Elwood Brehmer

Walker reflects on gasline effort as term winds down

Bringing all of Alaska the benefits of lower cost natural gas has been Gov. Bill Walker’s career mission. He often recalls being told as a young carpenter wrapping up work on the Trans-Alaska Pipeline System to get ready for work on a gas project. That was more than 40 years ago. And while he won’t be in office to shepherd it across the finish line, during his four years as governor Walker has helped Alaska get closer than ever before to finally building “the gasline.” “Obviously we’d like to be laying pipe, but that’s not realistic,” Walker said during an interview in his Anchorage office. “I think some very significant things happened during our four years. Most significant is the producers recognized that they would be in better alignment if they were selling gas or shipping gas rather than owning a piece of pipe. That’s more typical; that’s the norm.” In its current form, “the gasline” is the $43 billion Alaska LNG Project, initiated by his predecessor, Gov. Sean Parnell and transformed by Walker’s administration. The original Alaska LNG plan, similar to several gasline proposals before it, positioned the “big three” producers — BP, ConocoPhillips and ExxonMobil — to own much of the project and invest heavily in it while the State of Alaska took a minority role both in project ownership and development. That was less than five years ago, but the global LNG business has changed drastically since. Lower 48 shale-sourced oil and natural gas flooded markets and changed energy economics. Once a high-value, niche market, the LNG trade is suddenly a booming but intensely competitive realm. Walker and his hand-picked choice to lead Alaska LNG, Alaska Gasline Development Corp. President Keith Meyer, have continually stressed that the project is not the proper space for the producers as the economics simply don’t add up to the high rates of return large oil companies typically demand for their investments. Then, in early 2016, when oil prices were bottoming out at less than $30 per barrel and the companies and the state alike were just trying to stay afloat, they presented Walker with an opportunity. The State of Alaska could take over the project or allow the producers to shelve it on the hope markets would eventually rebound to meet their return requirements. For the governor it was a beacon of light during one of the worst storms the state had ever seen. “When they came to me on their very own and made that proposal I — man, I get chills just thinking about that moment when they made that request and I was so happy to accept,” he recalled. “That was the game-changer by far when they made that proposal.” Walker’s team has been in overdrive since. The state has received letters of interest from 15 potential gas buyers, AGDC officials repeatedly tout, although they won’t discuss most of them. “That really allowed us to represent Alaska in a very different way with this project,” he says of the change in structure. “Because of that we went from a regional project to a statewide project to a national project to a world project. We went on the world stage.” While many Alaskans disagree with Walker’s state-led approach to the gasline, on that point there is little debate. On Nov. 9 of last year Walker and Meyer signed a joint development agreement with Chinese oil and gas giant Sinopec Corp., a potential anchor Alaska LNG customer, and the Bank of China and China Investment Corp. as potential financiers. The JDA, as it is known, was far from a firm contract — those negotiations are ongoing — but the fact that it was one of a select group of trade agreements signed in Beijing in front of President Donald Trump and China President Xi Jinping proved up the legitimacy of the Alaska project on the world stage. Walker added that it was a personal honor for him to host BP’s Bob Dudley and ConocoPhillips’ Ryan Lance in Juneau for lengthy gasline discussions following the JDA signing. He later met with ExxonMobil CEO Darren Woods in Washington, D.C. The JDA also gave Walker and AGDC cabinet-level contacts in the Trump administration, which sees the project as a major step towards balancing the country’s trade deficit with China. He said Treasury Secretary Steven Mnuchin recently called him wanting to discuss the project and asked the governor “Where should I land?” on a trip back to Washington, D.C. Walker agreed to meet him in Fairbanks. “That’s the kind of attention this project now has. It is a world-class project,” Walker said. Under Walker, AGDC also began the permitting process for the Alaska LNG Project in April 2017, another major gasline first. The Federal Energy Regulatory Commission is expected to publish the first draft of the project’s environmental impact statement in February of next year. A record of decision is expected soon on the smaller, in-state Alaska Standalone Pipeline, or ASAP, project from the U.S. Army Corps of Engineers, but the economics of that project are highly questionable, officials acknowledge, given it does not have the export sales component. Instead, ASAP is generally seen as permitting support for Alaska LNG given it follows about 80 percent of the big project’s route bisecting Alaska from Prudhoe Bay to Nikiski. Walker highlighted that his administration has done this on a shoestring budget while also trying to pull the state out of multibillion-dollar budget deficits. “We never asked for any money from the Legislature over these four years. (We used) the money that came with the project,” he said. Going forward, he wants Alaskans to focus on the benefits lower cost energy could bring to Alaska and not solely what the project returns to the state’s coffers. Early estimates suggested Alaska LNG could be a yield upwards of $2 billion per year for the state; however, under the new, more realistic, according to Walker, project structure AGDC estimates it will generate roughly $250 million per year in revenue at least until the financing is paid off. “It’s an absolute game-changer for our future. Plan B is so far down the hill from what this would do for Alaska, especially on the mining side — my goodness. Classic example is Red Dog (a lead and zinc mine in Northwest Alaska). They burn 40,000 gallons of diesel a day and I asked them what would happen if they had a six-inch gasline coming over to their facility,” Walker said, adding fuel is currently barged and then trucked 54 miles to the mine site. “They just pointed to every mountain and said ‘we’d mine that mountain, we’d mine that mountain, we’d mine that mountain.’ So the mining industry has the most to gain from this project with what I call collateral benefits. “That’s what has really driven me over the years. It’s not just shiploads of LNG over to Asia; it’s really what happens on the way. I think that pipeline should look like a centipede when it comes down through Alaska with as many offtakes as possible so every community, every village, every industry, every mine has the opportunity for low-cost energy.” He continued to note that Alaska’s state ferries, which operate at a significant cost to the state, burn diesel, while British Columbia burns LNG in its ferries. “The list goes on and on as far as the collateral benefits; so that‘s what really has gotten me and kept me excited with this opportunity,” he said. Walker said he hopes the incoming administration of Gov.-elect Mike Dunleavy will continue to accelerate the project — with the acknowledgement it will soon need funding either from the Legislature or outside investors — and he’s ready to do whatever it takes to help in that effort. Walker said he wants to introduce Dunleavy to many of the LNG industry and world leaders he has met through the Alaska LNG work. “It’s not just all about number crunching; that’s important, but it’s also about relationships,” he said. “In this world, of this kind of volume of financial commitment, relationships are important and I want to make sure that they have every opportunity to pick up where we’ve left off and move forward. Whether they’re interested in that is up to them but I’m certainly going to extend that offer.” Dunleavy, for his part, is consumed with everything that’s needed to prepare a new governor to take the helm of a state and he’s chosen former Gov. Parnell to advise him on the gasline during the transition. Dunleavy takes office Dec. 3. Parnell wrote via email that he has had several meetings lasting three-plus hours each with AGDC officials. He said the corporation officials have been very helpful in providing information and materials under a confidentiality agreement. Additionally, Parnell said others with ideas for the gasline such as legislators and representatives from the producer companies have asked to speak with him. As of Nov. 20, Parnell was still working to compile and summarize the initial information Dunleavy asked him to gather, so the governor-elect and his leadership team had not yet been briefed. Walker said some of the pessimism from legislators and other industry experts regarding the prospects of the Alaska LNG Project has likely been an unfortunate result of his involvement and well-publicized enthusiasm for a gasline. “We’ll see what happens this session but I certainly hope they stay the course on the permitting, that we’re able to sort of expedite a bit with the help of the small line,” he said. “I think there’s reason to be optimistic, absolutely.” Elwood Brehmer can be reached at [email protected]

Tax credit-backed loan from state to Mustang owners scrutinized

In October 2015, Alaska Department of Revenue officials lent $22.5 million to support a small but challenged North Slope oil project. The loan was unique among the department’s investments not for the fact that the state was participating in a private sector project, but for the other circumstances that spurred it and who it was made to. On Oct. 1 of that year the Department of Revenue finalized a $22.5 million line of credit agreement with Mustang Operations Center-1, or MOC1 LLC, to provide the company with capital to continue advancing the Mustang oil project. Located in the Southern Miluveach Unit adjacent to the large Kuparuk River field on the central North Slope, Mustang could produce upward of 12,000 barrels of oil per day from a resource of about 22 million barrels when the project is complete, according to estimates from Brooks Range Petroleum Corp. Brooks Range has been working on Mustang for years, though the project has gone through fits and starts since oil prices collapsed starting in late 2014. The loan was made to MOC1 and not Brooks Range because of a partnership the operating company had with the Alaska Industrial Development and Export Authority, the state-owed development bank. In December 2012, AIDEA invested $20 million of the $27 million needed to build a five-mile road to Mustang and a 19-acre pad for production and processing facilities. The gravel road and pad — in which AIDEA was an 80 percent owner — were finished in April 2013. The gravel road and pad have since been used by other oil companies as an access route and staging area for winter exploration drilling programs. At the time, Brooks Range leaders said they wanted to have the field in production by fall 2014 and credited incentives in the just-passed and industry-supported oil production tax structure under Senate Bill 21 for improving the economics of the project and spurring it forward. In April 2014, AIDEA committed another $50 million equity investment in the $225 million Mustang oil processing facility through MOC1. AIDEA held a 96 percent stake in the holding company as Brooks Range’s owners matched the authority’s equity with a $1 million investment of their own. Brooks Range Chief Operating Officer Bart Armfield said at the time that the project would start production in late 2015 and likely hit peak production in 2017. Full development of the field was estimated to cost about $580 million and included drilling 11 production and 20 more gas and water injection wells, but now is estimated at greater than $750 million, according to AIDEA. AIDEA’s $50 million was to be repaid with 10 percent annual interest within seven years after the start of oil production from Mustang, or by the end of 2022, according to a memo from AIDEA staff to the board of directors when the investment was approved. AIDEA’s equity was also key to Brooks Range’s ability to secure loans to finance the remainder of the project, authority and company officials said when the deal was made. Much of the payback to the authority was to come in the form of refundable oil and gas tax credit payments Brooks Range was set to receive from the Department of Revenue for the tax credit-eligible work the company would perform on the project. Now the president of Brooks Range, Armfield wrote in a December 2015 letter to then-Natural Resources Commissioner Mark Myers that the company had spent $145 million on facility engineering, reservoir evaluation, permitting, drilling and other expenses to move Mustang forward. That ended up being a problem for the project because — in addition to low oil prices challenging its economics — Gov. Bill Walker in June 2015 vetoed $200 million in tax credit payments from an overall $700 million tax credit appropriation that was to be spread amongst numerous credit holders. Limiting the 2015 tax credit payment was Walker’s first step towards ending the program, which he and others saw as unsustainable given the oil price decline had pushed the state into several years of budget deficits in the range of $3 billion or more. He vetoed another $430 million in tax credit payments in 2016 and the state Legislature has since further limited its tax credit appropriations in subsequent state budgets. Paying off the tax credits quickly became a large piece of negotiations between the Walker administration and legislators over a long-term fiscal plan to resolve the structural budget deficits. ‘Skin in the game’ That’s where the loan comes in. Then-Revenue Commissioner Randy Hoffbeck said in an interview that the loan was made because the state “already had skin in the game through AIDEA” and officials did not want to see the authority’s investment lost. While loans were not offered to other companies holding tax credit certificates, it was determined the loan to MOC1 could be made under the department’s investment policies, according to Hoffbeck. “We had our investment guys look at it and say, ‘yeah, we could fit that in with our portfolio,’” he recalled. “Not a large amount but the amount that we did was reasonable within our portfolio with a guaranteed 7 percent rate of return at a time when the markets looked kind of frothy and we didn’t know really which way they were going to go.” Hoffbeck retired from the state in August 2017. The $22.5 million originally came with 7 percent simple interest and a maturity date of Dec. 31, 2016. However, Walker’s second credit payment veto, on top of oil prices that made Brooks Range’s owners hesitant to advance the project, made repayment difficult. “It was supposed to be a one-year loan and then like everybody else that had loans against tax credits we were in the same position. We all had to get in line and wait for the credits to be paid,” Hoffbeck said, noting the loan continued to accrue 7 percent interest while it went unpaid. According to an April 6 report regarding the loan from newly appointed Deputy Revenue Commissioner Mike Barnhill to the Legislative Budget and Audit Committee, $19.7 million remained to be repaid as of last spring. A $1.6 million interest payment was made on Feb. 2. Hoffbeck said discussions before the loan was made were primarily between Revenue officials and Brooks Range representatives; AIDEA officials were kept “in the loop,” he said. Hoffbeck remembers a suggestion to make the loan coming from Walker’s then-chief of staff Jim Whitaker, but said he wasn’t sure if the governor was involved in those discussions. Whitaker said he remembers Hoffbeck initially balking at the idea because it had never been done before and the commissioner said he would have to evaluate it against the department’s investment criteria. The Department of Revenue continually invests state money, including that in state savings accounts, which are invested conservatively in things that can be liquidated quickly for cash management purposes. “Understand the Department of Revenue has a significant investment portfolio. Most of that portfolio, if not all of it, is invested outside of Alaska and when we put all of that in context there was a question raised: ‘Given the situation we’re in shouldn’t we take a look at (the loan)?’” Whitaker said. “That decision was made within the context of investments coming out of the Department of Revenue.” There were a number of “brainstorming sessions” among folks within the administration on various ways to see the state through the severe financial situation Alaska was suddenly facing, Whitaker said, adding that he didn’t remember who first spawned the idea for the loan to MOC1. In fact, he was surprised a couple months later when he heard the loan had been made given Hoffbeck’s initial response. AIDEA board briefed AIDEA board of directors chairman Dana Pruhs said someone on the board at some point in late 2015 or early 2016 asked about the status of the deal with Brooks Range given Walker had vetoed part of the tax credit payments, which was generally a popular topic in Alaska business circles at the time. It was around then that the board was made aware of the loan to MOC1, according to Pruhs. To his knowledge, the loan concept did not come from anyone at the authority; he surmised it originated from within Revenue or Brooks Range. “We didn’t really dive into who, what, when there. We just thought it was a matter of course,” Pruhs said in an interview. “They made a loan against their own tax credits — ok, next.” Others said they were informed of the loan earlier in 2018. The April report from Revenue’s Barnhill includes 2015 loan documents signed by now-retired AIDEA project manager Jim Hemsath and Brooks Range representatives as directors of MOC1 LLC. Whitaker did stress that AIDEA leaders did not come up with the plan and were generally ambivalent to the idea when it was brought up to them. “AIDEA didn’t come knocking on the door and say, ‘hey, we’ve got exposure. We’d essentially like to provide a bridge loan to these guys,’” he said. Walker said in an interview that he was generally aware of AIDEA’s partnership with Brooks Range made under Gov. Sean Parnell’s administration, but he was not at all focused on the specifics of the issue. The loan was not made because of a directive from his office, Walker said. In hindsight, Whitaker said the loan was still a “pretty safe bet” in that the state was collateralizing itself with tax credits that will eventually be repaid. The Walker administration’s plan to sell bonds to pay for the more than $800 million in outstanding tax credits — championed by current Revenue Commissioner Sheldon Fisher — is being challenged in state Superior Court on constitutionality grounds. Revenue audit The loan largely flew under the radar until late May when Legislative Budget and Audit Committee chair Sen. Bert Stedman requested an audit of Revenue’s Tax Credit Loan Program. Stedman wrote in a May 28 memo to fellow committee members that he wanted an audit of Revenue “in response to recent allegations and concerns that the DOR is not managing or investing funds from the GeFONSI (General Fund and Other Non-segregated Investments) Pool in compliance with state statutes, regulations, DOR policies and procedures.” Specifically, Stedman asked for auditors to evaluate whether the loan was accurately reported for the state’s financial statements; how broadly the program was used and whether or not loans were offered to other credit holders; whether any conflicts of interest existed amongst state personnel; and how it might relate to the Legislature’s appropriation authority. A committee staffer said Stedman couldn’t comment on the matter because the audit is ongoing. Records provided to the Journal by Revenue officials indicate the loan was reported in the state's accounting system. A version of the Treasury Division’s Investment Policies and Procedures dated Nov. 3, 2014, does not list tax credit-backed loans as approved GeFONSI Pool investments. However, an updated issuance of the exhaustive document dated Jan. 23, 2018, states that as of July 1, 2017, up to 2 percent of the GeFONSI Pool investments could be made in tax credit loans. Barnhill’s report says the policy change was made in July 2016. Hoffbeck said he didn’t remember signing off on the change in investment policy. “It was a straight up deal, one of those that didn’t play out quite the way we intended but it was certainly something that made sense at the time,” he said. Barnhill’s report also states that Revenue asked the AIDEA board to assume the $19.7 million outstanding debt and that the authority had asked for further forbearance as it sought to sell MOC1 to Brooks Range. On Sept. 19, AIDEA did just that. The authority board unanimously approved a deal to sell MOC1 and the similar Mustang Road LLC to Brooks Range’s parent company, Caracol Petroleum for $64 million in the form of a seller-financed loan with 8 percent interest. The loan is scheduled to mature April 1, 2026, and quarterly payments are set to commence May 1, 2019, which would be about the time Brooks Range now expects to start oil production at Mustang. Division of Oil and Gas Deputy Director Jim Beckham approved Brooks Range’s 2019 plan of development — the sixth for the project — Oct. 31. Division officials have approved the company’s plans for the Southern Miluveach Unit in recent years while also expressing concern that the company has consistently missed promised timelines in developing the Mustang project. Beckham wrote that the company “has been on notice since well before its fifth POD was approved that regulation requires that ‘operations are being conducted.’ This means BRPC must conduct operations on a continual, sustained basis.” The company currently expects to start production in the first or second quarter of 2019 from a modular “early production facility” with capacity to handle up to about 6,000 barrels of oil per day. Subsequent drilling development drilling could occur later this year, according to the company’s filings with the state. Brooks Range’s Armfield was unavailable for comment on the company’s progress in time for this story. Pruhs said he feels the investment environment surrounding oil and gas projects has improved and the oil is still there for the taking. “I’m confident in the prospect and I’m confident that at the end of the day it’s best for the state, for the taxes they’ll collect and the revenues off the field once it’s in production,” he said. “From an AIDEA perspective, we’re investing in the state and I think that’s a good thing.” Whitaker said he’s comfortable with the loan and suggested Stedman should’ve discussed the situation with administration officials before requesting the audit. “I have no concerns about it now or then,” Whitaker emphasized. "Hells bells, when you’ve got that kind of a (deficit) problem and you’re not looking for a solution — that’s indicative of a much larger problem and had Sen. Stedman come to me or anyone else we’d have said, ‘here, this is what we’re doing; this is why we’re doing it. Do you have a better idea?’” Elwood Brehmer can be reached at [email protected]

Nanushuk discoveries prompt Interior to reopen NPR-A plan

Interior Department leaders in President Donald Trump’s administration are aiming to boost oil and gas activity over a 22 million-acre swath of the North Slope by rolling back some of the leasing restrictions put in place by their predecessors. Assistant Interior Secretary Joe Balash said in a Nov. 19 call with reporters that Interior will soon begin evaluating where the 2013 Integrated Activity Plan for the National Petroleum Reserve-Alaska can be revised. The Bureau of Land Management was scheduled to start a 45-day scoping period Nov. 20 to seek input on what should be considered in drafting the environmental impact statement, or EIS, that will drive the work. Balash indicated that the emergence of the Nanushuk geologic formation since the last plan was written — the primary source for two discoveries with the potential to produce upward of 100,000 barrels per day each — as well as advances in drilling technology make it an appropriate time to rewrite the federal land-use plan. One of those discoveries, ConocoPhillips’ Willow prospect, is in the eastern part of the NPR-A. BLM is in the early stages of an EIS for the $4 billion to $6 billion Willow project. Balash said rewriting the NPR-A Integrated Activity Plan should take about a year or a little longer. “We’ll let the information that comes in and the comments we get from our stakeholders and cooperators help guide our decisions but we’re pretty excited about this,” he said. The most prospective Nanushuk area, according to the U.S. Geological Survey, is in the northeast portion of the NPR-A around Teshekpuk Lake that was made off-limits to oil and gas leasing in the 2013 plan. Last December the USGS dramatically increased its mean recoverable oil estimate for the reserve to nearly 8.7 billion barrels. Conservation groups urged caution when ConocoPhillips submitted its Willow plan to BLM, stressing the importance of the nearby Teshekpuk Lake area as waterfowl and caribou habitat and subsistence harvest areas. Audubon Alaska Policy Director Susan Culliney said in response to the land-use revisions that the current plan already allows for development in some areas while protecting others, such as Teshekpuk Lake. "Despite it's industrial name, wildlife abound in the NPR-A," Culliney said in a formal statement. "We have significant data that shows how important this area is for molting geese, half a million shorebirds, all for speicies of eider, tens of thousands of caribous, and denning polar bears. Any new plan must protect this vital habitat." Balash said Interior acknowledges that tension. “Geologists believe that the area is extremely prospective. Now, that said, the lake is also home to a tremendous collection of waterfowl that migrate through there,” he said, adding that he’s fortunate to be quite familiar with the communities and the terrain. “It’s one of the key sensitivities that we’ll be working to identify in the plan and any associated stipulations that might attract.” Balash, a former Alaska Department of Natural Resources Commissioner, cited a Nov. 2 letter sent to him by current DNR Commissioner Andy Mack and North Slope Borough Mayor Harry Brower in which they asked him to consider the state’s and borough’s desires to develop a North Slope road network and possibly gas utility infrastructure but with considerations for subsistence activities. The North Slope Borough is a major financial benefactor of oil development in the NPR-A as the local government, by federal law, is eligible to use up to half of the federal royalty revenue from oil production in the NPR-A for capital grant projects. BLM is offering 254 tracts covering roughly 2.8 million acres in its annual NPR-A lease sale. Balash said heightened interest from industry is expected given excitement surrounding the Nanushuk prospects and improved oil prices. This year, the agency offered only the tracts industry suggested, he said. The bids will be opened Dec. 12.   Elwood Brehmer can be reached at [email protected]

State nets $28.1 million in Slope, Beaufort Sea lease sales

Exploration interest remained high in the state’s North Slope and Beaufort Sea annual lease sales held Thursday morning, which netted $28.1 million for the state treasury. Winning bids for the North Slope portion of the sale totaled about $27.3 million, the third highest amount since 1998, according to Division of Oil and Gas Director Chantal Walsh. Successful bidders spent about $848,000 for near shore Beaufort Sea leases, which is in line with historical averages, Walsh said. The state received bids on 133 tracts covering 223,680 onshore North Slope acres and eight Beaufort Sea tracts totaling 20,270 acres garnered bids, according to division officials. “We have a lot to be happy about — a very good lease sale,” Walsh said. A new player to Alaska, Lagniappe Alaska LLC, dominated the sealed-bid sale by winning rights to 120 leases over a large area south of Deadhorse along the Dalton Highway. State officials present at the sale knew little about Lagniappe and audience members speculated amongst themselves how to spell it (pronounced lan-yap) as the bids were read aloud. Lagniappe Alaska LLC was formed in the state on Nov. 7 and is based in Lafayette, Louisiana, according to filings with the state Division of Corporations, Business and Professional Licensing. No one came forward when Deputy Oil and Gas Director Jim Beckham asked if a Lagniappe representative was present at the bid opening. “We appreciate our new player,” Walsh said. Overall, Lagniappe spent $14.1 million to secure rights to 195,200 acres of state land, according to a division report of the North Slope sale. Not to be outdone, Spanish major Repsol, which along with Armstrong Energy discovered the large Pikka prospect, spent between $175 and $586 per acre on the few remaining available leases just to the south and east of the Pikka Unit. “Repsol is definitely here to play,” Walsh commented. Repsol committed just more than $13 million for 12 leases covering 26,560 acres, according to the lease sale summary. Caracol Petroleum and ASRC Exploration also bid on several of the dozen leases Repsol won. Australian-based Oil Search, which recently took over as operator of the Pikka Unit and is advancing the Nanushuk project, won several Beaufort Sea leases just offshore from Pikka. "The interest in unexplored areas and in the Nanushuk formation are both positive trends for the state," DNR Commissioner Andy Mack said in a formal statement. The one minor disappointment for state officials was a lack of interest in the three Special Alaska Lease Sale Areas, or SALSAs, the Division of Oil and Gas put up for bid for the first time. Despite coming with publicly available geologic data, the SALSAs — each covering multiple lease tracts — garnered no bids. Walsh said she is still happy the division took the time to compile and advertise the areas as it directed more traffic to the division’s website than ever before and gave officials insight into how to better direct interested parties to publicly available oil and gas geologic and well data. She added the concept of selling multiple leases in blocks is something the state will continue to evaluate but it’s too soon to tell if the current SALSAs will be put up for bid again in their current form. The Bureau of Land Management’s annual lease sale for the National Petroleum Reserve-Alaska is scheduled for Dec. 12 and will cover 2.8 million acres, according to a BLM release. Additionally, the Bureau of Ocean Energy Management issued a notice of intent Nov. 15 laying out the agency's plans to draft an environmental impact statement ahead of a potential lease sale for federal outer continental shelf, or OCS, areas of the Beaufort Sea in late 2019. However, BOEM Alaska spokesman John Callahan noted that starting the EIS process does not assure a lease sale will be held as there are still numerous reasons the Interior Department could cancel the plan. The agency is taking public comment on the Beaufort OCS leasing proposal through Dec. 17. In late 2016 President Barack Obama's administration withdrew 115 million federally-controlled acres of Arctic OCS waters from leasing over concerns about the impacts oil and gas activity could have on the area's senstive ecosystem. President Donald Trump, in April 2017, issued an executive order to modify the language of the Obama administration's actions and deleted references to the Arctic OCS withdrawals. A coalition of environmental groups, led by Earthjustice, subsequently sued the Trump administration in federal Alaska District Court alleging the president exceeded his authority in his April 2017 order. A ruling on the case is pending and could prevent a 2019 Beaufort OCS sale. Editor's note: The original version of this story listed the net proceeds at $28.9 million, with $28.1 million of that from the North Slope portion. The headline and story have been updated to reflect the correct totals of $28.1 million total and $27.3 million from the Slope portion. Elwood Brehmer can be reached at [email protected]

Dunleavy calls on former Oil and Gas lead Feige for DNR commish

Gov.-elect Mike Dunleavy has made former state Division of Oil and Gas Director Corri Feige his pick for Department of Natural Resources commissioner Wednesday afternoon. He announced the decision Wednesday afternoon during a brief speech at the Resource Development Council for Alaska’s annual conference in Anchorage. Dunleavy called DNR one of the most important agencies in the State of Alaska and said Feige is “the perfect choice to lead it, especially given our shared vision to revitalize our natural resource sector,” in a formal statement. “She has a proven track record,” he said when talking with reporters. Her experience and her knowledge is phenomenal.” Feige led the Division of Oil and Gas within DNR for a little more than a year under outgoing Gov. Bill Walker. She resigned abruptly shortly after Walker’s administration settled a months-long stalemate with BP over the information the company would provide state officials regarding its plans to prepare the Prudhoe Bay field for a potential gasline project. For her part, Feige said Wednesday that “maximizing our resources and getting the state’s economy back on track” will be a primary objective for DNR under her leadership. “When our resource partners are doing well Alaska is doing well,” she added. As DNR commissioner, Feige will oversee the roughly 103 million acres of state-owned land as well as the energy, mineral and timber resources that are owned by the state. Dunleavy has hinted at a plan he's said will be unveiled soon to transfer more state acres into private ownership as a way to spur development. Most recently, Feige worked as president of The Castle Mountain Group Inc., an Alaska-based oil and gas consulting firm. Feige is a geophysicist and engineer by training and has held numerous other oil and gas related positions in Alaska government and the private sector. Her appointment is subject to confirmation by the Legislature, but Feige is generally well respected by individuals familiar with her work in state government. Last week Dunleavy announced former Gov. Sean Parnell would advise him on the $43 billion Alaska LNG Project during the administration transition. Dunleavy also said Wednesday that he has asked the Walker administration to "freeze" the implementation of new regulations until his team has a chance to review them. “Our goal is to pause any new regulations before our team has had the opportunity to assess whether they are needed or will hurt the economy,” he said.   Elwood Brehmer can be reached at [email protected]

Gasline board approves formation of holding companies

Alaska Gasline Development Corp. leaders have approved the formation of a subsidiary firm to manage funding for the $43 billion Alaska LNG Project as they look towards what will be a critical year for the massive natural gas export plan. Unanimously approved by the AGDC board of directors at its Nov. 8 meeting, 8-Star Alaska LLC provides the state-owned parent corporation with a place to hold equity investments in the project while maintaining the benefits of the federal tax-exempt status as a government entity, according to AGDC President Keith Meyer. 8-Star is where equity contributions from general third-party investment companies, groups or individual Alaskans would be placed, while strategic investors with experience in the LNG realm or technical expertise would put their money into another tax pass-through. That second company, Alaska LNG LLC, would build, own and operate the gas pipeline and liquefaction system, Meyer said. AGDC would have to transfer project authorizations, permits and data to Alaska LNG or enter into use agreements that would allow the operations subsidiary access to what it needs to do its work. “This is all part of getting ready for the equity road shows and equity offering that we’ll really put in high gear next year,” he said at the meeting. He stressed that the tiered companies are necessary because AGDC won’t sell shares in itself; it will remain completely state-owned. As the Alaska LNG Project funding is currently envisioned, 75 percent of the estimated $43 billion construction cost, which includes $9 billion in contingencies, would be debt-financed through the Bank of China in exchange for selling Chinese oil and gas giant Sinopec Corp. rights to three-quarters of the project’s 20 million tons per year of LNG production capacity. The remaining roughly $11 billion would be raised through equity investments going to 8-Star and Alaska LNG LLC. “This nested structure does give us a little bit of a leverage advantage in that because of the way this is contemplated 8-Star would own a controlling interest in the project — 51 percent let’s say — by providing 51 percent of the $11 billion. But then we, AGDC, could have a controlling interesting in 8-Star, which could be a little more than half of 8-Star,” Meyer described. “So, if you do that math you could actually control the project company for about $3 billion.” The name 8-Star references the eight gold stars on the Alaska flag, but Meyer also noted that Article 8 is the portion of the Alaska Constitution that places the state’s natural resource wealth in public ownership and the number eight is considered lucky in some Asian cultures — and places AGDC hopes to sell into. In concurrence with setting itself up to move into the financing and contracting stage of developing the Alaska LNG Project, AGDC is in the process of finalizing the commercial agreements that will underpin the project financing. “We’ve now got the banks fully engaged. We’ve got Goldman Sachs fully engaged on the equity side; so now it’s shepherding a lot of paperwork and we want to start to get into what I call preconstruction activities,” Meyer said, adding that corporation officials need to start making decisions regarding where they will get the 800 miles of 42-inch steel pipe and placing other orders with material manufacturers in the near future. In March, AGDC contracted with Goldman Sachs to assist in soliciting equity investments in the project. The nationalized Bank of China is leading the debt roundup. On the commercial side, Meyer said President Donald Trump’s trade dispute with China has not slowed down negotiations with Sinopec, although China’s 10 percent tariff on U.S. LNG imports still applies for now. A team of negotiators from Sinopec and Bank of China traveled to Anchorage in late October, and experts from Sinopec also met with BP and ExxonMobil officials for confidential, technical briefings on the Prudhoe Bay and Point Thomson field gas resources that the companies operate and would feed the Alaska LNG Project, according to Meyer. The two companies have signed preliminary gas sales agreements with AGDC. “That gave them a pretty good check in the box that, ‘ok, the resource is actually there.’ Up until that point we’d been providing them studies but they really wanted to look at the underlying data,” he said. Additionally, a delegation from Vietnam including the country’s vice minister of industry and trade and PetroVietnam Gas CEO Duong Manh Son was in Anchorage Oct. 22 to further LNG supply talks between the government-owned corporations. PetroVietnam Gas is one of several potential smaller LNG customers that could augment sales to Sinopec as an anchor customer. Meyer said PetroVietnam Gas would likely start as a 1 million tons per year LNG customer with the opportunity to increase sales as the country grows its textile and manufacturing sectors. Parnell to review project for Dunleavy Meyer has long acknowledged that AGDC’s schedule to have the Alaska LNG Project in service by as early as 2024 is aggressive, but he said Nov. 8 that now-tightening global LNG markets mean Alaska needs to continue moving quickly to keep up with the competition. “Acceleration is sort of the word I’ve picked for 2019,” he said. Ever-growing demand from China for LNG has pushed the expected global market equilibrium point from about 2025 closer to 2022, according to Meyer. That has pushed potential sellers in other countries to advance their projects while taking shots at U.S. competitors. In early October, a Shell-led consortium formally approved LNG Canada, a $40 billion, 14 million tons per year export project ending in Kitimat, British Columbia, just south of Alaska. The future of that long-discussed project had been up in the air previously. “Canada pulled out all the stops. They dropped the tariffs; they’ve given tax breaks and then just two weeks ago the head of that project, LNG Canada, in Japan slammed the U.S. supply. Because of the trade war they’ve sort of said, ‘Look, the U.S. is not going to be a big contender but don’t worry there’s Canada,’” Meyer said to highlight the global LNG picture. He also said that Russian officials have specifically targeted Alaska LNG as a casualty of the trade issues between the U.S. and China in state-run news reports to promote their own LNG projects. “We’ve got some pretty good competition out there globally,” Meyer added. Finally, he emphasized that state leaders need to be unified behind advancing the Alaska LNG Project to maintain the momentum the project has now. Gov.-elect Mike Dunleavy, a Republican, and many Republicans in the Legislature — who may take back control of the House pending the final outcome the Fairbanks District 1 race — have been highly skeptical of Gov. Bill Walker’s state-led plan for the project. “I’m hoping that under the new leadership and under the changes in the Legislature that government and AGDC are working in great harmony. I’ve sort of said to the AGDC people here that there’s just a whole new level of alignment and harmony here that will help us focus on the fight out there and not the fight in here,” Meyer said. “The fight is with the Russians and the Canadians and the Qataris and a couple others I won’t mention but we’ve really got to be focused on that broader perspective.” Meyer said he does not think he needs to “sell” the project to Dunleavy’s incoming administration. “I’m hoping that our actions and results will sell the project on their own,” he said in an interview. Former Gov. Sean Parnell, who now practices business law at the national firm Holland and Hart, will advise Dunleavy on the gasline project during the transition of administrations. Parnell emphasized in a brief interview Nov. 13 that he is volunteering on Dunleavy’s transition team and is not part his administration. Parnell had not yet signed any agreements with AGDC to review confidential documents, he said, as he was in the early stages of the work. Under Parnell’s leadership in 2014 the state partnered with BP, ConocoPhillips and ExxonMobil to advance the Alaska LNG Project with the companies collectively owning a 75 percent equity stake in the venture and the state taking a minority role along with TransCanada, a pipeline company. The Legislature bought out TransCanada’s interest during a special session in 2015. Walker chose to put the state in the lead in early 2016 when the companies decided to slow the project as a result of depressed global energy markets at the time.

Donlin Gold notches wins in 2018, but still far from finish line

This has been a big year for those behind the Donlin Gold project. They received a favorable record of decision from the U.S. Army Corps of Engineers and the Bureau of Land Management Aug. 13 — a first-of-its-kind joint decision for the project’s environmental impact statement and right-of-way approval for a natural gas pipeline across federal lands. Later that month the Alaska Department of Fish and Game approved a slew of Title 16 permits for development activity in salmon habitat. Donlin Gold was also one of the primary players in the successful effort to defeat Ballot Measure 1, which would have greatly increased the state’s requirements for obtaining a Title 16 permit and would have seriously challenged development of the mine, especially under its current plan. However, there are still many unknowns surrounding the development and plenty left to do, according to Donlin Gold spokesman Kurt Parkan. A 50-50 joint venture between Canadian companies Barrick Gold Corp., the world’s largest gold producer, and NovaGold, Donlin Gold LLC has spent roughly $500 million exploring and permitting the open-pit gold project over nearly 25 years, Parkan told a gathering at the Alaska Miners Association conference Nov. 8. Still, that money is not factored into the $6.7 billion estimated construction cost calculated during a 2011 economic study of the project. Parkan said in an interview that the seven-year-old figure is what the company continues to work from; the focus now is on bringing it down. As a result, Donlin’s owners are resistant to putting a definitive timeline on the project, according to Parkan. And the price of gold plays a big role in that, too. It’s safe to say, however, that current prices of about $1,200 per ounce will not suffice. “They hesitate to really reveal what they feel is the trigger point because if we hit it that still may not be the time to pull the trigger,” he said while emphasizing the company is focused on the process of the project and letting extraneous factors settle themselves. “It’s not going anywhere. The price of gold is going to go up, it’s just a matter of when and how much,” Parkan added. “This project will be developed at some point.” As envisioned, Donlin would be one of the world’s largest open-pit gold mines, extracting about 33 million ounces of gold over an initial 27-year life.The company is open to partnerships to help build out much of its support infrastructure, which could help mitigate some of the high fixed costs the project faces, he said. “If somebody wants to finance the pipeline, we’ll buy the gas. If somebody wants to build the power plant, we’ll buy the power,” Parkan said. The 14-inch, 315-mile natural gas pipeline the company plans to build from Cook Inlet to provide feedstock for the 220-megawatt power plant at the Southwest Alaska mine site has been estimated to cost about $1 billion. Additionally, the project will require about 30 miles of new roads and two new ports. Parkan also noted that technical changes might need to be made to the current design in order to secure the remaining necessary permits, which could add cost as well. While Donlin has its federal Clean Water Act Section 404 wetlands permit, the BLM right-of-way and a special permit from the Pipeline and Hazardous Materials Safety Administration, it still needs state approvals that will take several more years to acquire. Parkan said Donlin is waiting on for rulings on its reclamation and closure plan and integrated waste management permit yet this year; the public comment periods for both are closed. In the coming years the company will look to get its pipeline right-of-way and other land authorizations from the State of Alaska as well as its water rights and dam safety permits. The tailings dam safety permit will require additional field seasons for geotechnical drilling, he said. All that work means the project is still a long ways from completion; the mine and associated infrastructure will take another three to four years to build whenever the last of the preconstruction work is wrapped up. Elwood Brehmer can be reached at [email protected]

Dunleavy declares Alaska open for business

At the top, at least, Alaska’s politics have shifted back to red. That, along with the resounding defeat of Ballot Measure 1, the salmon habitat initiative, was welcome news to many in the state’s resource industries. “With the defeat of Ballot Measure 1 and the election of Mike Dunleavy (for governor), Alaska is open for business again and we’re really excited about that,” Alaska Miners Association Executive Director Deantha Crockett said before introducing Dunleavy at the association’s annual convention in Anchorage. Dunleavy, who was under the weather in the days following the Nov. 6 election, repeatedly emphasized that sentiment in some of his first remarks since winning the state’s highest office. “Alaska is open for business. I’ll say it again; Alaska is open for business. It’s going to be my goal that when folks think about where they’re going to invest in the future that Alaska’s not a laughing stock, that Alaska’s not off the radar screen but Alaska’s a serious player in resource development in this country and in this world,” Dunleavy proclaimed to the Miners Nov. 8. He commented that Alaska was purchased for its resources and geopolitical location and he suspects both will come into play in the coming years. He stressed that processes will be adhered to and negative political influence will be left out of large project permitting as well— issues Pebble mine proponents have frequently raised, particularly after Gov. Bill Walker and his Natural Resources Commissioner Andy Mack declared they are against the project. “We can take care of the environment but we’re going to seize opportunity here in Alaska,” Dunleavy said. A group of House Republicans, who at the time believed they held a majority in the house, by the slimmest of margins, stressed some of Alaska’s consistent political battles wouldn’t be happening for at least two years. “We do not need to have conversations about oil taxes; we do not need to have conversations about other taxes,” said Rep. Lance Pruitt, R-Anchorage, who was named the presumptive Finance Committee co-chair if Republicans secure a majority. “It’s time to get back to how can we get out of the way and let the private sector grow the economy in Alaska. Changes one way or another to the state’s oil production tax have been a primary topic of nearly every legislative session since the mid-2000s. Alaska Support Industry Alliance CEO Rebecca Logan said beyond the big philosophical battles over taxes she would like to see the Dunleavy administration address general regulations and licensing requirements for all businesses, regardless of industry. As of this writing late Nov. 13 Democrat House District 1 candidate Kathryn Dodge had taken a 10-vote lead over Republican Bart LeBon. Dodge trailed him by 79 votes after Election Night. More absentee ballots would be counted throughout the rest of the week, according to the Division of Elections. The House Republicans were counting LeBon in their 21-member majority, so if Dodge’s new lead holds, legislators will be scheming ways to poach members of the other caucus. Rep. Tammie Wilson, R-North Pole, who was also tapped as a Finance Committee co-chair in waiting, said Republican Rep. Louise Stutes was invited to join the group in Anchorage but decided to remain in Kodiak. Stutes joined with a couple other Republicans to form a bipartisan majority with House Democrats in 2016. Additionally, Senate President Pete Kelly, R-Fairbanks, saw his 11-vote lead flip into a 152-vote deficit to Democrat challenger Rep. Scott Kawasaki. However, while that race would be a blow to Republican leadership in the Senate, they would still retain control of the chamber. House Republicans have expressed some support for Dunleavy’s principal campaign pledge to restore Permanent Fund dividends to the historic formula calculation and repay dividend amounts forgone the last three years to make what has been estimated could be a $6,700 dividend in 2019 if the Legislature goes along with his plan. Republican leaders in the Senate, on the other hand, pushed the 5.25 percent of market value, or POMV, draw through the Legislature last year with the support of Gov. Bill Walker. They have been more judicious in responding to Dunleavy’s proposals regarding the PFD. Sen. Cathy Giessel, R-Anchorage, said the Senate did not do a good job communicating with Alaskans about the need to use the earnings of the Permanent Fund for government and needs to continue to work on that. “We didn’t actually secure that social license,” Giessel said. “We are aligned with the governor on the goals of keeping our families healthy, keeping our businesses productive and increasing Alaska’s jobs.” She also said they are with the next governor in keeping “downward pressure on the (state) budget.” On other issues, Dunleavy said he plans to audit state agencies in an effort to find efficiencies. He said Medicaid programs would be reviewed to determine if the state can sustainably support them into the future. ^ Elwood Brehmer can be reached at [email protected]

Murkowski readies for divided Congress; favors bringing back earmarks

Sen. Lisa Murkowski is hopeful the recent progress that has been made restoring the federal budgeting process can be continued and believes the new Congress needs to reestablish its authority by restoring a practice that’s become bad word in Washington, D.C. “I am one who believes very, very strongly that with a divided landscape what we do is we don’t say ‘Nothing can be done.’ What we do is we look for the opportunities to unify around shared goals and opportunities for bipartisanship,” Murkowski said about working in a Congress that will have a Democrat-controlled House and a Republican-run Senate come January. “It’s not what we can’t do, but what we can do and what we will do.” Alaska’s senior U.S. senator discussed budgeting, health care, infrastructure and other issues Nov. 9 during an hour-long talk hosted by the Alaska policy think tank Commonwealth North. Murkowski has touted the work Congress has done this year to fund the federal government in fiscal year 2019, which started Oct. 1, through the normal process of passing 12 appropriations bills for the plethora of departments and agencies and not resorting to last-minute continuing resolutions and omnibus budget bills to avoid government shutdowns. She chairs the Senate Appropriations subcommittee covering the Interior Department, Environmental Protection Agency and the Forest Service. Budget bills require a 60-vote minimum before reaching the Senate floor, so passing them usually requires significant compromise. Congress had approved bills covering roughly 75 percent of 2019 discretionary spending before breaking for Election Day, according to Murkowski, who said most of the appropriations packages passed the Senate with broad bipartisan support. The remaining agencies are funded through Dec. 7. The key to restarting normal budgeting order, which had been mostly dead since about 2010, was getting rid of “poison-pill” riders — partisan policy mandates often attached to the appropriations bills — that can immediately kill otherwise popular legislation. For example, Murkowski in prior years routinely inserted language into her Interior, EPA and Forest Service budget bills requiring the Forest Service to stop its push to quickly end old-growth logging in the Tongass National Forest and exempt Alaska from the controversial Roadless Rule. Additionally, she said Congress needs to take another step back to move forward by bringing back the earmark. Officially banned by Republicans after they took over the House of Representatives in 2011 in the name of good governance, earmarks are one-off appropriations to specific projects or entities. The $223 million earmark in 2005 to build a bridge between Ketchikan and Gravina Island — the site of the city’s airport — is possibly the most infamous earmark in recent history. Known nationally as the “Bridge to Nowhere,” the appropriation was eventually stripped from an otherwise unrelated spending bill. Federal agency personnel have decided specific project spending since earmarks were cut. Murkowski said allowing earmarks is the only way Congress can truly reassert the power it has ceded to the executive branch to set the legislative spending priorities of the country, a fundamental role specifically laid out in the Constitution. “You’re going to hear me say the word. Think about it. We’re a pretty unique state here, but if we’re trying to compete in a formula (funding program) that is designed to measure how things look today, how are we ever going to move out on an Arctic port? Our job must be to invest in the future, to drive how things will be,” Murkowski said. “What we as Republicans did some years back was to say there’s way too much dark stuff that’s going on with appropriations so we need to get rid of earmarks. What we needed to do was what we were directing ourselves to do, which was to increase the transparency; have it be wide open to the world.” Health care, infrastructure On other major issues the new Congress will be faced with Murkowski is positive on the prospect of progress on some and lukewarm on others. With Democrats taking control of the House, she said health care debates should shrink to focus on smaller, less contentious points where common ground can be found, such as dealing with high prescription drug costs. “We’re going to be shifting from this pressure that we had of repealing the ACA to one where I believe we’re going to be focused on stabilizing the (insurance) markets in the individual plans,” Murkowski said. She suggested that legislation like, if not a reemergence of, the popular but unsuccessful bipartisan Murray-Alexander Senate bill proposed late last year could be a way to improve the country’s health insurance situation. The bill aimed to control rapidly rising premiums in individual insurance markets caused in part by small numbers of high-cost patients, and to increase competition among insurance providers. However, Murkowski said she is much more skeptical regarding the prospect of a large infrastructure funding plan, which has been floated nationally as an issue where bipartisan agreement could be reached over the next two years. “I want to talk about infrastructure, absolutely, but I’m also cognizant that we’ve got a deficit that we also have to address,” she said. Making major investments in the nation’s basic infrastructure was a primary part of President Donald Trump’s campaign message, but his $1.5 trillion infrastructure funding concept — with $200 billion in federal money matched with roughly $1.3 trillion in state and local spending — hasn’t gained much momentum. An increase in the gas tax, which hasn’t changed since 1993, has also been floated as a means to pay for projects but also faces significant opposition. Murkowski said she doesn’t think such a plan would do much for rural states without large populations or much existing infrastructure. “If you’re back east and you’ve got a lot of folks and you can put in toll roads that pay for themselves it works, it makes sense and you can do it,” Murkowski commented. “We can’t do that here. I don’t know anybody that’s willing to pay tolls that are steep enough to facilitate some of our smaller roads and smaller projects.” At least in the short-term, the best path for Alaska and other rural states is likely increasing investments in existing federal programs, she said. Federal highway and airport construction formula grant programs currently provide nearly $1 billion per year for Alaska projects dependent upon a small state match, but there are numerous other, smaller infrastructure development programs through other federal agencies such as Agriculture and Energy. The Alaska congressional delegation also continues to push for security and research infrastructure — particularly new icebreakers — with limited success, Murkowski acknowledged. She referred to icebreakers as a “floating northern border wall” and “polar security cutters,” adding that she’s “all about changing the name if it gets me what we’re looking for.” She said imparting the importance of developing a small fleet of icebreakers on Trump administration officials and others in Congress continues to be a challenge, as it has been under other recent administrations as well. The 2019 National Defense Authorization Act passed by Congress over the summer provides the Defense Department the authority to contract for up to six polar-class icebreakers. A contract for the first DOD-funded vessel is to be awarded sometime in 2019 with construction of the second starting in 2022 and the rest coming on a one-per-year schedule. However, actually paying for the vessels is still be subject to the annual appropriations process. The prospects of alternative financing or leasing icebreakers have been brought up more frequently of late. Currently, the country has an operable icebreaking fleet of one. Outside of direct appropriations for the vessels that federal studies have pegged to cost between $700 million and $1 billion each, there is a fear that paying for them through regular shipbuilding budgets would consume funds needed for other vessels, Sen. Dan Sullivan told the Journal earlier this year. “There are some out-of-the-box opportunities that we might be able to pursue that might help advance an icebreaking fleet in this country but we have to have the commitment to do it,” Murkowski stressed. “And if you don’t have leadership that believes this is an issue it’s pretty tough to get anybody to agree that this is where we need to spend our resources.” Finally, Murkowski, who chairs the Senate Energy and Natural Resources Committee, said she continues working on the energy policy overhaul she and ranking committee Democrat Sen. Maria Cantwell of Washington developed over several years. The omnibus energy bill seemed poised for final approval in December 2016 after passing both the House and Senate with bipartisan support, but House Republican leaders suddenly changed their demands in a conference committee and ultimately chose to leave the Capitol early for holiday celebrations rather than finish negotiations, a fuming Murkowski said at the time. ^ Elwood Brehmer can be reached at [email protected]

Sullivan: deregulation will be a relief to Alaska economy

U.S. Sen. Dan Sullivan continues his push to purvey positivity to Alaskans, which he says is largely a result of federal policy changes over the past two years. He acknowledged Alaska is still facing the challenges of a lingering recession— possibly coming out of it this year — crime and substance abuse during an Election Day speech at the Alaska Miners Association convention, but stressed there are positives on the horizon for the economy. “There’s a lot of things where I think, just around the corner, if we make good choices today, to be blunt and continue the trajectory on, I think we’re looking at the possibility of a real jobs and economic boom coming to our state,” Sullivan said. He contended the corporate tax cuts Congress passed last December have helped U.S. businesses be more competitive and make job-creating investments. A point he makes regularly, Sullivan noted the second and third quarter GDP growth of 4.2 percent and 3.5 percent, respectively, which he said simply didn’t occur after the Great Recession during the Obama administration. “What really made this country great was consistent 3.5, 4 percent, 5 percent, 6 percent GDP growth, which was normal — Democrat, Republican, doesn’t matter — that’s what we used to do for 200 years,” Sullivan stressed. The job creation that has driven national unemployment as low as it’s been in 50 years, according to Sullivan, at 3.7 percent in September should be headed to Alaska, he said. To the crowd of miners he specifically discussed his efforts and those of Congress in concert with the Trump administration to roll back environmental regulations that he says were often intended to stymie resource industries. Sullivan cited the repeal of the Army Corps of Engineers 2015 wetlands jurisdiction update known as the Waters of the U.S., or WOTUS, rule. Proponents argued it simply clarified what waters the Corps of Engineers and the Environmental Protection Agency have jurisdictional authority over. Republicans and some Democrats said it would have drastically increased the scope of the agencies’ authority and would have led to Clean Water Act permits for development and agriculture in many places they are currently aren’t required. The Republican majority in Congress has used the Congressional Review Act to block or rescind primarily environmental regulations from the Obama administration 16 times in the past two years, according to Sullivan. He recalled a phone conversation he had with President Donald Trump early in his presidency in which Sullivan outlined his Regulations Endanger Democracy, or RED Tape Act, legislation that would require federal agencies to repeal an old regulation each time another is promulgated. “(Trump) said, ‘You know, one in, one out, I’m actually more interested in one in, two out,’” Sullivan said of the call. “And if you actually look at what (the administration) has done, I think they’re actually around one in, nine out.” He highlighted that the administration has also incorporated portions of his Rebuild America Now Act — legislation to reform the landmark 1969 National Environmental Policy Act that established the comprehensive environmental impact statement review for large development projects — into its executive actions. His bill, which he said he will be pushing again in the next Congress, would put one agency in charge and place a “two-year shot clock” on NEPA project reviews, according to Sullivan. Deputy Interior Secretary David Bernhardt said during a trip to Alaska in March that he handed down a directive for Interior agency staff to limit EIS reviews to one-year. Partially as a result of that, BLM is expected to hold an oil and gas lease sale for the Arctic National Wildlife Refuge coastal plain sometime in 2019, Sullivan added. “This isn’t cutting corners; this isn’t trying to pollute the environment. This is just common sense,” he said. “All of these things are completely common sense. If you look at the things other industrialized democracies — Canada, Australia — do permitting mines. These are what they do; things we need to do.” In other forums Sullivan has been questioned Canadian environmental standards related to mining. He has urged British Columbia officials review the province’s environmental requirements for mines, particularly as they relate to active or potential mines in the several large salmon-bearing rivers that flow from the province and through Southeast Alaska. An issue that is starting gain bipartisan traction in Congress, according to Sullivan, is that of China’s dominance in the rare earth metals sector, and what can be done to reverse the trend. China is the primary producer of rare earth elements used in technological devices and by the Department of Defense in advanced weapons systems. “It just makes sense” to produce such critical minerals in the U.S., he said. The 2019 National Defense Authorization Act passed last summer includes provisions discouraging the Defense Department from purchasing products or devices containing rare earths sourced from a short list of countries including China. Finally, Sullivan said before votes were tallied that he does not usually comment on state policy initiatives, but emphasized how large of a threat he feels Ballot Measure 1, the anadromous fish habitat initiative is to development in Alaska. “We have challenges, but I am so optimistic about the future, assuming that Ballot Measure 1 gets defeated today,” he said. The measure was defeated soundly by a nearly 2-1 margin. Elwood Brehmer can be reached at [email protected]

Mining exploration on the rebound at new, old prospects

A recent resurgence in oil exploration in Alaska has been a topic of much discussion for the potential revenue it could eventually generate for state coffers, but there is ample exploration activity in the state’s mining sector as well. At existing mines, Teck Resources Ltd., which operates the Red Dog zinc mine near Kotzebue in Northwest Alaska, has been exploring the Aktigiruq prospect about seven miles north of the mine facilities. Teck CEO Don Lindsay has said it could end up being “one of the best undeveloped zinc deposits in the world” if initial drilling results are proven up. Red Dog is already one of the largest zinc-producing mines on Earth. Earlier this year Kinross Gold Corp. announced it would start work on a $100 million expansion to the Fort Knox gold mine just northeast of Fairbanks that is expected to keep the mine open for another 10 years through 2030. The Gilmore project, as it is known, could yield up to another 1.5 million ounces of gold for the open-pit mine that opened in 1996, according to a feasibility study Kinross conducted on the prospect. Production from Gilmore could start in early 2020, the company estimates. Geologist Bonnie Broman told a gathering at the Alaska Miners Association in Anchorage Nov. 6 that the newly formed private Alaska exploration firm Valhalla Metals Inc. has acquired 230 mining claims covering 36,000 acres in the Ambler mining district farther north of Fairbanks and west of the Dalton Highway. Valhalla’s claims include the Sun copper and zinc prospect that the company plans to advance in the coming years. The easternmost deposit in the Ambler district, the Sun prospect was first discovered in 1974 by Sunshine Mining Co. and has changed hands frequently since. Valhalla is the 10th company to control the claims since Sunshine made the initial discovery, according to Broman. The Sun prospect was regularly drilled in the years immediately following its discovery, but the work mostly stopped in the 1980s and 1990s following the passage of the Alaska National Interest Lands Conservation Act in 1980, as did much of the mining exploration activity going on in the state at the time, Broman said. The area was most recently explored from 2007-12 by Canadian Andover Mining Corp., which went bankrupt in 2014. Overall, more than 19,100 meters of drilling has been done at Sun since it was first discovered. “This area has had quite a bit of work done to-date. There’s quite a lot of known prospectivity in the region,” Broman said. The Sun deposit sits east of the Arctic and Bornite multi-metal prospects currently being advanced by Trilogy Metals. Trilogy plans to begin permitting Arctic early next year but development of the remote Ambler prospects is dependent upon construction of the roughly 211-mile Ambler industrial access road. The Alaska Industrial Development and Export Authority is leading development of the industrial road to access the mining district. The Bureau of Land Management is in the midst of writing an environmental impact statement for the road and the first draft of that document is expected in March 2019, with a final EIS following late next year, based on the current schedule. AIDEA officials believe the access the road would provide could spark further exploration activity in the region, as well. Specifically to Sun, Broman said mineralization has been intersected over a 3.5 kilometer strike. So far it’s estimated the deposit holds 10.7 million metric tonnes of indicated and inferred resources of 4.2 percent zinc, 1.5 percent copper and 1.4 percent lead. It also has prospectivity for silver and small amounts of gold, she added. Broman said unlike the Arctic and Bornite prospects, Sun would likely be an underground mine and it’s not uncommon for mineralization in similar sulfide deposits to continue to depths of 1,000 meters. “There is potential to add resources at Sun by drilling the down dip portion,” she said, as it has not been explored at depth. Valhalla expects to continue exploration drilling at Sun in the coming years and will also be looking for new deposits elsewhere in its claims area, she said. Icy Cape progress Along Alaska’s south coast the Alaska Mental Health Trust Land Office continues to advance its unique heavy industrial minerals prospect in the beach sediments of Icy Cape. About 75 miles northwest of Yakutat, the roughly 30-mile long, 50,000-acre Mental Health Trust property is approximately half covered by sediments containing heavy industrial minerals, according to Trust Land Office Minerals and Energy Chief Karsten Eden. The Trust Land Office manages roughly 1 million acres of land across Alaska for real estate and resource development purposes, the proceeds of which go to fund the Alaska Mental Health Trust Authority’s work to benefit Alaskans with mental health and addiction challenges. “It’s a totally different kind of geology and it’s a totally different kind of exploration, but it’s exciting,” Eden said during a presentation at the AMA convention Nov. 6. The eastern portion of the large property contains sediments from the glaciers of Icy Bay, while the river deposits on the coastal plain influence the area to the west. All of the sediments contain heavy minerals, according to Eden. The heavy minerals are often used in industrial applications in which hard, abrasive materials are required, such as sandpaper and sandblasting. The sediments also contain ilmenite, which is highly magnetic and is a common industrial mineral often used as white pigment feedstock in paints and plastics, he said. The Trust Land Office has been investigating the prospect for four years; drilling started in 2017 and continued last summer. During the 2018 work season the TLO spent roughly $3 million, had a crew of 24 working at the Icy Cape camp and built a 60-foot by 40-foot sample processing facility — a shed — to further evaluate the drilling samples. Eden said the office has had to use sonic drilling to bore through the sediments. “The drilling conditions are really challenging. Those are abrasive sands,” he commented. The multiple sources mean the sediments are separated into two distinct layers, which provide different mineral grain sizes, an important benefit to the project, according to Eden. “Particle size is very important because it has an impact on recovery,” he said. “Out there we have mineable and recoverable particle sizes including platinum group minerals. It’s a poly-mineralic and poly-metallic deposit. It’s very, very interesting. If developed, the Trust property would be the only source for some heavy minerals such as garnets on the West Coast, Land Office officials have said. There is currently a global shortage of garnets, another abrasive, as India, the world’s longtime primary supplier has stopped exporting mineral sands altogether in an effort to halt illegal private exports, Eden added. The Trust Land Office plans to continue exploring the area in the coming years, he said. Elwood Brehmer can be reached at [email protected]

Permanent Fund Corp. nets 2.13% return in first quarter

Alaska Permanent Fund Corp. managers encountered challenges in the first quarter of the 2019 fiscal year, generating a 2.13 percent return during the first period they are being relied upon to provide revenue for government services. The Permanent Fund ended the quarter Sept. 30 with a balance of more than $63.9 billion, according to Alaska Permanent Fund Corp. financial statements. CEO Angela Rodell said in a formal statement that the less-than-desirable quarterly return highlights the significance of having of a well-diversified investment portfolio and “meaningful allocations to private market assets.” “As the market becomes increasingly volatile, it is more important than ever to remember we invest with a 10-, 25-, 50-year or longer time horizon. Our APFC team continues to be focused on building real financial wealth and resources for the State of Alaska,” Rodell said. APFC leaders expect financial markets to remain volatile through the rest of the fiscal year, according to a corporation release. Fund investments generated $846 million in statutory net income, according to an APFC report, which is transferred to the fund’s Earnings Reserve Account and can be appropriated by the Alaska Legislature for inflation-proofing the fund principal, Permanent Fund Dividends or government expenses. The Permanent Fund’s $63.9 billion total balance was $931 million less than the nearly $64.9 billion at the start of the quarter despite the net income growth largely because — for the first time — money was appropriated from the Earnings Reserve Account to help fund state government operations. The Legislature approved a 5.25 percent of market value, or POMV, draw from the fund in May; however, it was for the fiscal year 2019 state budget and not actually made until after the new budget cycle began on July 1. About $1 billion of the roughly $2.7 billion POMV draw went to pay annual PFDs, which were distributed in October, and the remaining $1.7 billion will help fund government services. According to the APFC, about $1.4 billion of the overall draw was distributed prior to Sept. 30 and the remaining $1.3 billion will be transferred to the General Fund over the rest of fiscal 2019. The Earnings Reserve Account held approximately $17 billion as of Sept. 30. The 2.13 percent quarterly return was down from a full-year 2018 investment return of 10.74 percent, which netted $5.1 billion of growth in the Permanent Fund. Still, the relatively slow start to 2019 for fund managers was better than a comparable 2.06 percent passive index benchmark return during the quarter. Over the past five years the APFC Board of Trustees has set a strategic return objective of 6.52 percent, which managers have bested with a five-year return average of 8.32 percent. The fund’s $3.9 billion real estate portfolio was the lone asset class to return negative results with a negative 2.28 percent return during the first quarter. APFC managers achieved a 6.99 percent return on real estate investments in 2018. APFC spokeswoman Paulyn Swanson said via email that real estate valuations, done quarterly, “caused the slight decline on the quarter, but that the investment team expects future quarterly valuations to reverse this decline because the underlying property fundamentals are strong.” Public equities, or stocks, which comprise roughly 40 percent of the fund’s investments, earned a 3.18 percent return for the quarter. Stocks that performed better during the period are “viewed as relatively expensive by the fund’s active and quasi-passive managers and are under owned in the public equities allocation,” an APFC release states. On the flipside, the fund’s $4.7 billion private equity portfolio performed the best of all of its asset classes during the quarter with a 6.38 percent return. Elwood Brehmer can be reached at [email protected]

Alaska Air Group ready for results from Virgin acquisition

Alaska Air Group Inc. had a solid third quarter netting $217 million, but company executives said during an Oct. 25 earnings call that they are not satisfied with the results. CEO Brad Tilden said the company has completed about 90 percent of its work to integrate Virgin America into Alaska Airlines since it closed on the purchase of the West Coast competitor nearly two years ago and has done so as fast as any other merger in the industry. Air Group leaders are now ready for that work to start paying off in the form of higher revenue and profit margins. “The performance of our core business remains strong and our brand and products are gaining increasing traction in California,” Tilden said. Seattle-based Alaska Air Group is the parent company to Alaska Airlines and regional carrier Horizon Air. The $217 million profit was down from $259 million for the same period in 2017. It translated into earnings of $1.75 per share. Air Group paid a dividend of 32 cents per share during the quarter and has repurchased about 582,000 shares of common stock for $37 million so far in 2018. Air Group stock opened trading Oct. 31 at $63.16 per share. The $217 million came on the back of $2.2 billion in operating revenue, which was up 5 percent year-over-year on 4.8 percent capacity growth. That equated to flat per-unit revenue for the quarter, the best result in five quarters for the metric that had been trending in the wrong direction, according to Chief Commercial Officer Andrew Harrison. “This is only the beginning, and we expect our unit revenue momentum to continue as we execute on a number of substantive initiatives to ensure our recent trajectory continues into the fourth quarter and beyond,” Harrison commented during the Oct. 25 call. The company expects to capture $130 million in synergies next year as Virgin America aircraft and employees are fully blended into Alaska operations, Tilden said. Flight attendants are being trained to work on both Alaska’s fleet of Boeing 737s and the fleet of former Virgin America Airbus A320 series aircraft that Alaska now operates; he said they would start working in both types of aircraft next February. Harrison added that Alaska is working through IT issues for paid upgrades on Airbus flights and will be reconfiguring the Airbus cabins to increase first class capacity by 50 percent. “We expect to see significant revenue increases from the front cabin in 2019,” Harrison said. And while Alaska Airlines’ popular Club 49 loyalty program mostly insulates Alaskans from baggage fees, the airline recently announced its fees for non-mileage plan members would go up $5 to $30 for the first checked bag and $15 to $40 for the second bag, bringing them in line with fees charged by other major carriers, according to Tilden. Additionally, Tilden said the company would begin what he called “the difficult but we believe necessary step” of cutting some management positions next year, but he did not elaborate as to which positions or how many employees would be let go. “This will save overhead but more importantly it will improve the speed of decision-making and the flow of information through our organization,” he said. Higher fuel costs have been a major contributor to the decreased margins, according to Tilden, who said the industry as a whole has not yet adjusted to them. Fuel can be upwards of one-third of an airlines’ overall operating expenses and despite significant hedging efforts, Air Group’s fuel costs were up 39 percent year-over-year to $513 million in the third quarter. In response, Air Group plans to slow its growth in 2019 and executives are comfortable with the company’s position in that regard, Tilden said. By the end of 2018 the company will have paid down $800 million, or roughly 40 percent of the debt it took on to acquire Virgin America, he added. Alaska Air Group had a debt-to-capitalization ratio of 49 percent at the end of the third quarter, compared to 59 percent when it bought the airline in December 2016. The company also held $1.4 billion in cash on Sept. 30. “We feel confident we’re on the road to producing better returns in the quarters ahead as we work together as a single team to demonstrate the true power of our combined company,” Tilden said. ^ Elwood Brehmer can be reached at [email protected]

Interior gas officials agree to explore Siemens’ plan

Utility officials have signed a one-year agreement with Siemens Government Technologies to further investigate the company’s plan to get more and cheaper natural gas to Interior Alaska. The Interior Gas Utility board of directors voted 4-2 on Oct. 23 to enter into a memorandum of understanding with Siemens. Company representatives have said for more than a year that they, leading a consortium, can put together an LNG supply chain that is competitive with the Interior Energy Project plan IGU and the Alaska Industrial Development and Export Authority have already agreed to. The Siemens team also contends its “turnkey” project would relieve IGU from much of the work it would have to do for the Interior Energy Project; all the utility leaders would have to do is sign a liquefaction services agreement, or LSA, and wait for the Alaska Railroad to deliver LNG to the utility’s storage tank in south Fairbanks. The agreement prohibits IGU from negotiating or soliciting potentially competing gas supply plans other than the Interior Energy Project plan IGU is currently developing. However, either party can terminate the MOU with 30 days notice. It also calls for Siemens and IGU to finalize an LNG supply contract term sheet by the end of the year and for Siemens to make a fixed-price LNG supply offer to the utility within five months of the term sheet being completed, which would be May on the current schedule. “It’s really just an agreement to collaborate; that was the way that I thought about it,” IGU attorney Robin Brena said before the vote. Siemens is working with the Knik Tribe and Knikatnu Inc. to put together its 20-year LNG supply chain from Southcentral. At the heart of the plan is a pair of Siemens’ modular “LNGo” gas liquefaction units that can produce up to 30,000 gallons of LNG per day. The plan is to initially install two LNGo units at a proposed industrial park on Knikatnu land near Alaska Railroad Corp. tracks in Houston. The fuel would travel by rail to IGU’s 5.25 million-gallon LNG storage tank currently under construction in south Fairbanks for regasification and distribution to residents and businesses. Once gas demand grew to where more than four of the LNGo units were needed, the company would look at installing a single, larger LNG facility, according to Siemens officials. Siemens Energy and Infrastructure Director Kelly Laurel and other Siemens officials have acknowledged that the company hopes to parlay work with IGU into more gas supply projects in the state, notably at Interior military bases. A crucial element of any Interior LNG plan, Laurel said Oct. 23 that Siemens has agreed upon terms with a Cook Inlet producer for feedstock natural gas. She would not name the producer, but said the company and potential gas contract terms could be disclosed to those doing due diligence to validate the LSA, but that would be done under confidentiality as well. Siemens has consistently stated a belief it can get feedstock gas for $5 per thousand cubic feet, or mcf, or less, which would be significantly cheaper than pricing much larger Southcentral utilities have been able to secure in recent years on much higher volume supply contracts. IGU currently has a short, three-year gas supply contract with Hilcorp Energy for $7.72 per mcf. AIDEA officials participated in negotiating that contract and generally consider it a win given it is for a small base load of roughly 1 billion cubic feet, or bcf, per year with expected, but unsure, demand growth once liquefaction capacity is added in some form. The Siemens-led group is also investigating the prospect of developing potential gas reserves in the Houston area, which would bring the feedstock price down to $4 per mcf, according to the company’s project documents. Gary Wilken, a former AIDEA director who was recently appointed to the IGU board, voted against signing the MOU on a belief it will unnecessarily drag out the Interior Energy Project that AIDEA and the Fairbanks utilities have been working on since 2013. “From the beginning this project has been dancing on the head of a pin,” Wilken commented during the meeting. “I’m very concerned that we are doing nothing but extending this project and creating continued uncertainty that will hurt us financially and it’ll hurt us with the very customers that we are trying to elicit support (from).” AIDEA and IGU have estimated their plan, with its state financing support, would result in an initial $17.30 per mcf burner tip price to consumers in 2020. That price could drop to the $15 per mcf IEP goal by 2022 more customers are brought online. Using IGU’s contract price, Siemens would get LNG to the Fairbanks storage tank for $17.98 per mcf, according to the company — plus $5 to get it all the way to customers. Wilken has long said he is open to alternatives — several of which AIDEA has evaluated — to the current plan of adding LNG capacity to the small Titan LNG plant that is now IGU’s, but he’s skeptical of the Siemens plan largely because of the company’s unwillingness or inability to provide firm pricing on key elements of the project. IGU vice chair Jack Wilbur joined Wilken in voting “no,” saying he doesn’t have any confidence Siemens will have a firm offer for the utility to consider by next May. Board chair Pamela Throop said the MOU is needed to finalize the details of the plan and without it the alternative plan would die now. “I’m happy to give them the time to do what they need to do to put together a proposal. I think we owe that to this community,” Throop said. IGU director Steve Haagenson said he was in favor of the MOU because IGU has ostensibly been bound to AIDEA’s LNG development plan for years and needs to be able to evolve with new information. As for the current plan, IGU General Manager Dan Britton said he expects the utility to have completed engineering and design on the Titan expansion plan by mid-May as well. The utility should have prices on project components at that point, according to Britton, but a final construction price will still need to be penciled out. Expanding the Titan plant to meet expected natural gas demand growth in the Fairbanks area is currently estimated to cost $46 million. Additionally, the AIDEA board of directors would have to approve of IGU formally contracting with Siemens or any other LNG provider because the Titan expansion plans were part of the $331 million package in which AIDEA sold Fairbanks Natural Gas to IGU and agreed to finance gas supply and distribution infrastructure build out with Interior Energy Project grants, loans and bonds the Legislature approved in 2013. ^ Elwood Brehmer can be reached at [email protected]

Unions, companies, labor officials mull worker shortage with major projects on horizon

How quickly things can change. Alaska, still inching its way out of a three-year recession that cost the state more than 10,000 jobs, could soon be a facing a labor shortage in some of its trademark industries, according to state workforce development officials. “We’ve got this sort of perfect storm of challenges where we have a downturn in our economy; we have an aging workforce, including oil and gas workers; we have stagnant wages in Alaska and there’s a boom going on in the Lower 48 pulling a lot of our workers (away),” state Department of Labor and Workforce Development Commissioner Heidi Drygas said in an interview. Most of the estimated 10,100 jobs the state has lost since 2015 were in the tightly connected construction and oil and industries, which together lost about 6,900 workers, according to state figures. At the same time, workers in those industries are at a premium in the Lower 48, where the shale oil boom continues and has helped spur a generally robust economy. Most oil companies in Alaska contracted some during the three-year price downturn and some delayed projects. Others, however, focused on exploration on the belief the price would eventually rebound. Armstrong Energy and Repsol combined to make the large Nanushuk formation oil discovery on the central North Slope, which ConocoPhillips has parlayed into multiple other prospects. The four recent discoveries made by those companies — two smaller prospects and the Nanushuk and Willow projects with potential for more than 100,000 barrels per day each — along with a couple other developments that have been in the works for years are expected to be the drivers of North Slope labor demand Drygas and others are concerned the Alaska workforce might not be able to meet. ConocoPhillips expects to need up to 700 construction workers per winter for its $1.5 billion Greater Mooses Tooth-2 oil project in the National Petroleum Reserve-Alaska from late 2019 through early 2021. Initial work laying gravel will begin at GMT-2 this winter. Hilcorp Energy also received federal regulatory approval Oct. 24 for its long-anticipated Liberty manmade island oil project, which will offer another 200 or more construction jobs per winter during the coming years. But those two are just the start. ConocoPhillips submitted a master development plan for its major Willow prospect in the NPR-A to the Bureau of Land Management last summer. While the company is still in the early planning stages on Willow, ConocoPhillips Alaska officials estimate it will generate “thousands of construction jobs” and hundreds of long-term operations positions once it is online — likely in the mid-2020s based on the company’s current schedule. The Nanushuk project, now led by Australian-based Oil Search after its acquisition of an operator stake in the Armstrong-Repsol discovery last fall, is expected to need a construction force of nearly 1,500 workers. Oil Search Alaska President Keiran Wulff said the company expects to make a final investment decision sometime in 2020. Additionally, Donlin Gold is slowly compiling the remaining permits it needs to build the world-scale open-pit gold mine it has planned in the Kuskokwim drainage. That project, with a 315-mile natural gas pipeline, two port developments, and a road to go along with all the on-site infrastructure, is expected to generate upwards of 3,000 construction positions. Finally, the far more controversial Pebble mine could add another 2,000 construction jobs to the state in the coming years if it is ever approved. Drygas said she is already hearing from some union hall leaders that they are starting to run out of skilled laborers. Doyon Associated President Warren Christian said Oct. 26 during the Labor Department’s Rising to the Challenge: Preparing Alaska’s Workforce forum that his pipeline development company was pretty much at full capacity last winter and already has at least as much work lined up on the North Slope for the next several years. Donlin spokesman Kurt Parkan and others who spoke at the event emphasized that finding workers with soft skills, such as the ability to pass a drug test and show up on time, can be the biggest obstacle to filling open jobs. Drygas said the state wants to encourage young people to look at careers in the trades, saying the “college for all” mantra espoused by many today is a “pervasive” problem in recruiting them. “We’re about to ramp up on some pretty significant projects in Alaska. We have all this work going on on the North Slope; we have a boom in military construction in the Interior and other Interior build out projects. We have an expansion of mining at Fort Knox and Kensington; Donlin Gold looks like it’s going to come online and they’re all happening at the same time,” she said. “It’s going to be challenging but it’s a pretty incredible opportunity too.” State economist Karinne Wiebold said strictly by the numbers, those jobs will be filled, but that could require recruiting Outside workers, something Drygas is constantly trying to avoid. Wiebold noted that Alaska’s construction sector has historically been comprised of upwards of 20 percent nonresident workers and in the oil and gas sector the figure rises to nearly 30 percent Outsiders. How many Alaskans left those industries to find similar work in the Lower 48 is largely an unknown and would be a very difficult figure to calculate, according to Wiebold. “It’s definite that some folks have left and it’s definite that some folks are still in Alaska but working in different industries,” she said. That forecast doesn’t even include the $43 billion Alaska LNG Project and the nearly 12,000 construction jobs it could add to the state. It’s largely understood that AK LNG would necessitate bringing in significant Outside labor help. State budget cuts have also contributed to the worry of a future worker shortage. Drygas said the Labor Department budget, which was one of the hardest hit in the Legislature’s effort to reduce the state’s multibillion-dollar deficits, was reduced 38 percent in the first couple years of Gov. Bill Walker’s administration. And many of those cut funds were meant for training programs, according to Drygas. She said those training programs, such as the Alaska Construction Academies, can be expanded on relatively short notice, adding that the University of Alaska has already cut tuition on its career and technical education, or CTE, courses by 25 percent in hopes of attracting more students. Fairbanks Central Labor Council President Doug Tansy said his union hall, part of the AFL-CIO, put all of its available laborers to work this year by April, largely due to the roughly $500 million worth of military construction projects being done at Interior installations. Tansy added, however, that about 60 of the union’s Alaska workers are on jobs in Seattle and Portland because they can simply make more money Outside which Drygas and Christian reiterated. They said wages for trade jobs are currently about 20 percent more in the Lower 48 than they are in Alaska. “Pretty much anyone who works in the Lower 48 in the pipeline industry has a job,” Christian said, and it’s expected to stay that way for at least another five years. Tansy said the 2008 global recession, which mostly missed Alaska, led to less CTE training down south and has now “created a wildfire of opportunity” in a rejuvenated economy. He sees the same scenario playing out in Alaska, just a few years later. A state capital budget plan — in addition to addressing deferred maintenance and basic infrastructure needs — could also spur Alaskans to return to the construction trades, Drygas stressed. “If there was an infusion of money for projects right now we can ramp up fairly quickly but what it’s going to take is everyone singing from the same sheet of music and that is we have to invest in this; we’ve got to invest in Alaska’s infrastructure and we’ve got to invest in training programs and training opportunities,” she added. Drygas reiterated that her message to the next governor’s administration would be to “invest in Alaska’s future” through a somewhat larger capital budget and workforce training programs. “We have to invest in young Alaskans and in training — ensuring that we have Alaskans first in line to work in these jobs,” she said. Elwood Brehmer can be reached at [email protected]

CP nets $1.8B in Q3 with $427M in Alaska; greenlights GMT-2

ConocoPhillips continued its increasingly strong earnings trend by reporting a third quarter profit of more than $1.8 billion on Oct. 25. In Alaska, the state’s largest producer by volume netted $427 million during the quarter, bringing its year-to-date earnings in the state to more than $1.3 billion. The $1.8 billion profit was on the back of $10.1 billion in revenue, the largest such figures ConocoPhillips has realized in several years, more than quadrupling its net income of $420 million in the third quarter of 2017. So far in 2018 the Houston-based company has netted nearly $4.4 billion on $28.3 billion in revenue compared to the $855 million loss it absorbed in 2017 on $32.5 billion of revenue it generated last year. The improved financials can largely be attributed to higher oil prices — ConocoPhillips’ crude sold for an average of $51.96 per barrel in 2017 versus $69.74 per barrel year-to-date in 2018 — but CEO Ryan Lance said improved internal operations have also contributed to the better returns. “We’re delivering another year of strong performance by successfully executing our disciplined, returns-focused plan. We’ve accomplished many strategic, financial and operational milestones this year, ahead of our original schedule,” Lance said in a prepared statement. “Our strategy is designed to generate superior returns through cycles by maintaining discipline, focusing on free cash flow and allocating this cash according to clear, shareholder-friendly priorities. This is what the market can expect from us again in 2019.” In October the company announced the start of production from its roughly $1 billion Greater Mooses Tooth-1 project in the National Petroleum Reserve-Alaska, which marks the first oil production on federal acreage within the reserve boundary. It also got a favorable permitting decision from the Bureau of Land Management and sanctioned the similar, but slightly larger, $1.5 billion GMT-2 project in the NPR-A. Lowman said via email the company would be laying gravel for the GMT-2 road and pad this coming winter; the project is expected to come online in late 2021 and produce up to 40,000 barrels of oil per day at its peak. The quarterly profit translated into earnings of $1.59 per share compared to quarterly earnings of 34 cents per share year-over-year. ConocoPhillips stock sold for $68.48 per share near the end of the trading day OCt. 25 after the positive results, up from an Oct. 24 closing price of $65.69 per share. The company ended the quarter holding roughly $4.8 billion in cash and short-term investments. Its third quarter dividend was increased by 7 percent to 30.5 cents per share. ConocoPhillips also repurchased $900 million worth of common shares in the third quarter, bringing its 2018 share repurchase total to $2.1 billion, according to an earnings release. BP and ExxonMobil, the other large producers in the state, were set to issue their third quarter earnings reports Oct. 30 and Nov. 2, respectively. Specifically to Alaska, the company had pre-tax net income of $535 million in the third quarter. It estimated its tax and royalty payments to the state during the period at $321 million, according to Alaska spokeswoman Natalie Lowman. ConocoPhillips also spent $190 million of its $1.6 billion overall quarterly capital budget in the state, which brought its Alaska investment total to just more than $1 billion so far in 2018, Lowman noted. Year-to-date the company has made roughly $5.1 billion of capital investments worldwide, making Alaska about 20 percent of the company’s overall capital budget, which is on par with recent years. ConocoPhillips produced an average of 152,000 barrels of oil per day during the quarter, compared with 154,000 barrels per day for the same period in 2017. The company’s total production in Alaska — including natural gas and gas liquids — averaged 165,000 barrels of oil equivalent per day, which was about 13 percent of its global production for the quarter. Comparatively, Alaska accounted for 23 percent of ConocoPhillips net earnings for the period. Elwood Brehmer can be reached at [email protected]

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]

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]

Regulators air draft plan to increase well bonding amounts

State regulators heard mixed reaction from oil industry representatives about proposed increases to bonding requirements for drilling new wells. The Alaska Oil and Gas Conservation Commission held a public hearing Oct. 16 in Anchorage on the draft regulations, which would demand up to a $30 million bond be posted to drill and operate the largest oil fields. The AOGCC oversees the technical down hole oil and gas drilling and resource issues for the state. AOGCC Chair Hollis French said the added bonding expense would update state regulations to better reflect today’s costs to plug and abandon a well. French referenced a 1991 Legislative Budget and Audit report that said the State of Alaska should update its minimum well bonding requirements. At the time the bonding requirements were $100,000 for one well and a minimum of $200,000 for multiple wells and a “statewide blanket bond,” he said, bonding levels that remain today. The 1991 report concluded that an operator with a $200,000 bond then likely wouldn’t be able to cover plugging and abandonment costs, according to French. The three-member commission held a work session in June 2017 to discuss updating the requirements. The resulting 23-tier bond schedule would require at least $500,000 for the first 2 permitted wellheads with the minimum amount increasing to $1.7 million for up to 10 wells. A $15 million bond would be required for up to 999 wells and $30 million for more than 3,500 wells. Alaska’s largest Prudhoe Bay and Kuparuk River fields have each contain more than 1,100 well bores. Alaska Oil and Gas Association Regulatory and Legal Manager Peter Caltagirone said the bonding rate changes would be unprecedented; he noted they amount to a 150 percent increase for drilling two wells, a 50-fold increase for 100 wells and a 6,500 percent increase for 500 wells. The proposed regulations also don’t consider other agreements operations might have with DNR, he said, and do not require the state to release the bond when a well is plugged and abandoned, as state regulations currently do. “The proposed changes discourage new investment at a time when Alaska could use some new investment,” Caltagirone said, adding they would require new producers to comply immediately. AOGA is open to updating the bonding requirements in some form, according to Caltagirone, but the industry group would like to see more communication amongst regulatory agencies. Commissioner Cathy Foerster retorted that the commission is only interested in meaningful cost comparisons, such as how the proposed schedule compares to actual current plugging and abandonment costs. ConocoPhillips Drilling Engineer Randall Kanady testified that the company, which operates the large Kuparuk and Alpine oil fields and is developing other large projects, believes the overall tiered approach is “sensible” but would like to see it simplified. He suggested the minimum bonds but broken into three tiers to generally match the operators — explorers, small producers and major producers — with a $1.25 million bond covering up to 19 wells; $6 million for up to 200 wells; and $12 million for additional wells. Kanady noted the $12 million bond would be a 60-fold increase over current requirements. The Audubon Society, The Wilderness Society and Cook Inletkeeper submitted joint testimony largely commending the commission for its plan. They cited a 2016 Bureau of Land Management report that stated the agency was spending $40 million to plug, abandon and clean up 18 wells in the National Petroleum Reserve-Alaska on the North Slope, or more than $2 million per well. These so-called “legacy” wells were drilled and abandoned by the U.S. Navy and U.S. Geological Service between 1944 and 1974, with BLM inheriting responsibility for cleaning up the wells in 1982, according to its website. The conservation groups praised the tiered bonding schedule instead of a “blanket” fee, noting the per well costs decrease as the number of wells grows. “These changes greatly improve the likelihood that state government will not have to pay the high costs of problematic well operations or abandonment throughout Alaska, including in remote parts of the state where it is very expensive to conduct industrial activities such as plugging and abandoning wells,” they wrote to the AOGCC. Several members of the public similarly approved of the plan. However, Kenai Peninsula resident Jim White testified that such costly requirements prevent individual Alaskans from participating in the state’s oil and gas industry. White said he holds subsurface mineral rights to 4,600 acres on the Peninsula. Elwood Brehmer can be reached at [email protected]

AGDC navigates trade friction, touts Alaska-hire agreements

State gasline officials celebrated progress ensuring Alaskans will have first crack at filling the thousands of jobs that could be available to build the $43 billion Alaska LNG Project while at the same time trying to navigate the no man’s land of the U.S.-China trade dispute. The Alaska Gasline Development Corp. announced a framework deal with three construction trade groups Oct. 13 that are expected to lead to project labor agreements for building the three major components of the LNG export plan. The agreement with the Southcentral Alaska Building and Trades, Fairbanks Build and Trades, and the Alaska Petroleum Joint Craft councils sets the groundwork for negotiating project labor agreements, or PLAs, with the large engineering, procurement and construction firms that will manage the project through the construction phase. It sets the terms for work rotation schedules, employment and safety training requirements. Wage schedules for the project will be set based on current rates for public construction contracts when the work begins, according to AGDC. Gov. Bill Walker said in a formal statement that the state’s leading role in the project gives Alaskans control over the megaproject and puts them “in the driver’s seat for filling the thousands of jobs that this project will create.” The trade councils are affiliated with the Alaska AFL-CIO, which has endorsed Walker in the upcoming election for governor. “An Alaskans-first agreement guarantees qualified Alaska residents will be first in line to construct and operate the major components of this gasline,” Alaska AFL-CIO President Vince Beltrami said. AGDC estimates the project will generate upwards of 18,000 new jobs in the state over about six years of construction if it is sanctioned. Nearly 12,000 of those jobs will be directly dedicated to the project itself: 1,300 heavy equipment operators; 1,500 pipefitters and welders; 2,300 general laborers; and 3,500 truck drivers to move countless types of materials, modules and construction equipment — not to mention the 807 miles of steel pipe. Hundreds more electricians, carpenters, ironworkers and engineers will also be needed, as well as 1,600 people to feed, house and otherwise support those swinging hammers and welding pipe, according to AGDC. Trade talk Meanwhile, corporation President Keith Meyer emphasized the ongoing viability of the project in the face of a 10 percent tariff instituted last month by China on U.S. LNG imports during an Oct. 11 board of directors meeting. China originally contemplated a 25 percent tariff on U.S. LNG imports. Nationalized Chinese oil and gas giant Sinopec is a tentative anchor customer for the project after it signed a nonbinding agreement with AGDC to purchase up to 75 percent of Alaska LNG’s expected 20 million tons per year of production capacity in November 2017. That joint development agreement also detailed the prospect of the Bank of China and China Investment Corp. correspondingly financing up to 75 percent of project development costs with a mix of debt and equity. The Chinese consortium and AGDC signed a supplemental agreement Sept. 29 to collectively reaffirm their desire to reach a firm deal by the end of this year, Meyer noted. He said the “trade friction” between Washington and Beijing is creating uncertainty that LNG project developers in other countries see as an opportunity to fill growing Chinese demand for natural gas imports. “This project looks beyond that momentary friction,” Meyer said in an interview, adding that a contingent from the Chinese embassy was recently in Anchorage to discuss Alaska LNG and broader trade opportunities with state officials. “Their message is cooperation not conflict, and we feel that way as well,” he said. Negotiations are progressing; the companies are awaiting government approval on certain deal terms and Sinopec has signed confidentiality agreements with the producer companies in Alaska that provides access to the upstream gas resource data, according to Meyer. He also stressed that the project’s stable gas pricing — AGDC has estimated it can get LNG to Asian ports for $7 to $8 per million British thermal units — is still a very strong selling point for utility customers wanting an alternative to the price volatility of traditional oil-linked LNG contract terms. FERC homework On the regulatory side, AGDC Vice President of Program Management Frank Richards said he expects the corporation to set a schedule to respond to the latest series of questions and comments from the Federal Energy Regulatory Commission in the next few weeks. On Oct. 2, FERC, which is writing the Alaska LNG environmental impact statement, or EIS, sent AGDC 193 questions and comments, the sixth such data request the agency has issued for the project. Richards said that some of FERC’s requests will have to wait until data can be gathered during the 2019 summer field season and others won’t be needed until the final EIS is being drafted. AGDC has been on a tight budget since taking control of the project in January 2017 and Meyer acknowledged that funding has to some extent impacted the corporation’s ability to answer FERC quickly. “If we had more money to spend we could turn (responses) quicker, but I think we’re turning it adequately,” he said. AGDC has chosen not to request additional funding from the state Legislature over the last two budget cycles while the state was in the midst of multibillion-dollar budget deficits. Instead, since early 2017 the corporation has relied on $102 million left over from prior year gasline appropriations to pull together the $43 billion endeavor. The corporation had $48.6 million remaining as of August and is forecasted to have $12.1 million left at the end of the 2019 state fiscal year in June, according to Finance Manager Philip Sullivan. He said AGDC is under-spending its budget in all areas; actual spending was $247,000 below its operating budget plan for the first two months of fiscal 2019. Its full-year operating budget was approved at $10.3 million. A contributing factor to that is AGDC currently has 20 full-time in-house employees, but it budgeted for 26 employees, Sullivan added. Richards and Meyer also noted that despite the tight funding for advancing the EIS, FERC recently moved the Alaska LNG EIS schedule up a month; the draft EIS is now expected in February 2019, with a final draft coming the following November. Meyer said additional funding would most help with “keeping an aggressive construction schedule on track,” as the industry consensus is that the current global LNG oversupply will evaporate closer to 2022 than the 2024-25 timeframe discussed a couple years ago. Most of the growing demand is coming from China, he said. “Now everybody’s trying to be that project to fill that (supply) gap,” Meyer added. While AGDC has not directly asked for additional funding, the corporation requested authority from the Legislature last session to accept third-party investments. However, the Legislature rejected that request in its final state operating budget. If AGDC could get an injection of more than $100 million, the corporation would be able to complete advanced engineering and schedule long lead time items, such as pipe for the gasline from steel mills that are already busy with orders in the global natural gas boom, Meyer said. That funding would be rewarded with an equity share of the project. “The more money we have the more aggressive we can be,” he said. Elwood Brehmer can be reached at [email protected]

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