New tax break rules for ‘opportunity zone’ investors

WASHINGTON (AP) — The Trump administration is proposing rules for investors in a new program that it says could have a big impact on economically depressed areas around the country. About 8,700 so-called “opportunity zones” have been set up in all 50 states to lure investors and developers with tax breaks. The rules from the Treasury Department, issued Oct. 19, lay out the period of time that individuals or companies must hold on to their investments in the zones to avoid paying taxes on resulting profits. Administration officials say the goal of the program, established by the new tax law enacted last December, is to create businesses and jobs in low-income areas and lift residents out of poverty. Treasury Secretary Steven Mnuchin predicts that $100 billion in private capital will be invested in the new zones. “This incentive will foster economic revitalization and promote sustainable economic growth,” Mnuchin said in a statement. But some critics say the new rules and the way the program is set up will benefit real estate developers and Wall Street funds, and will pull investment toward more well-off areas that need it least. “The real estate industry is completely excited and mobilized about this, and now is getting paid through massive tax cuts,” said Timothy Weaver, a professor at the State University of New York in Albany who has studied similar development programs. He said the program “doesn’t have much of an effect other than giving tax breaks to people who are going to invest anyway.” Under the rules, the investments are open to individuals, corporations, partnerships and real estate investment trusts. Any kind of business or real estate development is qualified so long as it isn’t deemed by regulators to contribute to vice — a liquor store or massage parlor, for example. Participants can take their profits from unrelated investments and plow them into an opportunity zone fund, avoiding paying taxes on those gains until the end of 2026. Depending on how many years they hold the investment, they can reduce their eventual tax bill by up to 15 percent. Investments within the zones held for 10 years or more are entirely free of capital gains taxes. A new rule sets up a 70-30 split for determining if certain businesses are eligible for the tax break. Provided that at least 70 percent of a business’s “tangible” property sits within a zone, it is considered eligible even if the rest is outside the zone. An example would be individual locations of a restaurant chain, some inside and some outside. With 30 percent of the properties allowed outside the zones, many of the new jobs could come in already booming areas, Weaver suggested. Conventional economic development programs generally require all of a business’s property to be within the affected area, he said. Brett Theodos, principal research associate at the Urban Institute, estimates that only about 10 to 15 percent of the zones will attract investment, and that around 10 percent could get 90 percent of the money invested. The 8,761 census tracts — in every state, the District of Columbia and five U.S. territories — now officially beckoning to investors as opportunity zones encompass some 35 million people. Based on Census data, the zones have an average poverty rate of about 32 percent, compared with the national average of 17 percent. Alaska selected 25 opportunity zones this past April including arears in Anchorage, Fairbanks and both major military bases. Governors in the states and territories put forward their choices for areas to become special development zones. Every choice — 100 percent of the areas proposed — was blessed by the Treasury Department after a four-month review. The choices “indicate only minimal targeting of the program toward disadvantaged communities with lesser access to capital,” Theodos wrote in a research paper. “Low- and moderate-income residents will need to be able to afford to remain in their communities as the areas upgrade and not be displaced, if they are to benefit from the gains opportunity zones bring.” Census tracts were eligible to become opportunity zones if their residents meet average low-income requirements. Some tracts with higher average incomes were allowed if they’re located next to the low-income tracts. Those better-off areas, with more infrastructure and amenities, could be more attractive to investors. The mix will work out well, as Maurice Jones, the president of Local Initiatives Support Corp., a community development organization, sees it. “From our perspective, the governors did a really fine job in picking places that are in distress,” Jones said in an interview. The program has drawn bipartisan support. Even Democratic lawmakers, who fiercely opposed the tax legislation and unanimously withheld their votes for it, do like the opportunity zones program nestled within it. Supporters see the estimated $9.4 billion in lost revenue from the program’s tax breaks as a small price — for U.S. taxpayers indirectly — to pay.

Movers and Shakers for Oct. 28

KPMG LLP announced a hire and a promotion. Mike Fink was hired as an audit senior manager. Fink brings 14 years of accounting and advisory experience with a variety of organizations, including telecommunications and Alaska Native corporations. He was born and raised in Fairbanks and earned bachelor’s degrees in accounting and in finance from the University of Alaska Fairbanks. Melissa Jay was promoted to audit senior manager. Jay provides audit and accounting advisory services to several types of clients including Alaska Native corporations, not-for-profit organizations, and oil field service companies. Jay is also active in recruiting, frequently attending events at the University of Alaska Anchorage. She was raised in Anchorage and joined KPMG in 2011 after earning bachelor’s degrees in accounting and in finance from the University of Alaska Anchorage and a master’s degree in accounting from the University of Utah. Tom Garrett, PE, has joined global engineering, architecture, and consulting firm Stantec as a senior civil engineer in the firm’s transportation group in Anchorage. Garrett will apply his 20 years of experience to serve and expand the firm’s Alaska transportation practice. Garrett’s project design experience includes site development, road reconstruction and resurfacing, grading and drainage plans, retaining wall design and utility main extensions. Since joining Stantec, he has worked on a variety of projects, including those for the state, utilities and the oil and gas industry. Garrett holds bachelor’s degree from the University of Alaska Anchorage and is a member of the Institute of Transportation Engineers. Ahtna Inc. announce several new hires within its subsidiaries. Ahtna Environmental Inc., welcomes David Bennett to its team as business development director. With a bachelor’s degree in civil/environmental engineering from the University of Wisconsin-Madison and 24 years of experience in understanding client operations, needs, planning, and project execution. Morgan Bruno, PE, joins Ahtna Engineering Services LLC as a project manager. Bruno is an environmental engineer with nine years of experience including preparation of remedial investigation/feasibility study-related documents; data evaluation; groundwater, surface water, soil, sediment, and vapor intrusion sampling; geoprobe, hollow stem auger, and sonic drilling oversight; risk analysis; non-aqueous phase liquid mobility analysis; and bench-scale treatability experiments, among others. She holds a master’s degree in chemical engineering from Oregon State University and a bachelor’s degree in biological and agricultural engineering from the University of Idaho. Michael Selhay joins Ahtna Environmental Inc., as a senior construction manager with more than 18 years of construction and management experience leading all phases of construction planning and development, design coordination, and contract administration. Selhay earned a bachelor’s of science degree in construction management from Arizona State University and attended the Del E. Webb School of Construction. Selhay was the Project Manager of the Alaska Vocational Technical Center Culinary Arts Facility Project and the Dormitory Replacement project in Seward, which both won the 2011 and 2013 Alaska General Contractor’s Challenge Award for the $5 million to $15M project category. Also joining Ahtna Environmental, Inc., is Nelson Crone as the firm’s GIS specialist. He works with Global Positioning System equipment and has provided operation, ArcCollector deployment and operation, ArcPad, and other various data collection techniques for field technicians. He works with remote sensing systems performing image analysis and has worked with UAV systems creating imagery products. He has also worked with SDSFIE database creation for federal projects and has worked with EQuIS databases for environmental data. Crone has a master’s degree in GIS for development and environment from Clark University and a bachelor’s of science degree in geography and environmental studies from the University of Alaska Fairbanks. PND Engineers Inc. announced several hires. Javed Miandad joins the Anchorage office as a geotechnical staff engineer. He recently completed his master’s degree in geological engineering at the University of Alaska Fairbanks, where he worked as a teaching assistant in the engineering geology and soil mechanics lab while conducting his master’s research on landslides in Interior Alaska. Miandad will oversee geotechnical efforts on projects and perform geotechnical explorations. Dominick Frank brings his geology background to PND’s geotechnical department. Frank received his bachelor’s degree in geology from Fort Lewis College in Durango, Colo. His background includes soils lab experience while at HDL Engineering Consultants and hydrographic survey experience gained at TerraSond. He also has experience working for construction contractors and holds AK-CESCL, OSHA, and HAZWOPER certificates. Frank will be tasked with running PND’s AASHTO-accredited Soils Material Lab and assisting with geotechnical tasks and other engineering fieldwork as necessary. Logan Imlach, EIT, was recently brought on as a structural staff engineer. Imlach graduated from University of Alaska Anchorage with a bachelor’s degree in civil engineering. He has 10 years of professional engineering experience, having previously worked as a construction project manager for Clark Management and as a project engineer for Parker Drilling. Imlach also worked as a design engineer for Armada Skis, where he was responsible for design and development of new ski models. His primary responsibilities with PND will include structural design for marine and oil and gas industry projects. Seth Anderson, PE, brings eight years of engineering experience to the Anchorage office. His background includes providing construction support for several major construction projects throughout Alaska — including the Akutan Airport design-build — while employed with Kiewit Infrastructure West, and working on civil projects in mining, power, and flood protection for Barr Engineering in Minnesota. Anderson’s primary responsibilities with PND will include civil design projects including road improvement design and plans and water, sewer, and stormwater system design. Andrew Reeves brings 15 years of IT experience to his position as a systems administrator for PND. His began his career as a computer repairman for a small family-owned shop when he was still in high school. He later joined the U.S. Marine Corps, serving for five years as a data systems and network specialist, and completing a tour of duty in the Helmand Province of Afghanistan. Most recently, Reeves was a systems technician for the Matanuska-Susitna Borough School District for three years. At PND, his responsibilities include maintaining all end-user hardware and software, and network and server hardware and software. Aaron Unterreiner has joined the Anchorage office as marketing coordinator. Unterreiner is originally from St. Louis, has a communications degree from Missouri State University, and started his career in Durango, Colo., where he worked at The Durango Herald as a sportswriter, sports editor, and news editor. Most recently, he was a copyeditor and a page designer for The McClatchy Company in Sacramento editing and designing news and sports content across all McClatchy newspapers. Unterreiner will assist in the development of competitive proposals, provide editing support to all departments, help maintain PND’s online presence, and participate in all marketing activities.

FISH FACTOR: Dunleavy skips Kodiak fishing forum

Rack up another empty seat on the Alaska debate stage for Mike Dunleavy. The Republican candidate for Alaska governor bailed out of Kodiak’s traditional fisheries debate — after saying he’d show up. “We plan on being there,” Dunleavy said on public radio’s statewide Talk of Alaska call-in show on Aug.31. But from then on, there was silence from the Dunleavy campaign as Kodiak organizers struggled to plan the Oct. 22 event that is broadcast live statewide on radio and television. Days before the event, after weeks of unreturned phone calls and emails, organizers finally learned that Dunleavy would not be attending. “Mike is unfortunately not going to be able to attend the debate as he will be visiting with Alaskans in Barrow. We wish you the best with you (sic) event,” wrote Gina Ritacco, deputy director of scheduling and events, in an Oct. 16 email to the Kodiak Chamber of Commerce. The conflicting trip to Barrow was posted on the Dunleavy event calendar that same day. “Certainly, it makes us in Kodiak feel like even though the fishing industry is so important to Alaska, it may not be that important to him,” said Frank Schiro, executive director of the Kodiak Chamber of Commerce which has hosted the debate since 1991. Shiro added that he was not surprised. “People had predicted from the beginning that it might not be to his advantage to come here. I think he believes he doesn’t need to pay attention to people down here and will walk into office anyway,” he said, “We gave him two months to schedule it,” Schiro added. “The other two candidates for governor responded immediately and Dunleavy’s lag time made our planning extremely difficult.” Since late March Dunleavy’s calendar shows that he has participated in a debate on rural issues in Naknek in early June and visited Juneau and Ketchikan. Besides that to date he had not visited any coastal communities beyond the Kenai Peninsula. Dunleavy also has not responded to requests for interviews by any media in coastal towns. The seafood industry is Alaska’s largest private employer and second only to oil in the tax revenues it puts into state coffers. Seafood also is Alaska’s top export by far. Dunleavy has missed an opportunity to share his views and vision for Alaska’s oldest industry to a statewide audience. Dunleavy is the first major candidate for Alaska governor or U.S. Congress to snub the Kodiak fisheries debate in nearly 30 years. “We aren’t supporting a particular candidate,” said Schiro. “Our position is we want to have an informed public. It’s a shame that Mr. Dunleavy has chosen to not be a part of that.” Hatchery reprieve Two proposals to limit production of hatchery salmon were rejected by the Alaska Board of Fisheries at a special meeting on Oct. 16 in Anchorage. Both claimed that hatchery fish are straying and intermingling with wild stocks and are out competing wild salmon for food in the open ocean. Typically, more than 30 percent of Alaska’s total salmon harvest each year is fish that began their lives in state hatcheries, mostly pinks and chums. Longtime studies by state fishery scientists show some straying of the fish but in very small numbers. A proposal by the Kenai River Sportfishing Association asked the board to rescind an authorized 20 million increase of pink salmon eggs at a Prince William Sound hatchery. The group claims the fish threaten wild sockeye and king salmon bound for their region. It lost by a 6 to 1 vote. Another proposal by former fish board member Virgil Umphenour of Fairbanks asked to cut statewide hatchery egg takes by 25 percent. That failed by a 5 to 2 vote. According to the North Pacific Anadromous Fish Commission, which has tracked salmon abundances and catches for five countries for more than 25 years, salmon catches throughout the North Pacific remain near all-time highs and Alaska’s take tops them all. The NPAFC also tracks releases of hatchery salmon from Canada, Japan, Korea, Russia, and the U.S. The five countries released just over 5 billion fish in 2017, similar to numbers over three decades. U.S. hatcheries released the most salmon at 37 percent, followed by Japan at 35 percent and Russia at 21 percent. Chum salmon made up 64 percent of all hatchery releases, followed by pinks at 25 percent. The half-day board meeting drew lots of support from fishing stakeholders. SeafoodNews.com’s Peggy Parker said when people in the packed room were asked how many depended on hatchery fish for their livelihood, more than half stood up. Ugly crab is better In the Bering Sea fisheries, crabs with ugly shells can comprise up to 30 percent of a catch at certain times of year and crab molting cycles. Shells that are discolored, scarred or covered with barnacles can be a turn off to customers, and fishermen get paid less for the so-called No. 2s, or dirty crab catch. Alaska crabbers aim to get more value from the crab by convincing customers that it’s what is on the inside that counts in a Get Ugly campaign. “We’re promoting it in a new way,” said Jeremy Woodrow, communications director at the Alaska Seafood Marketing Institute. “We’re educating retail and food service professionals that once you get inside the shell it’s no different. And a lot of times these ugly crab are older and have greater meat fill so they are actually a better value often at a lower price.” The ugly crab campaign is modeled after similar “food enhancement” programs underway by farmers that is designed to reduce food waste and improve sustainability practices. “Whether it’s produce or proteins, consumers are becoming more educated and definitely more thoughtful about where their food comes from. This dovetails right into that same mindset that it’s ok that your food might look a little different, it’s all about how it tastes and what it does for you as a person,” Woodrow said. ASMI’s annual All Hands meeting is set for Oct. 29-31 at the Captain Cook Hotel in Anchorage. The public is invited to attend. Laine Welch lives in Kodiak. Visit www.alaskafishradio.com or contact [email protected] for information.

Major dredging project pitched to modernize Dutch Harbor

UNALASKA — The big container ships and tankers will move in and out of Unalaska easier if the U.S. Army Corps of Engineers blasts and scoops 16 feet from the bottom near the Dutch Harbor Spit in a proposed $29 million project that’s at least four years away. And bigger ships will be coming, even though that’s not the purpose of the project aimed at eliminating what is already a tight squeeze for cargo vessels loaded with fish and fuel moving across the rocky underwater reef. “Our proposed project won’t accommodate anything deeper than what’s already coming to Dutch Harbor,” but it will allow the safer and more efficient movement of the vessels, fully loaded more often,” said Ronnie Barcak, project manager of the U.S. Army Corps of Engineers’ proposal dubbed the Unalaska (Dutch Harbor) Channel Navigation Improvements. “Right now you can’t do 44-foot vessel safely or efficiently,” especially since 44 feet is the depth rating now, and the bar is 42 feet deep, according to Barcak, who said the ships now enter with less than full loads so as not to hit the bottom. And often the ships have to wait offshore for waves and winds to lessen, to get in safely. The improvements will allow for operations 24 hours a day, seven days a week, he said. But the study’s parameters are something of a technical point, because the deeper channel actually will mean bigger ships showing up, according to the city ports director and a marine pilot, in an era where ships are continually getting bigger to accommodate growing international trade. “We’ve had lots of inquiries” from representatives of larger vessels now transiting the area on the Great Circle Route, between Asia and North America, said Unalaska Ports Director Peggy McLaughlin. But another limiting factor will change if the bar is deepened, because the city will then dredge in front of its dock at the Unalaska Marine Center, from the present depth of 40 feet to 45 feet. Presently, according to the Corps, only three docks in Unalaska can accommodate the big ships now: the UMC, also called the “city dock”, the American President Lines container terminal, and the Delta Western Fuel Dock, There are no plans for APL or Delta Western to deepen the water near their docks, according to the Corps. “It’s a good thing for Dutch Harbor,” with ship sizes continually increasing, said Bill Gillespie, president of the Alaska Marine Pilots Association, which brings ships into local waters. He said the proposed dredging is a positive step towards port modernization, and will help tankers that now transfer fuel onto fuel barges at anchor in Broad Bay, across the water from town. “They’ll be able to bring tankers right straight to the dock on a more regular basis,” said Gillespie, who added that container ships now arrive “light loaded” to cross the bar in the nation’s top fishing port by volume where thousands of metric tons of frozen fish are loaded onto container ships and barges night and day. The Corps’ team of dredging experts returned to Unalaska in October to update city officials and the public on dredging plans two years after their last visit on the proposed project endorsed by the Unalaska City Council. The extra depth, if the U.S. Congress comes up with funding matched by the city, will allow the ships more maneuverability in the waters of Unalaska Bay in the eastern Aleutian Islands. The project will require blasting prior to excavation, and hopefully with no explosive surprises from legacy military weapons in its ultimate quest to deepen the water level from 42 to 58 feet at the lowest average daily depth known to mariners as mean lower low water. According to the Corps, the water really only needs deepening to 56 feet, but an extra two feet is added because it’s not always possible to dredge the bottom perfectly level, and the contractor, paid by the cubic yard, is happy to oblige by creating an extra two feet of clearance just in case. The Corps want to see if 14 unidentified metallic objects are explosive by taking a closer took with an underwater remotely operated vehicle, before dredging the 600-by-600 foot underwater area, to deepen shallow water caused by a shoal from a moraine deposited by an ancient glacier just offshore of the Dutch Harbor Spit. The one-year project would be completed at the earliest in 2022, if Congress approves the funding. Unexploded munitions have been found in the area, left behind by the U.S. military during the Aleutian Campaign in World War II, and the Corps displayed photos of rusted landmines and projectile bombs previously encountered in local waters. The 14 mysterious ferrous objects were detected with a metal-detecting gradiometer, which did identify abandoned crab pots by their familiar shape, while old military explosives might look like rusted globs of iron. The shoal, commonly called a bar, is very hard and will first require loosening up with explosives packed into drill holes, and will require an “incidental harassment permit” because of the likely presence of marine mammals including sea lions, sea otters, seals and humpback whales. There are so many marine mammals in the area that it would be impossible to blast the hard-packed underwater ridge without potentially impacting them, said George Kalli of the U.S. Army Corps of Engineers, saying the project couldn’t go forward without the federal environmental permits for disturbing marine mammals. The dredging project is expected to require only a federal environmental assessment, and not a more detailed and time-consuming environmental impact statement, he said. The public comment period on the proposed dredging project remains open through February of 2019. The present cost estimate of $29 million is expected to change, Kalli said, though he couldn’t predict if the price would go up or down for the project that only affects large cargo vessels and not fishing boats. The Corps held three community events during the recent visit by six federal employees from Anchorage. Local resident Suzi Golodoff was concerned that the dredging of 16 feet of sea floor, from the present depth of 42 feet down to 58 feet, could cause erosion on the Front Beach along Bayview Avenue, where hers and other homes are located in the historic downtown area of Unalaska, by removing a natural underwater breakwater. Corps officials said that was unlikely and that the project would have minimal impact on the Front Beach. The route for the deeper channel was studied with a vessel movement simulator at the Corps’ research facility in Vicksburg, Miss., using a simulation of a container ship that stops in town regularly while sailing from the U.S. West Coast to Asia with seafood cargo, the APL Holland, as the Post Panamax “design vessel”, with input from two local marine pilots who participated in the indoor simulation exercises in an interactive movie theateresque high tech setting. Barcak said 44 feet is only a “reference point” for ships that might draft between 40 and 48 feet, depending on the weight of the load. The project would involve the removal of 182,000 cubic yards of material from the seafloor, and local resident Travis Swangel saw an opportunity to recycle the material for new landfill docks in Captains Bay, but Kalli said that would cost the government extra for the cost of barging the material, and suggested he’d get a better deal from a local quarry business, Bering Shai Rock and Gravel. Corps officials are planning to dump the material elsewhere offshore near the bar, in deep water, spread out evenly on the bottom, although Vice Mayor Dennis Robinson said an underwater mound could create attractive new habitat where fish would congregate. Jim Paulin can be reached at [email protected]

Capacity shortages costing Canadian producers $100M/day

If Canadian oil producers had the $100 million per day that one CEO estimates they are losing out on because they must sell their output at a painfully steep discount to U.S. crude, they could in just over a year’s time collectively pay cash to build the C$40 billion LNG Canada project. Though only hypothetical and certainly unlikely, it’s a costly lesson for the producers in the law of supply and demand — and the laws and politics that make it hard to build new pipelines. Pick a day, any day this month and West Texas Intermediate, the U.S. benchmark, has been around $70 per barrel. It was greater than $76 one day. Then pick a day, any day for Western Canadian Select, the benchmark for oil sands production. It hasn’t been greater than $30 all month; it was $24.22 on Oct. 11. “It’s a crisis,” said Tim McMillan, chief executive of the Canadian Association of Petroleum Producers, as quoted in the Calgary Herald. “When we were canceling pipeline projects over the last decade, this was the end result we should have expected.” Blame it on more than just insufficient pipeline capacity. It’s rising production in Alberta’s oil sands and maintenance at U.S. Midwest refineries that are among the biggest customers for Canadian crude. The inability to move the growing volume of crude to coastal export terminals is costing Canadian producers access to the global market and its higher prices. “All of those things have culminated into a system that is completely overloaded,” Tim Pickering, founder of price-tracker Auspice Capital in Calgary, told the Canadian Press. “We are basically giving this stuff away,” analyst Martin King of GMP FirstEnergy told a Calgary Herald columnist. “Heavy-oil producers are getting 40 percent of what they normally would be paid if we had access to markets,” said Grant Fagerheim, CEO of Calgary-based Whitecap Resources, which produces about 60,000 barrels per day. He estimates the price differential costs Canadian producers up to $100 million per day in lost revenue at current levels. If the differential were to persist over a full year, the impact on provincial royalties would total about 9 percent of Saskatchewan’s entire budget for the current fiscal year, according to Bronwyn Eyre, minister of energy and resources. “That’s money for hospitals and roads and social services,” he said. The region’s pipeline system has the capacity to move about 4 million barrels per day, but that’s not enough. Analyst Kevin Birn of consultancy IHS Energy said Western Canadian crude supplies are expected to average 4.4 million barrels per day this year — most of it oil sands production — climbing to 4.7 million in 2019. What doesn’t go by pipe moves by rail. Separate news reports by Reuters (2017) and the Canadian Press (2018) put the cost at between $12 to $20 per barrel to reach U.S. Gulf Coast refineries. The volume by rail is growing — a lot. Before 2012, little oil was shipped by rail out of Canada. This past June, the country’s energy regulator announced a record-breaking average of 200,000 barrels per day by rail. The International Energy Agency estimates the average will reach 390,000 barrels per day in 2019. If only there was more pipeline capacity to coastal export terminals. “I refuse to believe that Canada as a country will not be able to get its act together and ultimately get these pipelines built,” Cenovus Energy CEO Alex Pourbaix told Bloomberg earlier this month. Cenovus is a major oil sands producer, at about 390,000 barrels a day in the second quarter of 2018. “Right now, the Canadian oil patch is getting killed by the differential,” International Petroleum Corp. chairman Lukas Lundin told Bloomberg last week. “But over time, we think that’s going to change because there’s going to be some pipelines coming up.” IPC this month announced a C$600 million takeover of a small Canadian producer. “If you survive this short-term pain, the long-term gain is very big,” Lundin said. After 10 years of political battles and litigation in the United States, TransCanada plans to start construction next year on its Keystone XL line. The $8 billion, 1,184-mile pipeline will move up to 830,000 barrels a day of Western Canadian production to a connection in Nebraska, where existing lines can carry the crude to the Gulf Coast. It took a change in U.S. presidents for TransCanada to gain approval for the project. But Western Canadian oil producers also have their own politics to blame for a lack of pipeline capacity to overseas customers. Kinder Morgan had worked several years to win approval to triple the capacity of its Trans Mountain line that moves oil from Alberta to a marine terminal near Vancouver, B.C., adding almost 600,000 barrels a day of new capacity. But the weight of litigation, community challenges and opposition from the British Columbia government pushed the company to give up in May and sell not just the expansion project but the entire line and terminal to the Canadian government, which plans to assert federal control and move ahead despite provincial opposition. Canada agreed to pay C$4.5 billion to Kinder Morgan and take over the C$7.4 billion expansion to ensure it gets built. The government figures it will later sell the operation to private investors and is telling its citizens the treasury will not lose any money on the flip. Then there is a new problem. Canada’s Federal Court of Appeal ruled in late August that the National Energy Board failed to adequately consider increased oil tanker traffic in its 2016 environmental review of the expansion project. The court also ruled the government had failed in its responsibility to consult with Indigenous communities. The government decided not to appeal the court ruling and gave the energy board 22 weeks to conduct a full impact assessment of the additional tanker traffic. The board’s assessment is due to the cabinet in February. The court decision to halt approval of the pipeline was “disappointing, but by no means insurmountable,” Canadian Natural Resources Minister Amarjeet Sohi told the Canadian Press last month. The NEB this month called for public comment on whether it should consider marine shipping issues out to the 12-nautical-mile territorial sea limit or to Canada’s 200-nautical-mile exclusive economic zone. The National Energy Board received 123 applications to participate in its court-ordered environmental reconsideration. The board approved 98 intervenors, including the cities of Vancouver, Victoria and Burnaby; Indigenous groups from Alberta and B.C.; environmental groups; oil companies; and the governments of Alberta and B.C. Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide.

Ruling on state’s motion to dismiss tax credit lawsuit expected in Nov.

A lawsuit challenging the Gov. Bill Walker administration’s plan to sell bonds to expedite repayment of nearly $1 billion in oil and gas tax credits appears to be back on track at least procedurally, but where that track will lead is still unknown. Joseph Geldhof, an attorney for former University of Alaska regent Eric Forrer who brought the suit in May filed an 81-page brief with Superior Court Judge Jude Pate Oct. 8, rebutting the state’s arguments and reasserting multiple ways in which Forrer believes the bonding plan is unconstitutional. Geldhof drafted the hefty response to a June motion to dismiss in barely a week; Pate ordered him to file the response by Oct. 8 during oral arguments held Oct. 1. In it, Geldhof again stressed that state attorneys have derailed the case and prevented an orderly resolution by erroneously contending Forrer has failed to state a claim upon which relief can be granted. Geldhof has also repeatedly highlighted in court documents and interviews that state attorneys have not filed a response to Forrer’s original or amended complaint. He notes in the lengthy brief that the bond plan, as laid out in House Bill 331 that the Legislature passed in May, violates Sections 6, 7, 8, 10, and 11 of Article IX of the Alaska Constitution. Relief can be granted in the public interest lawsuit by finding HB 331 unconstitutional and thereby preventing an unlawful bond sale that has the potential to damage the state’s credibility in financial markets, according to Geldhof. The lawsuit alleges the bond sale would commit the state to debt beyond the restrictions the Alaska Constitution puts on the Legislature’s ability to incur financial liabilities. Administration officials contend the plan is legal because the 10-year bonds would be “subject to appropriation” by the Legislature, which the bond buyers would be aware of, and therefore would not legally bind the state to make the annual debt payments. They would be sold by the Alaska Tax Credit Certificate Bond Corp., which would be established solely for the purpose of managing the bond money. The state Constitution generally limits the Legislature to bonding for debt through general obligation, or GO, bonds for capital projects, veterans’ housing and state emergencies. Under HB 331, the companies and banks holding refundable tax credit certificates would take a up to a 10 percent discount on the amount they are owed to get the money right away and thus insulate the state from borrowing costs. Geldhof wrote that the bonds are indeed state debt under the Alaska Constitution as issuance of the bonds would impact the State of Alaska’s credit rating and its ability to take on additional debt. He argued further that HB 331 “establishes an obligation involving borrowed money where there is a promise to pay bondholders in the future” and also contains legal provisions that would bind the state to repay bond holders regardless of whether the Legislature makes funds available to pay them or not. “The state appears to believe any and all of the constitutional claims made by Forrer are floating free from any factual context,” Geldhof wrote Oct. 8. “The state seemingly believes application of the magic ‘subject to appropriation’ language to Forrer’s Article IX, Section 8 claim eliminates any requirement for the court to engage in analysis of Forrer’s other constitutional claims.” For their part, state attorneys in a 12-page brief filed Oct. 12 that “(b)ills passed by the Alaska Legislature are presumed to be constitutional” and although Article IX, Section 8 restricts the sale of bonds backed by the state’s credit, it does not preclude a public corporation from issuing bonds backed by legislation that “explicitly provides that the bonds do not constitute a general obligation of the state, are not state debt, and payment by the Legislature of any debt service on the bonds is subject to legislative discretion.” Assistant Attorney General Bill Milks continued to write that the state wants a prompt resolution to the case as it has prevented a bond sale — originally planned for August — because the looming litigation makes the bonds unmarketable, a point state attorneys noted in the Oct. 1 hearing. Despite Geldhof’s assertion that five facts in the case preclude dismissing it outright, Milks responded that only the impact of a decision by the Legislature to not appropriate the bond payments on the state’s credit rating and the fact that issuing the bonds would alter the state’s ability to incur additional debt can be weighed for the purposes of the dismissal motion. “The remainder of the plaintiff’s ‘facts’ are actually assertions of law regarding the interpretation of various provisions of the Alaska Constitution and the application of those provisions to the terms of HB 331,” Milks wrote. “They are not facts that this court must accept as true for the purposes of a motion to dismiss; rather they are statements of the legal conclusions that the plaintiff hopes this court will reach.” State attorneys have also leaned heavily on the Alaska Supreme Court’s ruling in the 1995 case Carr-Gottstein Properties v. the State of Alaska in which the court ruled constitutional debt is “an obligation involving borrowed money where there is a promise to pay sums such as rents accruing in the future whether funds are available or not.” They contend the subject to appropriation clause in HB 331 makes it constitutional because it outwardly states the Legislature will determine whether or not those funds are available. Geldhof insists the state is misapplying the Carr-Gottstein ruling because it applied to a lease-purchase agreement to be backed by a direct revenue stream of lease payments and not bonds funded by appropriations of the Legislature. Pate said Oct. 1 that he would likely rule on the motion to dismiss sometime in early November. ^ Elwood Brehmer can be reached at [email protected]

Fee hikes proposed to cover workload at marijuana office

KENAI — Cannabis business owners may have to pony up more cash in the near future for their licenses. The Marijuana Control Board is considering raising license fees to support the operations of the office. At its Oct. 17 meeting in Kenai, Alcohol and Marijuana Control Office Director Erika McConnell presented the initial idea to the board members of raising the license fees in a variety of ways, leaving the decision up to them on how the members would like to pursue it. “The board may want to only consider the increased license fee at the time of renewal,” she said. “Should the board want to entertain raising license fees, that would be through a regulation project.” The Alaska Department of Commerce, Community and Economic Development — which houses AMCO and business licensing divisions — wants to see professional licensing programs and industries support the cost of regulating them through license fees. The Legislature kicked in about $4.5 million in unrestricted General Fund money to get the program going, but wants to see that paid back eventually, McConnell said. On top of that, cannabis business licensees have been raising concerns recently about the amount of time it takes for the office to review applications for a new license. The current waiting time is more than five months for a completed application to be reviewed. Some applicants have waited longer. However, AMCO doesn’t have enough staff members to speed that time up with all the other requirements placed on the office, and securing more staff is tricky with continuous state government cuts over the past four fiscal years in the Legislature. McConnell said the office managed to secure a regulations specialist this year between Legislative sessions, but will have to include the line item for the position in next year’s request to the Legislature and face the possibility that it will be cut out during the budget review process. To provide the services requested by the industry, the office needs enough money to support more staff, she said. Estimating revenue based on the rate of license renewal and current license costs, the office will bring in about $1.7 million in revenue, between the regular business licenses and the marijuana handling card fees. That may not be entirely accurate, though, she wrote in her report to the board. “That estimate may be high, as some licensees submit renewal applications and fees after the June 30 deadline, so their fees go into the FY20 revenue,” she wrote. In the report, she presented two ideas — raising the $500 license fee to $1,000 and the $5,000 license to $6,000, or raising the $500 license to $1,500 and the $5,000 license to $7,000. She also presented the idea of raising just the renewal fee for licenses, as the threshold of entry for people just getting into the industry is already high. The board took no action at the meeting, as that would require public notice and comment first. Cost to industry participants continues to be a major conversation driver, between trim taxes that business owners consider unfair to licensing and facility requirements. The board also shot down an AMCO staff proposal to lengthen the amount of time required for businesses to retain their security footage. Currently, businesses have to retain their high-definition security footage for 40 days, which requires a large amount of storage space and expense to maintain. For enforcement reasons, the staff had proposed requiring businesses to retain their security footage for 90 days. License holders objected, saying that would incur massive expense for the hard drive storage, and downloading that amount of footage when requested by the enforcement office would set them up to fail the deadline for turning it in because downloading footage of that length of time takes too long. The board unanimously declined the proposed regulation, agreeing that the requirement was too burdensome for businesses. Board member Nick Miller, an industry representative, said there was a section in code that allowed the AMCO enforcement division to require individual businesses to keep footage longer than the 40-day requirement if necessary. “We’ve heard a lot of discussions about how long it takes to download 40 days. I can’t imagine how long it’s going to take to download 90 days,” he said. “…I think they should (use that section of code) and not penalize the entire industry for one or two bad actors out there.” Brandon Emmett, the other industry representative, agreed, citing the other cost strains on business owners. Growers, especially limited cultivators, are struggling to make a profit on what they’re doing and adding more expense for everyone may push some of them under, he said. “I think that we have to weigh cost and benefit,” he said. “The cost to our growers who are struggling, there’s people going out of business, that adding this extra expense that they get no benefit from to potentially catch a bad actor or two is not prudent.” McConnell said the office had originally proposed 120 days, but reduced it to 90 after the board members rejected the 120 days. Oregon recently raised its video retention requirement to 90 days, while other states like Nevada only require 30 days’ retention, she said. This was the board’s first time meeting in Kenai. The board will return to Anchorage for its next meeting on Dec. 20-21. Elizabeth Earl can be reached at [email protected]

Anchorage startup perfecting revolutionary drone safety system

Alaska has been at the forefront of developing rules and technologies for getting drones in the air and now the leaders of an Anchorage startup believe they have the secret to getting them back on the ground safely. The fundamental technology is basic and nearly obvious: a parachute. However, the seemingly simple solution comes with a daunting hurdle. It can’t ever fail. Indemnis CEO Amber McDonald said the idea for a new breed of unmanned aircraft parachute spawned out of her team’s work in TV and film. McDonald and Indemnis Chief Technology Officer Alan Erickson were first partners in a video production company in 2015. “We were flying for Animal Planet, Discovery Channel, all the reality shows that came up with the film (tax credit) incentive that was going on,” she recalled in an interview. “We were flying drones as a result of that and found that technology failed and they were falling out of the sky.” The biggest challenge in solving the problem is developing a fail-proof solution — or something at least as infallible as any human technology can be. Indemnis is Latin for “without harm.” McDonald noted the Federal Aviation Administration currently doesn’t allow small (less than 55 pounds) commercial unmanned aircraft flights over people for fear the craft could injure or kill someone if it fails without a safety net of its own. There are three paths to commercial drone flights over people, the same avenues the FAA offers for most safety issues that arise. In this case they are: build an unmanned aircraft with provable reliability on-par with a Boeing airliner; build one from light, soft or frangible materials that will break apart or otherwise not harm on impact; or add a risk mitigation system that meets the requirements another way. From there they went through every parachute and recovery system on the market in search of a fix. The unpredictability of how the quad-rotor drones would fall meant the lines fixed to the frame of the small crafts would reliably entangle. If the lines made it out as intended then the parachute was likely to snag on the control surface; it was hopeless if the drone was in a spin, which is almost an inevitability of physics. Then Erickson saw a Bond film in which Pierce Brosnan’s ski jacket unfolds into a rigid bubble that protects him from an avalanche. He thought he could use a rigid parachute to overcome the challenges a falling drone presents, McDonald said. “There’s a very, very large untapped market; you’re talking about probably $10 to $20 billion in safety systems that somebody has to develop and whoever’s first to market is going to be king of that category — not just first to market but first to market with a product that actually works,” she said. The concept of a rigid parachute evolved into Indemnis’ Nexus small unmanned aircraft recovery system, which uses an inflated fabric deployment tube to move the parachute line attachment point out of harm’s way. “We looked at that problem and kind of just ran with it. We knew that we had a technology problem that we needed to overcome and we knew that we had a regulatory problem that we needed to overcome and those are really the two things that Indemnis focuses on — making regulated commercial flight over people possible,” McDonald said. It helped that a successful film or TV show needs a host of behind-the-scenes technical experts to pull it together; it meant McDonald didn’t have to go far to find talent for her new company. “It all happened very, very fast. We spent a lot of time together as we do working in the same industry and ultimately it formulated that six of us came together — we had the materials person; we had the software embedded systems person. I did all of the business stuff. Alan’s our tech guy. He’s our current CTO and then we had a web guy and a machinist, Mitch, who is a state-of-the-art machinist. He has parts on the Hubble telescope,” she added. Indemnis has a total team of 18, making it far from a normal startup, McDonald noted. The wealth of knowledge and ability that comes with such a large group has enabled Indemnis to succeed so far. Technical challenges The key to the Nexus is the Dyneema polyethylene fabric the deployment tube is made of. It is a product of DSM Co., a Netherlands-based scientific product development firm. And the key to the Dyneema is its remarkable strength. “Upon deployment (the Dyneema tube) will inflate, throw that parachute — guard the parachute lines as it rises up — and throw that parachute at 90 miles per hour in 30 milliseconds away from drone and all potential control surfaces or areas of entanglement and it stays inflated, like a piece of steel, to 30 psi, like the same as your car tire,” McDonald described. Dyneema is more commonly used for large ship anchor lines and medical supplies but it’s most widespread application is for ballistic armor, according to McDonald, as it is twice as strong as Kevlar and 15 times stronger than steel. The biggest challenge the Dyneema presents is its low melting point, which makes bonding it problematic. Ultrasonic and high heat welding will destroy the fibers of the material. However, the Indemnis team developed a radio frequency welding process — now patented — that allows the fabric to be joined to itself and form the inflatable tube without sacrificing strength. “If we tried to inflate nylon to 30 psi instantaneously it would blow to shreds. There’s no other material on the planet that you can dump that much energy into that will stay together,” McDonald proclaimed. The Nexus parachute is also made of Dyneema, but more for its light weight than its remarkable strength; it’s about half the weight of the lightest comparable nylon, she said. The tube is currently inflated via Indemnis’ own 10,000-psi micro air tank that is easily refilled for testing but would be difficult to manufacture consistently. The company is in the final stages of testing a gold gas generator inflation system for the marketable product. And while the ability to consistently deploy the parachute was a major breakthrough, it was just the start. The parachute must also reliably deploy at a moment’s notice, either at the behest of the drone pilot, or on its own. Another in-house development, the Nexus contains a sensor fusion chip that combines “gyroscopes, accelerometers, barometers, filters, a bunch of different sensors” that will detect a multitude of trigger points to automatically activate the parachute, McDonald explained. It’s easily attached to a drone with a quick compression clamp and a single cord. “It’s a completely isolated system, so if something happens to the drone — it decides to go wonky and fly away or your GPS goes crazy — you can also manually deploy it because it doesn’t connect with the avionics in any way. It pulls power from the drone in the very beginning when you turn it on but aside from that it’s an isolated system,” she said. The system is scalable to all sizes of small unmanned aircraft systems, which for FAA purposes are those less than 55 pounds. The Nexus that Indemnis has focused its work on is about 18 ounces, according to McDonald. The company spent its first two years in the dark without much of a website, developing and testing its product until unveiling the Nexus to those in the industry in May 2017. “Basically, it was a blank site that said if you knew what we were up to you’d know we were about to change the world,” McDonald said with a smirk. “That was our tagline.” That time allowed Indemnis to compile what the company believes is the largest set of unmanned aircraft crash dynamics available. The Indemnis crew is flying drones and testing its product every day the weather allows. Next steps When FAA officials became familiar with the Nexus they asked Indemnis to allow them to use some of the company’s internal testing standards to help write risk mitigation regulation. The also invited Indemnis to be part of an American Society for Testing and Materials, or ASTM, committee along with Amazon (and its plans for automated package delivery) and other major unmanned aircraft industry players to help draft the minimum standards by which a parachute system can be used in small commercial drone operations. “We have logs, engineering data and said, ‘Here’s the failures we overcame to get here. Here’s how we defined the problem,’” McDonald said of her company’s collaboration with the FAA. Those standards were published Sept. 1 after roughly 18 months of work. “There is now an ASTM standard, consensus, standard, and we’re pretty excited about that — that we were the technical leads on that,” she added. Alaska has helped lead development of the U.S. unmanned aircraft industry largely because of its vast open areas where tests can be flown without risk to people or other aircraft. ConocoPhillips and BP were the first companies to get special FAA approval for commercial flights over water and land for Arctic offshore and North Slope surveying missions in 2013 and 2014, respectively. The University of Alaska Fairbanks is also one of six FAA unmanned aircraft test sites across the country through its Alaska Center for Unmanned Aircraft Systems Integration. The activity has also spawned other drone technology-focused startups in the state as well. FAA officials did not respond to questions about the agency’s work with Indemnis in time for this story, but a Sept. 19 ASTM news release quoting Erickson states that ASTM standard F3322 lays out the design, fabrication and test requirements for an installable parachute recovery system, or PRS. The standard applies to single-rotor, multi-rotor, hybrid or fixed-wing small, unmanned aircraft, according to ASTM. “The standard includes a rigorous design and testing matrix due to the simple fact that a PRS may be the only failsafe in a critical system failure,” Erickson said in the ASTM release. “When applied correctly, a PRS will enable industry growth in a way that provides civil aviation authorities and civilian populations with a high level of confidence in (small unmanned aircraft systems).” Indemnis is now trying to secure its market while further refining its product with the major regulatory hurdle largely overcome. McDonald said during an early October interview that Indemnis would soon be sending a crew to Ohio State University to test the Nexus system on cadavers. She acknowledged that the Nexus is not for every drone hobbyist out there. A single unit is likely to cost between $5,000 and $12,000 when it hits the market. “The reality is people are not buying the technical product; they’re buying the ability to fly over people safely,” she said. “You’re buying it because you want to be able to safely operate your business. It’s a business tool.” Indemnis leaders have multiple manufacturers lined up to make other parts for the Nexus and hope to be able to start selling it in the next six months. Current plans are for the first 15,000 units to be produced out of the company’s small South Anchorage shop. After that, the company will reevaluate its position with hopes to stay in Alaska, according to McDonald. Until then, Indemnis will have to rely on investor funding for a little while longer. The roughly $4 million the company has raised mostly from individual Alaskans is one of the aspects of the journey that she is most proud of, McDonald said. She described Indemnis’ investors as coming primarily from the oil and gas industry — engineers and others “who understand the basic physics problem that we’re solving” and people the Indemnis crew is incredibly grateful for. Indemnis is also wrapping up an investment campaign through the crowdfunding site Republic at the end of October. “We’re always looking for high net-worth individuals. We’re always looking for credible investors to join us on this journey,” she said with a smile. Elwood Brehmer can be reached at [email protected]

Hilcorp replaces tankers with Cross Inlet-Pipeline Project

KENAI — Crude oil from Cook Inlet’s west side will now reach Marathon’s refinery in Nikiski by pipeline instead of tanker after Hilcorp completed the $90-million project. Eliminating cross-inlet tanker traffic also eliminates the need for the Drift River oil terminal, realizing a long-sought goal of conservationists and oil-spill prevention specialists. During a ribbon cutting in Kenai on Oct. 19 for the Cross-Inlet Pipeline Project, operations manager Rich Novcaski of Hilcorp’s pipeline-owning subsidiary Harvest Alaska said the first oil was piped across the Inlet the night before, traveling through an underwater line, which previously carried natural gas. The displaced gas will travel through another pipeline that historically carried gas produced from the Tyonek Platform to the now inactive LNG export terminal on the Inlet’s east side. To complete the cross-inlet connection, Hilcorp laid about six miles of new pipe from the Tyonek Platform to the existing west-side pipeline network. At the ribbon cutting Novcaski said gas would start flowing through that connection the following day. “What I think this project ultimately embodies is a very creative use of all the infrastructure — gas lines, oil lines, and a limited amount of new construction for something very cost-effective,” said Hilcorp’s Sean Kolassa, president of Hilcorp’s Harvest Midstream pipeline subsidiary. In a previous public presentation, Novcaski said tankering oil across the inlet cost about $3 per barrel while piping it cost about $2 per barrel, and estimated the cross-inlet pipeline could extend the economic life of Cook Inlet oil production by about 20 years. Drift River’s outflow into Cook Inlet is among the few places where the west-side coast has depth to accommodate tankers, but as a location for a crude oil terminal, it has a downside, too; the Drift River tank farm is about 20 miles from the volcanic Mount Redoubt and has been threatened twice by its eruptions. The ribbon was cut by Mike Munger, a long-time advocate for decommissioning the terminal. When Redoubt’s eruptions from December 1989 to January 1990 sent floods and mud flows toward the tank farm, Munger was an environmental specialist at the Alaska Department of Environmental Conservation and helped oversee installation of new defenses at Drift River: two diversionary dikes in the Drift River valley and a 20-foot wall of concrete-armored earth surrounding the tank farm. By the time floods from a second eruption prompted Drift River to be shut-in in 2009, Munger was executive director of the oil spill prevention group Cook Inlet Regional Citizens Advisory Committee. In 2012, CIRCAC passed a resolution calling for Drift River to be replaced with a subsea pipeline within five years. “So they’re a little behind, but not by much,” Munger said. “But it’s really a milestone for our organization to see this come to fruition.” He noted in an interview with the Journal that closing the tank farm during the last eruption also meant halting west-inlet oil production as there was simply no place to put the crude. “This will allow them during a volcanic eruption, in theory anyway, to continue oil production unless of course the offshore platforms were somehow threatened,” Munger added. CIRCAC received the U.S. Coast Guard’s Meritorious Public Service Award during the council’s Sept. 7 board meeting in Kodiak. Alaska Coast Guard officials cited the council’s leadership on maritime safety and environmental stewardship in the region, according to a council release. It marks the second time CIRCAC has received the award; the first being in 2010 for its work during the last Redoubt eruption. Novcaski said the project involved 57 contractors, 27 of whom did on-site work. The heaviest construction was on the six-mile connection to the Tyonek Platform. The pipe was assembled in mile-long segments on shore and pulled into the Inlet by barge, making it the longest pull barge construction in Cook Inlet. For its distance, this method was about half the cost of using a lay barge, though Cook Inlet, with its strong tides, “is not an easy place to do business,” he said. Cataloging other Cook Inlet oil lines The commissioning of the cross-inlet oil transmission line coincides with the start of a study analyzing the state of the rest of Cook Inlet’s oil lines, another long-time priority of CIRCAC. The Cook Inlet oil pipeline risk assessment will ultimately be a one-stop shop for all of the available information on each Cook Inlet pipeline used for oil production, according to Munger. It will focus not only on oil transmission lines but also pipelines that carry water produced alongside oil and gas lines used to support oil production, such as those that carry fuel gas to oil platforms, he clarified. “The fact remains, a big bulk of this infrastructure has been in place since the mid- to late ‘60s in one of the most inhospitable bodies of water in North America (where) it is virtually impossible to do any visual inspection on it,” Munger said in highlighting the need for the first-time review. “It’s long overdue but we’ve been advocating for it since at least 1999, I believe. Like many things it takes a long time to get things going.” Hilcorp’s drawn out subsea natural gas pipeline leak during the winter of 2017 underscored the challenges of dealing with a wintertime spill in Cook Inlet and regenerated a discussion about the need to know more about the underwater pipeline network in Alaska’s original oil basin. The Hilcorp leak demonstrated that if there was a large spill in the Inlet in winter there is little else that can be done other than shutting off the source, Munger said, as strong tidal currents and drifting ice pans would make recovering oil nearly impossible. “That circles back to prevention is the key; that’s the mantra by which we live by. You have to keep the oil in the pipe; you have to keep the oil in the tanker and you need to put money towards that to make sure that happens,” he said. The money for the pipeline assessment so far has come through a $50,000 allocation from CIRCAC itself, a $200,000 appropriation from the Legislature through the state Department of Environmental Conservation and a grant from the Kenai Peninsula Borough. CIRCAC leadership also recently approved an additional $31,000 for the project and the council is waiting to hear about a potential grant from the federal Pipeline and Hazardous Materials Safety Administration, or PHMSA, according to Munger. He said the council has sufficient funds to complete the work now and the added federal money would only enhance the review. At its most basic level, the assessment should help clarify which state or federal agency has jurisdictional authority over some of the oil lines in the inlet, Munger added. Tim Robertson, a principal with the consulting firm Nuka Research and Planning Group of Seldovia, which CIRCAC hired to conduct the assessment, said the final report will be a snapshot of inlet oil production lines taken in early 2019. The information will be gathered from all available public sources as well as from the operators; Nuka will not be gathering original data, according to Robertson. “We’ll break it down into individual pipelines and then develop a database of information about each individual pipeline. It’s everything from its ownership and history to who installed it and how it was installed to its physical specifications; what kind of corrosion and other prevention measures (are) in place for that pipeline; any spill history that pipeline has had; any repairs that have been done to that pipeline,” Robertson explained. That information will feed a database that will generate a report and that report will be forwarded to industry experts who will then discuss it with the operating companies, regulators and the public, culminating in a final set of recommendations on how to best manage the pipelines in the coming decades, he said. The data gathering should be done by March, with the experts convening in May. Robertson said the assessment is currently scheduled for completion in the first quarter of 2020, but the schedule is tentative given the multiple inherent logistical challenges involved. “We all have a common interest. There’s nothing to really disagree about here,” he said. “It’s basically, what are the recommendations of some of the best minds in the industry about how to keep this going and producing into the future.” ^ Journal reporter Elwood Brehmer contributed to this story.

What’s at stake if investors begin to shun Saudi Arabia

FRANKFURT, Germany (AP) — The disappearance of a Saudi journalist last seen entering the kingdom’s consulate in Istanbul has shaken confidence in the country as a place to do business, with potential consequences for billions of dollars in investments going into and out of the country. It’s a blow, analysts say, to efforts by Crown Prince Mohammed bin Salman to convince the world that the country is a reputable place to strike the deals needed to power a wide-ranging transformation of the economy. As allegations emerge that Jamal Khashoggi was gruesomely murdered, political pressure to isolate Saudi Arabia is increasing. Here is a look at the Saudi leader’s economic plans and what is at stake if business leaders begin to shun the country. Q: Why does Prince Mohammed need foreign investors? A: The crown prince wants to diversify the economy away from oil and transform its business and political model. For years, oil revenues paid for plenty of government sector jobs and benefits. That model has come under strain amid a growing population and a period of low oil prices. The prince’s Vision 2030 strategy foresees the creation of a vibrant private sector. As part of that, he wants to develop new industries like alternative energy, tourism and entertainment. Projects include a new business zone near the Red Sea called NEOM that would focus on advanced manufacturing, renewable energy, artificial intelligence and biotechnology. Saudi Arabia has its own companies in more traditional fields like construction, which would get a lot of that investment. But the country would need technology, expertise and financing from outside to carry out Prince Mohammed’s ideas. He wants, for instance, to have his Public Investment Fund — the state-backed investment vehicle — raise more money by selling a stake in chemicals company SABIC to state oil firm Saudi Aramco. Analysts say Saudi Aramco would likely have to borrow to make the deal happen. The PIF itself has already borrowed $11 billion from international banks. “Foreign investment is a main pillar of Vision 2030,” said Sebastian Sons, an expert on Saudi Arabia at the German Council on Foreign Relations. “The old tradition is on the brink. Diversification of the economy is strongly needed and Vision 2030 is the strategy for that.” Q: How would the Khashoggi disappearance affect that? A: Foreign investors already had doubts about the country amid regional conflicts like a blockade of neighbor Qatar and a brutal war against rebels in Yemen. Saudi Arabia ranks 92nd out of 190 countries on the World Bank’s ease of doing business index, which measures things like ability to enforce contracts and get goods in and out of the country. Another cloud was cast over the business environment when Prince Mohammed locked up several dozen members of the Saudi elite in Riyadh’s Ritz-Carlton hotel and seized what the country’s attorney general said was more than $100 billion in assets. The Khashoggi scandal comes at a time when “the private sector is cowed and hurting in many ways,” said David Butter, an analyst with the Middle East and North Africa program at the Royal Institute of International Affairs in London. The hotel incident shows that “they don’t know if their assets are safe from sequestration.” And grisly details reported in news media about Khashoggi’s alleged killing “are just going to make the private sector even more worried,” he said. The war in Yemen has led to horrors such as an air strike by the Saudi-led coalition that killed 40 children, but the Khashoggi incident is harder to play down as a regrettable mishap of war. Butter said Prince Mohammed’s image as the “face of future reform is now much more difficult to sustain.” Turkish authorities say Khashoggi was killed. The Saudis have denied involvement. Q: Are people losing faith in Saudi Arabia as a business destination? A: Foreign business and political leaders are dropped out of the Future Investment Initiative, an annual event started last year to showcase the country as a place to do business. Among those cancelling are U.S. Treasury Secretary Steven Mnuchin, JPMorgan CEO Jamie Dimon, Ford Motor Co. Chairman Bill Ford and Uber CEO Dara Khosrowshahi. Sons of the German Council on Foreign Relations, said the no-shows “are a serious indicator for Mohammed bin Salman that he is losing trust, that Saudi Arabia is not seen as the ideal place to invest.” Q: Why are the Saudis investing abroad as well? A: They’ve been buying stakes mainly in technology firms to diversify their revenue and show the country as forward-looking and tech-friendly place. The sovereign fund has invested $3.5 billion in Uber, for example. It has pledged $45 billion for the SoftBank Vision Fund, a private equity fund that has taken stakes in Uber and messaging software maker Slack Technologies Inc. The question now is, whether companies will be leery of Saudi money for fear it will taint their reputations. Richard Branson, the billionaire founder of Virgin Group, has said he is freezing talks for Saudi investment in his space companies. Other executives have limited themselves to the symbolic rebuke of shunning next week’s Saudi conference. Others have simply kept quiet. Q: How likely are sanctions against Saudi Arabia? A: Republican Sens. Marco Rubio and Lindsey Graham called for Saudi Arabia to be punished if it is confirmed it organized Khashoggi’s disappearance. But they did not specify what that might mean in practice. The 2016 Global Magnitsky Act makes it possible to impose visa bans barring entry into the U.S. and targeted sanctions on individuals for committing human rights violations or acts of significant corruption. Congress can submit proposed names. Analyst Butter at the Royal Institute said the prospect of sanctions was unclear but that “any kind of sanctions would have a strong symbolic effect.” President Donald Trump has promised “severe punishment” if regime involvement is proved, but has also said he does not want to cost U.S. jobs by curtailing U.S. sales of military equipment to the Saudis.

Plan for first oil production in federal Arctic waters off Alaska gets OK

(AP) — The first oil and gas production wells in federal Arctic waters have been approved by U.S. regulators. The Bureau of Ocean Energy Management on Wednesday announced it issued a conditional permit for the Liberty Project, a proposal by a subsidiary of Houston-based Hilcorp for production wells on an artificial island in the Beaufort Sea. The approval follows through on President Donald Trump's promise of American energy dominance, said Interior Secretary Ryan Zinke. "Responsibly developing our resources, in Alaska especially, will allow us to use our energy diplomatically to aid our allies and check our adversaries," he said in the announcement. Environmental groups oppose Arctic offshore drilling and have expressed concerns about the production record of Hilcorp Alaska LLC. State authorities in 2017 year fined the company $200,000 for violations at another production site. Kristen Monsell, ocean legal director for the Center for Biological Diversity, said approval of Liberty sets the country down a path of destroying the Arctic. "An oil spill in the Arctic would be impossible to clean up and the region is already stressed by climate change," she said. The gravel island would be built in 19 feet (5.8 meters) of water about 5.6 miles (9 kilometers) off shore. The site is 15 miles (24 kilometers) east of Prudhoe Bay, North America's largest oil field. Hilcorp will develop federal leases sold in the 1990s. BP Exploration Alaska drilled at the site in 1997 and sold 50 percent of the assets to Hilcorp in 2014. The base of the gravel island would cover 24 acres of ocean floor, about the size of 18 football fields, with sloped sides leading to a work surface of 9 acres, the size of nearly seven football fields. To create the island, trucks would travel by ice road to a hole cut in sea ice and deposit 83,000 cubic yards (63,450 million cubic meters) of gravel. A wall would fend off ice, waves and wildlife, such as polar bears. The surface would have room for 16 wells, including five to eight conventional production wells. At peak production, Hilcorp anticipates extracting 60,000 to 70,000 barrels per day for a total recovery of 80 million to 130 million barrels over 15 to 20 years. Hilcorp proposes to move oil to shore by undersea pipe. The pipe would be buried to prevent gouging by ice. At the end of production, the company would remove equipment and the wall and let waves and ice dismantle the island. Liberty would be the 19th artificial drilling island in Alaska, including four now pumping oil from state waters. Federal officials said rigorous conditions will be in place to keep drilling safe. Hilcorp will drill into oil-bearing rock only during solid-ice conditions. Drilling and vessel traffic will be restricted to reduce disturbances to Inupiat whale hunters. State officials embraced the project for the new oil it would add to the trans-Alaska pipeline and the employment it will offer residents. Hilcorp Alaska estimates 200 construction jobs, 60 to 80 drilling jobs and $1 billion in new investment. David Wilkins, Hilcorp Alaska senior vice president, said the company is pleased with the announcement. "The Record of Decision is the result of years of study and due diligence by multiple federal, state and local agencies and the project team," he said in a prepared statement. "If granted final approvals, the Liberty Project will provide decades of responsible resource development and strengthen the energy future of Alaska and the United States."

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