Elwood Brehmer

Uncertain year for mega-projects as Walker halts spending

How little can the state afford to spend? Gov. Bill Walker halted immediate spending on six of the state’s notable pending mega-projects Dec. 27, part of an effort to scrutinize all expenditures and minimize the fiscal year 2016 budget deficit. Walker’s administrative order stopped work on a road to the Ambler Mining District; the Juneau access road; the Susitna-Watana Hydro project; the Knik Arm bridge; the Alaska Stand Alone Pipeline; and the Kodiak Launch Complex. “Our budget deficit grows deeper as oil prices go lower. These are large projects that require significantly more state investment to complete,” Walker said in a statement from his office. “I’ve requested that the state agencies not enter into any new contracts until we’ve had a chance to look at the various projects.” He said it is a way to keep the state from committing to further work on the projects that “may not be continued during this fiscally challenging time.” Walker wants the agencies in charge of the projects to submit reports outlining operating costs, current obligations and the potential consequences of delaying or terminating their work to the Office of Management and Budget by Jan. 5. Alaska North Slope crude prices in the $60 per barrel range are hitting the state coffers hard. Fiscal year 2015 revenue, once projected at about $5 billion, is now expected to be about half that, in the $2.5 billion range. For the 2016 fiscal year, which begins July 1, it gets worse; the Department of Revenue is predicted a little more than $2 billion of state revenue in its Fall 2014 Revenue Forecast released in mid-December. Associated General Contractors of Alaska Executive Director John MacKinnon said he urges caution when it comes to possibility of “killing” any of the projects the governor has brought attention to. “All of the projects are investments in the future of the state,” MacKinnon said. He noted that the by and large the funding for the six proposed developments would be financed and not come out of the state’s general fund. A negative message from state leadership can impact the public’s perception of the state’s economic future, according to MacKinnon. “My concern is that if government starts the Chicken Little — the sky is falling — syndrome, then you’re going to see private investment shrink very quickly,” he said. Speaking on budget issues before the Anchorage Chamber of Commerce Dec. 15, Walker said he is not “declaring a crisis” and Alaska can work through these tough times as it has in the past; MacKinnon said he hopes the public continues to hear that message. AGC of Alaska, in conjunction with the University of Alaska Anchorage Institute of Social and Economic Research, or ISER, releases its construction outlook in late winter each year. Going back to his campaign, Walker has said he would prioritize the state’s big projects. In an October interview with the Journal he referred to the Juneau access road as former Gov. Sean Parnell’s “road to reelection.” Parnell had said the state has sufficient funds to investigate large projects up to the point where major construction investment decisions had to be made. Walker pulled $20 million to the Alaska Energy Authority for Susitna-Watana study work from Parnell’s “in-progress” budget, and another $8 million for work on the Ambler road environmental impact statement by the Alaska Industrial Development and Export Authority. AIDEA needs about $10 million to conduct the Ambler EIS, according to spokesman Karsten Rodvik. The development authority had hoped to file the EIS application shortly, Rodvik said. AEA has $10 million in unencumbered funds for the hydro project from a $20 million fiscal year 2015 appropriation passed last legislative session. It is currently projecting Susitna-Watana to cost $5.65 billion. The state would still need to invest more than $330 million through 2018 for Federal Energy Regulatory Commission licensing and design of the large dam, according to AEA project leaders. From there, construction and program costs would likely be financed with a loan and bond package. The state has invested $192 million since 2010 in the latest attempt at building the Susitna-Watana dam. The Department of Transportation has enough money remaining from a $55 million appropriation to the Knik Arm bridge last session to take the project to construction. Knik Arm Bridge and Toll Authority Executive Director Judy Dougherty said in early December that a request for proposals on a design-build contract for the bridge and road connections would be let sometime next year to have a construction team under contract by June 2016. That process is at least temporarily on hold with Walker’s order. AEA spokeswoman Emily Ford wrote in an email that the authority is looking at FERC licensing options to preserve the investments already made in the project if it is ultimately shelved for a time. “The FERC Initial Licensing Process is very milestone driven and with no funding currently in the capital budget and the recent administrative order, there will be impacts to the overall schedule,” Ford wrote. AEA’s latest project timeline has first power coming from the dam in 2028 or 2029. The outlook for capital projects needing state money in 2015 is shaky at best. Going into the 2015 legislative session, the project topping the list in terms of immediate ask is the Port MacKenzie rail extension. The Matanuska-Susitna Borough needs $119.5 million to finish the 32-mile rail spur over the next few years, bringing the total project cost to $303.5 million. Segments one, three and six, totaling 14.4 miles are funded and rail has been laid on the 1.8 miles of segment six, the northern end of the spur. Work on a 7.4-mile segment to the east of Big Lake will be completed by the middle of next year, according to the borough. Right-of-way acquisition is in progress for 4.2 miles of future track near Houston, as it is for about 7 miles of the route to the south through the Point MacKenzie Agriculture District. Funding is needed to purchase and lay track and ballast on almost the entire route, including the rail loop at Port MacKenzie. At least in the near term, robust North Slope oil and gas activity should help offset a lack of state investment elsewhere. ConocoPhillips is in the midst of nearly $2.5 billion of capital projects to add production through 2017. New to the Slope in 2014, Caelus Energy announced a $500 million 2015 capital plan earlier this year for its two developments, Nuna and Oooguruk. And work continues to the east at ExxonMobil’s Point Thomson, where another roughly $1.5 billion is needed to get to first production in 2016. Elwood Brehmer can be reached at [email protected]

Anchorage sues feds, requests $350M for new port design

Another year began with another lawsuit in the Port of Anchorage saga, but it ended with the promise of progress as well. The Municipality of Anchorage filed suit against the U.S. Maritime Administration, or MARAD, Feb. 28 in Federal Claims Court, an effort to recoup damages the city claims it is owed for the failed port expansion project that spanned 10 years and yielded little for the more than $300 million spent on the 53-year-old port. MARAD managed the Port of Anchorage Intermodal Expansion Project from 2003 until 2012. The municipality took oversight control of the project late in 2012 and soon after sued the original port designer, a project consultant and MARAD’s contracted managing firm. Anchorage is looking for up to $340 million from one or all of the now five adversaries it has in court, according to city attorneys. The municipality sued GeoEngineers Inc. this year, adding another design consultant to its first case in U.S. District Court. Outside the courtroom, Anchorage closed the book on the Port of Anchorage Intermodal Expansion Project and began the scaled-down Anchorage Port Modernization Project. A weeklong design scoping meeting in August led to a preliminary design revealed in November that project manager — and defendant in the first port lawsuit — CH2M Hill said would cost about $485 million. The municipality is asking for $350 million from the Legislature to finish the project in the coming years. That amount would be added to the $130 million it still has from the first round of work. 2. Knik bridge gets new plan The Knik Arm bridge project changed hands and moved forward with a new plan in 2014. House Bill 23 passed by the Legislature in April shifted funding and construction responsibilities to the state Department of Transportation and Public Facilities from the Knik Arm Bridge and Toll Authority, which led the work for more than 10 years. The change was brought about by former Gov. Sean Parnell’s new financing plan for the up to $900 million toll bridge — a three-pronged public funding plan instead of a public-private financing collaboration. KABATA will manage toll collection and maintain the bridge if it is built. The financing plan passed in HB 23 calls for $300 million each in state bonds, federal infrastructure, or TIFIA, loans and state-matched federal highway funds. In December the project team released a long-awaited socioeconomic impact study that projects minimal impacts on job and population numbers for Anchorage, Palmer and Wasilla whether or not the bridge is built. Development at Point MacKenzie is dependent on the bridge being built. The study also determined that toll revenue from bridge traffic at $5 per use for noncommercial vehicles will be sufficient to pay for the federal loans a couple years after the bridge is finished in 2020. 3. Ferry construction underway, fares to increase Work began on two new ferries and the Alaska Marine Highway System announced its first system-wide fare increase in years. A keel-laying ceremony held at Vigor Alaska’s shipyard in Ketchikan Dec. 13 marked the official kickoff of construction on the first AMHS ferries to be built in Alaska. Vigor Alaska was awarded the contract Oct. 16 to build what have been dubbed the Alaska class day boats. The 280-foot ferries were funded completely with state money — $120 million for the pair — with the idea that they would always be built in Ketchikan if Vigor and the state could reach an agreement. They are scheduled to be ready for service in October 2018. The last ferry added to the state’s 11-vessel fleet was the fast ferry Fairweather in 2005. In September, the AMHS released the design study report for the M/V Tustumena replacement, which outlines the concept design and amenities for the vessel. Replacing the 50-year-old Tustumena will likely be a 330-foot vessel — 34 feet longer — better equipped to handle the open ocean Aleutian route the “Rusty Tusty” serves. A day before the keel-laying deputy at a Marine Transportation Advisory Board meeting Transportation commissioner Reuben Yost said fares on most AMHS routes would increase 4.5 percent beginning May 1. It is the first sweeping rate hike since 2007, according to Yost. The price hike will affect travel booked after Jan. 1. Routes with fares 25 percent higher than similar-length trips will not be included in the rate increase. The ferry system also pulled a ban on travel by unaccompanied minors in November before the policy went into effect. Yost said unforeseen flak from the public caused the AMHS to scrap the idea. In the future, parents of minors traveling alone will probably have to sign a form approving their travel depending on the age of the child, Yost said. 4. Unmanned aircraft industry takes off Alaska’s unmanned aircraft industry took some leaps forward in 2014. The nation’s first overland commercial flight of an unmanned aircraft system, or UAS, as they are called in the industry, took place in the North Slope June 8. UAS manufacturer AeroVironment flew its fixed-wing Puma for BP with the mission of surveying gravel roads and pads on the Slope. ConocoPhillips was the first company in the country to receive authorization for commercial flights over Chukchi Sea in 2013. A May, a quad-rotor flight in Fairbanks marked the opening of the Alaska Center for Unmanned Aircraft Systems Integration, which is affiliated with the University of Alaska Fairbanks. The Center for Unmanned Aircraft Integration was chosen by the Federal Aviation Administration to operate one of six test sites across the country on Dec. 30, 2013. The Alaska-based Pan-Pacific test site stretches into Oregon and Hawaii as well. UAS are believed to be a prime tool for all kinds of work — wildlife counting, wildfire monitoring, oil and gas infrastructure surveying — in remote parts of Alaska once the FAA approves widespread use of the craft. A draft rule detailing how commercial UAS operations will be regulated could be made available by the FAA for public comment within several weeks, according to agency officials in Alaska. 5. A year in flux for the Alaska Railroad It was an up-and-down year for the Alaska Railroad Corp. The year began on a sour note when Flint Hills Resources announced it would close its North Pole refinery, a major freight customer of the railroad. The Alaska Railroad hauled up to 2 million tons of jet fuel from the refinery to Anchorage annually since 2008. That loss of business probably cost the railroad about $11 million, according to its CEO Bill O’Leary. The 2014 legislative session was a mixed bag for the Alaska Railroad. It got $15 million of a $20.2 million appropriation to fund its federally-mandated Positive Train Control work. The unfunded safety system requirement for passenger railroads will likely cost the railroad more than $156 million in all. Over the next three state fiscal years, the railroad will need another $53.5 million from the Legislature and it has no where else to go, spokesman Tim Sullivan said. However, increased railroad-barge service, primarily from oil and gas companies, generated $5.1 million in unexpected revenue for the railroad through November, Sullivan said. That money has been put towards funding Positive Train Control infrastructure. Elwood Brehmer can be reached at [email protected]

Judge dismisses most claims in King Cove road lawsuit

A federal judge dismissed a majority of a lawsuit brought against Interior Secretary Sally Jewell in an attempt to get a King Cove emergency access road built. U.S. Alaska District Court Judge H. Russel Holland dismissed four of the five claims Dec. 19 brought by seven plaintiffs that include the Aleutians East Borough, the City of King Cove and area Native groups. Parallel claims by the State of Alaska as an intervenor in the case were also dismissed. Jewell announced her decision to deny a swap of 206 acres of federal land in the Izembek Wildlife Refuge for about 56,000 acres of state and Native village King Cove Corp. land on the Alaska Peninsula on Dec. 23, 2013. At the heart of the issue is a planned 11-mile gravel road that would cut across what is now Izembek land and complete a connection between the villages King Cove and Cold Bay. Area residents, the state and Alaska’s congressional delegation have all pushed for the road claiming it would provide safe and reliable access to Cold Bay’s 10,000-plus foot runway — a World War II military post — from where large planes can fly patients in need of urgent medical care to Anchorage. The sole claim Holland upheld was that the plaintiffs’ health and safety concerns arising from the Jewell’s decision do fall under the National Environmental Policy Act in this case. The Interior Department argued that the concerns fall outside of NEPA because they are not related to the environment. Holland ruled that they are at least worthy of consideration under NEPA given Jewell’s ruling was based at least partly on environmental concerns. When she made her decision, Jewell said the risk of impacting habitat to certain rare species of waterfowl with the road was too great and that an alternative could be sought. The federal government has spent nearly $40 million on improvements to King Cove care facilities and alternative transportation across the marine body of Cold Bay. Still, area residents assert the road is the only permanent fix. Over the years 19 people have died in plane crashes or waiting to get medevac service out of King Cove. However, no one has died trying to leave since 1994. Holland heard oral argument on the department’s motion to dismiss Oct. 20 in Anchorage. Holland agreed with the Interior Department that the plaintiff consortium’s claim that Jewell did not need to include a public interest determination with her decision because she chose the “no action” alternative. He wrote that the 2009 Omnibus Public Land Management Act passed by Congress that approved the land transfer “expressly addressed the specific question of when a public interest determination is required.” Such a finding would be needed only if Jewell had chose to approve the deal, according to Holland’s order. Also dismissed was an argument that Jewell violated the Alaska National Interest Lands Conservation Act, or ANILCA. Holland wrote that while the road could improve subsistence access to the Izembek Refuge as two of the plaintiffs alleged, the “no action” alternative invoked did not change public land status. Therefore the threshold for an ANILCA claim was not met. Holland ruled that the Interior Department did not violate a trust responsibility owed to Alaska Natives by the federal government because neither the 1976 Indian Health Care Improvement Act, nor the 2009 land transfer legislation place such a duty on the Interior Secretary to execute the land exchange. Finally, a claim that the department violated the Administrative Procedures Act was dismissed as duplicative to the Public Land Management Act and NEPA claims. Regardless of the outcome in court, Sen. Lisa Murkowski has made approval of the land transfer one of her central issues. She has railed on Jewell at every opportunity over the past year and she regretted voting to confirm the secretary when Jewell announced her decision. After fellow Republican Dan Sullivan defeated incumbent Mark Begich, Murkowski said Jewell was probably not happy with the outcome. “Sally Jewell is probably looking at the outcome tonight (Nov. 4) with a little concern about what she may be facing because I will not only be the chairman of the Energy and Natural Resources Committee, I will also be the chair of the Interior Appropriations subcommittee that has the authority over her budgets,” Murkowski said. “I’m not going to forget those women. I’m not going to forget these families. I’m not going to forget the people of King Cove. I’m not going to give up.” Elwood Brehmer can be reached at [email protected]

Interior Energy Project remains in limbo

Self-imposed deadlines have come and gone and the future of the Interior Energy Project is in doubt. Project team members from the Alaska Industrial Development and Export Authority and its partner firm MWH Global Inc. were unable to present the AIDEA board of directors with a financial package to move the energy plan forward at its Dec. 16 meeting. Dec. 16 was the most recent date circled by the Interior Energy Project team as its target to have agreements in place with all the project stakeholders. The close had been pushed back from a previous goal of early November. Overall project completion has been pushed from an original and aggressive first-gas delivery target of the fourth quarter of 2015 to the third quarter of 2016 as it stands now. MWH Managing Director Rick Adcock delivered more bad news to the board when he said current “burner tip” natural gas price estimates for Interior residents are in the $18 to $20.50 per thousand cubic feet, or mcf, of gas. “To make a $15 (per mcf) goal, that’s got to be a really cheap, efficient liquefaction plant,” on the North Slope, Adcock told the AIDEA board. With construction and engineering giant Kiewit Corp. leading the design of the plant, the target price for a 6 billion cubic foot, or bcf, annual capacity plant is $228 million now, Adcock said. That’s down from November estimates of up to $235 million but still significantly higher than the $200 million mid-range price for a 9-bcf plant MWH proposed to the board when it was competing to lead the project about a year ago. Representatives from Kiewit and MWH said the base plant cost is figured at $183 million without adding profit margin and risk contingencies. “We all want the (LNG plant) cost to come down; we’re not happy with the cap-ex (capital expenditures) now,” Adcock said. The state’s plan to truck LNG down the Dalton Highway began as a way to improve Fairbanks-area air quality and ease the burden of oppressive home heating costs by 40 percent to 50 percent — all based on $4 per gallon heating, or fuel oil. When early projections of a $15 per mcf final gas price were thought to be feasible it became the de facto target. A burner tip price of $15 per mcf is the energy equivalent to half the cost of $4 per gallon fuel oil. In late October, Golden Valley Electric Association CEO Cory Borgeson said the initial gas price to residential consumers would be in the $20 to $23 per mcf range. Adcock and other Interior Energy Project members disputed Borgeson’s claim at the time. The regional electric utility, Golden Valley would be a key anchor tenant industrial consumer of gas to make the project financially viable. For Golden Valley the gas would offset some of the fuel oil it burns to produce nearly 30 percent of its power. Then, in November, Interior Gas Utility chair Bob Shefchik largely echoed Borgeson’s gas price estimate during a presentation to the Fairbanks North Star Borough Assembly. A higher gas price reduces the incentive for residents to convert their home heating systems — a conversion that could cost some up to $10,000 — from heating oil to natural gas. If the public doesn’t convert, the project doesn’t succeed. Uncertainty over how many residents and businesses will convert creates a paradox for all involved, which makes accurately projecting the conversion rate essential. “We need to know the demand to come up with a price (of gas), and the buyer needs to know the price to come up with demand,” Adcock said. If the Golden Valley board of directors approves, the electric utility might be able to absorb up to 5 bcf worth of demand risk, Borgeson said — a way to shift risk away from the expanding gas utilities. “If the customers don’t convert, somebody’s got to pay for the plant on the Slope; that’s the reality,” Borgeson said. Previously, he had said Golden Valley could commit to purchasing 2 bcf annually. More recently, Golden Valley has modeled that it would have the need for 2.8 bcf per year for four years, according to Borgeson. After that, Fort Knox gold mine has plans to change its processes and lessen its power purchase, but that would provide time for the gas utilities to build demand, he said. The plan is a new one. “I don’t think the way things have worked out in the past week there has been much sharing of the risk,” Borgeson said. Fairbanks Natural Gas President and CEO Dan Britton and Shefchik disagreed about the demand risk, but noted that the Interior Energy Project has helped form a collaborative relationship among the utilities that have been competitors at points in the past. The three utilities have agreed to the framework of a deal that would have Fairbanks Natural Gas manage a joint fleet of LNG tanker trailers, they said. “It makes no sense for each one of us to run our own trucking operation,” Britton said. As the head of both Fairbanks Natural Gas and its partner company Titan Alaska LNG, Britton has overseen a smaller but similar operation from Southcentral to Fairbanks. Fairbanks North Star Borough Mayor Luke Hopkins testified to board during the public comment portion of the meeting that he is concerned the Interior Energy Project is becoming unsustainable. Area residents need to burn natural gas in lieu of coal and wood to improve winter air quality that can be dangerously poor at times, he said. “(The Interior Energy Project) is not going to be delivering the lowest cost natural gas in the community that we expect to get,” Hopkins said. Britton said in an interview that some in the Interior might feel entitled to lower cost energy, while others understand the challenges of the project. Ultimately, Britton said, “We want to see lower energy costs for increased economic diversity and sustainability of the community.” Fairbanks Natural Gas serves about 1,100 customers in the heart of Fairbanks with LNG trucked north from a small Southcentral plant. At the end of the Interior Energy Project discussion, the board met in executive session with MHW representatives and the utility leaders to discuss if AIDEA’s working agreement should be extended beyond a Dec. 31 financial close deadline. The concession agreement allows the development authority to extend its relationship with MWH for up to 90 days in the event an encompassing project agreement is not reached by the end of the year. Hopkins urged the board to end its affiliation with MWH over the project, as did IGU’s Shefchik. The 6-bcf plant MWH is currently recommending is “a significant change” from what was presented to the board and the public last January, when MWH was selected as the project partner, Shefchik said. “The results we have today we can’t afford,” he said. Borgeson and Britton supported extending the agreement for lack of a better option. The AIDEA board did not vote on what it will do with MWH. The next board meeting is scheduled for Jan. 14, exactly one year after the board selected the firm as the authority’s Interior Energy Project partner. Cook Inlet no cheaper Getting privately financed gas from Cook Inlet likely would not be much cheaper, if at all. WesPac Midstream LLC, an energy infrastructure company, is planning an LNG plant to serve Alaska markets at Port MacKenzie. It projects delivering LNG, without regasification and distribution costs, to Fairbanks for about $14.50 per mcf equivalent. Fairbanks Natural Gas just agreed to a 10-year LNG supply at a liquid price that equates to $15 per mcf from Hilcorp, Britton said. Titan Alaska LNG, a partner company to Fairbanks Natural Gas, recently sold its liquefaction plant that supplies the Interior utility to Hilcorp. The consent decree that binds Hilcorp Cook Inlet gas supply contracts makes it difficult to find cheaper gas in the state than what is under the Slope, Britton said. Borgeson has said the $332.5 million state financing package passed by the Legislature in 2013 to support the Interior Energy Project needs to be largely devoted to the North Slope LNG plant to drive down the cost of gas processing. With a primarily privately-financed plant, gas processing amounts to about $5 per mcf, according to MWH. Fairbanks Natural Gas and its parent Pentex Alaska Natural Gas Co. proposed a project plan to AIDEA, which competed with MWH’s, that recommended $155 million of state financing for a $185 million, 9-bcf plant. “When we envisioned this project we envisioned the North Slope plant was essentially a free plant, that’s why we wanted the state involved,” Britton said. Golden Valley requested a $200 million allocation from the state to jumpstart the project under its lead prior to the Legislature’s loan, bond and grant package. Complexity unavoidable There are legitimate reasons Fairbanks doesn’t already have a permanent natural gas supply, and the Interior Energy Project, an interim solution, is unavoidably complex.  Adcock said the team is working to reach agreements with 10 stakeholders to pull the project together — AIDEA, the three utilities, BP, Kiewit and MWH’s private financer Northleaf Capital Partners, among others. Just getting a gas supply contract in place has been more of a challenge than expected. Former Fairbanks state senator and AIDEA board member Gary Wilken has been visibly frustrated at recent meetings over the lack of progress made on a fundamental part of the project. The board was told in May that a supply contract with BP to feed the North Slope plant was nearly in place. The terms remaining to be negotiated with the producer are “perfecting amendments,” Adcock said, but it has yet to be finalized. Apparent confusion over whether or not AIDEA would use a gas supply contract Golden Valley has with BP has slowed the process, multiple project members said. Wilken said he is “not interested in crawling in bed with (BP)” given the company’s inability to reach an agreement to sell a small amount of gas. “We have spent eight months of — I’m trying to be kind — of dithering by BP and we still don’t have a contract and we’re two weeks from the end of this thing,” he said. Borgeson confirmed a rumor that former Gov. Sean Parnell called Alaska BP leadership about the Interior Energy gas agreement before he left office. “I think (BP is) hoping this project will go away,” Borgeson said. The tentative gas supply contract has a price indexed to oil, according to Adcock. At current prices of about $60 per barrel, the natural gas feedstock would be in the $2 per mcf range; at $150 per barrel, it would be $4.50 per mcf. Oil price drop a factor To make matters worse, falling oil prices could strain the projects economic viability even at a $15 per mcf burner tip price. Britton said heating oil at $2.70 per gallon would be the energy-cost equivalent to natural gas at $20.50 per mcf, the high range of MHW’s current projection. Board member Wilken, of Fairbanks, said he just purchased heating oil for $3.07 per gallon. Britton said a common price in the area is about $3.40 per gallon, but that would likely continue to drop, he said. Shefchik said conversions would probably still happen, but over 10 to 12 years instead of the vast majority happening within six years as was once thought. Low oil prices have also hurt the feasibility of storage expansion for Fairbanks Natural Gas Britton said. The utility suspended its $20 million loan application to AIDEA for construction of a 5.25 million-gallon LNG storage facility in Fairbanks. Regardless of short-term oil price, the consensus at the meeting was the need for a cleaner, cheaper energy option in the Interior will not go away. “We talk about at Golden Valley what this community needs and this community needs natural gas; there’s no doubt about that,” Borgeson said. Wilken emphasized that the Interior Energy Project work should continue in earnest. However, he said if immediate market forces can ease the heating cost burden in Interior residents the group might have a chance to search for better solutions. “Time is no longer a reason for us to make bad decisions,” he said. Elwood Brehmer can be reached at [email protected]

Most ferry rates going up; day boat work gets underway

The cost of your favorite state ferry trip is likely going up. Fares for most Alaska Marine Highway System routes will increase 4.5 percent Jan. 1 or shortly thereafter, deputy state Transportation Department commissioner Reuben Yost said during a Dec. 12 Marine Transportation Advisory Board meeting. The fare increases will first affect the 2015 summer schedule, Yost said, which begins May 1. Trips planned before the new rates are released for the upcoming spring and summer will not be impacted. “Any travel that’s already been paid for will be at the current rates,” he said. The decision to increase ferry fares is left to the discretion of the DOT commissioner. The expected rate hike comes after legislators last session requested a tariff analysis and rate report be done between sessions and presented to them in February. AMHS fares have not been changed since 2007, according to Yost. Also noteworthy, the ferry system derives about 30 percent of its total revenue from fares at the current rates. Nearly all special fares except for a winter “driver goes free” and in-state senior and child discounts have been cut in recent years to grow revenue without implementing an across-the-board fare hike, AMHS General Manager Capt. John Falvey has said. Yost said that falling gas prices should help mitigate the impact of fare increases to ferry passengers, particularly to those traveling with vehicles. “We think we are doing this in a good year,” Yost said. Not all fares are going up, however. Routes with fares that are at least 25 percent higher than the average per nautical mile rate for similar length trips will be frozen, Yost said, until they are in line with the general fare structure. For instance, the passenger fare on the Whittier to Valdez route that is popular with tourists is $89. At that price it is 68 percent more than the average fare for a comparable route, so it will not be a part of the general fare increase. The Northern Economics report commissioned by the department recommends ways to standardize and simplify the current fare, or tariff, structure. Yost said there have historically been system-wide and terminal specific fare increases but little reasoning between the two. “The relationship you see between fares has been in place for 30 years or more,” he said. In addition to freezing unusually high fares, the report recommends AMHS adopt a two-tiered structure to meet winter and summer demand periods. The seasonal adjustment should be standardized, but somewhere between 5 percent and 30 percent for passenger fares and 30 percent and 40 percent for vehicles. Commercial vehicle rates should be 60 percent to 120 percent of passenger vehicle tariffs, according to the report The system was also encouraged to set a “target farebox recovery” of 39 percent to 65 percent of its operating expenses, Yost said. Fare income of $46.8 million in state fiscal year 2005 accounted for 54 percent of total AMHS revenue, with the remainder coming from the general fund. Despite growing generated revenue by more than 16 percent since 2010 without a system-wide fare increases, the need for general fund help has grown with escalating operating costs. AMHS officials expect to gross about $56.2 million in fiscal year 2015. Yost said the fare increase would help offset a $1.8 million reduction in funds designated for the system in former Gov. Sean Parnell’s budget, which was released but not endorsed by Gov. Bill Walker.  Marine Transportation Advisory Board Chair Robert Venables said anecdotally that people in Southeast have told him that they would rather see a fare increase than reduced service. “Nobody wins if you tie up the boats,” Venables said. Alaska class vessel construction underway Vigor Alaska held a keel-laying ceremony Dec. 13 for the Alaska class ferries being built at its shipyard in Ketchikan. The twin 280-foot “day boats,” intended to service Lynn Canal between Haines-Skagway and Juneau, are entirely state-funded and will be the first AMHS ferries built in Alaska. Scheduled for completion in 2018, they will also be the first vessels added to the state’s 11-ferry fleet since the fast ferry Fairweather in 2005. The shipyard operated by Vigor Alaska is owned by the state through the Alaska Industrial Development and Export Authority. Vigor Alaska was awarded the contract to build the ships Oct. 16, but it was always the state’s goal to build them there at the largest shipyard in Alaska. The ability to control the construction location and eschew federal contracting procedures is the primary reason no federal money will be used to fund the vessels. The state has appropriated $120 million to a vessel replacement fund to build the two ferries. Initially meant for one mainline vessel, it was determined the two smaller ferries would be a cheaper way to add to the fleet. “It was quite an effort to get to (awarding the contract),” AMHS General Manager Capt. John Falvey said. “We all know we only had so much money to work with and we were able to sign that contract within that figure.” Putting the 33,000-pound bulbous bow sections in place was not only a good way to kick off the vessels’ much-anticipated construction, but it also saved the system money by sneaking in a work window just before an Environmental Protection Agency deadline. Falvey said many new vessels constructed after Jan. 1 will need to meet Tier 4 EPA emissions standards. AMHS has four, 3,000-horsepower Tier 3 power plants purchased and ready for installation in the day boats when the time comes. “(Tier 4 engines) are going to be much more expensive to purchase and much more expensive to operate because of the filtration that is required to hold the emissions,” he said. Falvey added that the La Grange, Ill.-based Electro-Motive Diesel Inc. engines are also dual-fuel, meaning the ships could be converted from diesel to liquefied natural gas to save money and lower emissions if a fuel source ever becomes available. Replacing the ‘Rusty Tusty’ The Marine Transportation Advisory Board also got a look at the features of the vessel that will someday replace the M/V Tustumena. The concept ferry will likely be bigger, 34 feet longer and 11 feet wider, than the Tustumena to add capacity and better handle the rough seas often encountered on the open-ocean Aleutian route it will primarily serve. Still, it will be smaller than the M/V Kennicott that fills in for the 50-year-old Tustumena so it can call on some of the small docks in the Aleutians that aren’t state-owned. Total cost for the vessel is currently projected to be $211 million to $237 million early in the design phase. At 330 feet, the replacement will carry 250 passengers, 76 more than the Tustumena, and have 24 more staterooms and roomettes. Space the Tustumena is often limited, particularly in the summer months. The concept is based on the design study report released in September. Final design is expected in about a year. It will also add 415 feet of vehicle space from the Tustumena, which equates to 16 additional full-size pickup trucks. With a 15-knot cruising speed the vessel will be 1.5 knots faster than the Tustumena as well. It will not have a bar, which is ultimately a revenue drain on other mainliners because of staffing expenses, according to Yost. A public participation period regarding the Tustumena replacement’s characteristics wrapped up in May. Elwood Brehmer can be reached at [email protected]

Capital budget cuts leave large projects unfunded for now

When Gov. Bill Walker released a bare bones capital budget Dec. 15, opponents of the state’s major infrastructure projects hailed the move. Walker pulled $114.3 million from the “work in progress” capital budget of former Gov. Sean Parnell that Walker released without endorsement Dec. 5. The latest 19-page capital proposal includes $104.9 million of total unrestricted general fund spending, and $73.8 million of that is money needed to match federal appropriations. It has no designated general fund spending, while Parnell’s budget had $40.8 million in designated funds; The largest appropriations were $22 million to the Alaska Housing Finance Corp.’s Weatherization Program and $15 million for the Alaska Energy Authority’s Renewable Energy Fund. Walker’s total capital budget, with federal receipts, is $1.34 billion. Parnell’s budget totaled $1.41 billion. The Legislature will almost certainly add back in some of the cuts Walker made and fund other work across the state that is time sensitive. The current fiscal year 2015 capital budget passed by the Legislature in April was $2.12 billion, with $584.1 million of total unrestricted general fund spending. Of that, $444.2 million was unrestricted general fund receipts, the money that the state has the most discretion to spend on projects. Just a few short years ago in fiscal year 2013, state lawmakers spent more than $1.66 billion at their leisure from the general fund. It’s a sign of the times. Alaska North Slope crude sold for $57.70 per barrel on Dec. 16. Notable cuts from Walkers budget include $20 million for the Susitna-Watana Hydro project, the major dam on the Upper Susitna River being pursued by the Alaska Energy Authority. “Gov. Walker’s common-sense, economics-based decision to remove funding for the Susitna dam is a strong show of leadership and willingness to walk the talk from last fall’s campaign when it comes to doing what’s best for Alaskans,” Susitna River Coalition President Mike Wood said in a Dec. 16 release. “Spending over $5 billion to dam the fourth-largest king salmon river in the state doesn’t make sense for the future of Alaska.” The need to prioritize expensive state infrastructure projects was a fundamental message of Walker’s campaign. AEA Executive Director Sara Fisher-Goad told the authority’s board Dec. 16 that the dam, which would secure long-term electrical needs for the Railbelt, would likely cost $5.65 billion. Authority spokeswoman Emily Ford said AEA has about $10 million in unencumbered funds from the $192 million it has received for the project to date. The Legislature approved $20 million for the project last session. “It has been challenging to execute full field seasons with annual appropriations,” Ford said. “In order to be in the field in May, we have to go to bid and contract with vendors before the capital budget is passed. As a result, we have worked to prioritize field efforts based on the level of funding received.” AEA needs about $100 million more to get the project through the Federal Energy Regulatory Licensing process, Fisher-Goad said. The Alaska Industrial Development and Export Authority’s study of a potential industrial access road to the Ambler Mining District in Northwest Alaska at least temporarily lost $8 million as part of Walker’s cuts. AIDEA spokesman Karsten Rodvik said the development authority is continuing to listen to community input about the road and had several days of public meetings scheduled in Fairbanks the week of Dec. 15 to 19. AIDEA is working to submit its environmental impact statement application for the project soon, and would need $10 million to complete the multi-year assessment, according to Rodvik. “We just need to wait and see what the administration wants to do,” he said. The Alaska Railroad Corp. can’t wait much longer for state help to pay for its unfunded federal mandated to complete the Positive Train Control project. The railroad is requesting $21.8 million in fiscal year 2016 to keep work moving on the technology system that would allow trains traveling at unsafe speeds to be slowed and stopped remotely. It would need another $31.7 million through fiscal 2018 to complete the $156 million project. The Federal Railroad Administration has a December 2015 implementation deadline set for the nation’s railroads, but Alaska Railroad spokesman Tim Sullivan said only one of the more than 40 rail corporations nationwide is expected to meet the deadline. As a result, an extension is expected. If a railroad does not meet the PTC deadline it can be fined daily or have its ability to offer passenger service revoked. The University of Alaska Board of Regents is requesting $97.3 million from the State of Alaska for deferred maintenance and other work. Of that, $31.3 million is needed to finish the University of Alaska Fairbanks engineering building. The project was put on hold last year while the state pays for a new and much-needed combined heat and power plant at the university. UAF spokeswoman Marmian Grimes said the original cost of the engineering building project was $108.6 million and $3 million has been added to that because of contingencies and delaying completion. About $2.5 million can be added to the total project cost each year it is delayed, she said. The university is also asking for permission to bond for $5 million to put towards the engineering building. Other projects up in the air include the $574 million Juneau access road, a project Walker criticized during his campaign. In Southcentral, the Municipality of Anchorage will eventually need $350 million for the do-over of its port construction. The municipality has about $130 million in the bank for port work now and could look to bond for some of the remainder it will need, but Mayor Dan Sullivan said the importance of the port to the whole state means it focused on the state for funding help. The Matanuska-Susitna Borough also needs $120 million over the next few years to finish its 32-mile rail spur from Houston to Port MacKenzie. Like Sullivan, Mat-Su Borough Manager John Moosey has said the rail would benefit the economy of the entire state and thus the borough should not be saddled with the bill. The rail spur would allow bulk commodities to be imported or exported efficiently from the deepwater port. Port MacKenzie is set up as raw commodity operation, while the Port of Anchorage best handles containers, fuel and consumer good shipments. Elwood Brehmer can be reached at [email protected]

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]kajournal.com.

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]

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