebble’s first lawsuit challenged the EPA’s authority to block a project prior to a wetlands permit application being submitted to the U.S. Army Corps of Engineers, which evaluates such applications. The EPA has ultimate say, however, and can veto a project even if the Corps approves the application. Holland ruled that Pebble attorneys raised “serious questions” as to whether working groups that contributed to the watershed assessment document were subject to the Federal Advisory Committee Act, which attempts to ensure the advice agencies receive from such groups is objective and the process is public. Pebble contends emails sent as the assessment was formed from 2011-2014 between EPA Region 10 staff and mine opposition groups including Trout Unlimited Alaska and the United Tribes of Bristol Bay prove the agency had a predetermined agenda to block the mine. The EPA Inspector General’s Office initiated a review of the Bristol Bay Watershed Assessment earlier this year. That review is ongoing. Pebble attorney Roger Yoerges argued anti-mine groups and the agency worked together to form the assessment. “The EPA specifically reached out to groups who it knew what their opinion was,” Yoerges said. The agency was seeking advice to advance a common agenda, he said. Department of Justice civil division attorney Brad Rosenberg for the EPA said the agency had an “open door” policy to groups on both sides of the issue and did not shun Pebble while it developed the assessment, as the mine developers claim. “The fact that EPA was receptive to the belief of multiple environmental groups should not be a surprise to anyone,” Rosenberg said. Pebble’s Collier said after the ruling that the company’s accusation that the EPA colluded with environmental groups is based on documents disclosed in Freedom of Information Act requests. “The documents we have been able to review thus far disclose more than 500 contacts between EPA and activists,” he said. “We fully expect that once we have access to all documents that there may be many times that number.” Holland also said Pebble is likely to suffer irreparable harm if it is not allowed to litigate the case because, “The 404(c) action underway now could result in ‘no action,’ but it isn’t headed that way,” Holland said in preparation to issue his ruling. He ruled against Pebble’s claims that it faced economic hardship as a result of the EPA’s actions. The preliminary injunction would only lead to a temporary delay in the agency’s actions at this point, he said, as public testimony on the Pebble 404(c) process has closed. After issuing his ruling, Holland ordered Pebble to file an amended complaint. He called its original 138-page complaint an “outrageous violation” of court procedure guidelines. Whether the EPA would suspend its motion to dismiss and file a second dismissal motion based on a revised complaint, Holland asked the parties to meet and agree on a procedural path forward by Dec. 2. Elwood Brehmer can be reached at [email protected]

Refurbished Port of Anchorage cost estimated at $485M

It will likely cost nearly another half a billion dollars to upgrade the Port of Anchorage according to the project managers. The Anchorage Port Modernization Project team revealed its concept design selection to Anchorage Assembly members at a Nov. 21 work session. “This is an out-the-door cost; it’s everything,” CH2M Hill project lead Lon Elledge told the Assembly. Selected by Mayor Dan Sullivan and the Assembly last spring, engineering and consulting giant CH2M Hill is the latest management firm for the port construction project. The U.S. Maritime Administration, or MARAD, led the previous iteration, the Port of Anchorage Intermodal Expansion Project, for nine years. The municipality cut ties with MARAD in 2012 after major construction damage was discovered. No significant work has been done to Alaska’s largest marine hub since 2010.  The group of CH2M Hill project and port leaders said the concept design was selected unanimously — one of four that came out of a weeklong design charette with stakeholders held in August. Done to high-level, 15 percent completion, the project team has a 60 percent confidence that the overall cost will come in under $461 million and is completely confident it can be done for less than $628 million, Elledge said. The cost estimates are based on construction beginning in 2016. With full funding it would be finished in 2022, he said, nearly 20 years after work began. Port Engineer Todd Cowles said the main goal of the new project is simple. “We’re focusing on our existing business and expansion of that business,” Cowles said. At more than 50 years old, the steel piles that support the dock structures are badly corroded. The port spends more than $1 million per year maintaining them. The latest design uses traditional pile-supported docks and eliminates the sheet pile used in the earlier design. At $485 million, the municipality would need to secure an additional $355 million; it has about $130 million remaining from prior funding. Since 2002, nearly $439 million of municipal, state and federal money has gone towards Port of Anchorage construction and a little more than $300 million of that has been spent. The State of Alaska contributed $220 million in bonds and direct appropriations through 2012. Sullivan said in an interview the state would be the focal point of the municipality’s hunt for additional funding, but also said federal transportation loans and the Defense Department could be other options. The Port of Anchorage is listed as a strategic port by the Department of Defense, a factor that has played into some design considerations. He noted that the port benefits all of Alaska — roughly 85 percent of goods to the state enter through the Port of Anchorage — and that the municipality has already financed $80 million of work. As oil prices fall and the state budget situation worsens, Sullivan said he is aware large direct appropriations will be hard to come by. “Remember, the state and the municipality still have AAA bond ratings,” he said. Incoming Gov. Bill Walker has said repeatedly he would focus on finishing important infrastructure projects across the state rather than starting new ones. If there is one that needs to be finished, it’s the Port of Anchorage. All of the designs remove nearly half of the 35-acre North Extension backlands created during construction of the earlier, discontinued project. Cutting back the filled area will allow for more direct current flow past the existing and future port terminals and subsequently improve scouring, which would reduce some of the need for dredging. The U.S. Army Corps of Engineers spends up to $10 million per year to dredge the area around the Port of Anchorage. After cutting the North Extension, Phase 1 of the project entails demolishing the port administration building, which currently sits near the water and the main terminals, and building a new one near the security office. It also includes construction of a new point of loading, or POL, dock at the southern end of the port near the cement area. Phase 2 would involve filling a small area behind Terminal 1 and moving Terminal 1 out to where a depth of 45 feet can be achieved. The current dock is at roughly 35 feet. During phases three through five terminals two and three would be demolished and subsequently pushed out 100 feet or more to be in line with Terminal 1. The port’s main tenants, Totem Ocean Trailer Express and Horizon Lines, would be moved just once under the concept, a big advantage to it, the team members said. “(The concept) gets a thumbs up from us,” TOTE Alaska Director George Lowery said. In the final phase, existing POL 2 would be pushed out to be in congruence with the other terminals. When CH2M Hill was selected as project manager Sullivan said the company would not be involved in new designs. CH2M Hill, which conducted the study that found the sheet pile design unsuitable for the port and led to lawsuits against former project players, will lead design to the 35 percent level. That work should be done by May 2015. From there a design-build team will be secured over the summer and the final design elements will be developed. CH2M Hill will not be the designer of record, Sullivan said. Environmental permits from the previous project will have expired by the time construction starts and will have to be secured as well. Elwood Brehmer can be reached at [email protected]

Caelus' Nuna plan to advance with lower royalty rates

Caelus Energy’s Nuna development can move forward with lower royalties on production. Alaska Department of Natural Resources Commissioner Joe Balash approved a 5 percent royalty rate for five Nuna leases Oct. 29. The 5 percent rate will remain until Caelus grosses $1.25 billion from production at Nuna, the company’s projected investment cost, according to the royalty modification application. Nuna is on an onshore Torok sand formation wholly owned by Caelus. The independent also is a 70 percent owner and operator in the nearby Oooguruk offshore island development. Once payout is reached, the original terms will be put back in place. The original royalty terms on four of the leases call for a 30 percent net profit share and a 12.5 percent royalty. The remaining seven had a 16.7 percent royalty rate. Caelus Alaska Senior Vice President Pat Foley said Nov. 20 that while there could be up to 100 million barrels of oil in Nuna, it would be a challenge to get it out of the ground. “The question on Torok is what is the recoverable portion,” Foley said. DNR justified the modification because Nuna production should provide the state with $1.4 billion in overall net present value. Caelus agreed to purchase the Oooguruk leases from Pioneer Energy Resources in Oct. 2013. The $550 million sale was finalized in April of this year. It applied for the royalty modification July 1. Caelus claims the modification is necessary to make recovering the oil economically feasible. The company told DNR it would not advance Nuna without the royalty adjustment, according to the approval document. Caelus had applied for modifications to 11 leases, but because only five are anticipated to be produced, they are the five approved for royalty reduction, DNR states. Foley said the company is working on a “super quick” timeline to develop Nuna. Gravel will be laid this winter and two large 3D seismic acquisition programs are expected as well. First oil is tentatively scheduled for fall 2016, he said. DNR is requiring Caelus to invest at least $260 million in Nuna facilities by March 31, 2017, as a major term of the royalty modification. The department set the same deadline for initial production or the modification will be rescinded, among other terms. Nuna production facilities will be installed next winter and a total of 30 wells will be drilled — half production and half injection. All of Caelus’ wells are fracked. “We are the leading fracking company on the Slope right now,” Foley said. The company is working to find the “sweet spot,” he said, when it comes to how much sand should be injected into fracked wells on the Slope. Caelus is looking to expand the Oooguruk island by about 30 percent as well, he said. Growing the gravel island should allow for 12 new well bays to reach additional resources, Foley said. Between Nuna and Oooguruk, the company has a $500 million-plus capital budget for Alaska in 2015, he said. Permits to expand Oooguruk have been secured from the state and North Slope Borough and discussion are ongoing with federal agencies, according to Foley. Caelus was the largest acreage bidder on state North Slope leases, he said. Winning bids were announced Nov. 19 and the company secured 126 tracts totaling 325,000 acres. Its total bid was about $15 million. “One thing about Caelus is we’re not going to let the grass grow under our feet; pace is everything,” Foley said. “We’re not going to be careless but we’re going to move as fast as we can.” Elwood Brehmer can be reached at [email protected]

ConocoPhillips targeting 62,000 new barrels by 2017

ConocoPhillips’ North Slope work could add up to 62,000 barrels of oil per day to its production by late 2017, according to Alaska President Trond-Erik Johansen. The production would come from four projects on the western Slope, where ConocoPhillips is the primary operator. Early work to get to the reserves pushed the company’s capital investment on the North Slope to more than $1.6 billion this year, Johansen said. That’s up from just more than $1 billion in 2013. “This year we are going to spend about twice the amount we have done on average (on the Slope) since 2008,” he said to Resource Development Council for Alaska conference attendees Nov. 19. The developments will require about 1,450 construction jobs as well, he noted. ConocoPhillips’ biggest project in terms of projected production is its Greater Moose’s Tooth-1 in the National Petroleum Reserve-Alaska, at about 30,000 barrels per day of peak oil with initial production by late 2017. Johansen said the company is doing detailed engineering work on the 8.6-mile gravel road needed to get to the pad site. The Bureau of Land Management issued a final supplemental environmental impact statement for the road Oct. 29. Wetlands permits are being pursued through the U.S. Army Corps of Engineers and Johansen said he hopes BLM will sanction the project so construction can begin by early February at the latest. “If it takes longer this project will be delayed a year because of the ice road seasons,” he said. GMT-1 will cost about $900 million to fully develop, according to Johansen. The company’s $1 billion CD-5 development is on its way to first oil a year from now. Johansen said production should peak at 16,000 barrels per day sometime in 2016. “CD-5 is going to be the first element in the fight against (production) decline,” he said. A six-mile road to the drill site and the gravel pad have been completed and work on a 1,400-foot bridge over the Nigliq Channel of the Colville River is underway. Johansen said the bridge sections are being skidded out on rails to the nine supporting piers rather than being put in place with a crane to maximize safety and minimize environmental impact. Installation of a pipeline, power and production facilities along with drilling activity are all on tap for the coming year, he said. Smaller developments, Shark Tooth-1 and 1H NEWS (Northeast West Sak), in the Kuparuk Field will add about 8,000 barrels per day each, he said. ConocoPhillips is about a 55 percent working interest owner in Kuparuk. Shark Tooth-1 is a new drill site on the southern tip of Kuparuk. The target there is thin sands on the edge of the field, Johansen said, that were previously undiscovered. With $500 million of total investment, first oil should come in late 2015 from Shark Tooth-1. A challenging viscous oil development is the 1H NEWS that will require some ingenuity. “We are going after it with some very smart but very expensive technology,” Johansen said. The plan is to drill five horizontal production wells and 14 vertical injection wells. The injection wells will have chokes on them to regulate water flow to optimize specific areas of production, he said. Funding approval for 1H NEWS is expected early next year with first oil in early 2017. The larger projects are on top of increased drilling activity throughout Kuparuk with new rigs. Since mid-2013 ConocoPhillips has added two Nabors drill rigs to the field and increased production through workovers and new wells. “Through September we added 8,000 barrels per day just on this rig program from these two rigs,” Johansen said. “That was just through September; I think the latest number I saw was closer to 9,000 barrels a day now.” Johansen also announced Nov. 19 that ConocoPhillips agreed to add another Nabors rig to the field. In July, the company announced a contract with Doyon Drilling to build a new rig for the field. Each new drill rig requires a direct and secondary workforce of about 100 people. The added drilling and subsequent production has helped slowed Kuparuk’s annual production decline from about 7 percent in to 1 percent over the last two years, Johansen said. “Stop the decline; that’s what it’s all about isn’t it?” he said. Elwood Brehmer can be reached at [email protected]

Hearing set in state lawsuit seeking new ANWR exploration

The State of Alaska will have its day in court to push for oil and gas exploration in the Arctic National Wildlife Refuge. Alaska U.S. District Court Judge Sharon Gleason granted a motion for oral argument Nov. 21 on the state’s motion for summary judgment in its case lawsuit to force the Interior Department to approve a state exploration plan for ANWR. The hearing will be held Jan. 20 at the federal courthouse in Anchorage. U.S. Fish and Wildlife Service Director Daniel Ashe denied the exploration proposal, submitted in July 2013, in September of that year. His decision was based on a 2001 Interior Department solicitor general opinion that the department’s authority to permit activity in the refuge expired in 1987 when a report on previous 2-D seismic exploration of ANWR’s coastal plain was completed. The state is proposing a higher quality, 3-D seismic survey and has said it would put $50 million towards the effort. If results from a first year of work were encouraging, the state would seek partners for a second year. Modern seismic imaging can greatly increase the success rate of subsequent exploratory drilling. Any drilling program would still have to be approved by Congress. The state’s case is centered on language in the 1980 Alaska National Interest Lands Conservation Act. ANILCA designated most of the 19.2 million-acre refuge as wilderness, except for the 1.5 million acres of coastal plain known as the 1002 area. The Interior Department has argued that Section 1002 of ANILCA, which lays out oil and gas activity guidelines in the refuge, is silent on when its authority to allow exploration expires. According to the State of Alaska, the wording is clear that the Interior secretary “shall,” as the law states, approve a plan within 120 days of submittal if it meets environmental guidelines. The only timeline restriction in ANILCA was a two-year moratorium on exploration that began immediately after it was passed, the state contends. In its reply to Interior’s opposition to summary judgment filed Nov. 11, the state says the department is wrong in its assertion that ANILCA is ambiguous regarding a sunset provision because it ignores parts of Section 1002. The Interior Department claimed in its Oct. 14 opposition to summary judgment motion that Congress “implicitly left a gap for the agency to fill” in the wording of ANILCA. Interior’s interpretation of Section 1002 is that it cannot authorize any further exploratory activity after the 1987 report to Congress was submitted. “On its face, ANILCA is silent as to the deadline by which exploration plans must be submitted to the (Interior) secretary,” the department’s motion states. The Alaska Native Gwich’in Steering Committee, Resisting Environmental Destruction on Indigenous Lands, Alaska Wilderness League, Center for Biological Diversity, Sierra Club and other environmental groups have joined the Interior Department as intervenor defendants in the case. Elwood Brehmer can be reached at [email protected]

Hilcorp buys Point Mac LNG plant

Hilcorp Energy has agreed to purchase the Southcentral liquefied natural gas plant that supplies Fairbanks Natural Gas. Fairbanks Natural Gas President and CEO Dan Britton said the prospect of the sale was spawned from discussions between the companies on how longer-term gas supplies could be secured. Titan Alaska LNG, a partner company to Fairbanks Natural Gas under Pentex Natural Gas Co., operates the Point MacKenzie LNG plant. Britton is also president of Titan. There is currently a gas contract in place from Hilcorp through 2018 to supply the plant. Hilcorp Alaska Vice President Kurt Gibson said Nov. 21 that the sale agreements were signed “several days ago.” The sale is tentative pending approval from the Regulatory Commission of Alaska. Hilcorp spokeswoman Lori Nelson said acquisition of the plant would mark the company’s first foray into LNG. “The Titan plant basically represents an opportunity for us to expand within the state to Fairbanks where less expensive energy is certainly something they are looking for and we have the opportunity to provide,” Nelson said. Financial terms of the sale were not disclosed. The plant will be operated by Hilcorp’s subsidiary Harvest Alaska because it is a midstream asset. Britton said Hilcorp has the resources and the will to expand LNG processing, another reason for the sale. “We were having ongoing discussions around expansion of the facility and how we might facilitate that,” he said. “Those discussions led to the transaction that we have today.” Expansion plans won’t be formalized until the sale is approved, according to Nelson. She said Hilcorp is working to secure equipment necessary to grow the plant. Titan’s LNG trailers and two LNG-powered trucks are included in the sale, Britton said. The company’s also put in place a 10-year LNG supply agreement for up to the equivalent of 0.95 billion cubic feet, or bcf, of gas annually, which covers what the utility’s current customer base demands, according to Britton. The plant has the peak production capacity to process slightly more than 1 bcf of gas per year. Fairbanks Natural Gas has about 1,100 mixed residential and commercial customers in the city’s core. It is in the midst of a multi-year expansion to its gas distribution network. The first phase of distribution construction was financed by the Alaska Industrial Development and Export Authority as part of the state-sponsored Interior Energy Project — a plan to truck North Slope LNG south to the Interior by late 2016. Gibson said the 10-year supply agreement is essential because the Point MacKenzie plant is the only option for getting gas to the Interior now. “For now, (Fairbanks Natural Gas) needs to know they’ve got a secure supply and turning loose of the plant from their perspective, I think, was conditioned on making sure that they have a long-terms supply of natural gas,” Gibson said. The producer has recently signed five-year supply contracts with larger Southcentral utilities. An integral part of the plan, Britton said his company is still committed to the Interior Energy Project. “(The Interior Energy Project) has challenges that the parties are all trying to overcome,” he said. “For Fairbanks Natural Gas, what we want is LNG available for expansion. We want that available in the most secure and cost effective manner as we can and this transaction with Harvest Alaska I think opens up an alternative opportunity.” Hilcorp has discussed its plans with AIDEA and is not looking to compete with the Interior Energy Project, Gibson said. No decisions have been made as to what will happen to Titan, but given the current situation the company “essentially goes away,” according to Britton. Elwood Brehmer can be reached at [email protected]

LNG Project team ready to work with Walker

It’s full steam ahead on the Alaska LNG Project as the state prepares for a change in leadership at the capital. ConocoPhillips Project Manager Mike Britton said more than 255 people participated in more than $30 million worth of fieldwork on the project during the 2014 season. There are about 130 people working at offices in Anchorage, Houston and Calgary, Alberta, on the plan to export liquefied North Slope gas. Britton is stationed in the Houston office. “This is a marathon, not a 100-yard dash,” he said. The Alaska LNG consortium filed for its export permit with the U.S. Department of Energy in July. It filed its first application with the Federal Energy Regulatory Commission to begin the pre-filing process in early September. “The document filing with FERC will be ongoing for the next three years,” Britton said in a speech Nov. 18 before a gathering of the Export Council of Alaska and World Trade Center Anchorage members. The group also purchased about 300 acres over the summer on the Kenai Peninsula for the possible LNG plant site. In the near term, the pre-front end engineering and design, or pre-FEED, work will continue for at least another year and a half. This stage of the project will cost about $400 million to $500 million. During his unsuccessful campaign for reelection, Gov. Sean Parnell warned that opponent Bill Walker’s skepticism of the deal Parnell championed could delay or even halt the effort. Walker, who has advocated LNG exports for decades in various roles, told the Journal in October that he is pleased with what has been done, but that the confidentiality of the agreements concerns him. Walker also said he is skeptical of ExxonMobil’s lead role in the project, a sentiment based on previous dealings with the company. Britton made note of the fact that all of the FERC filings will be available for public review on the project’s website. World Trade Center Anchorage Executive Director Greg Wolf said he does not want to see the momentum lost. “We’re hopeful that the new governor will recognize that we truly have made historic progress on the Alaska LNG project,” Wolf said. The Alaska LNG team will have to work with multiple administrations through the development of the project and it is prepared to bring Walker and his team up to speed, Britton said. He also said confidentiality agreements are being signed by the involved parties so key project information can be transferred to the Alaska Gasline Development Corp. if the large export plan falls apart. AGDC could then use what has been done on the Alaska LNG Project to further its state-sponsored Alaska Stand Alone Pipeline, or ASAP, to provide gas to Alaskans. Britton noted that this project is the first one that all three major North Slope producers have bought into. Along with BP, ExxonMobil and ConocoPhillips, TransCanada, a Calgary-based pipeline company, would share ownership of the North Slope processing facility and the 800-mile pipeline to Nikiski. The State of Alaska would own 25 percent of the LNG plant at Nikiski through the Alaska Gasline Development Corp. and the producers would share in the remainder of the plant. The entire project is estimated to cost between $45 billion and $65 billion. The state has an option to purchase 40 percent of TransCanada’s interest in the pipeline, but it must do so by 2016, before construction. On the current timeline first gas is expected sometime in 2024. Britton said the group is continually working to drive down the cost of the gas supply. Most mega LNG projects around the world to not require the major pipeline that this one does, which adds billions of dollars to the project. “We looked at the economics, and whilst they’re not robust, if we’re able to control cost and reduce risk they’re in range of being acceptable,” he said. The large project currently has plans for five off-take points, the exact locations of which need to be worked out with the state, Britton said. Walker has said he would kill the ASAP work to put limited state resources on one project. AGDC received $355 million for the pipeline projects in the last fiscal year. Britton said the Alaska LNG group is largely indifferent to what happens with the ASAP project, but understands the state’s position and will support it as a fallback measure. Elwood Brehmer can be reached at [email protected]

DOD spending down, Corps finds other work

Military construction activity continues to decline across Alaska, but work with other federal agencies should keep government contractors busy. Overall, the U.S. Army Corps of Engineers expects to have $410 million worth of work available on more than 400 projects in the state during the federal fiscal year 2015, which runs from Oct. 1 to Sept. 30, according to Alaska Contracting Division Chief Chris Tew. That is about flat compared to the $416 million spent in fiscal year 2014. Not long ago that spending would likely have been driven by construction at military installations across the state; that’s not the case anymore. Tew said the Corps of Engineers has $144 million worth of military construction lined up on 15 projects, a decrease of 11 percent from the $162 million spent in the last fiscal year. Much of that work was done at Fort Wainwright. As recently as 2012, the Corps’ military construction budget was nearly $270 million. Tew said the decline in Defense Department work has been offset by work other federal agencies do not have the capacity to do on there own, such as the Federal Aviation Administration, the Bureau of Land Management and the National Oceanic and Atmospheric Administration. While much of the decline can be attributed to an overall directive to trim Defense Department spending, some of it is also a result of simply less needs at Alaska bases. “We sort of worked ourselves out of a lot of mission,” Tew said. At Joint Base Elmendorf-Richardson, the sole construction project is about $2 million of work on an access gate, said Al Lucht, with the Corps of Engineers 673rd Civil Engineer Group. Of $300 million appropriated for air base maintenance nationwide, Lucht said Elmendorf Air Force Base received about $20 million, and about half of that will likely go to paving the airfield and work on hangar doors. After an explosion of military investment that started in the early 2000s, the annual dollar figures are returning to the historical workload, Tew said. He added that he doesn’t see the contraction changing in the near term. The contracts with other agencies also tend to be smaller annual appropriations as opposed to the large, multi-year contracts available through DOD work, he said, which can present challenges but are much better than no work at all. “We’re in a lot better place than we thought we’d be in a year ago,” Tew told the audience at the Associated General Contractors of Alaska conference Nov. 13. Work often comes up after initial projections are made as well. He said the Corps of Engineers led about $75 million more work than it first contracted for in 2014. “There’s a lot more volatility within the Defense Department and federal government programs and projects than there previously was,” he said. At $130 million, environmental work is more than a third of the total fiscal 2015 budget for Alaska and makes up about half of the overall projects. Tew said the Alaska Division continually wins Army and DOD awards for its environmental program. He also said work in some of the state’s most remote communities needs to be coordinated with other projects to make them viable. “It’s just very cost prohibitive to make investments in some of these communities unless you try to group them together and get all the federal agencies to cooperate,” he said. The Corps of Engineers manages about $15 million of dredging and maintenance work annually across Alaska. Roughly two-thirds of that is at the Port of Anchorage. Corps of Engineers Alaska Construction and Operations Division Chief Pat Coullahan said the Municipality of Anchorage’s construction project at the port will require additional dredging in coming years. He also said the Corps will be announcing about 40 “one-off” dredging projects at ports and harbors across the state that typically don’t require maintenance, largely a result of changing weather patterns. When the Air Force announced Eielson Air Force Base as it preferred location for two Pacific squadrons of  F-35 fighters in August, Sen. Mark Begich said upwards of $170 million of construction could be expected at the base in preparation for the arrival of the 48 fighters in 2019. Coullahan said the beginning of that work won’t be seen for a year or two. “(In 2016 and 2017) some of the design work will be starting on simulators and other support facilities associated with the proposed F-35 bed down,” he said. Elwood Brehmer can be reached at [email protected]

Rare cargo options offered at Stevens Airport

Oh, the possibilities. Thanks to a little two-paragraph amendment by the late Sen. Ted Stevens to the 2004 Century of Aviation Reauthorization Act, the airport now named after the senator is open to more business opportunities than virtually any other hub on Earth. What can be done at Ted Stevens Anchorage International Airport would be cabotage other places — a federal crime. Airport leadership prefers to describe it differently. “What we’re doing is trying to find ways to contribute to the efficiency of the overall global supply, specifically the supply chain that connects Asia and North America,” Anchorage Airport Manager John Parrott said. A U.S. Department of Transportation exemption for Alaska in the Federal Aviation Administration authorization passed in 2004 allows cargo landed in the state on its way to and from the Lower 48 to be shuffled among planes and carriers at that time without being subject to federal regulations. It is still considered to be on its international journey. “Nowhere else in the world, in a significant country, is a foreign carrier allowed to pick up cargo within a country, take it to another place in that country and offload it,” he said. While the exemption must be renewed every two years, it’s understood that it won’t be vacated for the foreseeable future. “The U.S. Department of Transportation recognizes that Alaska is part of the United States, but it is so different geographically that it can in some cases be treated as a separate country,” Parrott said. The options are also available at Fairbanks International Airport. However, being the much larger of the two, Anchorage attracts the cargo flights. Ask Parrott to describe the cargo transfer options only if time is abundant. A simple question can spur an hour-long onslaught of information that is a history, economics and logistics lesson wrapped in one. A white board is helpful. He is eager to market his airport and its potential. Parrott begins his lesson in the early 1970s, when international passenger traffic was king in Anchorage. Before the Soviet Union opened its airspace, planes flying between Europe and Asia made a technical stop in Anchorage to refuel while on the circumpolar route. “I skipped the part where the earth cooled and dinosaurs roamed,” he quipped. As Boeing’s 747 became the de facto choice for trans-ocean travel later in the decade, it was believed the stop in Anchorage would become obsolete, Parrott said, but that didn’t happen. Rather, the passenger business in Anchorage collapsed with the Berlin Wall and the opening of Russia’s skies.  Fortuitously, Asia’s manufacturing industry and FedEx were growing rapidly at about the same time and Anchorage International Airport quickly transitioned from a passenger stop to one of the world’s busiest cargo hubs — a title it retains today. Anchorage was the fifth-busiest cargo airport in the world over the last year, according to the Airports Council International, with nearly 2.5 million metric tons of freight landing at the airport. Domestically, it was second behind Memphis International, FedEx’s homeport. Cargo vs. fuel The cargo business is a result of basic economics. Even with most major cargo airlines flying the latest and long range capable 747-8s, it makes economic sense for the jumbo jets to carry more cargo and less fuel — thus making a technical stop in Anchorage — on their way from Asia to North America, rather than sacrifice carrying capacity to fly direct. Parrott said the latest 747s can make a trans-Pacific flight if about 100,000 pounds of cargo capacity is sacrificed. “At a dollar a pound, that’s $100,000 for stopping here” per flight, he said. Extrapolated out to multiple flights per day it can man hundreds of millions of dollars per year for some of the major carriers. While the stop isn’t free, the roughly $10,000 in landing fees and extra crew costs still easily pencil out, according to Parrott. If they didn’t, one wouldn’t see a mix of Cathay Pacific, Eva Air, Korean Air, China Airlines, FedEx and UPS cargo planes among others in Anchorage at any given time. It’s here where the cargo transfer possibilities begin to take off. Almost all of the dedicated cargo traffic headed to the Lower 48 through Anchorage is destined for another major cargo hub, likely Chicago, New York City or Los Angeles. From there, the goods are sent out by land in a web of distribution networks. As Parrott put it: “Wouldn’t it be cool if we could have (goods) land somewhere near their final destination to start with rather than going to Chicago, then getting on a train or truck and then getting on a smaller vehicle? The fewer steps you have, the less handling you have, the less chance for breakage, pilferage, shrinkage and time, if you’re paying for air cargo time, is probably a part of that equation.” The U.S. Department of Transportation first expanded cargo transfer rights at then-Anchorage International Airport to on line transfers between flights by domestic and foreign carriers in 1996. It also permitted commingling of domestic-bound cargo with that ultimately bound for elsewhere on a single flight. Last, it allowed for change of gauge, or starburst, movement — the transfer of cargo from one plane to another with the same flight number. The Stevens Amendment liberalized those allowances even further. Now, domestic freight forwarders can purchase space on flights and act as the domestic carrier because they “own” the cargo. It can all be done without prior approval at any time. “The ultimate in cargo transfer we talk to folks is: ‘What if you fly, even on a small basis, you fly a 747 to Alaska and you have three (Boeing) 767s and you load up your 767s with the cargo and you fly one to Chicago, one to Atlanta and one to New York?’” Parrott said. “The 767s could be foreign flagged and never go back to their home country. They could spend their entire lives here until they were worn out doing nothing but connecting for a foreign air carrier in the Lower 48.” Such a starburst operation would likely require the carrier to have an office in Anchorage and foreign aircraft certification, he said, but little more. On its face, the logistical freedoms should encourage shippers to take advantage of the efficiencies that can be gained when they stop in Alaska and encourage those who aren’t stopping here to try to do so. Rarely is something that simple, and this case is not an exception. Making the sale Parrott said when the airport’s marketing team — himself and operations manager Trudy Wassel — explain to carriers what can be done in Alaska, they are met with consistent skepticism about the legality of the opportunities. “One of our challenges is the uniqueness of this and the lack of any approval required is such a strange business concept that it’s difficult for the carriers to believe at first,” he said. “They look at you like you have a third eyeball.” Carriers have come close to starburst operations, but no one has taken the leap. The key is building up a corporate memory about the cargo transfer options by continuing to drive home the message, Parrott believes. Other challenges include a lack of trust between competitors. Getting two carriers to agree to meet in Anchorage to swap cargo is inherently difficult. “Both airlines when you talk to them will tell you the idea’s great but ‘Those guys are never on time. We’re always on time, but those other guys are never on time,’” Parrott said. In the past, Northwest Airlines partnered with Korea Air when the latter could not fly in China to transfer cargo in Anchorage. The pair would swap cargo and send planes off to Chicago and Atlanta several days per week, he said. When Delta Air Lines absorbed Northwest, that went away. Japan Airlines also mingled cargo in Anchorage on flights coming from different cities inside its home country until it got out of the cargo business, so it has been done. Going forward, airport officials are partnering with the Anchorage Economic Development Corp. on ways to attract business to Alaska that could benefit from the Foreign Trade Zone at the international airports. AEDC President and CEO Bill Popp said his group managed a study that determined four industries — aerospace-aviation, electronics, auto parts and pharmaceuticals — could find Alaska’s opportunities advantageous. A business in one of these industries could fly its product to Alaska from the Lower 48 or elsewhere, conduct simple value-added manufacturing at a facility at the airport and then fly it directly to its destination, thereby cutting out a transportation leg. Popp said AEDC and the airport team are planning a three- to four-year effort to “mitigate the unknown” for prospective businesses. “Right now, we face what seems to be a first mover disadvantage; nobody wants to be the first to try this,” UAA Logistics Professor Darren Prokop said. If the numbers pencil out for someone, Popp said even one new business could be a big deal to a small market like Anchorage. “Twenty to 30 jobs relating to this could be a big deal. If that’s what the number is those are good paying jobs,” he said. “They have the economic multiplier that we seek in the job attractor work that we do.” Elwood Brehmer can be reached at [email protected]

AIDEA sells interest in jack-up rig for $25.6 million

The Alaska Industrial Development and Export Authority sold its stake in Kenai Offshore Ventures for $25.6 million and the Endeavour jack-up rig is on its way out of Cook Inlet, the authority announced Nov. 14. Ezion Holdings Ltd. and its subsidiary Teras Investments approached AIDEA to purchase its share of Kenai Offshore Ventures after the joint-venture company was unable to secure long-term work for the Endeavour in the Inlet. “The Endeavour helped spur a renaissance of exploration in Cook Inlet, and was key in the discovery of a major oil and gas find in the Cosmopolitan unit. The rig’s presence in Alaska promoted significant job creation and economic activity in Cook Inlet,” AIDEA Executive Director Ted Leonard said in a release. The sale price includes the original investment and a remaining dividend due to the authority, according to spokesman Karsten Rodvik. With just more than $4 million of dividends in 2013 and 2014, AIDEA will clear about $5 million when the sale closes on Jan. 31, 2015, Rodvik wrote in an email. AIDEA bought into Kenai Offshore Ventures as a preferred investor for $23.6 million in 2011. The state development authority is a self-supporting enterprise that pays an annual dividend to the State of Alaska. The Endeavour will head to South Africa on a heavy lift vessel pending final AIDEA approval, the release states. AIDEA Director of Asset Management Jim Hemsath said the partnership in the Endeavour helped spur another joint financing of a North Slope oil and gas processing facility at the developing Mustang Field, along with being a part of the recent Cook Inlet rejuvenation. He also noted that AIDEA is in discussions about the potential of new oil and gas facilities and bringing a new drill rig to the Inlet. “We remain bullish on Cook Inlet,” Hemsath said. Originally, now-bankrupt Buccaneer Energy Ltd. partnered with AIDEA and Ezion to bring the jack-up rig to Alaska. Buccaneer sold its 50 percent share in Kenai Offshore Ventures to Ezion for $23.9 million in January. At the time Buccaneer said the proceeds form the sale would be used to finance capital expenses and repay debt. Elwood Brehmer can be reached at [email protected]

Port Mac rail extension needs $120M more from state

The state will need to pony up nearly $120 million to finish the Port MacKenzie rail extension to keep business opportunities alive, according to Matanuska-Susitna Borough leaders. The borough will officially request a $119.5 million capital appropriation from the Legislature during the upcoming session. Overall, the 32-mile rail spur from Houston to Port MacKenzie will end up costing $303.5 million, or $31 million more than the $272.5 million price tag once affixed to the project. Borough Manager John Moosey said the cost increase — just more than 11 percent — is due primarily to earlier funding delays. Last legislative session, the Mat-Su Borough got $13 million for the project after asking for $60 million. He noted that the estimate near $300 million is in line with the project’s earliest cost forecasts. Those were paired down to the $272.5 million projection in 2008, a figure borough officials used as late as this past summer. If the project would have been fully funded from the beginning it would have been done in 2013, Moosey said. “When the funding started rolling in we thought the rail would already be completed and traffic would already be on it,” he said in an interview. The funding delays continue to slow the project. Recent estimates of a late 2016 completion have been pushed back a year or more. If the borough gets its ask in the next two sessions the project could be complete by the end of 2017, according to Moosey. Borough spokeswoman Patty Sullivan wrote in an email that a 2.5 percent inflation increase needs to be added to the overall cost every year the project is delayed. The rail line is currently about two-thirds done. The bed needs to be completed on two sections and then the track can be laid, Moosey said. Work also came to a halt in 2012 when a court-ordered stoppage was in place while environmental groups challenged the project. Borough assembly members discussed the importance of collaborating on legislative requests at a joint meeting Nov. 14 with Municipality of Anchorage assembly members. Anchorage leaders are preparing to go on the hunt for at least $300 million once again to improve their port. Members of both groups agreed their respective ports are complimentary to each other in terms of what interests they serve, meaning everyone benefits if each project is funded. “We have to fix what we have first rather than try to put something we don’t have at the head of the game. We’re going to be in for some lean times for state funding,” Anchorage Assemblyman Paul Honeman said. Honeman’s comments largely echoed what Governor-elect Bill Walker said throughout his campaign; that he would focus on completing infrastructure projects rather than starting new work. At the same time, funding for ongoing work will also be at a premium. Walker has talked of aggressively cutting the state budget to reduce projected annual deficits, which could get worse if oil prices continue to decline. Getting the rail done on the borough’s timeline would fit nearly perfectly with a proposal to develop a liquefied natural gas facility at the port. WesPac Midstream LLC, an Irvine, Calif.-based energy infrastructure company, is in negotiations with the borough to develop a $600 million LNG plant at Port MacKenzie. WesPac Senior Vice President Brad Barnds has said the fuel would be sold to in-state markets and it would not initially be used as an export facility. Phase 1 of the LNG project would process about 7.5 billion cubic feet of gas per year, about the same amount Fairbanks-area utilities are expected to demand once distribution infrastructure is built out. The rail extension would allow gas to be put on an Alaska Railroad train — the most efficient overland transportation going — and sent north. If Fairbanks LNG demand is met from the North Slope through the state-sponsored Interior Energy Project, WesPac will continue to develop its plant and sell to other, rural communities, according to the company. The second phase of WesPac’s proposal is for a dedicated LNG export dock once state markets are supplied and the processing facility is expanded after several years, according to Barnds. At a presentation to the Alaska Industrial Development and Export Authority, Barnds said WesPac would be open to helping the Mat-Su Borough finance the rail extension to ensure its completion. Moosey said the borough is focused on state money. “We’ve been saying all along this is not just a Mat-Su Borough project; it benefits the state. If the rail is done and WesPac occurs — what we’re doing is driving down the cost of fuel and energy in Interior Alaska, for our friends in Fairbanks. We’re putting important cargo on the Alaska Railroad and increasing their revenue,” Moosey said. Additionally, he said other opportunities to support resource development in the state, whether it is through exporting ore and coal or importing building materials, require the industrial Port MacKenzie to be open to more than just energy exports. The port would need a second dock if WesPac’s Phase 2 comes to fruition. “The port is not going to be a one trick pony with LNG. We have many other opportunities,” he said. Aside from other business opportunities, Moosey said state and federal money went into the port development and those investments need to be honored by keeping Port MacKenzie open to all possibilities. Elwood Brehmer can be reached at [email protected]

ConocoPhillips contracts with Nabors for new drill rig

ConocoPhillips is adding another drill rig to the North Slope. Alaska President Trond-Erik Johansen said the producer signed a contract with Nabors Alaska Drilling Inc. on Nov. 17 to construct a coiled tubing drilling rig that will be used at the Kuparuk River Field. The Nabors CDR3 rig should be ready to drill in late 2016, according to ConocoPhillips. Coiled tubing drilling is a more effective way to work over old wells and boost production, Johansen said. Spools of tubing are sent down the well and then disperse horizontally in a “spider web,” he said; it’s a way to pull thin layers of oil out of an existing reservoir that would be unreachable with traditional techniques. Johansen made his comments at the Resource Development Council of Alaska annual conference on Nov. 19 in Anchorage. “Doubling our Kuparuk (coiled tubing drilling) capacity will allow us to access more challenged oil and help stem North Slope production decline,” he said in a formal statement. The agreement with Nabors is ConocoPhillips’ second commitment to a new drill rig for the Slope this year. In July, it contracted with Doyon Drilling Inc. to build a rig that is scheduled to begin drilling in early 2016. Each rig requires about 100 direct and indirect workers to support it during operation. Johansen also said the company’s Alaska capital expenditures will total about $1.6 billion in 2014, which continues a general yearly increase since it spent $680 million on projects in 2010. He, and BP Alaska President Janet Weiss attributed increased investment on the Slope to the passage oil tax reform, which was upheld by voters during a statewide August referendum. “I think we are now finally at a place where we are moving forward,” he said. Elwood Brehmer can be reached at [email protected]

ConocoPhillips contracts with Nabors for new rig

ConocoPhillips is adding another drill rig to the North Slope. Alaska President Trond-Erik Johansen said the producer signed a contract with Nabors Alaska Drilling Inc. on Nov. 17 to construct a coiled tubing drilling rig that will be used at the Kuparuk River Field. The Nabors CDR3 rig should be ready to drill in late 2016, according to ConocoPhillips. Coiled tubing drilling is a more effective way to work over old wells and boost production, Johansen said. Spools of tubing are sent down the well and then disperse horizontally in a “spider web,” he said; it’s a way to pull thin layers of oil out of an existing reservoir that would be unreachable with traditional techniques. Johansen made his comments at the Resource Development Council of Alaska annual conference on Nov. 19 in Anchorage. “Doubling our Kuparuk (coiled tubing drilling) capacity will allow us to access more challenged oil and help stem North Slope production decline,” he said in a formal statement. The agreement with Nabors is ConocoPhillips’ second commitment to a new drill rig for the Slope this year. In July, it contracted with Doyon Drilling Inc. to build a rig that is scheduled to begin drilling in early 2016. Each rig requires about 100 direct and indirect workers to support it during operation. Johansen also said the company’s Alaska capital expenditures will total about $1.6 billion in 2014, which continues a general yearly increase since it spent $680 million on projects in 2010. He, and BP Alaska President Janet Weiss attributed increased investment on the Slope to the passage oil tax reform, which was upheld by voters during a statewide August referendum. “I think we are now finally at a place where we are moving forward,” he said. Elwood Brehmer can be reached at [email protected]


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