Elwood Brehmer

Alyeska, Prince William Sound council clash over tug training

Alyeska Pipeline Service Co. is at odds with the advisory group that monitors oil tanker activities in Prince William Sound over how far Alyeska’s tugboat operators should have to go to demonstrate they can operate safely in poor weather and wave conditions. The Prince William Sound Regional Citizens’ Advisory Council board unanimously passed a resolution Jan. 18 insisting that oil tankers and their tug escorts should not be allowed to operate in the Sound if weather conditions deteriorate beyond what has been deemed safe for training. “If it is unsafe to train personnel, it is unsafe to transport oil. This position does not just apply to the incoming contractor, but sets the standard to which the council feels all future new contractors, equipment and crews should be held,” Advisory Council board President Amanda Bauer said. “We believe strongly that these standards are needed to ensure the economic and environmental safety of the communities and groups we represent.” The incoming contractor Bauer referenced is Edison Chouest Offshore, which Alyeska announced in June 2016 would be taking over tanker escort and spill response duties for Crowley Marine Services in July 2018 with a new fleet of tugs and spill response barges. Crowley has provided tanker docking services in Valdez since the startup of the Trans-Alaska Pipeline System in 1977. It added the Prince William Sound tanker escort and spill response to its work when those duties were first mandated in 1990, a year after the Exxon Valdez oil spill. Alyeska Pipeline Service Co. is owned by the “big three” North Slope producers BP, ConocoPhillips and ExxonMobil. It manages TAPS operations and oversees the associated oil tanker activities in Prince William Sound. The Prince William Sound Regional Citizens’ Advisory Council was formed after Congress passed the Oil Pollution Act in 1990 in response to the Exxon Valdez spill. The legislation mandated the groups be established for Prince William Sound and Cook Inlet. While the advisory bodies made up of technical experts and community representatives from their regions do not have enforcement authority, they are generally well respected for taking informed positions. The resolution specifies that the advisory council believes “it is unsafe to require crews to respond to a vessel emergency in Prince William Sound during adverse weather with inadequate or no training or experience in these conditions, and that new crews must receive training and experience in the full range of operating conditions in which they are expected to perform.” It continues to assert that it is reasonable and prudent to limit loaded tanker traffic through the Sound to the range of conditions in which the escort vessels and crews have been trained. Alyeska responded with a formal statement that it shares the advisory council’s commitment to protecting the environment, which it demonstrates each day in often challenging conditions, but the company strongly disagrees with requiring demonstrations in potentially dangerous and uncontrolled conditions. “It is entirely inconsistent with a strong safety and risk management culture and not an accepted or proven training method for operational proficiency,” Alyeska stated. “There are many ways to demonstrate the competency and proficiency of crews and vessels that don’t create the level of risk to human life and the environment that the RCAC is promoting.” Alyeska further insisted it is hiring an experienced contractor with state-of-the-art vessels and training that will meet or exceed “current requirements for safe operations as well as the very high standards we set for ourselves.” Alyeska spokeswoman Michelle Egan compared it to firefighters no longer setting fire to derelict buildings with limited safety parameters for live training events. Loaded oil tankers are tethered to tugs as they leave the Alyeska oil terminal port and are then released but still escorted until they clear Hinchinbrook Island and hit the open Gulf of Alaska. Inbound, empty tankers are not escorted to the port unless an escort or other assistance is requested by the ship’s crew, according to Egan. If an emergency occurs, the tugs could come alongside the tanker and re-tether to it to either take it under tow or stop it, Egan said. It is specifically practicing those emergency situations in bad weather with a loaded tanker that Alyeska objects to. “That’s where the real danger and risk occurs and it’s not a part of normal operations,” she said in an interview. “To do that part of it in those closure conditions, we do not. It’s showing that you can handle the emergency under those conditions that we think is too risky.” Advisory council Executive Director Donna Schantz said in a formal statement that the council agrees with Alyeska and the regulating agencies that crew safety is the first priority, but that doesn’t preclude additional training. “We believe that drills and exercises, including in adverse weather, are controlled events, as they can be stopped at any time that the risk to crews or vessels becomes unacceptably high,” Schantz said. Alyeska Ship Escort/Response Vessel Systems, or SERVS, manager Mike Day told the council in September during an update report on the transition to Edison that he hoped the new tugs and crew would encounter some adverse weather in their training exercises, but said the training had to be scheduled well in advance for logistical reasons and specific wind and waves conditions would not be sought out. The advisory council noted in a white paper accompanying the resolution that Crowley has completed exercises in waves up to 15 feet with 35-knot winds. The Alaska Department of Environmental Conservation and the U.S. Coast Guard allow loaded tankers to operate in conditions up to 45-knot winds and 15-foot seas, according to the council, citing the tanker operational and escort response plans submitted to the agencies. DEC Central Region Manager Geoff Merrell wrote in a Dec. 12 letter to the Prince WIlliam Sound Response Planning Group that the new tugs will be expected to stop and control a fully laden 193,000-ton deadweight tanker in nine-foot seas and 40-knot winds, based on performance criteria in the existing operating plans, or closure conditions at Cape Hinchinbrook. Merrell wrote that the department acknowledges tankers are rarely loaded that full, however. “The department also understands that the scheduling of demonstration exercises combining both a fully laden tanker and inclement weather conditions may prove impossible during the transition timeline,” he wrote further. “The department remains open to the discussion of alternative demonstrations, surrogate ships or other options, but, ultimately, will require the satisfactory demonstration of system performance before a fully laden 193,000 (deadweight tons) tanker will be allowed to depart the Valdez marine terminal and transit Prince William Sound.” The advisory council also contends it has evidence indicating the buoy used by the National Weather Service to measure Gale Warnings, which equate to closure conditions, is somewhat protected from what can be worse wind and wave conditions at the adjacent Hinchinbrook Entrance at the same time. Elwood Brehmer can be reached at [email protected]

Producers celebrate Slope as House takes up another tax hike

Alaska leaders of the largest oil producers in the state are pointing to the recently-reversed production decline curve as proof the state’s oil tax system is working, but House Majority leaders contend Senate Republicans have forced them to again propose an oil tax increase to ease the state’s projected $2.7 billion budget deficit. BP Alaska President Janet Weiss, speaking at the Alaska Support Industry Alliance’s Meet Alaska Conference Jan. 19 in Anchorage, highlighted the fact that oil production at Prudhoe Bay has ostensibly been flat for three years despite the field’s age and low oil prices since then. “It was an amazing year to see no decline. In 2015, production was 281,700 barrels per day, in 2016 it was 280,700 barrels per day and déjà vu, 2017 it was 280,040, and in my book that’s no decline in a 40-year field that was supposed to have a life of only 30,” said Weiss, who had her head shaved the next day after losing a bet on the Prudhoe production output for 2017. Two days later, Weiss mailed her long black locks to Pantene, which has a program that makes wigs for cancer patients. At the operational level, she said the company improved the field’s plant reliability and did more than 500 non-rig well work jobs along with adding another previously drilled 100 wells to the active Prudhoe count. “It was like 100 wells coming online, so it’s the focus on the basics that enable extraordinary performance,” Weiss said. ConocoPhillips Alaska President Joe Marushack highlighted in a separate talk that several large and numerous smaller prospects and oil projects in development on the Slope could add more than 400,000 barrels per day of production at their peak over the next six years. Those projects include ConocoPhillips’ two Greater Mooses Tooth developments, at up to 30,000 barrels per day each; its Willow prospect with an estimated production capability of up to 100,000 barrels per day; Armstrong Energy’s Nanushuk project — to be taken over by Australian-based Oil Search in June — at 120,000 barrels; and Hilcorp’s offshore Liberty development at roughly 70,000 barrels per day of peak production. “We’ve got a lot of promise. We’ve got a lot of really good things (going),” Marushack said. He added that ConocoPhillips is working to add to that promise by drilling five exploration and appraisal wells this winter, its largest exploration program on the North Slope since 2002. It’s also the largest exploration program for ConocoPhillips this year across all the basins it operates, according to Marushack. “All eyes are on Alaska,” he said. Additionally, the company is preparing to shoot a seismic program across the roughly 250 square miles of state acreage south of the Alpine field along the east edge of the National Petroleum Reserve-Alaska that the company acquired last year. Weiss also noted that the coastal plain of the Arctic National Wildlife Refuge, just opened to industry by Congress and the Trump administration, is a greenfield area that could hold enormous potential and lead to longer term prospects. The U.S. Geological Survey estimates the coastal plain could hold upwards of 7 billion barrels of recoverable oil. She said BP would evaluate ANWR in light of the company’s global portfolio. The prospectivity is on top of two years of increased North Slope oil production already, with a third expected for the current state fiscal year 2018 that ends June 30. Production bottomed out in state fiscal year 2015 at 501,500 barrels per day but rebounded with two years of growth to 526,700 barrels per day in 2017. The Department of Natural Resources expects production to hit 533,000 barrels per day this year, according to the state Revenue Sources Book published this past December. Both Weiss and Marushack said keeping the existing but oft-debated state oil severance tax in place is critical to continuing growth on the Slope and seeing the prospects to production. Large producing companies on the Slope, such as BP and ConocoPhillips, were not eligible for the refundable exploration and development tax credit program that the Legislature ended last year, so they were not impacted by that change. The tax, passed by the state in 2013, was the primary driver behind the current production increases, Weiss said, reiterating a point hammered home by industry and most Republican lawmakers in the state. “We might be enjoying prices today that are over $70 per barrel but when you look at the fundamental — at BP anyway — we still think lower for even longer and staying competitive is very important,” she said. “It’s the lowest cost basins that will get produced,” Weiss continued. “Not all the barrels in Alaska are going to be produced if we don’t make them competitive.” Marushack said he is often competing within ConocoPhillips for investment dollars for Alaska projects, particularly against Lower 48 shale prospects, while his colleagues don’t continually have to worry about tax changes skewing project economics like he does. “We have to have stable, competitive fiscal policies,” Marushack said. House takes up tax hike Meanwhile, in Juneau, the House Resources Committee took up House Bill 288 for the first time Jan. 22. HB 228, introduced by Resources Committee co-chair Rep. Geran Tarr, D-Anchorage, would raise the minimum gross production tax on North Slope oil from 4 percent to 7 percent as a means of raising between about $220 million to $250 million of additional state revenue per year. Tarr said that while the broader criticism of the Legislature consistently changing oil tax policy is generally fair, she is proposing the oil tax change primarily because Senate Republicans have stonewalled attempts by Gov. Bill Walker and the Democrat-led House Majority coalition to pass an income or payroll tax that would diversify the state’s revenue streams and play a role in dissolving the multibillion-dollar budget deficits. Instead, the Republican-dominated Senate Majority has insisted on maximizing a draw from the Permanent Fund Earnings Reserve and relying on future budget cuts and increasing oil prices and production to balance the budget over several years. However, the prospect of achieving the further cuts of $400 million to $500 million — roughly 10 percent of the current Unrestricted General Fund budget — necessary to meet the Senate’s plan is unclear at best. Deeper cuts to education, community assistance and social programs proposed over the past few years have been withdrawn after being met with stiff resistance and public backlash. Tarr said House leaders feel “a little backed into a corner” in fighting for their constituents who do not want the reduced Permanent Fund dividends that come with utilizing the Earnings Reserve for government to be the only way out of the budget problems. She noted she represents the poorest part of Anchorage and her constituents often rely on the PFD to pay for essential items. “I could see some members of the industry thinking now’s the time to diversify and find some other sources (of revenue) so the finger’s not always pointed in their direction,” Tarr commented while outlining the bill. She stressed that it does not change the underlying production tax structure, but it would shift the oil price-sensitive “crossover point” where the tax switches from a gross to a profit-based tax to a higher price band. At its core, Alaska’s oil tax is a 35 percent net profits tax. On top of that is a sliding scale per-barrel credit that is $8 at prices less than $80 per barrel and fades out at prices greater than $150 per barrel. By applying the per-barrel credit, companies can achieve a lower tax rate at lower, less profitable prices. The last primary layer is the gross minimum tax, also known as the tax floor. It is applied at lower prices — the crossover is usually between $60 and $70 per barrel, according to the Revenue Department — when the amount 4 percent gross value calculation exceeds the amount of the profits tax calculation. For example, at $60 per barrel, the profits tax, with the per-barrel credit and deductible expenses applied, becomes a negative value. The 4 percent gross tax at $60 — minus oil transport costs that are never taxed — is approximately $2 per barrel and thus the oil is taxed on its gross value at that price. Anchorage Republican Rep. Chris Birch said the tax debate often omits discussion about the royalty revenue of 12.5 percent to 16.6 percent that the state receives on each barrel produced and he can’t see how increasing taxes will spur production and by extension more royalty revenue. “I’m almost struck by the old adage of ‘the beatings will continue until morale improves,’” Birch quipped. Tarr said she shares his concerns about keeping production up but characterized the proposal as being part of the state’s larger “math problem” when it comes to balancing the budget. She also contended the 7 percent gross tax would be among the lowest in the country for states with a gross severance tax on oil. The Resources Committee is expected to hear testimony from industry and Revenue Department officials starting Jan. 26. Elwood Brehmer can be reached at [email protected]

ConocoPhillips to drill Putu with unprecedented mitigation steps

ConocoPhillips is finally ready to drill into a small and long-sought piece of the North Slope, but only after agreeing to employ mitigation measures largely thought to be unprecedented, particularly for a single well. The Putu 2 exploration well is scheduled to be spudded in early February and finished in late April with completion of a well sidetrack, according to ConocoPhillips spokeswoman Amy Burnett. The cause for the unique drilling mitigation practices — from an electrified drill rig to multiple air quality monitoring sites and light suppression efforts — flows from the drill site’s proximity to the Native village of Nuiqsut. About three miles east-northeast from Nuiqsut, the Putu 2 drill site is in the direction of the prevailing winter winds that cross the tundra plains to the village. That caught the attention of many in Nuiqsut, according to Kuukpik Corp. CEO Lanston Chinn, who said the residents became concerned about, among other things, exhaust drifting into the community from a diesel drill rig that would be running continuously for more than two months. Kuukpik is the Native village corporation for Nuiqsut and holds title to about 147,000 acres on the Slope. It jointly holds surface rights along with the state to the Putu acreage, which the Department of Natural Resources awarded to ConocoPhillips in November 2016. The company has also taken on the role of being a public voice for the community of about 400 residents that it answers to. ConocoPhillips first planned to drill the Putu well a year ago. That exploration plan was a driving force behind DNR Commissioner Andy Mack overturning his predecessor’s decision and transferring all 9,100 acres in and around Nuiqsut, and once part of the now defunct Tofkat Unit, from the small independent Brooks Range Petroleum Corp. to ConocoPhillips. It is now part of the large Colville River Unit, commonly referred to as Alpine, from which ConocoPhillips produces about 65,000 barrels of oil per day. While a small area in North Slope terms, its proximity to a large, established oil field and the Nanushuk prospect that could hold more than 2 billion barrels of recoverable oil, according to its owner Armstrong Energy, make it a potentially rich piece of property. ConocoPhillips held the acreage in the early 2000s but had to give it back to the state after failing to meet drilling requirements. Brooks Range also held the leases for years but was unable to secure an access agreement with Kuukpik, according to documents previously submitted to the state. ConocoPhillips Alaska President Joe Marushack said Jan. 19 at the Alaska Support Industry Alliance’s Meet Alaska Conference that even before drilling a well the company believes the Putu prospect could produce 20,000 barrels per day. It’s worth noting that as a publicly traded oil company, ConocoPhillips is in the business of making conservative public statements. When the company informed DNR last winter that it had decided to defer its 2016-17 Putu plan because of the villagers’ concerns, Mack, charged with assuring the state’s resources are developed as timely as possible, threatened to revoke the acreage. An agreement was eventually reached last August after a lengthy back-and-forth of formal correspondence to let ConocoPhillips keep the acreage if it drilled a well into the hot Nanushuk geologic formation by May 2018. The deal included a $7 million payment to the state in-lieu of the bids DNR estimated it would get if the area was put up for bid in a lease sale. While ConocoPhillips has long held a surface access agreement with Kuukpik Corp., according to the producer, it still needed to allay the worries of the locals downwind that they would not be ignored. They weren’t. For starters, the Putu 2 drill site is about a half-mile farther from Nuiqsut than the location chosen to drill last winter. The drill rig — Kuukpik 5, another part of the producer-Native corporation agreement — will be electrified and powered by six, 975-horsepower Tier 4 diesel generators located about a mile north of the drill site. Kuukpik Corp. has five subsidiary companies mostly focused on oilfield service support in the drilling, ice road, camp and catering, engineering and environmental monitoring specialties. Chinn said Kuukpik’s companies and Nuiqsut residents will do much of the work associated with drilling the well. According to Burnett, about 85 people will be on site at peak activity. A 13.8 kilovolt power cable encapsulated in ice 25 inches thick will connect the generators to the drill location, according to ConocoPhillips’ Putu 2 mitigation plan submitted to DNR. The Tier 4 generators are top-of-the-line in terms of limiting emissions, according to Cummins Power Generation, which claims to be the first generator manufacturer to receive the Environmental Protection Agency’s most stringent applicable certification. The exhaust scrubbers installed on the generators make them as much as 90 percent cleaner than the traditional drill rigs by capturing much of the sulfur and other particulate matter found in diesel exhaust before it is emitted, according to Chinn. “There will be zero emissions from the drill rig and zero emissions from the camp,” he emphasized. Further, three air monitoring stations will be set up for the project; two near the northeast edge of the village and one at the Putu 2 site. If particulate levels exceed EPA standards the whole operation will go into “warm shutdown,” Chinn said, and the generators and other engines will be run just enough to keep equipment and facilities from freezing. Noise monitoring equipment will also be installed at one of the air quality stations at the edge of the village and ConocoPhillips will limit vehicle idling at the site to cut down on noise pollution. A snow berm — if there is enough snow — will be built on the village side of the pad as a final noise-dampening measure, according to the mitigation plan. Water quality tests will also be done at the nearby lake that is Nuiqsut’s water source once it melts to assure none of the limited particulate matter emitted from the exhaust has settled and found its way into the lake, Chinn added. “Everything is monitored all along the path,” he said. “I think singularly it’s the most any oil company I know of here in Alaska has ever agreed to do.” If gas flaring is required to test the well, the flare will be enclosed and pointed away from the village, Chinn said. When drilling is complete, the well will be plugged and abandoned but the well will be caped and buried eight feet below the tundra, a full five feet beyond state requirements. Finally, ConocoPhillips plans to directional drill into the reservoir if it decides to develop the area, according to Burnett, meaning a permanent gravel well pad would be substantially farther from the village than the ice exploration pad. “Essentially, we got to the point where — it was kind of interesting — we kind of ran out of things to even ask them for,” Chinn said. “This is about everything you can possibly, conceivably think of to reduce (impacts). It’s not just reduction of impacts, it’s reduction of unnecessary impacts and we got to the point where the reduction of unnecessary impacts was just gone.” He said he believes the Putu 2 mitigation measures set a standard for exploratory drilling, if not Slope-wide, at least on Kuukpik land near Nuiqsut. “At this point I think it sets a good tone for the future relationship with industry too, because once it gets done, whether they want to admit it or not, it does set a precedent about how you go about doing things,” Chinn said. “We just demonstrated that you can and that under the right set of circumstances — they drug their feet initially because they’re not used to doing this. “But we said the environment is important; subsistence is important; the people are important; and therefore we have to address it accordingly. And I said if you’re not willing to address those major elements then we don’t need to be doing this. It’s important that the fundamental priorities that exist are treated that way.” He acknowledged that project economics would likely play a role in future mitigation discussions Kuukpik is involved in but the Putu well is close enough to Nuiqsut that economic considerations had to take a backseat in this instance. When asked if ConocoPhillips agreed that the Putu 2 well sets a precedent for future Slope exploration, Burnett wrote in an email that the well is much closer to a community than any other project on the Slope and the company is doing what it can to be a good neighbor. “We are committed to collaborating with the Nuiqsut community to address their concerns on having an exploration well drilled close to their village,” she wrote. “We want the community to be comfortable with the drilling program. With that in mind, we have developed a robust mitigation plan to address concerns related to the drilling program.” She said the company could not share the cost of the mitigation measures or the overall Putu 2 effort. Chinn said Kuukpik — deep in the oil business — is not trying to play both sides of the game, but rather is trying to represent the interests of its shareholders who live amongst the North Slope development. The company has objected to other projects as originally planned by ConocoPhillips and currently opposes the Nanushuk project in permitting north of the village because, he said, it’s pad and road designs do not adequately consider caribou migration routes and fill unnecessary amounts of wetlands. “Here, where subsistence is such a big issue; it’s a really big deal, you have to accommodate everything: where people fish in a stream or river or so forth, where people hunt caribou. This is what people live on, ok. Alaska is very unique in that way,” Chinn stressed. He added that fish — mostly from the Colville River that braids through much of the oil development north of Nuiqsut — account for up to 30 percent of a Nuiqsut resident’s diet. “I’m not a flaming environmentalist, but I do care about the environment. I do care about the subsistence. I do care about the people that are involved in this and what kind of legacy does this leave for them.” Elwood Brehmer can be reached at [email protected]

King Cove road deal checks another item on Alaska to-do list

Alaska’s congressional delegation celebrated another victory enabled by the Trump administration Jan. 22 when the Republicans revealed the details of a land swap allowing construction of a road out of the remote village of King Cove near the tip of the Alaska Peninsula. The land exchange between the Interior Department and King Cove Corp., the area Native village corporation, will provide a 12-mile right-of-way through a portion of the Izembek National Wildlife Refuge. The delegation, Gov. Bill Walker and King Cove residents say the road would provide an essential link for emergency services when bad weather prevents flights out of King Cove or boat travel across Cold Bay. With a paved runway longer than 10,000 feet, Cold Bay’s airport has one of the longest civilian runways in the state and is the area’s main link to Anchorage 600 miles away. The old military post was built during World War II. King Cove’s airport has a 3,500-foot gravel runway for the community with roughly 950 year-round residents. Over the years 18 people have died in plane crashes or waiting to get medevac service out of King Cove, according to the Interior Department. However, no one has died trying to leave since 1994. The U.S. Coast Guard has frequently served as a medevac service out of King Cove in bad weather — at more than $210,000 per trip when a helicopter is deployed from Kodiak, according to Sen. Lisa Murkowski’s office. Interior Secretary Ryan Zinke said the equal-value land exchange fulfills two of the primary duties of the federal government: keeping Americans safe and respecting treaty agreements with Native people. “Previous administrations prioritized birds over human lives, and that’s just wrong,” Zinke said in a statement. “The people of King Cove have been stewarding the land and wildlife for thousands of years and I am confident that working together we will be able to continue responsible stewardship while also saving precious lives.” Walker called the agreement “a paradigm shift” in a statement from his office, contending the feds had been irresponsible “by placing a higher value on appeasing people who will never get within a thousand miles of King Cove, over the health and safety of those who actually live there.” In late 2013, then-Interior Secretary Sally Jewell rejected land swap deal passed by Congress in 2009 after a U.S. Fish and Wildlife Service environmental review determined the road would irreparably damage critical waterfowl habitat in the 315,000-acre Izembek Refuge. That swap would have traded 206 acres of Izembek land and 1,600 federal acres outside the refuge for about 56,000 acres of state and King Cove Corp. land. The new eight-page agreement calls for an equal-value land swap between King Cove Corp. and Interior. Further work must be done to identify exactly what lands will be exchanged, but neither side is to give up more than 500 acres, according to the deal. Rep. Don Young called assertions by environmental groups and the others, including some Republicans, that the road would unacceptably damage the habitat of the unique waterfowl populations that use the refuge “pure poppycock or goose you-know-what,” in a delegation press call Monday with Alaska reporters. He added that he thought the Native corporation conceded too much in the previous proposal. In summer, the refuge is home to 98 percent of the world’s population of Pacific black brant, a goose that breeds there, according to the Interior Department, as well as other sensitive wildlife and waterfowl. Walker also thanked the Legislature for approving $7.5 million in last year’s capital budget to jump-start construction of the road if it were ever approved, despite the state’s ongoing budget problems. Last summer the state Department of Transportation assisted in survey work to help establish the specific road route. DOT has estimated construction to cost $30 million and the state is expected to largely fund the work. It is expected to take about a year and start in two or three years after design and other pre-construction work is completed. In February 2017 the Alaska Legislature unanimously approved a resolution in support of a land transfer for building the single-lane gravel road between King Cove and Cold Bay. Murkowski said she called Trump to thank him for his administration’s work, but was unsure if she’d get through. The president took her call informing him of the deal and spent roughly five minutes talking about King Cove. “There’s not too many 950 population communities that are off the road system that the president has taken an interest in and he was quite pleased to learn that an agreement had been inked today,” Murkowski said. Sen. Dan Sullivan said the delegation made Zinke “an honorary Alaskan today” after the agreement was signed. He also noted that President Donald Trump took a personal interest in the issue after a briefing on their priorities from the senators shortly after he took office and would periodically ask them about the status of the road. “This is an Alaska issue in many, many ways,” Murkowski added. “This is more than just a 10-mile, one-lane, gravel, non-commercial use road. This is about how we provide a level of fairness and equity to those who are seeking a simple resolution to a way that they can gain safety at times when the elements do not allow for folks to travel safely by air or by boat.” Leaders of the Alaska office of the Audubon Society said in a formal response that it’s hard to overstate the importance of the Izembek Refuge to migrating waterfowl and transferring public land to private hands epitomizes the Trump administration’s damaging resource management policies. “The Izembek NWR is not your typical piece of Alaska. At times it supports the majority of the world’s populations of Emperor geese, Pacific black brant and the federally listed population of Steller’s eiders,” Audubon Alaska Executive Director Nils Warnock said. “There’s a reason the Interior Department decided against authorizing this road back in 2013. Izembek is too critical to wildlife to risk by having a road blasted through it.” Audubon Alaska also alleged an “underlying commercial motivation” for the project in its statement. And while the delegation has long stressed the road would be limited to emergency-use only, the land exchange signed Monday states the road will be used “primarily” for health and safety purposes “and generally for noncommercial purposes. The commercial transport of fish and seafood products, except by an individual or a small business, on any portion of the road shall be prohibited.” Opponents have consistently argued building a road through wilderness-designated land would set a bad precedent nationwide. Additionally, Peter Pan Seafoods, which has a processing plant in King Cove, could end up using the road to further its business interests — an egregious reason to develop the area, they contend. Murkowski said Peter Pan would be prohibited from the road but the deal does not restrict resident travel, which would be unreasonable. “It’s recognized that if you’re a local fisherman and you’ve got some fish in the back of your truck we’re not going to prohibit you from accessing the road,” she described. The Interior Department cites Section 1302 of the 1980 Alaska National Interest Lands Conservation Act for its authority to make the deal, but opposition groups are expected to challenge that authority in court. Murkowski said she always prefers to take action via legislation — which would all but nullify avenues to sue — but going about the land swap administratively is a much quicker route. “We want the Outside groups to refrain from litigating this. We are in the right legally,” Sullivan added. The House passed a bill authorizing a land swap for the road in July, but it has not passed the Senate. Elwood Brehmer can be reached at [email protected]

Missile defense gets major boost from latest bill

While the Republican tax overhaul was dominating year-end headlines, a major piece of bipartisan legislation became law that also has significant implications for Alaska. The 2018 National Defense Authorization Act, signed by President Donald Trump in mid-December, allocates $699 billion to Defense agencies in the coming year. Broad support of the annual Defense funding bill is nothing new, but wrapped in this NDAA is nearly every provision of Sen. Dan Sullivan’s Advancing America’s Missile Defense Act. The missile defense provisions in the NDAA will not only improve national security, but should be a boon to Alaska contractors as well, Sullivan said in a late December interview with the Journal. That’s because the NDAA calls for 20 new intercontinental ballistic missile, or ICBM, interceptors at Fort Greely near Delta Junction. Another eight “spare” interceptors, set aside for testing the ground-based interceptor system, will also be deployed, according to Sullivan’s office. His original bill called for installing 14 interceptors and 14 test missiles. The latest round of interceptors is in addition to 14 the Pentagon decided to add in 2013 to the original 26 at Fort Greely. The last of those 14 were installed last November. The interceptors are the country’s primary defense against ICBM threats from North Korea and Iran. Another of Sullivan’s provisions in the NDAA directs studies to identify a Midwest or East Coast missile defense site and evaluate the necessity of up to 104 ground-based interceptors at installations across the country. Overall, the nearly $700 billion in the NDAA is $26.2 billion more than the administration’s request and includes $12.3 billion for the Missile Defense Agency, which is also $4.4 billion above what President Trump asked for and the largest Missile Defense appropriation ever. Sullivan said it reflects the bipartisan support to restore Defense funding after it declined from 2010-2016 because of budget sequestration — a bipartisan mistake, he added. The $200 million needed to construct a new missile field at Fort Greely that was authorized in the NDAA was also one of the only additions to the otherwise status quo continuing budget resolution Congress passed Dec. 22, Sullivan noted. The short-term government funding bill expires Jan. 19. The NDAA also includes another $168.9 million for construction projects at Eielson Air Force Base in Fairbanks in preparation for the two squadrons of F-35 fighters scheduled to arrive at the base starting in 2020. More than 2,700 personnel will accompany the fighters, according to Defense reports, and preparing Eielson for the squadrons is estimated to cost a total of $453 million and generate more than 2,300 construction jobs in the state. Some of that money from prior appropriations is already flowing to Alaska. “In the three years I’ve been on the Armed Services Committee we’ve had over $1 billion of authorized military construction in Alaska — a billion,” Sullivan said. “That’s really good for the national security of the country but those are really, really good jobs for Alaskans.” He added that leaders of the U.S. Army Corps of Engineers have assured him much of the work at the Alaska military installations will go to Alaska contractors. “I also think it’s good for taxpayer spending to make sure this money goes to Alaskan contractors, unions, companies, because they know how to do it better than a contract team from Georgia; they know how to work in 40 below,” Sullivan said further. In addition to the work at Eielson and Fort Greely, the Missile Defense Agency is in the midst of spending another $325 million over six years at Clear Air Force Station just south of Fairbanks. Clear is a radar base near Nenana along the Parks Highway. The money there is going towards installing a new power plant and missile detection radar system. Clear Air Force Station is on the electrical grid; however, the upgraded power plant is a backup facility that will be protected against electromagnetic pulse weapons that could be used to render electrical systems useless, according to former MDA Director Vice Admiral James Syring. The Long Range Discrimination Radar being installed at Clear —expected to be done in the early 2020s — could be part of an integrated, space-based ICBM detection system, which Sullivan likes to refer to as an “unblinking eye,” he said. Another of his missile defense amendments to the NDAA mandates creation of a plan to develop and deploy such a missile detection system. The military construction boom around Fairbanks comes just a few years after the Air Force was considering moving the F-16 Aggressor squadron from Eielson to Joint Base Elmendorf-Richardson in Anchorage. City leaders in Fairbanks said the move would’ve crippled the community’s economy and ostensibly made Eielson obsolete without officially closing the base. The Air Force dropped the plan to move the F-16s off Eielson in late 2013. More recently, the Alaska congressional delegation and Anchorage leaders pushed back against an Army proposal to cut the 4th Infantry, 25th Brigade, also known as the 4-25, from Fort Richardson in Anchorage. Citing the state’s strategic Arctic location, emerging threats in the Pacific theater and the 4-25 status as the only Airborne Brigade in the region, the delegation convinced the Army to delay any force reduction in Alaska. The turnabout in the Pentagon’s plans for Alaska has made Alaska the “cornerstone of missile defense, the hub of combat power for the Asia-Pacific and the Arctic,” Sullivan described. With the F-22s stationed at JBER, the state will soon be in the unique position of having more than 100 modern fighters once the F-35s land at Eielson. “No place in the world has 100 combat-coded fifth-generation fighters — those are F-22s or F-35s,” Sullivan said. Elwood Brehmer can be reached at [email protected]

Politicians, stakeholders want conditions for Juneau utility sale

Alaskans with addresses from North Pole to Washington, D.C., are objecting to the proposed sale of the Juneau electric utility by its current Washington state-based owners to a large Ontario utility. The cause for the North American geography mini-lesson is what will happen if the Regulatory Commission of Alaska approves the sale including the 78-megawatt Snettisham hydroelectric facility that provides up to 75 percent of Juneau’s base load power supply. In July, Toronto-based Hydro One Ltd. and Spokane, Wash.-based Avista Corp. announced that Hydro One would buy Avista for $5.3 billion in cash to form one of the largest utilities in North America with a combined asset value estimated at more than $25 billion. Avista bought Alaska Energy and Resources Co., the parent to Juneau’s electric utility Alaska Electric Light and Power, in a deal that closed in 2014 for $170 million. Prior to being under Avista, a Juneau family held majority ownership of AEL&P. The Juneau utility operates and maintains the Snettisham facilities located about 30 miles southeast of Juneau, but the hydro project was built by the U.S. Army Corps of Engineers in the 1960s and subsequently expanded multiple times. Snettisham was sold to the state-owned Alaska Industrial Development and Export Authority in 1998 as part of a broader federal move to divest from local utilities nationwide. The state investment bank financed the purchase with $100 million in revenue bonds, which will be paid off in 2034, according to AIDEA. The sticking point in the sale is what happens when those bonds are paid off and AIDEA owns the hydro facilities and the associated 44-mile transmission line free-and-clear. At that point, the owners of AEL&P have the option of purchasing the energy-producing infrastructure for $1, a condition of the 1998 purchase by AIDEA, according to a letter from Rep. Don Young to the RCA. Young’s Dec. 4 letter to the commission — submitted during the public comment period on the proposed Avista to Hydro One sale of AEL&P — urges the RCA to condition the sale to require the Snettisham facilities remain in state or local ownership. “The Snettisham assets were transferred to the State of Alaska at below construction and replacement value to help insure low electric utility rates in Juneau. I can (assure) you that it was never Congress’ intent that this asset be transferred for the potential profiteering by Canadian government interests,” Young wrote. “At this point, a foreign government entity could ‘hijack’ this public asset initially built to produce low-cost power and pledge, monetize or refinance this asset cashing in the equity at the U.S. taxpayer and Alaskan ratepayer expense without recourse,” he continued. “A Hydro One sale, without divesture of this asset option, could pre-empt Juneau from reaping the benefits of Congress’ intended purpose.” Young concluded by clarifying he does not object to the sale other than to ensure Snettisham remains in public ownership. Hydro One, Canada’s largest electric transmission and distribution utility according to its website, was formed by the Ontario Legislature in 1906. It became a publicly traded company on the Toronto Stock Exchange in late 2015 as the provincial government began divesting the utility. The government of Ontario currently owns 47.4 percent of Hydro One shares, according to the international investment research firm Morningstar Inc. Alaska Independent Power Producers Association Director and Juneau-area resident Duff Mitchell said in an interview that Snettisham power currently costs a little more than 5 cents per kilowatt-hour and once the bonds are paid off that rate could drop to less than 1 cent per kilowatt-hour. If Hydro One is allowed to own Snettisham it could refinance the project, monetize its equity or use it as collateral for other projects and potentially impact future rates in Juneau, Mitchell stressed. He said the $1 purchase option also applies to Avista, but wasn’t generally known when its purchase of AEL&P was pending in late 2013-14. “It’s a very simple fix; it doesn’t hurt Hydro One. Juneau will get its rates reduced and it keeps a foreign government entity from playing games with the asset,” Mitchell said. Alaska state Rep. Tammie Wilson, R-North Pole, reiterated Young’s sentiments in comments to the RCA, contending that, “If Hydro One is successful in obtaining RCA approval with the Snettisham asset rights, this would set a bad precedent that Alaska is for sale and that it is open season to plunder our state. This is a bad message.” Additionally, Alaska Chamber CEO Curtis Thayer, former legislators Cathy Munoz and Lesil McGuire and numerous Juneau residents joined in support of conditioning the sale of AEL&P. Hydro One and Avista wrote in a joint response to the public comments Dec. 11 that they agree with Young that Snettisham “should be preserved for the benefit of Alaskan utility rate payers so that it can continue to provide low cost power for Juneau” and should remain in local ownership. They argue, however, that the concerns are already addressed and conditioning the sale is unnecessary. Utility operations will stay the same when the deal closes, according to the companies. “As it does today, AEL&P will continue to manage the utility and will continue to have certain rights and obligations relating to Snettisham,” they wrote. “Avista has not inserted itself into AEL&P management and neither will Hydro One, because the structure of the merger leaves in place local control.” Former AEL&P director Neil MacKinnon wrote to the RCA that he supports the sale as-is because, among other things, it makes no difference who owns the hydro facilities given the power can only go to the Juneau area and the commission has to approve any rate changes. The expertise a large owner company provides the small utility is extremely valuable as well, according to MacKinnon. (This story has been amended to correctly note that former Alaska Electric Light and Power director Neil MacKinnon supports the Avista-Hydro One transaction without stipulations. The original version of the story incorrectly stated MacKinnon requested the RCA condition the sale.) The RCA rejected the utility companies’ first sale application in Nov. 8 on procedural grounds. They reapplied Nov. 21 and the commission has until May 20 to issue its decision. Wilson, who has championed open access for small, often renewable power producers to utility-owned transmission lines in the Legislature, also urged the RCA stipulate Hydro One provide open access to the Snettisham transmission line that runs from the generation facilities to Juneau. “The RCA, by conditioning Hydro One, can send a public interest message to the utility industry that if multi-state or multi-national corporations want to take over Alaskan utilities and do business in Alaska that they will have to treat Alaskan energy developers with the same nondiscriminatory transmission interconnection rights and privileges that they are required to provide energy developers in other jurisdictions,” Wilson wrote. The Federal Energy Regulatory Commission requires Lower 48 electric transmission owners to provide all power producers equal access to transmission infrastructure. Current Alaska laws and regulations do not, according to Mitchell, which has been a growing source of contention between renewable power startups in the state and the utilities that own or manage large segments of Alaska’s transmission lines. Hydro One sells power to Lower 48 utilities and as a result operates under FERC regulations in many instances despite being a Canadian company. Hydro One spokeswoman Tiziana Baccega Rosa wrote in an emailed response to questions that the benefits of the Snettisham facility will remain in Alaska and that AEL&P is already subject to the RCA’s open-access requirements and will continue to comply with them. However, Wilson and McGuire, of Anchorage who retired from the state Senate in 2016, further noted that Juneau Hydropower Inc. has been trying to gain access to the Snettisham line from AEL&P for several years without success. Juneau Hydropower, also led by Alaska Independent Power Producers Association head Mitchell, has regulatory approval to construct the Sweetheart Lake hydro project south of Juneau but needs to secure transmission capacity before it can start construction. The 20-megawatt hydro project would supply power to the Kensington gold mine north of Juneau, which currently runs on diesel-fired generation. Kensington’s owner company Coeur Mining also urged the RCA to condition the Hydro One sale on an access agreement with Juneau Hydropower, which has been trying to get such an agreement since 2012, according to the filings. The Sweetheart Lake condition was a request of AIPPA as well. Mitchell acknowledged that his company would stand to benefit from such terms, but said the stance is in line with what the association has sought for years in other similar instances across the state. “I believe our state is the breadbasket of renewable energy and we have manmade problems keeping those developments from happening. It’s not a question of financing; it’s not a question of natural, God-given resources. It’s a question of legislative and regulatory problems,” Mitchell said. “I have always been — Juneau Hydropower and AIPPA has always been — consistently for open access and non-discriminaatory access to transmission lines in Alaska.” He also noted that Sweetheart Lake, by getting Kensington off diesel, would cut Juneau-area greenhouse gas emissions by about 8 percent. “I’m doing what America is supposed to do,” Mitchell emphasized. “If you can offer a better product — this transmission issue does affect Juneau Hydropower but it also affects every independent power producer in Alaska.” Elwood Brehmer can be reached at [email protected]

Initiative sponsors turn in signatures as BBNC shifts to neutral

Advocates of strengthening Alaska’s salmon habitat protection took a big step forward when they dumped roughly 49,500 signatures on the front desk of the Division of Elections Anchorage office Jan. 16. The signatures from Alaskans statewide were collected by Stand for Salmon, the nonprofit aimed at reforming anadromous fish habitat permitting requirements via the ballot initiative they’ve dubbed “Yes for Salmon.” Early morning drizzle and icy roads didn’t damper the spirits of about 20 initiative backers that gathered outside the Division of Elections to be ready to submit the signatures for certification as soon as the state offices opened at 8 a.m. Jan. 16, the start of the legislative session, was the last day to hand the petition booklets in and get the initiative on the 2018 ballot. It was also the day that Bristol Bay Native Corp., a major opponent of the Pebble mine, revised its stance on the initiative from against to neutral. While the signature hurdle is a big one, the initiative still faces stiff opposition from industry groups and the State of Alaska. Lt. Gov. Byron Mallott first rejected the initiative on the advice of the Department of Law because the state’s lawyers deemed it would appropriate Alaska’s water resources for salmon habitat — the state Constitution requires resource allocation be left to the Legislature — and therefore be unconstitutional. After Mallott’s ruling was appealed and overturned in Superior Court, the state took its turn to appeal to the Supreme Court in October. Oral Arguments in the case are now set for April 26. “This is a promising moment for all Alaskans. Tens of thousands of Alaskans from Nome to Ketchikan, from every single legislative district, have said that we want the opportunity to reflect a true balance between responsible development and protection of salmon,” said Stephanie Quinn-Davidson, an initiative sponsor and director of the Yukon River Inter-Tribal Fish Commission. Quinn-Davidson replaced Bristol Bay lodge owner Brian Kraft, an original sponsor, after Kraft stepped away from the campaign in November for personal reasons, according to Stand for Salmon representatives. Sponsors are required to gather signatures from registered voters equal to at least 10 percent of number of voters in the previous election from 32 of the 40 House districts in the state. For 2018 initiatives that meant getting 32,127 signatures, according to the Division of Elections. Campaign workers said they set a goal of 45,000 to account for unqualified signatures and were proud to have gathered the required amount in all 40 districts. Specifically, the initiative seeks to overhaul Title 16, the Department of Fish and Game’s statutory directive on how to evaluate development projects in salmon habitat. Current law directs the Fish and Game commissioner to issue a development permit as long as a project provides “proper protection of fish and game.” The sponsors contend that is far too vague and an update is needed to just define what “proper protection” means. The initiative would, among other things, establish two tiers of development permits that could be issued by the Department of Fish and Game. “Minor” habitat permits could be issued quickly and generally for projects deemed to have an insignificant impact on salmon waters. “Major” permits for larger projects such as mines, dams and anything determined to potentially have a significant impact on salmon-bearing waters would require the project sponsor to prove the project would not damage salmon habitat. Mitigation measures would be acceptable as long as they are implemented on the impacted stream or wetland area. Additionally, the project sponsor would have to prove that impacted waters are not salmon habitat during any stage of the fish life cycle if the waters are connected to proven salmon habitat in any way but not yet listed in the state’s Anadromous Waters Catalog. The sponsors insist it is not aimed to stop development projects; rather, it would set high but transparent permitting standards that are necessary to protect salmon resources that are already being stressed by multiple factors, they contend. Even if it wins at the Supreme Court, a laundry list of resource development, unions and trade groups, along with the Alaska Native Claims Settlement Act Regional Association (made up of the 12 Native regional corporations) and the Alaska Chamber have formed an opposition group called Stand for Alaska. That group has already received contributions totaling $147,000 according to an Alaska Public Offices Commission report. Stand for Salmon has collected $271,000 as of Jan. 7 according to APOC with the biggest donor the Alaska Conservation Foundation at $60,000. Opponents contend the initiative would decimate the state’s economy and make even the smallest projects — down to road repairs — extremely difficult if not impossible to permit. SFA co-chair Joey Merrick of the Laborers’ Local 341, who is also a member of the Alaska Gasline Development Corp. board of directors, said in a press release that the initiative poses a risk to his members’ jobs. “Alaska already is in a serious recession with one of the nation’s highest unemployment rates. The last thing we need is more expensive, time consuming, and unnecessary policies that cost Alaskans their livelihoods,” Merrick said. AGDC President Keith Meyer has argued that the initiative would prevent the construction of the Alaska LNG Project, and Gov. Bill Walker has also expressed opposition to the measure. Walker said the initiative is too broad in its scope and it could hamper nearly every area of project development in the state. “I think when you’re making definitions that impact development of projects in Alaska and you do that through the initiative process — I was very concerned about that,” he said in a Dec. 22 interview with the Journal. “I would like there to be a discussion back and forth; hearings in the appropriate hearing rooms in Juneau and various folks being able to weigh in.” BBNC changes stance on initiative The Jan. 16 press release from Stand for Alaska lists Bristol Bay Native Corp. among the dozens of corporations, trade groups and chambers of commerce opposing the initiative, but that list may need to be revised. BBNC is no longer against the initiative, but is not for it, either. CEO Jason Metrokin said in a Jan. 16 statement to the Journal that “BBNC has been and continues to be neutral on the initiative; neither opposing it nor supporting it. The ANCSA Regional Association as a body took its own action in opposing the initiative. BBNC and other ANCSA regional corporations are discussing ways to improve Title 16; changes that would improve salmon habitat protection but not preclude responsible development projects.” Metrokin, in an October statement to the Journal, reemphasized the corporation’s longstanding opposition to the Pebble mine project, but also said that BBNC “did not support (House Bill) 199 last legislative session and cannot support the Stand for Salmon ballot initiative. Each would unnecessarily and negatively impact resource development projects and potentially the subsistence activities upon which our shareholders rely depend.” Metrokin continued to note in October that the Native corporation wants to work with the Walker administration and the Legislature to “appropriately update Title 16’s anadromous fish habitat provisions.” The ANCSA Regional Association, with a board comprised of the 12 regional corporation leaders and Alaska Federation of Natives head Julie Kitka, voted unanimously to oppose the initiative in July, according to an October op-ed penned by CIRI CEO Sophie Minich and Arctic Slope Regional Corp. CEO Rex Rock. Other media outlets subsequently reported in November that BBNC opposed the proposed ballot measure as well. BBNC issued a press release Jan. 5 urging the Legislature to revise Title 16 and stressing the company’s positions on salmon habitat and other resource issues are grounded in a belief that decisions about how to balance uses of competing resources should always start with putting “fish first.” “The protections in Title 16 help ensure that development projects do not threaten Alaska’s anadromous fisheries. It is imperative that Alaska periodically review and update those statutes. This has not been done in nearly 60 years. It is time for the Legislature to do so,” the Jan. 5 release concludes. Shortly thereafter, BBNC board of directors member H. Robin Samuelsen Jr. told the Journal there was a “misunderstanding” between Metrokin and board members regarding the corporation’s stance on the initiative, but referred further questions to BBNC executives. Those questions led to the Jan. 16 statement. Democrat House Speaker Bryce Edgmon of Dillingham has said the House Majority will hold hearings on House Bill 199 this session to gather information on how Title 16 can be improved with input from those that oppose the initiative and the current version of HB 199. The bill language largely mirrors that found in the initiative and Edgmon has said he does not expect it to pass this session because of the consternation the initiative has caused. Elwood Brehmer can be reached at [email protected]

DNR issues default to Furie for failure to drill

Department of Natural Resources officials issued a notice of default to Furie Operating Alaska Dec. 26 for failing to make good on its drilling commitments in the Kitchen Lights Unit the company operates. In a letter to the company’s Alaska leaders, DNR Commissioner Andy Mack recalled the drilling plans the company submitted to the agency since 2015 that went unmet. “Operation of the KLU previously and up through the present reflects a history of committing to drilling activities, but then delaying or changing those work commitments,” Mack wrote. The Kitchen Lights Unit is a large natural gas producing unit in the central part of Cook Inlet north of Nikiski and east of Trading Bay. Mack continued to note that Furie said it would drill two development wells in its 2015 plan of exploration, but in August that year proposed deferring that work until 2016. The change was approved by the Division of Oil and Gas. The company’s 2017 development plan called for completing the KLU-A1 well and drilling another to be completed later. That work was not done and instead was deferred to 2018 in Furie’s latest development plan, which Division of Oil and Gas Director Chantal Walsh approved Dec. 28. Furie leaders had intended to do a workover of the KLU-3 well, finish drilling its A-1 well and then drill another gas well and a deep oil test well, according to Webb in an interview with the Journal this past November. “Although the Randolph Yost jack-up rig was 100 percent staffed to commence drilling operations in April of this year, Furie was forced to delay its 2017 drilling plans — including purchasing tangible items with substantial lead times — until additional funding for the purchase of tax credits was approved by the Legislature and the governor,” Furie’s 2018 Kitchen Lights development plan states. The document was sent to the Division of Oil and Gas Oct. 6. Mack cited the Kitchen Lights Unit Agreement in his default notice, which states that the DNR commissioner can, at his or her discretion, determine that the company’s failure to meet its commitments constitutes a unit default. To cure the default Furie must follow through with its 2018 development plan. Failing to resolve the default could lead to DNR seeking to contract or terminate the Kitchen Lights Unit, according to the default notice. Furie officials contended in their 2018 plan that the drilling work was not done last year because the State of Alaska has not fulfilled its obligation to repay the “very substantial amount” of refundable production tax credit certificates it owes the company for previous work. “These certificates are a key component to funding further exploration and development activities in the KLU and were relied upon by Furie when putting together its work program and budget,” the 2018 Kitchen Lights plan states. Oil and gas companies and industry backers have roundly criticized Gov. Bill Walker for vetoing $630 million worth of appropriations in 2015 and 2016 to pay the industry tax credits. Walker has been steadfast in his assertion that the state could not afford to make the large credit payments while dealing with annual budget deficits upwards of $3 billion at the time. His fiscal year 2019 budget plan released in December includes a proposal for the state to bond for $900 million to pay off the state’s full credit obligation. Exactly how much Furie is owed is unknown. Senior Vice President Bruce Webb said he couldn’t comment on the matter and state officials cannot reveal the tax credit amounts because it is confidential tax information. While Furie didn’t drill last year, the 2018 plan further asserts that it “conducted substantial well and pipeline work in 2017,” noting the company removed plugs from the KLU-3 well readying it for production. It also flow tested KLU-3 and another well in August and achieved combined gas production 31 million cubic feet per day during the test. Also, Mack did not mention the two wells Furie did drill in 2016 in his Kitchen Lights default notice. Alaska Oil and Gas Conservation Commission records indicate the company applied for permits to drill the KLU-A1 and KLU-A2 wells in June 2016 and completed the KLU-A2 and KLU-A2A in July and September of that year. According to previous interviews with Furie leaders, those natural gas wells were allocated to feed the contract it has with regional utility Enstar Natural Gas, which commences this April. Furie also has an existing supply contract with Homer Electric Association, which uses natural gas to fuel its power plants, and last spring signed a 10-year contract to supply Chugach Electric Association starting in 2023. DNR officials asked to reschedule a Jan. 9 interview with the Journal to discuss the default decision and how it could impact Furie’s supply contracts if it is not resolved. In 2015 the company installed the Julius R platform in the Kitchen Lights Unit, from which it now produces the gas for its contracts. Furie is also looking to produce oil, which much of its currently planned work is aimed at. Company officials have said they could foresee eventually installing an oil-focused platform in the unit if exploration proves successful. Furie has 20 days from the issuance of the default to request Mack reconsider his decision. Elwood Brehmer can be reached at [email protected]

Permit application reveals size of scaled-down Pebble project

The official Pebble mine plan released Jan. 5 by federal regulators describes a scaled-back project relative to prior concepts, but opponents contend it is a way for the company to get its foot in the door for future expansion. Published by the Alaska District of the U.S. Army Corps of Engineers, the plan details a project that is much more than a mine. According to Pebble’s plan documents, its reach would stretch 187 miles from the mine site north of Iliamna Lake to the edge of the Sterling Highway on the southern Kenai Peninsula. In between would be a natural gas pipeline up to 12 inches wide traversing the Cook Inlet sea floor for 95 miles from the Anchor Point area to a deepwater port at Amakdedori west of Augustine Island. From there, a two-lane, private road would run 35 miles northwest to a ferry terminal on the south shore of Iliamna Lake. An ice-breaking ferry would then shuttle materials 18 miles across roughly the midpoint of the massive Iliamna Lake, which is the largest in Alaska. Another 30 miles of industrial road would connect the north ferry terminal near the village of Newhalen with the mine site. The gas pipeline would follow the rest of the transportation corridor to the mine. In early October, Pebble CEO Tom Collier unveiled a rough outline to the company’s plans. Collier said then the mine the company intends to construct is smaller than what has long been speculated and incorporates stakeholder concerns both in the footprint of the mine and broader project designs. The ferry, for instance, would be employed to reduce road construction and associated impacts to wetlands, according to Collier. He reiterated as much in a Jan. 5 statement issued by Pebble. “We believe that as Alaskans become more familiar with our proposed project design and the environmental safeguards it incorporates, there will (be) an increasing degree of support for the project, and the significant economic potential it represents for the State of Alaska,” Collier said. Pebble estimates the project will generate about 2,000 jobs during its four-year construction and about 850 full-time positions over its 20-year life. The now-public Pebble project plans were submitted to the Corps Dec. 22 in Pebble’s wetlands discharge permit application, required under Section 404 of the Clean Water Act. The Army Corps of Engineers first reviews wetlands permit applications and if deemed complete issues a public notice announcing the proposal within 15 days of the application and makes it available to the public. The Corps also issues a determination on what level of environmental review an application necessitates and, unsurprisingly in this case, deemed Pebble worthy of a full environmental impact statement. Corps Alaska regulatory officials have said the average EIS for a large project takes four to five years, while Collier has said he hopes the project can be approved in three. The next step is for the Corps to select a third-party contractor to develop the EIS. Ron Thiessen, CEO of Pebble’s parent company Northern Dynasty Minerals Ltd. said Pebble expects to sign a memorandum of agreement with the Corps “in the very near term” and subsequently issue a request for proposals from which the Corps will select the EIS drafter. At the end of the road but the center of controversy, the mine site would include a suite of facilities over several square miles. The heart of the operation would be the mine pit: 6,500 feet long; 5,500 feet wide and up to 1,750 feet deep. A large bulk tailings storage facility capable of holding 950 million tons of waste rock would collect most of the milled ore. A smaller, lined tailings storage cell designed to hold 135 million tons of potentially acid generating mine waste would be segregated from the bulk tailings but be behind the same series of tailings dams. The storage facilities are designed to handle mine waste generated over 20 years of operations, according to Pebble’s documents. The primary tailings embankment would be 600 feet tall and three others would be between 60 and 420 feet tall. Each would have a 2.6-to-1 slope, according to Pebble. The natural gas pipeline would terminate at and feed a 230-megawatt power plant, which would provide electricity to the mine and drastically reduce the need for diesel fuel storage, the application notes. For comparison, the power plant would be large enough to supply Golden Valley Electric Association, the electric utility for Fairbanks and surrounding areas, with enough electricity to meet its historical peak demand of 223 megawatts. The onsite facilities would all be in the Koktuli River watershed and avoid Upper Talarik Creek. Avoiding the Talarik drainage, which feeds Iliamna Lake and the Kvichak River, would seemingly avoid any potential damage to the Kvichak’s immense sockeye salmon runs, a point Collier has emphasized as proof of the company’s efforts to minimize its impacts to salmon habitat. Pebble will not use leaching processes that require cyanide to extract gold, which will lower recovery by 15 percent, according to Collier. However, mine opponents have noted the north and south branches of the Koktuli River are primary spawning habitat for the large run of chinook salmon that return to the Nushugak River system. Overall, the mine site would fill 3,190 acres of wetlands and water bodies, according to Pebble. The Environmental Protection Agency determined in 2014 — based on the conclusions of its Bristol Bay Watershed Assessment — that any project resulting in the loss of more than 1,100 acres of wetlands and water bodies in the area would be an unacceptable impact. How Pebble will, or can, sufficiently mitigate the wetlands losses is unclear. The environmental offsets will be established as the lengthy permitting process plays out, according to the application. Active mining from the pit would occur for 14 years and the final six years of operation would focus on mineral recovery from a stockpile of low-grade ore. As planned, the Pebble mine would produce 600,000 tons of copper-gold concentrate and 15,000 tons of molybdenum per year from 58 million tons of processed ore. Statements from several groups fighting the proposed mine said the tempered plan changes little. “The plan released (Jan. 5) includes only a fraction of the ore within the Pebble deposit, indicating that the impacts could be vastly greater than what’s indicated on the application we see today,” Trout Unlimited Alaska Director Nelli Williams said. “It is clear that Pebble is continuing to deceive and mislead Alaskans and Americans, and their ‘new’ plan is nothing more than the same old threat wrapped in a package they hope is more digestible. Don’t be fooled by this incomplete proposal.” While Pebble’s application is for a 20-year mine with a single pit to reduce its impact, opponents note investor pitches and statements from leaders of Northern Dynasty Minerals highlighting the immense size of the Pebble deposit. A November Northern Dynasty investor presentation stresses Pebble as “the world’s largest undeveloped copper and gold resource.” In its Section 404 application, Pebble notes the total deposit is estimated to hold 80.6 billion pounds of copper, 5.5 billion pounds of molybdenum and 107 million ounces of gold. However, the single pit would allow for recovery of just 6.7 billion pounds of cooper, 353 million pounds of molybdenum and 10.7 million ounces of gold. Collier has acknowledged the company might look to expand after initial production commences but contends growing the project would require additional rounds of environmental reviews and permitting that would be independent from any approvals Pebble already had. He said in a December interview that the company does not have a definitive cost estimate on its massive undertaking, but he did say Pebble is confident in the project’s economics at current metal prices. Elwood Brehmer can be reached at [email protected]

Regulators hopeful well test can jumpstart Mustang oil project

Positive results from a well test have helped give a small independent oil company another shot at finally developing its North Slope prospect. Anchorage-based Brooks Range Petroleum Corp. announced Jan. 8 that a late November flow test of the North Tarn 1-A at its Mustang oil project produced peak flows averaging 1,292 barrels per day with only small amounts of water. The test confirms the company’s prior assumptions and Brooks Range expects the results will lead to accelerated development of the Mustang project, according to a press release. “This recent success is very encouraging and highlights the dedicated and persistent support invested by the working interest owners, state agencies and the contracting community. These results confirm we are on the right track with our development plans,” Brooks Range CEO Bart Armfield said in the release. The Mustang project is in the small Southern Miluveach Unit on the southwest edge of the large Kuparuk River Unit. It’s estimated to hold 33 million barrels of proven and probable light oil reserves, according Brooks Range. Peak production estimates for the field have been in the range of 15,000 barrels per day. The Southern Miluveach Unit was set to expire at the end of 2017 because Brooks Range had repeatedly failed to make good on its development plans. Company leaders first said in late 2012 that they hoped to have Mustang in production by the fall of 2014. Between December 2012 and April 2014 the Alaska Industrial Development and Export Authority, the state-owned investment bank, invested a total of $70 million in a five-mile gravel road, a 19-acre production pad and a $225 million oil processing facility, which would be the first such open-access facility on the North Slope. Full development of the field has been estimated at $580 million, a price that included drilling 11 production and 20 more gas and water injection wells. In its Jan. 8 release Brooks Range said the next phase of work is installing the oil processing facility and drilling up to 18 production and injection wells. Brooks Range ultimately missed the 2014 production target, meaning the company would also have to deal with a new, lower oil price regime that is just now starting to turn around. Subsequent plans submitted to the state Division of Oil and Gas to develop Mustang have gone unmet with Brooks Range claiming it would install the necessary facilities and then, after not doing so, contending “unfavorable economic circumstances” forced the company to delay the work it had promised multiple times up to last November. With little construction work having occurred at Mustang in 2016 and 2017, according to Brooks Range’s submissions to the Division of Oil and Gas, the company again said it would move facility modules constructed in Canada and Alaska to the Slope this year and achieve production by early 2019 in its 2018 plan of development sent to state officials in late October. As a result, Division of Oil and Gas officials have met the company’s recent work plans with skepticism but have continued to approve them. Deputy Oil and Gas Director Jim Beckham approved the 2018 Southern Miluveach development plan Dec. 20. That approval extended the term of the unit for another year, but also brought with it a requirement for quarterly progress reports detailing the company’s work. The one thing of significance Brooks Range did accomplish in 2017 — which was a late amendment to it original 2017 plan — was the North Tarn-1A well test. Beckham said in an interview prior to the well results being released that division officials anticipated the test would be a success and the hope is it is one Brooks Range can build on. He noted, “the whole industry got turned on its head with the plummeting oil prices” in 2014 and said the decision to extend the unit term and give the company another shot because the state should do what it can to support struggling operators. “I have to protect the state’s interest and all that means, but, that said, my philosophy here is to get to ‘yes,’ right? If we don’t get to ‘yes’ we don’t have producers and explorers out there and if we don’t have that what do we have? We don’t have an economy. So, within reason and within statutory and regulatory bounds our job is to get to ‘yes,’” Beckham said. “I think it’s far better for the state to work closely with the companies and try to find a mutually beneficial path forward.” AIDEA’s investments in Mustang and other state investments in oil and gas projects do not factor into the Division of Oil and Gas’ regulatory decisions, according to Beckham. “We’re just concerned about the nuts and bolts of getting them into production,” he added. Brooks Range CEO Armfield said in a brief interview that company leaders are working intensely on plans now to meet the early 2019 goal for first oil and he would be able to detail how this year will be different than the prior few in the coming weeks. He also noted the state owes the company $44 million in unpaid tax credits. Some of the tax credits the company has earned for the work it has done at Mustang went to pay back a portion of AIDEA as a part of the structure to that agreement. In early 2016 Brooks Range attempted to transfer its leases in the nearby Tofkat Unit to ConocoPhillips shortly before the unit was set to expire. That led to a lengthy back-and-forth between Brooks Range, state officials and ConocoPhillips that ultimately concluded last August with Conoco agreeing to drill an exploration well on the Tofkat acreage this winter or relinquish the leases back to the state. In the case of Tofkat, Brooks Range allegedly was unable to explore and develop the leases because it couldn’t secure an access agreement with Kuukpik Corp., the Alaska Native village corporation that jointly holds surface rights to the state leases. Elwood Brehmer can be reached at [email protected]

Draft lease plan would open most of Alaska OCS

The Interior Department’s latest offshore oil and gas leasing proposal released Thursday juxtaposes the plan put in place late in the Obama administration in almost every way. For starters, it would put nearly all federal waters off Alaska up for sale. Published by the Bureau of Ocean Energy Management, the draft 2019-2024 National Outer Continental Shelf Oil and Gas Leasing Program calls for 19 lease sales covering 11 of the 12 designated sale areas off the coast of Alaska. The only area not included in the plan is the North Aleutian Basin, which is Bristol Bay and the surrounding waters. It was withdrawn from potential leasing by President Barack Obama in 2014. The current 2017-2022 OCS lease plan calls for a single Alaska sale for the federal waters of southern Cook Inlet in 2021. Similarly, the draft plan would make 90 percent of the total OCS acreage nationwide available for leasing. The current schedule puts 94 percent of leasable OCS areas off limits, according to the Interior Department. Interior Secretary Ryan Zinke said providing opportunities to for companies to develop offshore resources would not only help achieve the Trump administration’s goal of national energy security, but also provide “billions of dollars to fund the conservation of our coastlines, public lands and parks.” The Land and Water Conservation Fund, which provides money to states, local governments and federal agencies for environmental restoration and conservation programs, is funded primarily with OCS lease revenue. “Today’s announcement lays out the options that are on the table and starts a lengthy and robust public comment period,” Zinke said further. “Just like mining, not all areas are appropriate for offshore drilling, and we will take that into consideration in the coming weeks. The important thing is we strike the right balance to protect our coasts and people while still empower America to achieve American energy dominance.” Sen. Lisa Murkowski, who chairs the Senate Energy and Natural Resources Committee, echoed Zinke’s sentiment in a statement from her office. “This draft program is another positive step as we week to reinforce our nation’s status as a global energy leader,” she said. “Secretary Zinke’s ‘blank slate’ approach launches a new discussion with local stakeholders to determine where responsible energy development should take place. While nothing in this proposal is final, it is good to see the administration seeking to expand access in places like Alaska, rather than limiting our opportunities.” Murkowski and Sen. Dan Sullivan were among 36 Republican senators who in July signed a joint letter to Zinke requesting his department put together a new OCS plan. Likewise, Gov. Bill Walker said the draft proposal is “an important step toward allowing Alaskans to responsibly develop our natural resources as we see fit.” The Alaska leasing schedule proposes three sales each in the Chukchi and Beaufort seas off the North Slope in alternating years over the 2019-2024 period. It would also add a second Cook Inlet sale in 2023 in addition to the 2021 sale in the current schedule and one sale each in 2023 covering the 11 other areas that include the federal waters of Southeast, Kodiak, the Aleutians and the Bering Sea. When in draft form the current 2017-2022 OCS lease schedule included one sale each in the Beaufort and Chukchi seas, but they were culled from the final plan. The Wilderness Society’s Arctic Program Director Lois Epstein, based in Anchorage, said in a formal response that the challenges posed by offshore drilling in the Arctic would put sensitive coastal habitat and the subsistence resources coastal Alaska residents rely at unnecessary risk. “Re-doing the five-year program reflects this administration’s eagerness to sell out our public lands and water and pursue fossil fuel energy development everywhere. This is part of a wholesale assault on Alaska’s Arctic, with congress opening the Arctic National Wildlife Refuge’s coastal plain to oil drilling and the Trump administration seeking to revise the scientifically sound National Petroleum Reserve-Alaska management plan so it allows drilling even in currently protected, sensitive habitat,” Epstein said. BOEM will begin holding public meetings on the draft plan, which still requires an environmental impact statement review, Jan. 16 in Maryland. The Alaska meeting is scheduled for Jan. 23 at the Dena’ina Convention Center in Anchorage. While the debate over whether or not to allow drilling is a one for politicians, whether or not industry will want to actually sink a bit anywhere is unknown. Shell’s foray into Chukchi Sea exploration ended in 2015 after the company — which needed federal court orders to remove protesters that tried to block its ships — spent $7 billion over several years to drill one well that ultimately turned out to be a dry hole. BOEM’s mean estimate for undiscovered but recoverable oil and gas in the areas of the Beaufort Sea up to roughly 50 miles offshore is for 8.9 billion barrels of oil and nearly 28 trillion cubic feet of natural gas. That estimate, updated in late December, added roughly 700 million barrels of oil to the 2016 assessment based on the presumption that the onshore Nanushuk and Torok geologic formation oil plays — the sources of recent large onshore discoveries — extend into federal waters. The Beaufort Sea gas estimate did not change significantly. BOEM estimates the Chukchi Sea off the western North Slope holds 15.3 billion barrels of undiscovered oil and 76.7 trillion feet of yet-to-be-found natural gas. The agency also estimates the other vast unexplored areas that could be opened to leasing hold just about 1 billion barrels of oil. Elwood Brehmer can be reached at [email protected]

Sullivan: Forces aligning for Alaska

Alaska is still in a tough spot, with high crime rates, the nation’s highest unemployment rate and an unsustainable state budget situation, but Sen. Dan Sullivan continues to preach “the gospel of optimism for the state. Optimism, optimism, optimism,” he said to lead off an hour-long interview with the Journal Dec. 29. Sullivan’s positivity stems from what he believes has been an underplayed momentum for the state to go from economic struggles to successes. “We have an alignment of forces that are happening, particularly in the bedrock area of the key element of our economy, which is resource development, that we haven’t seen in years,” he said. “It starts with the federal government wanting to be a partner in opportunity.” Sullivan acknowledged he often disagrees with President Donald Trump’s posturing and social media habits, but said on policy matters the president is in Alaska’s corner. “I’ve met with him a bunch of times and the guy and his entire team are super pro-jobs, economic growth for Alaska. He is in the details of the King Cove road,” Sullivan commented, noting that the issue of a few miles of gravel road through a wildlife refuge in one of the most remote parts of the country is not usually a topic in the Oval Office. Sullivan is also clearly still riding the wave of enthusiasm following the passage of Republicans’ tax code overhaul, which (just in case your holiday vacation started months ago somewhere without an internet connection) included a provision to open the coastal plain of the Arctic National Wildlife Refuge to oil development. While even exploratory drilling is years off and oil production further into the future, the Alaska delegation’s success in the decades-old ANWR battle should be “a psychological boost” for Alaskans today, Sullivan said. The historic win for the Republicans did not materialize overnight, however. The last time Republicans controlled Congress and the White House in 2005, a similar attempt to open ANWR via a budget bill stalled in the Senate. Sullivan pulled back the curtain a little and detailed how it came together this time. “We had a really good team working together; and it wasn’t working weekly. It was daily on this issue and the last several months it was kind of hourly,” Sullivan said. Sen. Lisa Murkowski’s position as chair of the Senate Energy and Natural Resources Committee was obviously crucial. It gave the delegation control of the vehicle that would be used to add ANWR to the tax and budget legislation; that is, an order to find $1 billion in new federal revenue over the next 10 years, which would come from ANWR lease sales and royalties. It was Rep. Don Young’s job to shepherd the ANWR provision through the House, something he had done a dozen times before and could surely do again. Sullivan described his role as one of “relentless advocacy,” which started with getting a commitment from Senate Majority Leader Mitch McConnell, R-Kentucky, more than a year ago. He pitched using tax reform as a vehicle to open ANWR during a lunch with McConnell and Vice President Mike Pence shortly after the 2016 election. “This was a — ‘I’m committed to doing this for you guys’ — big deal, big deal. And he stuck with that through thick and thin,” he said of McConnell. “And there was some thick and thin.” As for the rest of his colleagues in the Senate, particularly Republicans that had been against the issue in the past, gathering votes meant wearing out a series of PowerPoint slides over months of one-on-one pitches. The presentation stressed how the State of Alaska has handled Arctic oil development for years. “It was just about (how) we have the highest standards in the world — ice roads, ice pads. Nobody knew any of this stuff and I’m like, ‘I was the guy in charge of this stuff as the (Natural Resources) commissioner (under Gov. Sean Parnell),’” Sullivan said. New long-range drilling technologies also allow companies to accurately target more oil from smaller and fewer drilling pads, which in turn allowed Congress to limit surface development to 2,000 acres of the 1.5 million-acre coastal plain. The ANWR language limits development to 2,000 federal acres. Kaktovik Inupiat Corp. owns 92,000 acres of in-holdings within the refuge boundaries that are also open for development. Additionally, ExxonMobil’s $4 billion Point Thomson natural gas project, on state land just 1.5 miles from the western boarder of ANWR, was a revelation to many senators as well, according to Sullivan, who negotiated the settlement in 2012 over long-running litigation that led to the development of the field. “It’s the same ecosystem. Nobody knew about Point Thomson,” he added. At the same time, constituents of colleagues such as Sen. Cory Gardner of Colorado were being bombarded with ad campaigns by environmental groups condemning the ANWR proposal, Sullivan said. But that was expected. What blindsided the Alaska delegation was formal opposition from the Canadian government, as evidenced in an Oct. 31 letter the trio sent to Canada’s Ambassador to the U.S. David MacNaughton. The letter notes that Canadian embassy officials urged U.S. senators to vote against the Senate Energy and Natural Resources directive to open ANWR in the 10-year budget resolution as well as a letter from MacNaughton to senators further stating Canada’s opposition to developing the so-called “1002” area. Canadian officials have said coastal plain development could hurt the Porcupine caribou heard, which calves in the area and winters across the border in Canada where First Nations people rely on it as a primary food source, mirroring the Gwich’in tribes in Alaska. Neither Murkowski, Sullivan nor Young could remember another time when the Canadian government actively lobbied senators on a specific vote, according to the letter. Sullivan went a step or two further in a half-hour phone call with MacNaughton “that, I guarantee you, he isn’t going to forget,” he recounted. “I said, ‘Ambassador, I’m going to do everything I can to screw your country if you don’t stand down.’ I was dead serious,” Sullivan said. “It was outrageous. The hypocrisy, first, of what you’re doing — everybody knows that in Canada, across the border from ANWR, in the ‘70s you drilled hundreds of wells; you built roads and you didn’t find anything. So now you’re so high and mighty? I said, ‘This is so outrageous; this would be like the U.S. embassy in Ottawa weighing in on Quebec independence. Of course it’s a contentious issue in America but you need to stay out of it.’” On the other hand, the Alaska delegation’s concerns about the potential downstream impacts of British Columbia mines on Alaska salmon fisheries to Canadian officials have largely gone unanswered. The state’s minimal-impact Arctic exploration methods might have swayed some in the Senate to favor opening ANWR; for others it could have been the national security argument. Pro-ANWR development advocates, Sullivan included, have often said producing more domestic energy should be a core strategy to diminishing the global influence of the country’s geopolitical foes that are also major oil producers, namely Russia, Iran and Venezuela. To that end, Sullivan also recalled a meeting he and Sen. John McCain had with a Russian dissident at the Halifax International Security Forum in November 2016. McCain, who Sullivan considers a mentor and close friend, was previously against opening the coastal plain, which notoriously put him at-odds with his vice presidential running mate Sarah Palin in 2008. “At the very end of the meeting we asked, ‘Hey, what more can we be doing to help you guys, help push back’ (against Russian President Vladimir Putin) and this guy looked at us and said, ‘Here’s what you can be doing: Produce more American energy. That’s what you need to do,’” Sullivan said. “Now, John McCain’s sitting right next to me in that meeting.” In the end, ANWR is now open because this time the Republican caucus stuck together in the Senate. That happened because Alaska’s arguments were simply better than the “stale, tired” talking points of development opponents, according to Sullivan. “We won. We beat them on the merits, even though they had all the money and all the power,” he said. He added, however, that the fight is not over. Opposition groups will sue to start legal and administrative battles and the political part will come around again. The next Democrat presidential nominee will undoubtedly campaign on flipping ANWR back, Sullivan predicted, but said that is something he isn’t worried about now. “I’m very focused on execution, execution, execution,” he said. Sullivan emphasized that turning the congressional delegation’s priorities into reality — such as executing ANWR lease sales and ultimately exploring the area — will be all the more possible with the group of Alaskans now in the Trump administration. Former North Pacific Fishery Management Council Executive Director Chris Oliver is now the National Oceanic and Atmospheric Administration assistant administrator for fisheries, which makes him the head of the National Marine Fisheries Service responsible for managing all of the federal fisheries in Alaska and nationwide. In December, Chris Hladick, previously Gov. Bill Walker’s state Commerce Department commissioner, took over as administrator of Region 10 of the Environmental Protection Agency, which oversees the agency’s work in Washington, Idaho, Oregon and Alaska. “Those things don’t just happen. That’s relentless advocacy with the White House, with the top people there, with the agencies, to get our people in,” Sullivan said. “Chris Oliver, I probably hit up (Commerce Secretary) Wilbur Ross over 10 times on getting him to be NMFS director. Same with Joe (Balash), same with Tara Sweeney.” Former DNR commissioner and Sullivan chief of staff Joe Balash was confirmed as assistant Interior secretary for land and minerals and prior Arctic Slope Regional Corp. Vice President and shareholder Tara Sweeney is likely to be a colleague of Balash’s soon, presuming the Senate confirms her as assistant Interior secretary for Indian affairs overseeing the Bureau of Indian Affairs. Balash, who supervises the Bureau of Land Management among other duties, will be responsible for guiding the ANWR leasing process. The legislation directs BLM to handle the leasing in the same manner it administers sales in the National Petroleum Reserve-Alaska. Sullivan said Balash will be particularly crucial to moving ANWR forward because of his current post and his experience in managing Arctic oil projects on the state side. If it all comes together as he hopes on the federal side, in addition to the several large North Slope oil prospects already in the works, Alaska has a real chance to be “one of the hottest energy plays in the world,” Sullivan surmised. “We’ve just got to make sure the folks down in Juneau recognize we have an opportunity and don’t do something that’s going to undermine this opportunity, particularly on the resource side,” he said. ^ Elwood Brehmer can be reached at [email protected]

Walker looks to Legislature to finally use Fund to fix budget gap

A paramount year is shaping up for Alaska. The state is on the precipice of turning to the Permanent Fund for government revenue in addition to its previous sole outlays for dividend payments. The fate of the Alaska LNG Project will likely be known by the year’s end. Another battle is brewing between conservation and development interests, this time over salmon habitat protections. And it’s an election year. Gov. Bill Walker discussed a few of the year’s pressing topics in a Dec. 22 interview with the Journal. For the first time, Walker’s fiscal year 2019 budget proposal released Dec. 15 includes a 5.25 percent of market value, or POMV, draw from the Earnings Reserve of the Permanent Fund to fill the lion’s share of the deficit expected to be roughly $2.5 billion. The POMV provision is written as a compromise to the Earnings Reserve draw formulas in versions of Senate Bill 26 from the House and Senate, which are awaiting a conference committee resolution after being approved by the bodies last spring, according to Walker. The governor said he is comfortable using the one-time draw language in the operating budget bill as a fallback funding mechanism in the event the Legislature does not approve a long-term formula draw. “What we did is about the best we could get out of (SB) 26,” Walker said, noting the POMV structure avoids the undisciplined “ad hoc” draw from the Fund that he has persistently warned against. The 5.25 percent draw on the value of the Fund reflects the Senate’s larger draw amount (the House used 4.75 percent), while the $818 million dividend appropriation from it — enough for about $1,200 per Alaskan — is closer to the PFD approved by the House. “We’re meeting the intent of what we had introduced and hopefully it will be wrapped up this year,” he added. The Constitutional Budget Reserve is on course to hold about $2.6 billion on June 30 at the end of fiscal year 2018, according to the Office of Management and Budget. That could be enough to cover another deficit year but it would leave the state with no financial wiggle room. And with little argument from legislators that the state needs at least $1 billion in accessible savings for cash management and emergencies, it appears the Permanent Fund will finally be employed to pay for part of government in the coming legislative session, something Walker has been pushing for since late 2015. Walker said he’s saddened the state has had to spend roughly $14 billion from its once bountiful savings accounts to cover budget deficits since 2013 while politics has delayed what is becoming inevitable. Echoing numerous Alaska economists, he said he believes the length and severity of the state’s recession has been self-inflicted by inaction from the Legislature. The state’s credit rating has also been downgraded several times from the once top AAA to now the third-lowest among all states. “I had certainly hoped that early on they would recognize that we need to make adjustments and be done with it. In my opinion we don’t have to be where we are,” Walker said. He continued to say that waiting to utilize the Fund as a revenue source has “created this fear of uncertainty that is felt all the way from car dealerships to homebuyers and on. That’s the part that’s disappointing to me. We didn’t have to be in this recession as long as we have been.” Alaska is starting the third calendar year of the current recession with the highest unemployment rate in the country at 7.2 percent, according to the state Labor Department. The lack of savings could also end up impacting how much, if any, the state can directly invest in the $43 billion Alaska LNG Project. That’s because under the Alaska Gasline Development Corp.’s financing outline for the massive gasline project, about 75 percent of the cost would be funded with debt underwritten by customer contracts. The remaining 25 percent, or about $11 billion, would be filled by equity investors, which could include the State of Alaska. AGDC projects the state would take in about $250 million per year from the project without an equity investment but that’s a much smaller revenue stream than the multibillion dollars per year of revenue to state coffers once envisioned. However, that does not account for the layered benefits the project could bring to the state’s economy aside from basic government revenue such as jobs and cheaper energy. Without savings to rely on, there does not seem to be a direct way for the state to buy into the project. Walker said it’s probably a little early in the project’s development to single out a way for the state to invest in Alaska LNG as a final investment decision is not expected for about a year, but said the state could sell its equity share or use debt to fund it. “It really will be defined as the project is put together,” he said. “It depends on where we are financially as a state.” That said, the governor also noted the state has public retirement funds of more than $25 billion that could find the project to be a sound investment. Having the state invest in some fashion could take risk out of the project and help assure other potential investors that it will be seen through, indirectly helping its economics, according to Walker. Yet, he does not expect state investment managers to accept a lower return from Alaska LNG just to get the state’s participation. “If they’re going to get a regulated return somewhere in the Lower 48 and they can get the same return in Alaska I would hope they would bet on their home team a bit,” Walker said. And while interested groups on both sides wait to see how the Alaska Supreme Court will handle the Stand for Salmon ballot initiative, Walker said he doesn’t like the idea of using the initiative process, which he described as “a fairly blunt instrument,” to make policy changes. The initiative is aimed at strengthening state salmon habitat protections and giving the Department of Fish and Game more authority to limit the impacts development projects could have on that habitat. Lt. Gov. Byron Mallott originally rejected the proposed initiative based on an opinion from the Department of Law that it would direct state water resources to fish habitat, taking that resource allocation authority away from the Legislature and thus violate the state constitution. After a successful appeal by the petitioners got Mallott’s ruling overturned in Superior Court in October, the state subsequently appealed to the Supreme Court, which has not revealed when it will handle the matter. If the high court upholds the lower court ruling, it could appear on the upcoming 2018 ballot. Sponsors are currently gathering signatures to qualify for the ballot. Walker said the initiative is too broad in its scope and it could hamper nearly every area of project development in the state, which would include the Alaska LNG Project. “I think when you’re making definitions that impact development of projects in Alaska and you do that through the initiative process — I was very concerned about that,” he said. “I would like there to be a discussion back and forth; hearings in the appropriate hearing rooms in Juneau and various folks being able to weigh in.” House Bill 199, currently in the House Fisheries Committee, mirrors the initiative language, but Democrat House Speaker Bryce Edgmon has said he does not see it passing this year, or its current form, given the consternation the initiative has caused. Elwood Brehmer can be reached at [email protected]

New plays add 8.7B barrels to NPR-A oil estimate

And back the pendulum swings. U.S. Geological Survey again officially believes it is likely the National Petroleum Reserve-Alaska holds billions of barrels of recoverable oil, according to its updated resource assessment released Dec. 22. Specifically, the federal geologists estimate the mean undiscovered conventional and recoverable oil resource in the 23 million-acre NPR-A and adjacent state and private lands to be more than 8.8 billion barrels, with a 95 percent chance there is at least 1.7 billion barrels in place and a 5 percent probability the area holds more than 21.8 billion barrels of oil. Interior Secretary Ryan Zinke, who ordered the updated assessment while on a trip to Alaska last May, said it is a big step towards what has become his catchphrase of sorts, “American energy dominance.” “Thanks to the incredible work of scientist at the USGS and (the Bureau of Ocean Energy Management), we know what’s available and what our potential is,” Zinke said in a formal statement. “New discoveries have changed our geologic knowledge of the area and these assessments show that the North Slope will remain an important energy hub for decades to come in order to meet the energy needs of our nation.” BOEM, which manages oil and gas activity in federal waters, contributed data from nearby offshore areas to the resource estimate, according to an Interior Department release. The members of Alaska’s congressional delegation similarly said the new numbers are good news for the state and prove now is a prudent time to invest in Arctic energy development. “Just as we have always known, this assessment shows that the NPR-A has significant potential and will remain a big part of our energy future,” said Sen. Lisa Murkowski, who chairs the Senate Energy and Natural Resources Committee. “I thank Secretary Zinke for traveling to this area with me earlier this year, for directing USGS to update its resource assessment and for working with Alaskans on a better plan for responsible development.” While the Republican delegation insists the new NPR-A oil estimate is further proof the industry should be encouraged to explore the state-sized area, the assessment is the latest in a series in which oil projections have varied wildly. A 2002 assessment, completed after what is now ConocoPhillips discovered the large Alpine oil field on state and Native corporation lands near the eastern edge of the NPR-A, put the mean undiscovered oil resource at 10.6 billion barrels, with a 95 percent probability of there being at least 6.7 billion barrels available. Current USGS Senior Research Geologist David Houseknecht has said the 2002 estimate was based on the presumption that the oil charge in the Alpine formation stretched far to the west across much of the NPR-A. Houseknecht led or participated in the drafting of similar assessments of the NPR-A in 2002 and 2010 and the Arctic National Wildlife Refuge coastal plain in 1998, and is well regarded by many geologists who have studied the North Slope. However, subsequent exploration efforts revealed the oil quickly turned to natural gas pools, putting a damper on industry’s excitement at the time. The fizzled Alpine play in part led to a drastically reduced mean estimate of just 896 million barrels in the 2010 NPR-A assessment. “Recent activities in NPR-A, including extensive 3D seismic surveys, six federal lease sales totaling more than $250 million in bonus bids, and completion of more than 30 exploration wells on federal and Native lands, indicate in key formations more gas than oil and poorer reservoir quality than anticipated,” the 2010 assessment states. “In the absence of a gas pipeline from Alaska, exploration has waned and several petroleum companies have relinquished assets in the NPR-A.” What hasn’t changed much is the belief there is a massive amount of natural gas beneath the western North Slope. The most recent assessment contains the smallest mean estimate for gas quantities at 39.2 trillion cubic feet, which is slightly more than the 35 trillion cubic feet of known gas reserves at Prudhoe Bay and Point Thomson that would supply a large gasline and LNG export project. The big change on the oil side has been the Brookian revelations in and around the NPR-A. The large Nanushuk formation discoveries by the Armstrong Energy-Repsol partnership on state lands just to the east and ConocoPhillips’ Willow find within the reserve together total more than 1.5 billion barrels of confirmed and recoverable oil, according to the companies. Additionally, Caelus Energy’s Torok formation oil prospect at Smith Bay — in state waters of the Beaufort Sea just offshore from the NPR-A — holds roughly 6 billion barrels of oil, the company estimates. The Nanushuk and Torok sand formations are part of the Brookian geologic sequence and generally hold oil pools in more subtle stratigraphic traps that until recently have largely been overlooked. Slope geologists say advanced 3D seismic has made it easier to identify the traps. Nearly all of the 8.7 billion barrels of oil added to the new mean assessment are expected to come from the Nanushuk and Torok formations. Houseknecht said during a November presentation in Anchorage that the companies focusing on the Brookian plays have mostly been forthcoming with proprietary seismic and drilling results, which helped greatly in drafting the assessment. Zinke’s order did not include funding for the agencies to gather new data. An updated resource assessment for the newly-available ANWR coastal plain, also part of the Interior directive, should be on its way soon as well. However, Houseknecht and others have noted that the lack of any new geologic information for the costal plain will make it difficult for scientists to make drastic improvements on the latest ANWR assessment, done in 1998. That one estimates a mean undiscovered resource of 7.6 billion barrels and was done mostly using data collected in the mid-1980s. More than 7 billion barrels of the new oil estimate is expected to be in the northeast corner of the NPR-A, most of which was closed to oil and gas leasing by the Bureau of Land Management in the 2013 NPR-A Integrated Activity Plan. The area was put off limits to industry to protect subsistence activities and critical habitat for the Teshepuk Lake caribou herd. Environmental groups speculated when Zinke directed the assessment that it would be used as justification to open the protected area to industry. The BLM — now overseen by former Alaska Natural Resources Commissioner and current Assistant Interior Secretary Joe Balash — offered up all of the areas open to leasing in the NPR-A in its Dec. 6 lease sale. Regardless of the changes to the speculative assessments, ConocoPhillips has been plugging away on its Greater Mooses Tooth projects to the south of the currently set aside Teshepuk Lake area in the reserve. GMT-1, which the company is building this winter, is expected to start producing oil late next fall. It would be the first production on true NPR-A lands. The company’s CD-5 development started producing in 2015 but is on Native corporation in-holdings within the reserve boundary. The GMT-2 project, now in permitting, is planned to come online in a few years. Each of the roughly $1 billion projects is expected to produce about 30,000 barrels per day at its peak. ^

Pebble finally files for permits

The Pebble Limited Partnership has long been criticized for many things, but as of Dec. 22 that list no longer includes failure to file for environmental permits. Pebble and its Vancouver-based parent company Northern Dynasty Minerals filed for a Clean Water Act Section 404 wetlands fill permit with the U.S. Army Corps of Engineers. Alaska Army Corps officials said Dec. 21 that the wetlands fill permit application detailing the types and volumes of fill material the project will use and the area of wetlands it is expected to cover would first be subject to a 15-day completeness review. If the wetlands application is deemed complete the Corps will then issue a public notice saying as much and — given the size of the project — issue a subsequent determination that the project needs to go through the full, multi-year environmental impact statement process. Northern Dynasty leaders said early in 2017 they planned to start permitting for the wildly controversial project by the end of the year, a promise that was met with understandable skepticism. They made good on it with nine days to spare. Pebble Partnership and its ownership groups, which have varied over the years, had consistently been faulted for making numerous claims dating back to 2005 that they would soon start the environmental reviews. The permitting process is also seen as one way to eventually provide closure for those on each side of the contentious debate over whether the world-scale mine proposed at the headwaters of a world-scale salmon fishery is appropriate. “For the Pebble team, this day has been a long time in the making and is the result of a tremendous amount of hard work,” Pebble CEO Tom Collier said. “We have listened to our stakeholders, supporters and skeptics, and are presenting a much smaller mine with enhanced environmental safeguards. Since I have been with the project, my main focus has been to initiate the permitting process so that Pebble can be fairly and objectively evaluated by the independent experts hired by the Corp of Engineers.” In 2014, the Environmental Protection Agency proposed blocking Pebble based on a larger mine concept outlined in financial disclosure filings by Northern Dynasty. Shortly thereafter Pebble Partnership sued the EPA, claiming the agency’s actions were made on a biased, anti-mine premise and that it illegally colluded with opponents of the project. That suit was settled in May and because the EPA is currently evaluating public comments on whether to lift the proposed determination that would prohibit the project. With a total mine facilities footprint of 5.4 square miles, the new plan is less than half the overall size contemplated by the EPA but still larger than the 4.2-square mile footprint the agency said could be acceptable. In statements issued shortly after Pebble’s announcement, opposition groups said the permit filing changes little, other than renewing determination to stop the project. “It took Pebble Limited Partnership 12 years just to file the paperwork asking the Army Corps to look at this project,” Bristol Bay Economic Development Corp. CEO Norm Van Vactor said. “The bar is set very low, indeed, if merely filing an application is cause for celebration. Bristol Bay fishermen file paperwork for their permits every single year, without fanfare. And here in Bristol Bay, we will choose our sustainable commercial fishery that generates thousands of jobs over a short-term development project.” A few days earlier on Dec. 18, Northern Dynasty issued a statement saying it is close to finalizing a deal with fellow Canadian mining firm First Quantum Minerals for investment in Pebble. Northern Dynasty is the sole owner of Pebble after previous partners Anglo American and Rio Tinto walked away from the controversial copper and gold project several years ago. In the case of Anglo American, the company ended its partnership on the project in 2013 after spending $541 million on exploration. Since then, company officials have acknowledged the need for a large investment partner to fund Pebble’s development. Under the terms released of the preliminary deal, First Quantum would contribute $150 million to Pebble over up to six years with a $1.35 billion option to buy a 50 percent stake in the project. In a Dec. 21 interview Collier said he expects to have the partnership finalized by the middle of next year. Collier said his company doesn’t yet have a solid cost estimate for the scaled-back mine plan he unveiled in October, but that would materialize as permitting plays out. Elwood Brehmer can be reached at [email protected]

Major Alaska resource projects face crucial year in 2018

The upcoming year will be a telling year for several of Alaska’s prospective development projects, starting with the biggest: the $40 billion-plus Alaska LNG Project. That’s not to say the state-owned Alaska Gasline Development Corp. did not produce any accomplishments in 2017. After taking control of the LNG export effort to start the year, AGDC promptly submitted its environmental impact statement application — nearly 60,000 pages of scientific and socioeconomic information — in April. Agency officials believe it to be the largest single EIS filing in the history of the National Environmental Policy Act review process. AGDC leaders have stressed their desire for Federal Energy Regulatory Commission, or FERC, to have a final EIS published by the end of the year, with a record of decision following shortly thereafter. Getting the EIS done in the next year would go a long way towards keeping AGDC on schedule for the early 2019 final investment decision that corporation President Keith Meyer says is critical to hitting the available Asian market window for LNG deliveries to start in 2024 or 2025. Meyer and his team point to the size of the filing as evidence of its thoroughness, which should help the federal regulators expedite their evaluation. AGDC officials and Gov. Bill Walker also note the Trump administration’s support of the project and several actions the administration has taken to speed federal permitting for infrastructure development. While FERC is known to process permit applications quicker than most other regulatory agencies, the EIS schedule that AGDC had requested be published by Dec. 15 at the latest still isn’t public; FERC continues asking the corporation for additional information, or follow-up questions, on its application. As a result, it’s still anyone’s guess as to when the first draft EIS, which comes with a 45-day public review and comment period, will be published. Similar timing questions remain on the commercial side of the Alaska LNG Project as well. The highly publicized, touted and critiqued joint development agreement Meyer and Walker signed with three giant Chinese corporations interested in partnering on Alaska LNG Nov. 9 in Beijing calls for the sides to have a framework agreement in place by the end of May 2018. The concept is that AGDC would essentially trade 75 percent of the project’s capacity, up to 20 million tons of LNG per year, to Sinopec in exchange for 75 percent of the project’s financing from the Bank of China and the China Investment Corp. That outline would then be turned into a firm contract in the second half of the year. The nonbinding joint development agreement expires Dec. 31, 2018. Sinopec is one of the world’s largest oil and gas companies. It, and the financial firms are nationalized companies owned by the Chinese government. The status of other nonbinding Alaska LNG memorandums of understanding signed in 2017 with Korea Gas Corp., Tokyo Gas Corp. and PetroVietnam Gas Corp. is less clear because AGDC, citing commercial sensitivity, has kept their contents confidential. The Alaska LNG Project will also undoubtedly play a leading role in the 2018 gubernatorial election. Walker will highlight the state’s stewardship of the project — the regulatory achievements and customer interest. If it appears to be moving well his opponents will acknowledge his progress but claim to alternative or cheaper development plans that will return more money for the state. And if the project struggles in the coming months they will call for its stoppage or outright demise, repeating in some form the question: “Why is the state still spending the gasline when BP, ConocoPhillips and ExxonMobil decided not to?” To that end, AGDC has not asked for any new state money in fiscal year 2019. The governor’s 2020 state budget proposal will be out on Dec. 15 of next year. Oil projects North Slope production is expected to keep climbing in 2018, with state officials estimating an average of 533,000 barrels per day for the fiscal year that runs through June 30. Additionally, the status of the two biggest oil projects on the North Slope should become clearer in the coming year. Armstrong Energy’s 1.2 billion-plus barrels Nanushuk prospect will be handed over to Australian-based Oil Search, as part of an up to $850 million buyout announced last fall. The companies’ leaders said in an interview following the announcement that the deal is a way to continue expeditious development of Nanushuk, estimated to be upwards of $5 billion, which is too large for the exploration-focused Armstrong to manage. The Army Corps of Engineers released its draft EIS for the project in September and a final evaluation is forthcoming. First oil from Nanushuk is expected in the early 2020s. Similarly, a final EIS is the next big step for the long-discussed Liberty offshore oil project. Designed as a manmade island development in the near shore federal waters of the Beaufort Sea, Hilcorp Energy estimates Liberty could produce up to 70,000 barrels of oil per day, following in the path of other successful North Slope artificial island projects currently in production. Nearby and onshore, Hilcorp is continuing to build out Milne Point, one of the fields it bought into as part of a $1.25 billion deal with BP in 2014. The company recently drilled 10 wells at Milne Point that are just starting to come online, according to Hilcorp Alaska leaders, and plans to start drilling another 50 to 70 wells next fall and try a polymer flood project to ultimately produce between 30 million and 50 million barrels of oil from Milne Point. In Cook Inlet, Hilcorp is also in the midst of spending $75 million to convert a cross-Inlet natural gas pipeline to an oil carrier, a project it plans to finish in about a year, company officials have said. With other requisite work to adjust gas and oil flow on the west side of the Inlet, the project will allow Hilcorp to close the Drift River oil tank farm, which has been a lingering environmental concern to many because of its location at the base of Mt. Redoubt, an active volcano that most recently erupted in 2009 and caused flooding at the facility. The oil transport line will also reduce oil tanker traffic in the Inlet. Mining While each of Pebble Limited Partnership’s activities will continue to dominate headlines, the fate of another massive mine proposal to the north should be known a lot sooner. A final EIS for the Donlin Gold megaproject in the upper Kuskokwim River valley is expected early in 2018. As planned by the company, Donlin would produce about 1.1 million ounces of gold per year over a 27-year mine life for a total of about 33 million ounces of the precious metal. The mine site, on lands owned by The Kuskokwim Corp. and Calista Corp., the area village and regional Native corporations, respectively, would also include a fully lined, 2,300-acre tailings facility to store the processed ore. Support infrastructure would include a 315-mile, 14-inch diameter natural gas pipeline originating on the west side of Cook Inlet needed to supply fuel to the 227-megawatt capacity power plant at the mine site. The pipeline has also been viewed as a first, indirect step to getting lower cost natural gas to numerous villages in Western Alaska that currently rely on fuel oil their primary heat and electricity sources. A 30-mile road would connect the mine to a new barge port on the Kuskokwim. Further down the Kuskokwim, port cargo facilities would be expanded in Bethel, and new diesel storage tanks would be needed Dutch Harbor to supply fuel for equipment at the mine. Regardless of Donlin’s fortunes in permitting, Donlin Gold leaders acknowledge the project is more sensitive to gold prices than even other Alaska prospects simply because of its associated infrastructure costs. Company officials have said the project would not be economic at gold prices of about $1,100 per ounce. Gold currently sells for about $1,280 per ounce in spot trading. On Pebble, 2018 is likely to be largely a wait-and-see year. Folks on all sides of the mine debate will see if Pebble’s owner, Northern Dynasty Minerals, can finalize the framework investment deal it announced with fellow Canadian mining firm First Quantum Minerals. First Quantum said in a release it is doing its due diligence to review the project and its potential investments — $150 million to support permitting or $1.35 billion for 50 percent of Pebble — while Northern Dynasty admits it can’t develop the project itself. On the permitting side, Pebble’s Dec. 22 wetlands fill permit application with the Corps of Engineers, which will trigger an EIS, kicked off what is sure to be a three to five-year, or more, review. Pebble CEO Tom Collier said in an interview that the company believes its thorough background study work means the EIS can be done in three years, but Corps officials note the average EIS time for a project the size of Pebble is four to five years. Pebble would undoubtedly like to get the EIS done before the next presidential election in the event a new administration might try to put more restrictions on development. As for revoking its prior proposed Clean Water Act Section 404(c) prohibition on Pebble, the Environmental Protection Agency is reviewing the mountains of comments it received on the policy change, spurred by its court settlement with the Pebble Partnership. The EPA’s tally is not yet known, but Pebble opponents claim more than 750,000 comments were submitted in support of stopping the project. What the EPA will do with the proposed reversal of its original proposal is also unknown. The agency could make a political statement and finalize its move to revoke the Obama administration’s proposed mine veto or, since no substantive action was taken against Pebble, simply leave it in limbo and let the permitting process play out. Salmon habitat initiative The Stand for Salmon citizen-driven ballot initiative to significantly tighten the state’s salmon habitat permitting laws is sure to be 2018’s version of Alaska’s omnipresent development versus conservation debate. That is, if the state Supreme Court allows it to be. The state Department of Law, at the behest of Lt. Gov. Byron Mallott, appealed an October Superior Court ruling to uphold the initiative and that appeal is currently before the Supreme Court. There is no indication as to when the court may or may not hear and rule on the case. Mallott originally rejected the proposed initiative based on Law’s opinion that it would direct state water resources to fish habitat, taking that resource allocation authority away from the Legislature and thus violate the state constitution. The petitioners are currently hustling to gather the roughly 32,000 signatures they need from voters by mid-January to get it on the 2018 ballot while everyone waits to hear from the Supreme Court. If the initiative is upheld in court, it is likely to galvanize Alaska’s development proponent groups, which have already formed their own counter-measure campaign, Stand for Alaska, to raise money to fight the initiative. Opponents contend the proposal, aimed to give the Department of Fish and Game more authority in permitting large projects, would make even many small developments unworkable and cost-prohibitive. Stand for Salmon leaders counter that they are just pushing the reforms requested by the Board of Fish in January 2017 to update the state’s vague and decades-old salmon habitat protection statute. Gov. Bill Walker opposes the initiative, saying its scope is far too broad, and if upheld in court it will be another topic amongst gubernatorial candidates. And even if the petitioners don’t gather the signatures they need in time for the 2018 ballots, that just means it could resurface in 2020 — again, assuming the Supreme Court stays with the lower court ruling. Elwood Brehmer can be reached at [email protected]

State changes course, approves Pt. Thomson plan on “new information”

State Natural Resources officials approved ExxonMobil’s long-term plan of development to grow the Point Thomson gas field Friday after getting a letter from the companies Alaska leaders that caused the state to change course, according to the approval documents. The approval comes despite Division of Oil and Gas Director Chantal Walsh first resoundingly rejecting the plan Aug. 29, contending at the time it contained too many “ifs” and “woulds,” depending on economics and its partners’ decisions and allowed Exxon to back out of its 2012 Point Thomson settlement with the state that bound it to develop the long-awaited project. The conditional language indicated Exxon was not committed to expanding natural gas and condensate production despite the state’s assertion the 2012 settlement was a contract that bound the company to do the work. ExxonMobil outlined its plans to move gas from Point Thomson and inject it into the Prudhoe Bay oil and gas pool as a way to further enhance oil recovery from the large oil field in its June 30 development plan — the one first rejected. Walsh wrote in the Friday approval document that the Oct. 12 letter from Exxon — considered by the state to be a revision to the original plan — lays out a plan for the company to advance expansion in five areas, including negotiating agreements with the Prudhoe Bay operators, engineering, permitting and other unspecified work. In rebutting Exxon’s claim that the Point Thomson work is contingent on agreements with the Prudhoe Bay working interest owners, she noted in her August rejection letter that the Prudhoe owners, BP, ConocoPhillips and Exxon, are the same companies in charge of Point Thomson, meaning they would be negotiating with themselves. ConocoPhillips relinquished its 5 percent stake in Point Thomson to the field’s other owners earlier this year. DNR and Exxon officials also had an Oct. 9 meeting, according to Exxon’s letter. A press release from Gov. Bill Walker’s office called the plan approval “a positive step to achieve major gas sales and increase oil production. Point Thomson holds roughly 25 percent of the gas that could feed the Alaska LNG Project. “Our approval of the Point Thomson to Prudhoe Bay pipeline plan adds to the momentum of the Alaska LNG Project and demonstrates the commitment of the Point Thomson working interest owners into (the) Alaska Gasline Development Corp.’s 800-mile pipeline,” Walker said in a formal statement. However, Walsh also made it clear in the approval that the state expects the expansion project to move forward regardless of extenuating circumstances. “If the Point Thomson Unit working interest owners do not fund the planning work or enter a commercial agreement with the Prudhoe Bay working interest owners, those events will not in any way absolve Exxon from fulfilling its obligation to complete the planning work promised in the revised planning POD,” she wrote. Production facilities at Point Thomson would first be expanded to handle production of more than 50,000 barrels per day of the diesel-like condensates and 920 million cubic feet per day of gas. The current Point Thomson facilities have a production capacity of about 10,000 barrels of condensates and 200 million cubic feet of gas per day. Getting the gas from Point Thomson to Prudhoe would require construction of a 62.5-mile, 32-inch diameter gas pipeline between the fields and production would be ramped up with the drilling of three new wells, according to the plan of development.   Elwood Brehmer can be reached at [email protected]

Anchorage utilities, mayor announce $1B consolidation deal

Anchorage’s mayor and electric utilities will ask the city’s voters to approve a $1 billion deal that would consolidate the two utilities and save ratepayers “hundreds of millions of dollars” over many years, according to utility officials. Mayor Ethan Berkowitz and the leaders of Chugach Electric Association and Municipal Light and Power held a joint press briefing Thursday morning to announce their plan for Chugach to buy city-owned ML&P for roughly the $1 billion figure. “It will benefit taxpayers over the long haul and in the short haul. It will benefit ratepayers. It also does a lot for the municipality in terms of stabilizing our revenue picture moving ahead, which is very critical in terms of making sure that our economy is on a firm footing regardless of what happens at the state level,” Berkowitz said. The prospect of a single electric utility in Anchorage has long been discussed; Chugach CEO Lee Thibert said this is the third time it has been analyzed in his 30-year career with the cooperative. The presumption has been that the duplicative overhead needed to run two utilities in a city with a current population of about 300,000 is unnecessary. “There’s lots of things that are very identical with the two organizations and it just makes sense to put this all together,” Thibert said. City-owned ML&P services Downtown and Midtown Anchorage, as well as Joint-Base Elmendorf Richardson. Chugach, a member-owned cooperative utility, covers the remaining majority of the city and small portions of the northern Kenai Peninsula Borough. Because the municipality owns ML&P selling it requires voter approval, Berkowitz will ask the Anchorage Assembly to put a proposition on the April 2018 municipal ballot to allow the sale. The Chugach Board of Directors will also vote on the sale and, as a result of nearly all of Chugach’s member-customers being Anchorage residents, they will get their say through the city vote as well. What Anchorage residents will think of the plan is unclear, but the utility officials said they haven’t heard from anyone who thinks it is a bad idea. If approved by voters, the Regulatory Commission of Alaska would then have its say, an approval process that can take up to six months. That likely puts a final closing date sometime in very early 2019, Thibert said. He estimated the aforementioned savings would be wrought over 30 to 40 years by basically by having one of everything an electric utility needs instead of two — likewise for repetitive operational activities. Industry experts have said the six Railbelt utilities from Fairbanks to Homer have about as many customers as an average Lower 48 utility, albeit over a comparatively vast geographical region.  “Obviously when you put to organizations together you get efficiencies that generate revenue that you wouldn’t get otherwise; it’s a reduction in cost so you can maintain the rate levels the way they are and (decrease rates) over time.” Thibert added. ML&P General Manager Mark Johnston said the rates the utilities charge are usually very similar. “We kind of trade back and forth who’s number one and who’s number two in best rates,” he commented. It was stressed at the press briefing that no layoffs will be associated with the deal, should it go through. Thibert said Chugach would whittle the combined workforce through attrition and reorganization, noting each utility currently has a fair amount of vacant positions. Specifically, Chugach would take on $695 million of debt, make incremental payments to the city totaling about $170 million and continue making the municipal utility service assessment payments, which are essentially ML&P’s payments to the city in-lieu of property taxes, according to Thibert. He also noted that current low interest rates lessening Chugach's borrowing costs make the deal all the more appealing now. Berkowitz said it would allow the city to pay down about $525 million in debt and make additional contributions to its trust fund. Part of debt Chugach would take on would cover a $170 million direct payment to the Municipality of Anchorage, while the rest would be assuming ML&P’s outstanding obligations. They said a series of meetings held by the Anchorage Economic Development Corp. last spring examining how to lower electric rates helped restart the consolidation conversation. At those meetings, a national utility consultant said merging the utilities is the single biggest step that could be taken to capture savings. Subsequent to that the Anchorage Assembly passed a resolution in June encouraging the utilities to examine a merger. Berkowitz said it quickly became clear a straight merger wasn’t feasible because of the inherent challenges in blending a member-owned cooperative with a government-owned utility so discussions evolved into what it would take for Chugach to buy ML&P. The deal, while not expected, is almost a natural evolution considering the multiple ways Chugach and ML&P have partnered in recent years. In January, Chugach, ML&P and adjacent Matanuska Electric Association announced a voluntary power pooling agreement through which the three will trade power down to the hour based on demand requirements. Pooling demand and generating capacity allows the utilities to more fully capture the fuel savings and other operational efficiencies provided by the new generation plants each has put into service since 2013. In 2016 they bought into the Cook Inlet Beluga River natural gas field to gain a reliably priced long-term fuel supply. The two also jointly own the west Anchorage Southcentral Power Project generation plant built in 2013.   Elwood Brehmer can be reached at [email protected]

Pebble Partnership to finally file permit application

The Pebble Limited Partnership has long been criticized for many things, but as of Friday that list will no longer include failure to file for environmental permits. Pebble and its Vancouver-based parent company Northern Dynasty Minerals announced Thursday their plans to file for a Clean Water Act Section 404 wetlands fill permit with the U.S. Army Corps of Engineers on Friday, Dec. 22. Northern Dynasty leaders said early in the year they planned to start permitting for the wildly controversial project by the end of the year, a promise that was met with understandable skepticism. They will have made good on it with nine days to spare. Pebble Partnership and its ownership groups, which have varied over the years, had consistently been faulted for making numerous claims dating back to 2005 that they would soon start the environmental reviews. The permitting process is also seen as one way to eventually provide closure for those on each side of the contentious debate over whether the world-scale mine proposed at the headwaters of a world-scale salmon fishery is appropriate. “For the Pebble team, this day has been a long time in the making and is the result of a tremendous amount of hard work,” Pebble CEO Tom Collier said. “We have listened to our stakeholders, supporters and skeptics, and are presenting a much smaller mine with enhanced environmental safeguards. Since I have been with the project, my main focus has been to initiate the permitting process so that Pebble can be fairly and objectively evaluated by the independent experts hired by the Corp of Engineers.” In 2014, the Environmental Protection Agency proposed blocking Pebble based on a larger mine concept outlined in financial disclosure filings by Northern Dynasty. Shortly thereafter Pebble Partnership sued the EPA, claiming the agency’s actions were made on a biased, anti-mine premise and that it illegally colluded with opponents of the project. That suit was settled in May and since the EPA is currently evaluating public comments on whether to lift the proposed determination that would prohibit the project. With a total mine facilities footprint of 5.4 square miles, the new plan is less than half the overall size contemplated by the EPA but still larger than the 4.2-square mile footprint the agency said could be acceptable. In statements issued shortly after Pebble’s announcement, opposition groups said the permit filing changes little, other than renewing determination to stop the project. “It took Pebble Limited Partnership 12 years just to file the paperwork asking the Army Corps to look at this project,” Bristol Bay Economic Development Corp. CEO Norm Van Vactor said. “The bar is set very low, indeed, if merely filing an application is cause for celebration. Bristol Bay fishermen file paperwork for their permits every single year, without fanfare. And here in Bristol Bay, we will choose our sustainable commercial fishery that generates thousands of jobs over a short-term development project.” Earlier in the week on Tuesday, Northern Dynasty issued a statement saying it is close to finalizing a deal with fellow Canadian mining firm First Quantum Minerals for investment in Pebble. Northern Dynasty is the sole owner of Pebble after previous partners Anglo American and Rio Tinto walked away from the controversial copper and gold project several years ago. In the case of Anglo American, the company ended its partnership on the project in 2013 after spending $541 million on exploration. Since then, company officials have acknowledged the need for a large investment partner to fund Pebble’s development. Under the terms released of the preliminary deal, First Quantum would contribute $150 million to Pebble over up to six years with a $1.35 billion option to buy a 50 percent stake in the project. In a Thursday interview Collier said he expects to have the partnership finalized by the middle of next year. Collier said his company doesn’t yet have a solid cost estimate for the scaled-back mine plan he unveiled in October, but that would materialize as permitting plays out. Alaska Army Corps officials said Thursday that the wetlands fill permit application detailing the types and volumes of fill material the project will use and the area of wetlands it is expected to cover would first be subject to a 15-day completeness review. If the wetlands application is deemed complete the Corps will then issue a public notice saying as much and — given the size of the project — issue a subsequent determination that the project needs to go through the full, multi-year environmental impact statement process. Look for updates to this story in an upcoming issue of the Journal. Elwood Brehmer can be reached at [email protected]

Tax overhaul, ANWR heads to Trump’s desk

When President Donald Trump signs the federal tax overhaul into law the coastal plain of the Arctic National Wildlife Refuge will be open to the oil industry. Most Alaskans are happy about it, some aren’t. In the Lower 48 the public seems more split on the issue, if not slightly against it. After 37 years of debate, what more is there to say? The members of Alaska’s congressional delegation, who got the last words on ANWR in Congress when the tax bill passed, wanted to add a little more in a Wednesday morning press briefing with Alaska reporters. “This is a pretty historic day,” Sen. Lisa Murkowski said, and in recognition of it being winter solstice, she added opening ANWR is an “opportunity for Alaskans that will bring many bright days for Alaska.” Rep. Don Young, noting it’s the 14th time he’s shepherded ANWR legislation through the House, compared it to the day in 1973 when Vice President Spiro Agnew cast the tie-breaking vote in the split Senate to authorize construction of the Trans-Alaska Pipeline System. He also gushed about his colleagues in the delegation. “The work these two senators put in is awesome,” Young said. Sen. Dan Sullivan said the ANWR victory should provide a psychological boost to Alaskans struggling through a two-year recession. In a broader sense, Sullivan also said the tax vote is proof that “elections have consequences,” as tax reform is something Republicans in Congress have been pushing for seemingly as long as the Alaska delegation has been stumping for ANWR. Young said the delegation got commitments from House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell early in the year that opening the coastal plain would be a priority in Congress. Murkowski said technological advancements allowing more oil to be extracted via a smaller footprint and the industry’s diligent environmental practices on state lands on the North Slope helped overcome old arguments about how oil activity would damage the fragile Arctic ecosystem. “We heard the same tired rhetoric that we’re going to turn this into an industrial wasteland,” she said. “The way that we operate up there is second to none.” The ANWR rider directs the Interior Department to hold two oil and gas lease sales of at least 400,000 acres each in the coastal plain within the next 10 years, but it authorizes total development of just 2,000 acres in the 1.5 million acre area, the delegation again stressed. Sullivan went a step further, calling opposition arguments “dishonest” and saying, despite claims the oil industry spent millions of dollars supporting the effort, it was actually Outside environmental groups that spent money on the debate. “This was a grassroots effort; it was the three of us and Alaskans that came to testify, that was it,” Sullivan said. “People were tired of the stale talking points by (Washington Democrat Senator) Maria Cantwell and others.” Young went all the way, calling anyone who criticized the plan to drill for oil in the wildlife refuge “very stupid.” Young has also said recently that current oil estimates in the refuge are probably close to 20 billion barrels of available oil. The most recent U.S. Geological Survey assessment of the oil and gas underneath the coastal plain, done in 1998, put the mean oil estimate at 7.6 billion barrels for the coastal plain-1002 area. The USGS additionally estimated there is a 5 percent probability the area holds nearly 12 billion barrels of technically recoverable oil, which says noting of the economics of extracting it. With the political battle for ANWR all but over — at least until Democrats eventually regain control in Washington — now comes the legal fight. Environmental groups will assuredly sue Interior at every turn to at least delay the lease sales. The law mandates Interior hold the lease sales after going through a lengthy National Environmental Policy Act review. It’s unclear what happens if the conclusions of the environmental study don’t support development. What appetite the industry will have for exploring in ANWR given the strong emotions it evokes from much of the public is also unknown. That leads to questions about whether the 800,000-plus acres to be offered in lease sales can generate the $1 billion in federal revenue that’s expected — which is actually $2 billion because the State of Alaska gets half of all revenue from ANWR, per the legislation. Murkowski acknowledged “it will likely be a decade-plus” before ANWR oil production starts, but said the state has waited 37 years and can wait a little longer. “Now we at least have the opportunity we haven’t had,” she said. Elwood Brehmer can be reached at [email protected]

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