Elwood Brehmer

Dunleavy: Gov’t lead needed for pandemic recovery

Gov. Mike Dunleavy said he expects the state’s response to the coronavirus pandemic to ultimately benefit the beleaguered tourism industry and the economic recovery from 2020 should be led by government. The governor spoke about ways to boost Alaska’s struggling economy Sept. 24 during the Alaska Chamber’s virtual annual Fall Forum gathering. He emphasized that prior to the March economic shutdowns and travel restrictions that Alaska had a solid economic foundation with several billion dollar-plus oil projects in various stages of planning and development; large investments planned to grow the cargo business at Ted Stevens Anchorage International Airport; and record low unemployment in the state. Alaska added approximately 1,300 jobs and had an unemployment rate of 5.8 percent in February. The state’s unemployment rate was reported at 7.4 percent in August, but according to the state Labor Department the number is likely artificially low because the virus has disrupted the household surveys typically conducted to compile the data. Overall, Alaska was down roughly 37,000 jobs year-over-year in August. Tourism was one of the strongest sectors of Alaska’s economy for years prior to the pandemic, but has also been one of the hardest hit by the pandemic for a host of reasons. More than 1.3 million visitors were expected to arrive to the state via cruise ship at the start of the year; however, none of them showed up — by cruise anyway. Dunleavy said state health and administration officials crafted the state’s plans and requirements for essential industry operations, notably commercial fishing, after observing COVID-19 outbreaks in the Lower 48; he also noted that Alaska’s overall COVID-19 case and death counts have been among the lowest in the country since the start of the pandemic. Alaska’s total COVID-19 case count of 8,602 through Sept. 29 is the fifth-lowest in the country; the 1,176 cases per 100,000 residents is the eighth-lowest in the country, according to data tabulated by The New York Times. “We had watched what happened at some of the meatpacking plants down south and we didn’t want to repeat that,” Dunleavy said. State officials are now working on health protocols to restart the annual parade of cruise ships through the Inside Passage next spring, he added, acknowledging the success of the work will in part be contingent upon the efficacy and availability of a coronavirus vaccine and other treatments. “The virus is going to be with us but it’s not going to control us,” Dunleavy said. “We want to show them that we can manage this virus.” How quickly Alaska’s broader tourism sector can rebound will largely depend on when the border with Canada is reopened for leisure travel as well. The U.S.-Canada border is closed to nonessential travel through Oct. 21 — a restriction that has been extended six times since March — and Canadian ports are closed to large cruise ships until Oct. 31. Federal law requires all foreign flagged vessels traveling between U.S. ports to stop at a foreign port in between. For cruises bound for Alaska, that typically means stopping in or starting from Vancouver. While the 2021 cruise season is still many months away, Brandon Lee, consul general of Canada to Alaska said during a Sept. 29 forum discussion that the Canadian government sees the pandemic primarily as a health crisis and is taking a very conservative approach to managing it. “We’re really trying to prioritize the health of Canadians,” Lee said, adding that the border situation is evaluated “day-by-day, week-by-week.” That evaluation is driven not only by case counts in the U.S., but also by the capacity in Canada’s health system, according to Lee. Dunleavy stressed that the onus for Alaska’s broader economic recovery is on government because it was government restrictions that led to the ongoing struggles. “Government has an obligation to fix and rectify what happened during the pandemic,” he said. The best way to do that, Dunleavy said is with a “comprehensive, large, multi-year approach” to infrastructure development. He added a common refrain for his administration that Alaska has the natural resources the world wants — all that’s needed is access. When asked about the infrastructure development comments, the governor’s spokesman Jeff Turner said he was likely referring to the federal infrastructure package President Donald Trump has pushed to varying degrees throughout his term. However, Dunleavy mentioned some state-specific projects and indicated his administration is working investment angles regardless of what the feds do. The administration is currently conducting pre-development analyses road projects to access resources in the Western Susitna Valley and Interior mineral prospects through the Alaska Industrial Development and Export Authority, which is also seeking private investment for those projects. “We need to refurbish our ports. We need to finish our rail spur (in the Mat-Su Borough),” Dunleavy said. “We’re exploring these opportunities with private investors and hopefully we’ll have more to announce in the next few weeks.” Dunleavy thanked Trump for signing a presidential permit authorizing a border crossing for the proposed $13 billion Alberta to Alaska, or A2A, rail link that would add roughly 1,500 miles of track to connect Alaska Railroad tracks to those in Canada. Proponents of the general concept have long seen it as a way to export resources from Northern Canada and import products to Alaska more affordably. The A2A project is specifically aimed at exporting Alberta tar sands oil through Alaska to world markets, but the project’s backers note it could be utilized for other shipments as well. Elwood Brehmer can be reached at [email protected]

Law Dept. seeks clarity on potentially broad impact of bond ruling

The Dunleavy administration is asking the Alaska Supreme Court to clarify whether a recent ruling invalidating a plan to sell bonds to pay oil tax credits impacts hundreds of millions of dollars worth of bonds sold for local governments across the state. Department of Law attorneys on Sept. 28 technically filed a petition for rehearing the lawsuit against the state for a legislative plan passed via House Bill 331 in 2018 to sell up to $1 billion in bonds to pay off outstanding oil and gas tax credits owed to banks and small exploration companies. The state’s tax credit obligation currently stands at $743 million, according to the Revenue Department. However, administration officials are not asking the court to reconsider its unanimous Sept. 9 ruling that HB 331 violates the Alaska Constitution’s strict sideboards on the state’s ability to acquire debt. They want to know whether the ruling applies to much of the work done by the Alaska Municipal Bond Bank Authority, which sells bonds on behalf of local governments across the state and can almost always secure a lower interest rate than the individual communities. “The State does not ask the Court to change its holding invalidating HB 331 and, by extension, directly analogous bonding schemes. But the Court’s opinion has unfortunately created significant uncertainty about debt that is structurally much different from HB 331,” state attorneys wrote in their petition. “Because the debt markets are very cautious, this uncertainty could hinder the ability of Alaska’s state and local governments to obtain reasonable access to capital programs that were not considered by the Court or addressed by the Court’s decision. The State seeks rehearing to request a limited clarification to the scope of the Court’s decision so that existing, important programs that differ significantly from HB 331 may continue to effectively operate.” Joe Geldhof, the longtime Juneau attorney active in state politics who won the case against the state, said the root of the issue is the “subject to appropriation“ clause contained in the bond materials that could ultimately put the state on the hook if a local government fails to repay its debt. Juneau resident and former University of Alaska regent Eric Forrer filed the lawsuit. It is a serious open question as to whether the bonds sold by the bond bank are impermissible under the ruling, Geldhof said, because the state is using its credit rating to secure lower-cost financing for local governments. The local government bonds used for facility and infrastructure projects are backstopped by language assuring buyers that the State of Alaska will repay the debt if need be via a legislative appropriation. Over the past decade the approach has funded 158 loans and saved $216 million statewide, according to figures in the petition. Geldhof said the ruling should deal with bond sales going forward, not bonds already sold by the state bond bank, and also accused state officials of ignoring the issue. According to the petition, the bond bank board authorized two bonds totaling $247.8 million to refinance 31 existing municipal bond issues. A sale planned for Sept. 14 — shortly after the ruling was published — to refinance 22 bonds and save $8.8 million has also been delayed. “There is 100 percent certainty that the Department of Revenue knew this was problematic,” Geldhof said. Department of Law and Revenue officials did not respond to questions in time for this story. State attorneys wrote that state corporations have a “long-established and important” practice of selling revenue bonds backed by a “moral obligation pledge.” The bonds are repaid with revenue — municipal funds in the case of the bond bank — from other sources than the state general fund and therefore meet the revenue bond exemption in the state constitution, according to the petition. “But these entities’ bonds also include, as a backstop, a non-binding pledge that if those revenues and other security for the bonds are insufficient to pay debt service, then the entity will request that the Alaska State Legislature make an appropriation to replenish a reserve fund that further secures those bonds,” state attorneys wrote. The underwriting is similar to how the bonds contemplated in HB 331 were to be structured; Revenue officials would sell bonds with the “subject to appropriation” clause that would not legally bind the state to make payments, but could impact the state’s credit rating, which the court decisively concluded made the scheme unconstitutional. Alaska Municipal League Executive Director Nils Andreassen said the Alaska Municipal Bond Bank Authority’s work on behalf of local governments is important for the financial considerations but also because of state officials’ expertise in the bond arena “That capacity just doesn’t exist for small or medium-sized municipalities,” Andreassen said. He added that the bond bank can also bundle small government bond packages together to make them more attractive to buyers and thus achieve better rates. “It’s incredibly important to keep (borrowing) costs low,” Andreassen said. Municipal League leaders would be following the case closely, he said. The Alaska Constitution requires most bonds sold by the state other than true revenue bonds be approved by voters and Geldhof said state officials have put the state’s credit rating on the line without the public’s consent with the municipal bond sale practice. Bond buyers want to know the state will backstop the debt otherwise owed by local governments often with limited financial resources, he said. “This is the politicians in bed with the money boys,” Geldhof said. Elwood Brehmer can be reached at [email protected]

Forest Service affirms preference to repeal Tongass ‘Roadless Rule’

The Trump administration continued its agenda to aggressively open more federal lands in Alaska to development activity Sept. 25 with a recommendation for a full exemption from the Roadless Rule for the Tongass National Forest. Fully repealing the Clinton-era prohibition on new roads across much of the national forest system would open all 9.2 million acres currently classified as roadless in the Tongass to potential mining, logging, and energy development, all of which are made much easier with road access in the forest’s predominantly mountainous terrain. At roughly 17 million acres, the Tongass covers the vast majority of Southeast Alaska and is by far the largest national forest in the country. The formal announcement from U.S. Forest Service officials of their preference for a full, Tongass-specific exemption from the Roadless Rule in the final environmental impact statement that examined six options — from status quo to the complete exemption — was welcomed by Alaska’s Republican leaders, but it was not unexpected. U.S. Department of Agriculture officials overseeing the Forest Service preferred a full exemption in the draft EIS review published last October. While the state Southeast timber industry interests have been trying to lift the Roadless Rule from the Tongass unsuccessfully in the courts since it was applied in 2001, Gov. Mike Dunleavy said the recommendation moves the region closer gaining improved transportation infrastructure, among other economic benefits in a prepared statement. Sen. Lisa Murkowski noted during a Sept. 25 video conference with leaders of the regional development organization Southeast Conference even though the rule covers more than 9 million acres, repealing it will only make about 168,000 additional acres of old-growth timber stands available for harvest under the current land-use plan for the Tongass. “It is about reasonable access for a wide variety of users,” Murkowski said, “It is for all pieces of the Southeast economy.” The latest iteration of the Tongass Management Plan, which guides Forest Service timber sales and other on-the-ground activities, was approved by the Obama administration in 2016. Murkowski, who chairs the Senate Energy and Natural Resources Committee and Alaska timber groups have criticized the current management plan for pushing a shift from old-growth to second-growth timber unrealistically quickly before sufficient second-growth stands are ready for harvest. Commercial fishing, conservation and some tourism groups insist Southeast’s economy has moved on from its heavy reliance on the timber industry as a fundamental driver, which mostly peaked in the early 1990s, and has moved to — at least before the pandemic — a base of tourism and fishing. They also argue the Trump administration’s policy directly contradicts the vast majority of the public that has weighed in on the issue. According to a Forest Service report detailing the nearly 270,000 comments the agency received late last year on the draft plan to repeal the Roadless Rule, 96 percent of the 15,909 unique letters supported maintaining the rule in full. They contend that no specific projects seeking exemptions over the years from the rule’s requirements in the Tongass have been denied. However, Southeast Conference Executive Director Robert Venables said the Roadless Rule has increased the cost of energy projects across the region — making some wholly unfeasible — simply by increasing access costs. Meanwhile, the federal fiscal watchdog group Taxpayers for Common Sense insists the country has lost nearly $600 million from its Tongass timber sales over the past 20 years when adjusted for inflation. Taxpayers for Common Sense totaled the Forest Service’s $632 million in costs for timber sale preparation, reforestation and road building and put that against the $33.8 million collected on a per board-foot basis by the agency from those harvests. Again, those figures are adjusted for inflation to 2018 values. Trump administration officials from other resource agencies have similarly advanced broad rollbacks of development prohibitions on federal lands in Alaska. The Bureau of Land Management has championed multiple plans to open nearly all available federal lands on Alaska’s North Slope — most notably the Arctic National Wildlife Refuge coastal plain — to oil and gas exploration and approved a 200-mile road to Interior mining prospects; the Bureau of Ocean Energy Management has promoted making 90 percent of the federal waters off Alaska available for oil leasing; and the Interior Department has twice had its agreements to facilitate a road through designated wilderness of the Izembek National Wildlife Refuge shot down in federal court. However, the action on the Roadless Rule didn’t officially originate from Washington, D.C. Former Gov. Bill Walker’s administration petitioned the USDA in 2018 to initiate the process to exempt the Tongass, on some level, from the Roadless Rule. While several attempts to legally invalidate the rule have fallen flat, Idaho and Colorado previously secured exemptions from aspects of the rule. USDA and Forest Service officials now must wait at least 30 days before singing the record of decision to make the final determination effective. Elwood Brehmer can be reached at [email protected]

DEC: Shortfall in spill response fund requires revenue or appropriation

State environmental regulators are seeking more money for Alaska’s spill response fund amid a comprehensive review of the requirements for petroleum producers and shippers. Department of Environmental Conservation Commissioner Jason Brune said during a Sept. 18 meeting of the Prince William Sound Citizens’ Regional Advisory Committee that he is advocating for the Dunleavy administration and Legislature to commit more funding to the state’s shrinking Spill Prevention and Response fund. The conclusion that the SPAR fund needs additional help — most likely through a general fund appropriation — comes as the state is facing a fiscal year 2022 budget deficit of roughly $2 billion. It also goes against the grain for an administration that has pushed for often deep spending cuts across state government to erase the state’s ongoing deficits and finance paying larger Permanent Fund dividends without additional taxes. Brune acknowledged the challenges inherent in asking for more money given the state’s fiscal situation but said the need for a robust SPAR fund necessitates it. He said seven positions were cut last year from the SPAR team of more than 100. “It remains a priority of mine to bring sufficient funding to SPAR,” he said to the council board. “It’s going to be a heavy lift, but it’s one I’m going to attempt to make.” Department officials declined to specify the size of the SPAR request to the Office of Management and Budget but spokeswoman Laura Achee wrote via email that they “recognize that there are funding sustainability issues for SPAR and are committed to working with the Legislature to address them.” DEC officials have also supported increasing the surcharge on refined fuel products sold in the state from 0.95 cents per gallon to 1.5 cents to help cover an anticipated revenue shortfall in the fund. The refined fuel surcharge — dedicated to the prevention account in the fund — was implemented in 2015 to further support the SPAR fund, which had largely relied on a 5-cent per barrel charge on oil produced in the state for revenue. Money from fines and settlements related to hazardous substance spills is also deposited into the prevention account. When the roughly 1-cent per gallon surcharge was put on refined products it was expected to bring in approximately $7.5 million per year, but actual revenue has been about $1 million short of that. The account held $8.5 million at the end of 2019, according to DEC’s annual SPAR report. Overall, more than $25 million was spent from the SPAR fund in fiscal 2019, including a $9.4 million capital appropriation to pay for PFAS cleanup at state-owned airports, while just $16.3 million was collected; the vast majority of which came from the surcharges. The Legislature also spent $5 million from the response account in 2018 to export contaminated oil from a Wrangell junkyard. Brune said he believes the pandemic will exacerbate the funding issue. “With COVID, people are just driving less; they’re working from home and not traveling,” meaning less fuel subject to the surcharge will be sold, he said. He also questioned whether it is appropriate for cleanup of contaminated sites to be paid for with revenue from fuel and oil surcharges given those products may not be the source of the contamination. The long-term solution for the fund is more North Slope oil production to apply the 5-cent surcharge to, Brune said. Spill regs review continues DEC officials are continuing their review of the state’s detailed Oil Discharge Prevention and Contingency Plan, or C-Plan, regulations for possible changes with twice-weekly meetings in which the statutes, regulations and proposed changes are vetted “line by line,” Brune said as well. “We want to make sure that we can justify what we have currently in the regulations,” he said. The department opened a scoping period to solicit comments on the highly technical operational and equipment requirements for companies producing and shipping oil and fuels last December. Numerous groups, including the congressionally mandated citizens’ advisory councils for Cook Inlet and Prince William Sound, expressed concern that changes could be made to weaken protections against a spill or the ability to respond to one by the decidedly pro-development Dunleavy administration. Gov. Mike Dunleavy made reducing the regulatory burden on industry a large part of his campaign in 2018 and his administration has initiated that work across state government. Comments from individuals were solidly against the prospect of changing the oil spill regulations, while associations — including the councils — and companies in the oil and shipping sectors largely suggested detailed technical regulatory amendments. The councils were established by Congress following the 1989 Exxon Valdez oil spill. Prince William Sound council spokeswoman Brooke Taylor wrote in response to questions about the spill regulation scoping that the council is encouraged by Brune’s commitment to hold an extended comment period on any changes that are proposed but is still concerned about the broader process that is in the works. Council leaders contend because DEC has chosen to make the entire 60-page regulatory package subject to review instead of proposing specific changes, the burden of the review has been shifted to the public, which must defend what is on the books rather than the department defending its changes. Brune has said he did not want to potentially taint the public’s review by having the department make its proposal public too early in the process. “Nothing in the regulations we will propose will increase the risk of an oil spill in Prince William Sound or anywhere else in Alaska,” he said to the council. DEC’s Achee wrote that there is no hard timeline for when the review will be complete as it is a “process-driven situation.” “If there are proposed changes, we will ensure that the public has plenty of time to review them and comment,” she wrote. Cook Inlet Citizens’ Regional Advisory Council members were told by DEC officials that the timeline for the review has been pushed back to at least the end of the year, according to the council. Elwood Brehmer can be reached at [email protected] (Editor's note: The original version of this story incorrectly reported that the Spill Prevention and Response team has about 30 individuals. It has more than 100.)

Public seeks link between oil taxes and state services

The debate is over changing oil taxes, but much of the public seemingly wants to know how it will affect many of the services provided by state government . Lt. Gov. Kevin Meyer moderated two-hour teleconferenced public hearings Sept. 21 and 22 examining Ballot Measure 1, the initiative to substantially raise taxes on the largest North Slope fields, in which leaders of sponsor group Vote Yes for Alaska’s Fair Share and the business-centric opposition group OneAlaska Vote No on 1 fielded questions from the public about the potential pros and cons of the tax change. Callers from Southeast Alaska largely indicated in the first hearing they will be voting for the initiative and asked about how it could help restore budget cuts to things like the state ferry system, the University of Alaska and the Permanent Fund dividend. The hearings, required for any proposed law change, were intended to spur an “education and informative discussion” Meyer said, and the open question-and-answer forum quickly turned into a lively, if somewhat repetitive, debate. Chair of the Fair Share campaign and longtime Alaska oil and gas attorney Robin Brena stressed that a collapse in oil production tax revenue is the root of the state’s ever-worsening fiscal problems. The ballot measure sponsors estimate the tax change, which would raise both the gross floor and net profits tax rates on the large, mature North Slope fields of Prudhoe Bay, Alpine and Kuparuk, would generate about $1.1 billion per year in additional revenue over the long-term. The Fair Share campaign insists the current tax system, commonly referred to by its legislative name Senate Bill 21, cost the state more than $3 billion per year since it became law in 2014 and as a result Alaska receives about half of the overall oil revenue that other states collect. The drop in oil tax revenue has pushed lawmakers to start applying more than half of the money traditionally used for Permanent Fund dividends to pay for other services, which are still being cut as the state’s deficit continues to grow, according to Brena. He argued legislators heavily influenced by the oil industry have repeatedly blocked attempts to change the law in the Legislature. “There’s nothing you can do that’s better for Alaska than vote for Ballot Measure 1,” Brena said Sept. 21. “Our (oil) taxes are less than 10 percent of what they were before Senate Bill 21.” While the drop in the state’s oil production tax revenue is undeniable — overall petroleum revenue went from $4.7 billion in fiscal year 2014 to $1.3 billion in 2016 — opponents note the steep drop in oil revenue directly coincides with a major fall in oil prices. Oil went from averaging nearly $100 per barrel for several years to bottoming out at less than $30 per barrel in early 2016 as markets adjusted to the influx of Lower 48 shale production, ConocoPhillips Alaska Vice President Scott Jepsen said. Jepsen and former state Division of Oil and Gas director Chantal Walsh emphasized that at current oil prices in the $40 per barrel range the initiative would raise just $250 million, which doesn’t come close to closing the projected $2 billion budget deficit but will deter companies from investing in more oil production in years to come. “If we keep production up, we keep royalties up; that’s also tied to your PFD,” Walsh said, noting that oil royalty deposits largely form the principal of the Permanent Fund. Brena said the issue ultimately boils down to whether or not the state will call the industries’ bluff: the potential to curtail investment on the North Slope, which would increase the rate of production decline and hurt the state’s finances even worse over the long-term. Fair Share advocates believe Alaska will remain a viable oil basin with the additional taxes and if the initiative is not a viable solution, Brena suggested its opponents haven’t offered a better one. “Their solution is that we should tax ourselves to pay for the subsidies we’re paying Texas oil companies,” he said. Petroleum geologist and former Department of Natural Resources commissioner Mark Myers said the state’s poor fiscal outlook does far more to damage the economy than raising oil taxes would and the primary factors that determine companies’ decisions are “good rocks, technology and oil price.” Jepsen argued Ballot Measure 1 would “take the profitability out of doing business in Alaska.” “If this ballot measure passes, I can tell you we will not follow through with the plans we had a year ago,” he said. Other ConocoPhillips Alaska representatives have said the company will not finalize its winter drilling plans until after the Nov. 3 election. The company is scheduled to complete its final winter of work developing its mid-sized Greater Mooses Tooth-2 oil project and has applied for permits to develop its large Willow prospect, which the company estimates could produce up to 160,000 barrels per day and cost $6 billion to fully develop. Additional public hearings were scheduled for Sept. 23-24. Elwood Brehmer can be reached at [email protected]

Bank income reflects PPP loan processing

Being the conduit for large amounts of government aid helped Alaska’s banks largely weather the first months of the pandemic. The largest local banks in the state all grew their net income in the second quarter compared with the start of the year, some substantially. Anchorage-based Northrim Bank increased its net income several fold from $2.3 million to $10.4 million in the second quarter, while Denali State Bank of Fairbanks more than doubled its net profit, going from $552,000 in the first three months of the year to more than $1.4 million in the second quarter, according to figures published by the Federal Deposit Insurance Corp. First Bank in Southeast nearly doubled its bottom line for the quarter, also netting more than $1.4 million. First National Bank Alaska, the largest in-state bank, saw more modest income growth of 2.9 percent to $14.4 million, in line with recent quarters. Northrim Chief Financial Officer Jed Ballard said the bank tried to take full advantage of the “tremendous opportunity” presented by the Small Business Administration’s popular Paycheck Protection Program, which was administered by financial institutions of all sizes across the country for the SBA. “We really boxed above our weight class in terms of the volume of PPP loans that Northrim did,” Ballard said, noting the bank distributed more than 2,500 PPP loans totaling about $350 million — loans that converted to grants if businesses followed the program guidelines — which accounted for 28 percent of the more than $1.2 billion distributed statewide. Northrim holds about a 12 percent market share among Alaska’s banks, according to Ballard. The bank also attracted new customers by offering PPP loans to everyone, whether they were already Northrim customers or not, according to Ballard. It all added up to several months of weekend work for many bank employees. “It was several years worth of loans in a three-month period,” he said. “All departments of the bank kind of transitioned into the lending department. It was a great team effort all the way around.” Denali State Bank did the most PPP loans in Interior Alaska, its region, which helped drive the bank’s revenue, CEO Steve Lundgren said in an interview. He said the bottom line results for Alaska’s banks could have been greater yet if not for a general move in the industry to increase loan loss allowances, or the amount of money set aside to cover uncollected payments, which eats directly into a banks profitability. “That’s taken a big jump because we just don’t know what’s going to happen,” Lundgren said. Underlying asset growth was also strong during the quarter. Denali State Bank grew its total assets by 22 percent to $376 million, while Northrim and FNBA both grew by 19 percent. Northrim eclipsed the $2 billion mark in the second quarter while FNBA is approaching $4.6 billion in assets. The widespread negative effects of the coronavirus pandemic showed up in some, but not all of the banks’ underlying indicators. FNBA saw the total of its loans one to three months past due go from $5.7 million in the first quarter to $15.5 million in the second, which President Doug Longacre said in a prepared statement was the direct result of government-mandated economic and travel restrictions aimed at slowing the spread of the virus. FNBA loan officers were consumed by a backlog of loan modification requests and PPP applications and could not reach out to other customers in need of help before problems making payments arose, according to Longacre. “Now that we’ve moved past the flurry of loan modifications and PPP loan production, our officers are again proactively working with customers to help them mitigate potential loan payment issues. And, I’m pleased to note, our current past due loan volume is greatly improved,” Longacre said. Northrim’s Ballard and Denali’s Lundgren said their banks have not experienced the same challenges FNBA has, at least for now. Both said the situation has not been as bad as they once expected. The amount of past due loans held by Northrim fell 75 percent in the quarter to $861,000, while Denali State Bank saw its total fall 35 percent to $784,000. Total loans in nonaccrual increased 24 percent for FNBA to more than $12.7 million, while the metric generally held steady for Northrim and Denali State bank at about $15 million and $1.7 million, respectively. First Bank saw both its past due and nonaccrual totals drop significantly during the quarter. “Our delinquency and repossessions and foreclosures have just been so much better than we could’ve predicted,” Lundgren said. He anecdotally attributed part of the disparity between the downright bad raw economic indicators of unemployment and job losses and Denali’s strong performance to the belief that people who are still employed are still spending money, much of it within the state given the current risks and challenges of travel. Ballard said historically low interest rates are encouraging home and business owners to refinance mortgages and other loans, which is also a fortuitous way to save money when faced with an uncertain future. “We’ve had really just incredible, incredible production over there at our residential mortgage (department),” he said. Lundgren added that he’s seen a significant spike in home renovation projects in the Interior as well. Ballard additionally surmised that while many businesses in the state continue to struggle — particularly those in the tourism sector — for a multitude of reasons, some business owners who were able to access part of the roughly $3.5 billion of federal aid that came to the state have used that money to buy time to revamp their business. “Companies have restructured their operations to help with cash flow needs. Entrepreneurs are very resourceful,” he said. “You see this around the country. Companies are just doing business in different ways to generate revenue and meet the needs of customers.” Elwood Brehmer can be reached at [email protected]

Shell files plans to return to the Slope; ConocoPhillips awaits initiative outcome

A supermajor is looking to advance its position on the North Slope and ConocoPhillips says it will likely wait until the results of the oil tax initiative are known before planning next year’s work. Shell Offshore Inc. has applied to form the West Harrison Bay Unit in state waters just offshore from the National Petroleum Reserve-Alaska with plans to drill the area in search of oil in the coming years, according to documents submitted to the state Division of Oil and Gas. If the Dutch oil industry giant can secure a partner to share in the costs and risks of remote offshore North Slope exploration, it expects to drill exploration wells in the West Harrison Bay Unit with at least one sidetrack each in 2023 and 2024, Shell’s initial unit plan of exploration states. According the application, Shell has been trying to find a partner to work on the West Harrison Bay leases for at least a year, and the company was making progress towards that end before the coronavirus pandemic hit in late winter. As a result, Shell is asking the state for its exploration plan to be valid for five years, which would allow the company to secure a partner and better analyze the area’s development potential. Shell holds a 100 percent working interest in 18 leases covering more than 78,000 acres in the proposed unit. The wells would target the popular Nanushuk oil formation first pinpointed by the Repsol-Armstrong Energy partnership in the Pikka Unit. The shallow, conventional Nanushuk formation also forms the basis of ConocoPhillips’ large Willow oil prospect to the south of Harrison Bay and is believed by many in the industry to be prolific across much of the western North Slope. A U.S. Shell representative did not respond to questions in time for this story. Shell infamously spent more than $7 billion to drill the Burger J exploration well much further offshore in the Chukchi Sea before abandoning its domestic Arctic drilling program in 2015. The work was beset by legal challenges and protests where vessels and equipment were staged at Pacific Northwest ports, as well as the grounding of the Kulluk drilling rig near Kodiak Island in 2013 while being towed south from Unalaska.. Elsewhere on the Slope, Great Bear Petroleum Ventures and Borealis Alaska LLC have partnered in hopes of forming the Talitha Unit south of Prudhoe Bay along the west side of the Dalton Highway. In the unit application submitted Sept. 4 the small independents committed to drilling two vertical wells, Talitha A and B, over the next two exploration seasons. The Talitha A well, tentatively planned for next winter, would be approximately eight miles west of the Dalton and be drilled about 10,200 feet to the base of the Kuparuk formation, according to the application. London-based Pantheon Resources purchased Anchorage-based Great Bear Petroleum — the project operator — in 2019 along with the roughly 200,000 acres of leases Great Bear held at the time. Great Bear first started working the area in 2012 and drilled several wells targeting unconventional shale plays but largely shifted to a conventional oil focus in 2015 when oil market conditions deteriorated and new prospects appeared in 3-D seismic data, company leaders have said. Pantheon directors have said the logistical advantages of being near the haul road should help the economics of Talitha and other nearby prospects. And while companies such as Shell and Great Bear are preparing for exploration work over the coming years, the state’s largest oil producer and most active recent explorer says it is waiting to firm up its drilling plans. ConocoPhillips Alaska spokeswoman Natalie Lowman wrote via email that the company had not finalized its exploration or capital plans for next year as of Sept. 15. “Our capital plans will depend on our outlook for prices and the outcome of the ballot measure,” Lowman said in reference to the Fair Share Act, a citizens initiative to raise oil taxes that will be Ballot Measure 1 in the November election. Ballot Measure 1 sponsors stress that the tax increase will not impact project development because it would only apply to the large and more profitable North Slope fields of Alpine, Kuparuk and Prudhoe Bay; ConocoPhillips operates or has a significant stake in all three. The company typically announces its work plans for the coming winter in late summer or early fall. Last winter the company planned to drill seven exploration or appraisal wells at its prospects across the Slope; however, concerns about spreading COVID-19 in remote drilling camps and the concurrent collapse in oil prices caused the company to cut its winter work season short and indefinitely lay down its North Slope rig fleet, part of an effort to cut up to $400 million from its 2020 Alaska spending plan. Far to the south on the edge of Cook Inlet, Hilcorp Alaska is also asking Division of Oil and Gas officials to form the Seaview Unit encompassing the town of Anchor Point on the southern Kenai Peninsula. Hilcorp, the primary natural gas supplier for Southcentral utilities, drilled the 10,000-foot Seaview 8 well in 2018 that led to a gas discovery in the Tyonek formation. The company initiated permitting for a short gas pipeline within the proposed unit earlier this year to tie the Seaview pad into Enstar Natural Gas Co.’s network. According to Hilcorp’s application recently published by the Division of Oil and gas and dated July 31, the company could have production from the Seaview 8 well by Oct. 1 if all of the regulatory requirements can be met in time. A Hilcorp spokesman declined to comment on the status of the project. The company plans to drill another, shallower directional well targeting gas accumulations from the Seaview pad later this fall. BlueCrest Energy produces small amounts of oil from the Cosmopolitan development just offshore from Anchor Point, but Hilcorp’s work indicates Seaview is solely a gas development at this point. ^ Elwood Brehmer can be reached at [email protected]

Ballot Measure 1 wins final battle at state Supreme Court

A brief Supreme Court order assured that the oil tax initiative will truly be on November ballots. The court on Aug. 31 affirmed a Superior Court decision in July to dismiss a lawsuit by industry groups against the state Division of Elections. The groups, led by the Resource Development Council for Alaska, attempted to have signatures in support of putting the initiative on the ballot invalidated, which would have kept it off the ballot this fall. They argued the Division of Elections certified petition signatures that were collected by signature gatherers paid in excess of what is allowed by state campaign finance laws. Attorneys for the state and Vote Yes For Alaska’s Fair Share, the sponsors of Ballot Measure 1, responded that the state is required to interpret laws regarding citizens’ initiatives broadly to promote the public process and following to the industry group’s claims would make running an initiative campaign impractical. “Alaskans should be offended that an industry group funded by international oil producers based in Texas would try to take away our rights to engage in free speech, our rights to have our valid signatures counted on the initiative petition, and our rights to vote on Ballot Measure 1,” Vote Yes chair Robin Brena said in a prepared statement. Brena, an oil industry attorney, also argued the case for the citizen group. The Supreme Court order did not contain an opinion on the matter, but stated that one will be drafted. But while Vote Yes or Alaska’s Fair Share won in court, the campaign is losing badly in the race for cash. OneAlaska–Vote No on 1, the industry-backed group formed to oppose the initiative, raised more than $9.8 million through July 7, the most recent reporting period published by the Alaska Public Offices Commission. More than $6 million of that was raised since mid-April. The largest contributions to OneAlaska have come from the large oil producers in the state, with the since-departed BP Exploration Alaska contributing more than $3.6 million to the campaign. Vote Yes for Alaska’s Fair Share, in contrast, had raised $664,330 through the same period, according to APOC records. OneAlaska spent more than $1.8 million on media placements during the April to July reporting period. Vote Yes Campaign Manager David Dunsmore said the group will be running radio spots in rotations until the election. “We don’t have the level of resources that the opposition does, of course,” Dunsmore said. Anchorage Economic Development Corp. CEO Bill Popp, a co-chair of OneAlaska, said part of the reason the group has garnered the support it has is the broad recognition from the state’s business community of the “destructive” impact the initiative’s oil tax increase would have on Alaska’s already beleaguered economy. “We view it as a significant threat to any kind of meaningful economic recovery if (Ballot Measure 1) passes,” Popp said in an interview. He emphasized that while North Slope oil production has declined overall since the most recent oil production tax, known as Senate Bill 21, was enacted in 2014, initiative supporters ignore the reality that Alaska oil developments are years in the making. “These are long lead time projects,” Popp said, adding several large developments are currently in the works by Oil Search and ConocoPhillips. He added that AEDC typically stays out of policy debates as specific as oil taxes, but the issue is too fundamental to the state’s economy to remain neutral. “We just can’t risk such a draconian change in tax policy,” Popp said. Dunsmore said Alaska’s economy would be best served if the state got the roughly $1 billion per year the Fair Share Act is expected to generate over the long-term and its supporters simply have a differing view in that regard to AEDC leaders. Elwood Brehmer can be reached at [email protected]

Mandated ANWR lease sale challenged by politics

The window for the Trump administration to hold an effective lease sale for the Arctic National Wildlife Refuge coastal plain could be closing, but the potential for an administration change in January alone can’t change the requirement for one. That’s because executing a coastal plain oil and gas lease sale in strict accordance with the Tax Cut and Jobs Act of 2017 means doing so “in a manner similar” to the way lease sales are handled for the National Petroleum Reserve-Alaska on the western North Slope, as directed by Congress in the law. NPR-A lease sales held typically in early December are preceded by a call for nominations, in which the Bureau of Land Management attempts to gauge industry’s interest in leasing acreage in the reserve at a given time. The 30-day call often starts in early August so bureau officials have time to review the comments, determine what will be offered and get the administrative wheels turning ahead of the late-fall sale. Interior officials repeatedly said during the two-year environmental impact statement process that a sale would be held in 2019, but that date has subsequently been pushed back. Interior Secretary David Bernhardt said the first sale would be held by December 2021 when he signed the record of decision for the environmental review of the sale Aug. 17. A second would come by the end of 2024. However, for the sale to generate legitimate interest companies likely need to have some prospect of political stability given the constant tug-of-war between the parties over what to do with the coastal plain, according to industry analysts and Interior officials involved in the work. An Interior Department spokeswoman did not respond to questions in time for this story. Holding a sale without a call for nominations is an option to get it done ahead of the Nov. 3 election, but that could open the department up to additional legal challenges given the directive from Congress for the process to mirror that from the NPR-A. A sale held shortly after a Nov. 3 win by President Trump would be the best scenario for Republicans and industry advocates, as it would keep them in control of the development process for at least another four years. And while it’s generally believed that a sale held after a Joe Biden victory — either pre- or post-inauguration — would be of little value given Democrats’ vow to reverse or effectively nullify the tax rider, it would not be the end of the story, either. Democrats also need to maintain control in the House and as well as take over the Senate to truly overturn the legislation authorizing the coastal plain leasing program, which was inserted in the tax bill so it could be passed with a simple majority vote and avoid the traditional 60-vote threshold in the Senate for non-budget legislation. Otherwise, if the Biden administration were to attempt to stall the congressionally mandated lease sale program — the tax bill calls for two sales of at least 400,000 acres each by 2027 — with a Republican-controlled Senate, the fight over development of the coastal plain would likely move to confirmation hearings and votes over administration appointments. Alaska Oil and Gas Association CEO Kara Moriarty said she has absolutely no idea what the industry’s interest will be in the coastal plain if or when a sale is held given all of the political and economic factors at play. While some companies may be limited by the amount of capital they have to immediately invest in obtaining leases with currently depressed energy markets, companies will not be making the decision of whether or not to bid in an ANWR sale based on current markets, Moriarty emphasized, as oil production from the area is at least a decade away. She also noted that a lease does not come with a license to drill and additional permitting would be required for any on-the-ground activity. “There is absolutely no harm in offering a lease sale,” Moriarty said. Many observers believe that while the fight over exploration in the coastal plain garners the national attention, the nearly-completed overhaul of the land-use plan for the NPR-A — aimed at opening more of the western Slope to development — will attract much more interest from industry given the recent large Nanushuk formation oil discoveries made in the area. However, all of the political permutations are largely rendered moot if the BLM’s environmental impact statement for the coastal plain leasing program can’t hold up in court, and it’s getting plenty of scrutiny. The Gwich’in Steering Committee, a group of leaders from Interior Alaska Native villages, and a coalition of conservation groups sued Bernhardt and Interior agencies Aug. 24 in part for failing to consider the cumulative impacts of development in the environmental review of the lease sale. The Tribal governments of the communities of Arctic Village and Venetie also sued Interior Sept. 9, alleging agency officials ignored the impact that disruption of the Porcupine caribou heard, which calves on portions of the coastal plain, could have on residents of the villages that are outside of the immediate development area. The attorneys general of 15 states took their shot at Interior as well Sept. 8, filing a joint lawsuit to stop the leasing program. The states — from across the country — contend the Trump administration did not analyze a sufficient range of leasing alternatives in its review and, among other things, did not consider the contribution the oil produced from the coastal plain could have on the climate. The Justice Department has not yet responded to the complaints. Elwood Brehmer can be reached at [email protected]

USDA announces tariff relief for seafood harvesters

Harvesters in more than a dozen commercial fisheries across Alaska that have been hit in the pocketbook by foreign tariffs on American seafood are eligible for part of $530 million in federal aid from the U.S. Department of Agriculture. The USDA announced Sept. 9 that the money is meant to offset weaker market conditions for American seafood brought on by import tariffs. A statement announcing the availability of the funds, which will be dispersed through the USDA’s new Seafood Trade Relief Program, says generally that the aid is meant to help commercial fishermen “impacted by retaliatory tariffs from foreign governments,” but it is understood to be a direct response to tariffs from China. “Many nations have not played by the rules for a long time, and President Trump is the first president to stand up to them and send a clear message that the United States will no longer tolerate unfair trade practices. The Seafood Trade Relief Program ensures fishermen ” USDA Secretary Sonny Perdue said in a prepared statement. The money will be available to commercial fishermen that participated in fisheries that, by species, suffered more than $5 million in retaliatory trade damages, according to program documents provided by the USDA. The Alaska fisheries include: Atka mackerel Dungeness, king, and Tanner crab Geoduck Herring Pacific cod Pollock Black cod (sablefish) Salmon Sole   The aid is capped at $250,000 per person. Fishermen can apply for the aid from Sept. 14 to Dec. 14 through local USDA Service Centers. Eligible fishermen will receive funds on a per pound basis according to USDA calculations that attempt to determine to what level the price of a given species was impacted by the tariffs. Atka mackerel fishermen, for example, can receive 10 cents per pound, while harvesters of the more valuable geoduck clam can receive 76 cents per pound — the highest payment amount among the qualifying species. The funds will come from the Commodity Credit Corp. that is administered by the USDA’s Farm Service Agency. China has placed tariffs of varying levels — some up to 40 percent — on American seafood imports following import tariffs levied on hundreds of billions of dollars worth of Chinese goods, starting in 2018. With an annual value of roughly $2.5 billion, seafood is far and away Alaska’s top export and accounts for about half of the value of all the products and commodities shipped out of the state, according to figures from the Alaska Office of International Trade. Additionally, China is the state’s largest trading partner. The country has purchased about $1.2 billion worth of Alaska goods — about one-quarter of all the state’s exports — in recent years. Many in the state’s fishing industry initially feared the Trump administration’s tariffs on seafood imported from China would doubly hit Alaska-harvested fish and shellfish, as much of the state’s catch is sent across the Pacific for processing in China before returning to the U.S. as a finished retail product. However, administration officials exempted domestically sourced seafood products that are eventually imported from China from the tariffs in July 2018 after National Oceanic and Atmospheric Administration officials discussed the issue with those in the U.S. Embassy in Beijing. United Fishermen of Alaska Executive Director Frances Leach said she got a call “bright and early” Sept. 9 from White House food and agriculture officials about a subsequent briefing that included the president’s advisors for a program that would benefit Alaska’s commercial fishermen. Leach emphasized that Sen. Dan Sullivan was “very instrumental” in getting the aid for fishermen across the country. She noted harvesters of other food commodities — many of the nation’s farmers — previously received federal aid to offset the impacts by China’s tariffs. The Seafood Trade Relief Program simply provides similar help to the country’s seafood harvesters. “Sen. Sullivan just kept pushing and pushing to say, ‘commercial fishermen were impacted by this, too.’” Leach described. Sen. Lisa Murkowski said she is pleased the administration has recognized the importance of a healthy seafood industry after more than two years of retaliatory tariffs from China and also thanked Sullivan for his “relentless efforts to educate the administration” on the issue. Sullivan serves on the Senate Commerce, Science and Transportation Committee and the subcommittees covering fisheries and trade. He has regularly called out the trade practices of the Chinese government but has also been critical at times of the Trump administration’s often blunt approach to the issue. Staff in Sullivan’s office said that while the aid does not solve the more country’s fundamental trade issues with China, the Chinese government has long violated international trade rules. Sullivan said in a formal statement that he raised the issue of tariff relief for Alaska fishermen in discussions with numerous administration officials, including Trump, Perdue and Vice President Mike Pence. “I am very appreciative that the White House and the Department of Agriculture listened to the fishermen in Alaska and across the country, and are offering substantial, historic financial assistance to these hard-working individuals,” he said. “As I often say, Alaska is the superpower of seafood for our nation, and our fishermen are America’s ultimate small business.” Leach reminded fishermen who apply for the aid that it is not meant for fishermen who had their business impacted by the pandemic; there are other aid programs for that. “This is specific and only for tariff relief,” she said. Alaska’s large commercial halibut fishery was left off the list of eligible fisheries because halibut is mostly sold domestically, particularly to restaurants, according to Leach. However, she questioned why the sea cucumber fishery was left off as well. “Sea cucumber divers were one of the first (groups) impacted by Chinese tariffs and lost a lot of money,” Leach said. The money is only available to harvesters; processors are not eligible, Leach clarified as well. Still, she encouraged Alaskan fishermen to apply for the aid as quickly as possible, given the $530 million will eventually be spread nationwide. “It’s half-a-billion dollars, however, when you’re looking to help fishermen across the country those dollars start to dwindle very fast,” Leach said. Elwood Brehmer can be reached at [email protected]

Analysis: initiative would ‘erode’ Slope competitiveness

The leaders of Vote Yes for Alaska’s Fair Share insist their oil tax increase will provide upwards of $1 billion per year to the state when it’s needed most but an independent economic analysis of the measure concluded it would take an already marginally competitive regime to near the bottom of the heap. Irena Agalliu, the vice president of upstream energy at the London-based financial research and consulting firm IHS Markit emphasized that the oil production tax changes in the Fair Share Act initiative would be enacted at a time when the industry is facing two crises — the pandemic and an oil price collapse exacerbated by a dispute between Saudi Arabia and Russia. It’s a point industry advocates and other opponents of the tax increase have also highlighted in recent months. The sponsors of Ballot Measure 1 for the November general election counter that few, if any, oil projects are profitable at the very low prices seen while the most strict pandemic response measures were in place earlier this year. Agalliu discussed the IHS Markit comparisons of Alaska’s current and potential oil tax systems against other oil provinces domestically and worldwide during a Sept. 2 videoconferenced presentation hosted by the Alaska policy think tank Commonwealth North. According to the IHS Markit analysis of Alaska’s current and proposed oil taxes against Lower 48 and offshore international oil developments, the large North Slope oil fields the measure would apply to are currently more competitive based on average cash flow than many Lower 48 shale oil plays in the $35 per barrel price range because of higher private royalties across the rest of the country and the ballot measure would change that only slightly. However, Agalliu noted that investments in new projects simply would not be made in most places, including Alaska, based on those market prices. “At $35 per barrel a majority of the jurisdictions have a negative NPV per barrel,” Agalliu said of Alaska, Lower 48 shale and large offshore oil fields worldwide. NPV, or net present value, is a calculation of the cash outflows and inflows resulting from an investment, in this case in an oil field. IHS Markit analysts expect oil prices to eventually return to the pre-pandemic average of roughly $60 per barrel, according to Agalliu, but that may take two to three years, she said. In the $60 per barrel range, both the current tax, commonly referred to by its bill title Senate Bill 21, and the ballot measure begin to make large Alaska projects fade in terms of investment competitiveness both domestically and against comparable investments worldwide, Agalliu said. That’s because North Slope oil projects have relatively high development costs and the state’s tax regime is heavily progressive, meaning the net profits tax increases significantly along with oil prices. “The government in Alaska tries to capture most of the upside,” Agalliu said. Under SB 21, the 500 million-barrel North Slope field modeled by IHS Markit analysts has an NPV of $1.16 per produced barrel of oil. That same barrel would have an NPV of $0.25 under the Fair Share Act, according to Agalliu. “Under Ballot Measure 1 Alaska’s NPV is barely positive and even the current fiscal system yields four to five times lower value per barrel to investors than let’s say Brazil or U.S. Gulf of Mexico (oil projects),” she said. The Fair Share Act would increase both the current 4 percent gross minimum and the tiered net profits tax rates. Initiative backers stress that SB 21 has resulted in the state receiving less than 20 percent of the gross revenue from North Slope oil in recent years, while historically the state has gotten 28 percent of that pie. Opponents retort that the ballot measure would give North Slope projects a higher “government take,” or the amount of gross oil revenue captured through royalties and taxes, than nearly all of the Lower 48 unconventional oil plays they are competing for capital against. However, Agalliu said the government take metric does not always give an accurate comparison of project investments because projects can be uneconomic but have little government take. At a higher level, she said the frequent amendments and overhauls to Alaska’s production tax code over the last roughly 15 years have indeed impacted investment in one of the state’s primary industries. “There’s been reports of a loss of confidence in the investor system,” Agalliu said of Alaska, a point frequently noted by ballot measure opponents. She also said other states and countries — if they are going to change them — generally lower taxes during periods of low oil prices, while the Fair Share Act would do the opposite. Initiative supporters contend several of the state’s tax changes since the mid-2000s have benefitted industry, most notably SB 21 in 2013, and the price-tax relationships must be analyzed over the long-term, not just at low prices. Elwood Brehmer can be reached at [email protected]

Tax credit bond scheme shot down

The Dunleavy administration is going to ask the Supreme Court to reconsider a unanimous decision barring the state from selling bonds to pay off more than $700 million worth of oil industry tax credits, according to the attorney that won the case. Juneau-based attorney Joe Geldhof said a representative from the attorney general’s office called him Sept. 7 to discuss the administration’s plan to file a request for a rehearing of a lawsuit challenging the state’s complex plan to pay off its outstanding oil and gas tax credit obligation, which currently stands at $743 million, according to a statement from the governor’s office. The five-justice court in a Sept. 4 ruling unanimously overturned a January 2019 Superior Court decision that dismissed the lawsuit over the constitutionality of House Bill 331, the legislation to enact the bond plan first proposed by former Gov. Bill Walker’s administration. Passed by the Legislature in the spring of 2018, HB 331 authorized the Department of Revenue to establish Alaska Tax Credit Certificate Bond Corp. for the sole purpose of issuing 10-year bonds to pay off the large sum of accumulated tax credits. The plan was pitched as a way for the state to improve its standing with large investors following Walker’s decision in 2015 and subsequent decisions by the Legislature that the state could no longer afford to pay off the balance of the credits earned in a given year. Prior to Walker’s $200 million tax credit budget vetos in 2015 and $430 million in 2016, the Legislature had appropriated, and the administration had spent, funds to pay off all of the industry activity credits earned by small oil and gas companies each year. The credits were largely issued to small exploration companies that did qualifying work, but they were then often used as collateral for loans issued by investment banks to support additional exploration work. A commonly used credit for explorers with no production and no tax liability had the state paying 35 percent of the cost of qualifying work in cash. The Legislature largely ended tax credit program in 2017 as state revenues remained low and savings started to dwindle. However, the credits earned but unpaid in previous years remained. When the earned credits weren’t paid off in full in the fiscal years 2016-18 state budgets, as had previously been done, the banks holding them mostly stopped lending into the Alaska oil sector. Walker administration officials and Republicans in the Legislature — often at odds over oil tax policy — particularly touted a provision requiring the companies to accept a 10 percent discount off of the face value of the credits they held. The 10 percent discount would allow the state to cover interest on the bonds and administrative fees without ultimately paying more than the sum of the actual tax credit certificates. The court’s 63-page ruling, written by now-retired Justice Craig Stowers, states that along with other factors, “the plain text” of Article IX of the Alaska Constitution controlled the justices’ decision to invalidate HB 331. The state Constitution generally limits the Legislature from bonding for debt to general obligation, or GO, bonds for capital projects, veterans’ housing and state emergencies. In most cases the voters must approve the GO bond proposals before the bonds are sold. State corporations can also sell revenue bonds, but those are usually linked to a corresponding income stream and only obligate the corporation to make payments, not the State of Alaska as a whole. State attorneys contended HB 331 was legal because the bonds would’ve been “subject to appropriation” by the Legislature and therefore would not legally bind the state to make the annual debt payments. They also noted the state has used similar bonding plans to fund projects, such as prisons, without objection. However, Stowers wrote that “sanctioning subject to appropriation bonds would create ‘two classifications’ of bonded indebtedness, solely for the sake of legislative expedience” and records from the state’s constitutional convention indicate the framers rejected that concept in multiple ways. Eric Forrer, the retired contractor and former University of Alaska regent who filed the public interest lawsuit said in an interview that from the outset he believed HB 331 was “unconstitutional on its face” given the tight constitutional sideboards that control state debt. The ruling, he said, will force the oil companies and banks holding the credits to compete for funds alongside traditional government expenses such as education and public safety as the constitutional framers intended. While he objected to the specifics of the plan in HB 331, Forrer said he was particularly concerned over what local governments might do if the law went unchecked, as they could have been able to set up similar bond corporations to fund many types of work. “(The ruling) will prevent municipalities and lighter-weight governments from getting themselves into serious trouble,” Forrer said. “Borrowing has grave consequences regardless of the worthiness of the subject.” A statement from Gov. Mike Dunleavy’s office noted that the administration will not move forward with a bond sale in light of the ruling. “The Department of Revenue and Law have undertaken an in-depth review to understand the impacts of the Forrer decision,” the statement reads. Geldhof said he took the statement — combined with the expectation that the state will petition the court for a rehearing of the case — to mean the administration is looking a way around the court’s ruling. “It’s clear the administration has embarked on a review to come up with a new scheme,” he said. “The creativity and the ability to find workarounds in the financial industry is awesome.” Under Alaska Court Rule 506, the court can order a rehearing if it determines a fact, statute, or other relevant matter has been overlooked or misconstrued but the petition must be filed within 10 days after the decision is issued. When asked about a petition for a rehearing, Department of Law spokeswoman Maria Bahr wrote via email that the state “needs more time to analyze its options, and to that extent, will be asking for an extension of time to consider filing a petition for rehearing.” Dunleavy spokesman Corey Young wrote in response to a question about the administration’s plan to pay down the obligation that the governor is considering all available options to deal with the situation. “He looks forward to working with the Legislature to come up with solutions that are fiscally responsible for the entire State of Alaska,” Young wrote. Republican Senate President Cathy Giessel, a staunch defender of the initial tax credit program who was defeated in the August primary election, said in an interview prior to the Supreme Court decision that she was unsure if the state could afford to either pay off the credits if HB 331 were shot down or even follow through with the bond plan given a roughly billion-dollar deficit is projected for the current 2021 state fiscal year and state savings accounts are nearly dry. Sen. Bill Wielechowski, D-Anchorage, was one of the first lawmakers to question the constitutionality of HB 331 in committee hearings. He said in an interview that he supported paying off the accumulated credits annually when the state had the money, but now the lesser, formula-driven amount called for in statute should simply be used again until the credits are paid off. “The oil companies have to come in and make a compelling argument that we should pay above the statutory amount,” Wielechowski said. “Now they’re competing with everything.” According to Department of Revenue projections, the state should have appropriated $36 million in the current fiscal year to meet the statutory calculation but lawmakers and administration officials chose to rely on a favorable ruling from the Supreme Court, which turned out to be a losing proposition. In the future the state would have to pay between $40 million and $78 million per year to meet payment obligation laid out by the statutory formula. Initial interest-only payments on the bond debt were calculated at $27 million when HB 331 was passed in 2018. At the time, with higher oil prices and more production tax revenue, the statutory payment formula called for the state to make a credit payment of $184 million. Alaska Oil and Gas Association CEO Kara Moriary said the decision is a “huge disappointment” for the industry and also questioned how it would impact the state’s attempt to fund other activities. “Clearly it reinforces an impression that the investment world has about Alaska — about being an unstable place to do business,” Moriarty said. She noted that the companies that earned the credits simply took what the state was offering for their work. “Those companies are caught up in it. They have done nothing wrong,” she said. “I think the state has a moral obligation to pay them at the very least.” Geldhof insisted there will be a lot of pressure on the administration and the Legislature to prioritize paying the tax credits in the lead up to the January start of the legislative session even with the state’s bleak financial outlook. “There’s too much evidence that the lobbyists and the companies holding these things want to go to the front of the line,” he said. ^ Elwood Brehmer can be reached at [email protected]

Trilogy: Copper prospect still profitable at higher costs

Costs have grown but expectations remain high for what developers hope will be the first in a series of hard rock mines in Interior Alaska. The Arctic copper, zinc and precious metals prospect has a post-tax net present value, or NPV, of approximately $1.3 billion at current metal prices and a value of more than $1.1 billion based on longer-term price forecasts, according to a feasibility study conducted by Trilogy Metals Inc., which owns claims to the deposit. The study also concluded that the project would have a post-tax payback period of 2.6 years and a final investor return rate of about 27 percent. Those figures are despite the fact that the total expected capital cost for the remote mine has increased 34 percent to more than $1.2 billion largely due to findings that the project will likely have to treat a lot more water than was once thought. A 5 percent increase in dilution, or mined waste rock, also slightly lowered the grade of the copper, zinc, gold, silver and lead reserves in the project. However, with 2.1 billion pounds of probable copper reserves averaging more than 2.2 percent, Arctic is still one of the highest-grade copper prospects going, according to Trilogy leaders. A pre-feasibility study published in February 2018 pegged Arctic’s all-in capital cost at $910 million. “Overall, we’re very happy with the results of this feasibility study considering the capital increases that we’ve seen in the project and factoring in that there’s no new resources that have been included as part of this project,” CEO Tony Giardini said in a call with investors. Located in the middle of the Ambler mining district on the southern edge of the Brooks Range, the Arctic mine project is the most advanced prospect of more than a dozen in the roughly 75-mile long district. It also would likely be the first mine serviced by the state-sponsored Ambler access road, which has drawn the ire of many area residents and conservation groups. Giardini also said the company has identified opportunities to extend the open pit mine beyond its current 12-year life — as part of the current prospect and processing other deposits through the Arctic facilities — that need to be studied further. Bob Jacko, the operations director for Vancouver-based Trilogy said a roughly 30 percent increase in annual precipitation at the mine site in recent years will require larger sewage and water treatment systems than previously thought, adding to the capital and operating expenses of the project. The new water will also necessitate a more robust tailings dam; the initial tailings infrastructure cost has gone from $30.3 million in the 2018 study to $69 million currently. “It gets us in every area of the operation,” Jacko said of the additional water, noting the need to treat larger quantities adds to closure costs. Giardini said the increased capital costs are the primary driver in a reduction of cash flow — from $4.5 billion pre-tax in 2018 to $3.7 billion today. While Arctic was initially explored by Trilogy, a junior mining firm, Australian-based South32 bought into the project late last year and the company’s have since formed Ambler Metals LLC, the operating company for the advanced Arctic and nearby Bornite multi-metal prospects. Trilogy and South32 each hold 50 percent of Ambler Metals. Even with Arctic’s positive — if slightly tempered — financial indicators, a decision to ultimately build the mine will depend primarily on how quickly the Alaska Industrial Development and Export Authority can progress development of the Ambler access road, Giardini said. Trilogy leaders have long said the 211-mile industrial-use road is a prerequisite to constructing any mine in the remote mineral belt. The toll road concept is modeled after the DeLong Mountain Transportation System owned by AIDEA that feeds the Red Dog zinc mine in Northwest Alaska. Ambler Metals signed a memorandum of understanding with the state development bank in June in which the company agreed to fund half of the stakeholder outreach and pre-development engineering and study costs up to $35 million. Estimated in 2017 to cost between $280 million and $380 million for basic gravel construction, the road’s final environmental impact statement, or EIS, conducted by the Bureau for Land Management, now pegs the total construction cost at approximately $520 million. BLM issued a record of decision approving the project July 23. Trilogy Chief Financial Officer Elaine Sanders said there is no firm toll agreement with AIDEA for use of the road, but Trilogy factored a toll of $8.04 per metric ton of material hauled, up from $4.70 per ton in the pre-feasibility study, which reflects the change in the expected cost of the road. Overall, Trilogy expects the project would pay roughly $20 million per year in road tolls plus another $2.50 per ton in maintenance fees, according to Sanders. “We all know we’re going to be paying some type of toll,” she said. Local governments for villages near the road’s planned intersection with the Dalton Highway have formally opposed the road over concerns it will impact migrating caribou and could eventually be opened to the public — thus increasing hunting and recreational pressure — in areas relied upon for subsistence harvests. Critics have also questioned the economics of the toll road concept given the Arctic prospect is the only one in the region anywhere close to development-ready. AIDEA spokesman Karsten Rodvik wrote via email that authority and Ambler Metals officials are in continued discussions about funding the next phases of the road. “Based on preliminary estimates, and assuming a negotiated minimum annual assessment with Ambler Metals similar to the DeLong Mountain Transportation System, one mine could be sufficient to finance the toll road structure, Rodvik wrote. “Given the established access, AIDEA anticipates that over time, other mines within the district will be developed and opened, paying fees to use the road.” Giardini said a decision to break ground at Arctic would likely come shortly after what is expected to be a roughly three-year development period for the road, putting early work at the mine in the 2024-26 timeframe. Elwood Brehmer can be reached at [email protected]

AOGCC considering revisions to well bonding requirements

State regulators under the Dunleavy administration are continuing to tweak bonding requirements for oil and gas wells overhauled just more than a year ago. The Alaska Oil and Gas Conservation Commission held a brief public hearing Sept. 1 to take testimony on proposed changes to the bonding requirements that would increase the amount of time an operator has to post a given bond amount. The amended regulations would also allow the three-member commission to reduce the state’s minimum bond requirement on a case-by-case basis if a landowner requires a bond be posted to cover plugging and abandonment costs. The commission, which oversees technical drilling and other subsurface oil and gas industry matters and is chaired by Gov. Mike Dunleavy’s former deputy chief of staff Jeremy Price, published the prospective changes following numerous appeals heard last winter from operators to the new requirements. Examining and repealing business regulations deemed burdensome or unnecessary has been a focal point of the Dunleavy administration. After nearly two years of hearings and deliberation, in May 2019 the AOGCC approved regulations that greatly increased the bond amounts companies with wells are required to post. When those bonding minimums were being considered, commissioners noted the amount the state requires well holders to hold for well plugging and abandonment costs hadn’t been updated for decades. They cited a 1991 Legislative Budget and Audit report that said the State of Alaska should update its minimum well bonding requirements then. 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,” which were the required amounts until the 2019 revision. The 1991 report concluded that an operator with a $200,000 bond then likely wouldn’t be able to cover plugging and abandonment costs. The new five-tier bond schedule requires those holding up to 10 wells to post $400,000 per well. Operators with between 11 and 40 wells must post a cumulative $6 million bond and the amounts gradually increase to $30 million for operators with more than 1,000 wells. Alaska’s largest fields, Prudhoe Bay and Kuparuk River, each contain more than 1,100 well bores. Former AOGCC chair Hollis French — appointed by former Gov. Bill Walker and fired by Dunleavy for alleged poor work habits — said the effort to update the bond amounts was aimed particularly at small oil and gas companies after bankruptcies in the industry following the collapse of oil prices in 2014-15. Leaders of Malamute Energy, a small North Slope operator that holds two wells just inside the federal National Petroleum Reserve-Alaska, testified in a January hearing that the company is in a rather unique situation that justified an exemption from the new requirements. Malamute’s minimum bond for the Umiat Unit that contains the wells had recently been increased by the Bureau of Land Management from $200,000 to $1.25 million, much greater than the $800,000 the company must eventually hold for the state, company President Leonard Sojka said at the time. While the vast majority of oil and gas development has historically been on state acreage on the North Slope and across the Cook Inlet basin, the industry — led by ConocoPhillips — is increasing activity in the NPR-A and the prospect of exploration in the Arctic National Wildlife Refuge could lead to similar situations. Alaska Native corporations have also sought more exploration on their lands in recent years; some of that work — as with Doyon and Ahtna — has been done by the companies themselves but traditional oil operators have also signed agreements to explore on Native lands. The commissioners did not comment during the meeting and Price did not respond to follow-up questions in time for this story. Kenai Peninsula resident Jim White testified Sept. 1 that the state’s costly bond requirements prevent individual Alaskans from participating in the state’s oil and gas industry. White said in prior testimony objecting to the bonds that he holds subsurface mineral rights to 4,600 acres on the peninsula. “(A homesteader) can’t own that oil and gas until he gets the oil to the surface so when the bonding requirement gets so high, he’s being deprived of what he paid for,” White said in describing his situation. “The homesteader feels like he got a raw deal; he didn’t get what he paid for.” The proposed regulations would also take the number of installments operators can use to reach the required bond amount from four annual payments to seven. The second through sixth installments would be due each Aug. 16 “of the first five years following the first installment and must be a minimum of one-sixth of the difference between the operator’s level of bonding and, if required, security after payment of the first installment and the level required under (other regulations),” the proposed regulations state. John Hendrix, who purchased the Cook Inlet gas producer Furie Operating Alaska out of bankruptcy earlier this summer, submitted written testimony supporting the changes as long as they also account for a bond or other financial security an operator has with another state agency. Furie has set up a “sinking fund” with the Department of Natural Resources for dismantlement, removal and reclamation of the company’s offshore Cook Inlet platform. “Ensuring continued investment and production from Cook Inlet will allow the Railbelt utilities and the Interior to provide reliable energy for a sustainable economy,” Hendrix wrote. “We appreciate the Commission’s efforts to eliminate redundant financial responsibility requirements that are currently required by multiple State agencies.” The commission is accepting public comments on the proposed regulations through Sept. 10. Elwood Brehmer can be reached at [email protected]

Interior Department sued over revised NPR-A plan

A coalition of environmental groups sued the Interior Department Aug. 24 urging a federal judge to halt implementation of the Trump administration’s plan to expand oil and gas opportunities in Northwest Alaska. The six state and national conservation organizations, including The Wilderness Society, the Northern Alaska Environmental Center and the Alaska Wilderness League allege Bureau of Land Management and Interior Department officials violated at least three longstanding federal laws in selecting a land-use plan for the National Petroleum Reserve-Alaska that would open more than 80 percent of the massive federal parcel to hydrocarbon development. The groups, led by the Anchorage-based nonprofit environmental law firm Trustees for Alaska, argue in-part that BLM Alaska leaders violated the foundational National Environmental Policy Act, or NEPA, by only conducting a cursory review of the impacts of additional development in the petroleum reserve. The agency also did not consider any management alternatives in the final NPR-A land-use environmental impact statement, known as the reserve’s integrated activity plan, meant to substantially increase protections for the reserve’s wildlife and aquatic resources — another NEPA violation, according to the complaint. To the contrary, the final EIS published in late June identifies a preferred alternative that would open more of the nearly 23 million-acre reserve to industry than was contemplated in any of the three action alternatives detailed in the draft review. The most industry-friendly management alternative discussed in the draft EIS would have opened 81 percent of the NPR-A to potential leasing and development, while the BLM’s preferred alternative in the final review would open 82 percent, or 18.7 million acres, of the reserve to leasing by industry. All of the alternatives in the final EIS would also reduce the size of the Teshekpuk Lake Special Area and eliminate the Colville River Special Area — parts of the reserve previously established to support local subsistence harvests and maintain habitat for caribou, waterfowl and other species — the complaint notes. The Obama administration finalized the current NPR-A plan in 2013, which made about 11.8 million acres available for leasing and roughly doubled the size of the Teshekpuk Lake Special Area to 3.6 million acres, with more than 3.1 million acres of the special area off-limits to leasing. Suzanne Bostrom, the Trustees for Alaska attorney who signed the complaint, said in a statement that the Trump Administration is doing everything it can to meet industry’s wishes with little regard for the impacts to locals and wildlife in the region. “BLM’s decision to launch an all-out assault on the western Arctic is completely at odds with its obligation to provide maximum protection for areas like Teshekpuk Lake and lands and waters essential to the health of western Arctic animals and people,” Bostrom said. She wrote via email that the lawsuit was filed before BLM has issued a record of decision finalizing its plan because of a clause in federal law requiring any complaint specific to an NPR-A leasing review be made within 60 days of publication of the final EIS. In unrelated cases, Trustees attorneys have successfully sued the Interior leadership twice in the past two years to have separate land exchange agreements meant to facilitate an emergency access road through what is now the Izembek National Wildlife Refuge on the Alaska Peninsula. The firm is also leading another suit filed Aug. 24 against Interior officials over the administration’s plan to open the coastal plain of the Arctic National Wildlife Refuge in far northeast Alaska to oil and gas exploration. BLM’s preferred alternative for the NPR-A would open the entire 3.6 million-acre Teshekpuk Lake Special Area to leasing with limitations on activities and permanent facilities intended to limit impacts to wildlife. The area around the large lake, which sits in the northeast corner of the reserve, has become of particular interest to oil and gas industry advocates because of large Nanushuk formation oil discoveries made on nearby state land and within the NPR-A. Those discoveries led the U.S. Geological Survey in late 2017 to increase its resource assessment for the reserve to nearly 8.7 billion barrels of technically recoverable, undiscovered oil. A 2010 NPR-A assessment projected a mean resource estimate for the reserve of just 896 million barrels. The vast majority of the acreage currently under lease is held by ConocoPhillips, which is in the environmental permitting process for its large Willow oil prospect in the northeast portion of the reserve and is also working on smaller projects in the area. Expected to cost up to $6 billion to fully build out, the Willow project could produce upwards of 160,000 barrels of oil per day at its peak, according to the company. Former Interior Secretary Ryan Zinke first directed department agencies to reevaluate the reserve’s oil and gas potential as well as changes to the management plan in May 2017. BLM’s preferred management plan for the reserve includes elements from the range of alternatives analyzed in the draft EIS and was developed with input from cooperating agencies and stakeholders, according to the agency’s Alaska spokeswoman Lesli Ellis-Wouters. BLM officials expect the new management plan could help spur oil production of up to 500,000 barrels per day over the next 20 years with up to 250 miles of new roads and approximately 20 new drilling pads in the reserve under a “high development scenario,” according to the agency’s analysis. The complaint additionally alleges that BLM violated the 1976 Naval Petroleum Reserves Production Act and related regulations by voiding many protections put in place for the Teshekpuk Lake area and doing away with the Colville River Special Area entirely. “The (NPRPA) instructed the Secretary of the Interior to designate any areas containing significant subsistence, recreational, fish and wildlife, or historical or scenic values as special areas and to provide ‘maximum protection’ for those values,” the complaint states. The alleged failure to fully analyze all of the impacts resulting from industry activity under the new management plan also violates the Administrative Procedures Act, according to Trustees attorneys. Elwood Brehmer can be reached at [email protected]

Hydro expansion another step in grid improvement

A small valve opened in a remote mountain valley at the head of Kachamek Bay sending a stream of water downhill that will eventually become low-cost power for places as far away as Fairbanks. The Alaska Energy Authority started flowing water through its West Fork Upper Battle Creek Diversion Project Aug. 25. The $47 million project will increase the amount of water in nearby Bradley Lake, in-turn increasing the practical power production capacity of the AEA-owned Bradley Lake Hydro Project by about 10 percent, according to AEA project manager Bryan Carey. Already the largest hydro plant in the state, Bradley annually produces about 380,000 megawatt-hours of power for the six electric utilities in Alaska’s Railbelt. The reliable supply of glacial-fed “fuel” stored behind the Bradley dam can be used by the utilities to manage the variable portion of their electric load and optimize operation of their gas-fired generators. “We want our gas turbines to be at the sweet-spot” for maximum efficiency, Homer Electric Association Board of Directors Vice President David Thomas said during a tour of the new facilities. “You could argue Bradley Lake is the largest battery in the state.” The Bradley Lake turbines are rated to produce up to 120 megawatts of power at any given time but constraints at both ends of the project have limited its average production to about 44 megawatts. And because Bradley power costs just 4 cents per kilowatt-hour to produce, according to AEA — making it some of the cheapest power in the state — more is better, said Tony Izzo CEO of Matanuska Electric Association. Izzo also chairs the Bradley Lake Project Management Committee. The hydro project is operated by HEA under a contract with AEA. Feedstock natural gas for the utility’s other power plants calculates out to a cost of about 8 cents per kWh. “It’s pretty easy to see the benefit (of Bradley Lake) when you look at the numbers,” Izzo said. MEA is in the middle of studies to see how much variable renewable power its grid can accept and identify some of the prime areas for renewable energy generation in its service area. The Battle Creek project will add about 37,300 megawatt-hours of production capacity to Bradley by diverting glacial water from the West Fork of Upper Battle Creek and piping it nearly 2 miles to the manmade lake; enough power to light about 5,000 Railbelt homes, according to AEA. The 60-inch high-density polyethylene pipe buried largely alongside the project access road installed to carry the water from the lake can handle up to 600 cubic feet of water per second, equivalent to a small river, according to Carey. The diversion stream was flowing at about 60 cubic feet per second, or cfs, on Aug. 27, he said. Being short and steep glacial drainages Bradley and Battle creeks do not have many salmon — which makes them good candidates for harnessing their water — but they do have some. AEA is required to keep an average minimum flow of 15 cfs in Battle Creek to maintain fish habitat. Carey acknowledged the project will likely change the fish habitat some; the stabilized flow is likely to benefit salmon such as kings that spawn mid-stream, but could challenge others. He said Battle Creek was finished on time, but slightly over budget — AEA previously pegged it at about $44 million — but Izzo noted it was completed within the parameters of the original financing plan and small overruns are often a fact of life for that type of work. “On a remote project in the mountains, that’s not exceptional,” Carey said. At about $16 million, the three miles of new road needed to reach the project accounted for approximately 40 percent of the overall cost of the work, which was led by Anchorage-based Orion Marine Contractors. AEA and utility officials noted the recent agreement to purchase of the 39-mile Soldotna-to-Quartz Creek segment of transmission line by the authority from HEA is another small step along with the commissioning of the Battle Creek project to spur more efficient power production and distribution Railbelt-wide. The “S-Q” transmission line was out of service for about four months last year following damage from the Swan Lake fire, which cost ratepayers to the north about $11 million by cutting off access to Bradley Lake and necessitating more gas-fired power. Even when the 115-kilovolt line is operational, it has “line loss,” or the amount of power lost during transmission, of about 40 percent at maximum capacity, according to AEA Engineering Director Kirk Warren. The goal is to eventually upgrade the S-Q line under AEA’s ownership with financial support from the utilities that will benefit. Warren estimated upgrading the S-Q line to 230 kilovolts would cost $800,000 or more per mile based on previous work, but it would also allow the utilities to access more Bradley power without losing nearly as much of it to the ether. “It’s part of the overall continued effort to reduce rates or keep rates down and increase the use of renewables,” Izzo said. Elwood Brehmer can be reached at [email protected]

New Corps requirements may signal end for Pebble

The U.S. Army Corps of Engineers gave the Pebble Partnership a very steep final hill to climb to reach federal approval for its mine plan with a short letter establishing strict requirements to offset the project’s impacts to area watersheds. Corps Alaska District Regulatory Chief David Hobbie wrote in a two-page letter on Monday to Pebble Permitting Vice President James Fueg that district officials have determined the copper and gold project, as proposed, would “cause unavoidable adverse impacts to aquatic resources” resulting in significant degradation of those resources. “Therefore, the District has determined that in-kind compensatory mitigation within the Koktuli River Watershed will be required to compensate for all direct and indirect impacts caused by discharges into aquatic resources at the mine site,” Hobbie’s letter states. He wrote additionally that compensatory mitigation will also be required for direct and indirect impacts from the project’s transportation corridor that includes a port on West Cook Inlet. The stringent requirements laid out by Hobbie are in such sharp contrast to Pebble’s proposed mitigation plan and guidelines issued by the Trump administration in 2018 that both mine opponents and traditional resource development advocates reacted to as if the project is ostensibly dead. Under the requirements, Pebble must compensate for impacts to 2,825 acres of wetlands, 132 acres of open water and 129 miles of streams at the mine site, as well as 460 acres of wetlands, 231 acres of open water and 55 miles of streams impacted by the port and 82-mile access road. The company also must submit the new mitigation plan within 90 days. The Koktuli River drains approximately 290,000 acres and contains more than 36,000 acres of wetlands in its headwaters, according to the final environmental impact statement for the project. Sen. Dan Sullivan, an emphatic critic of the Obama administration’s attempt to preemptively “veto” the mine in 2014 via the Environmental Protection Agency’s Clean Water Act Section 404(c) authority, said in a prepared statement that he has always advocated for a “science-based review” of Pebble “that does not trade one resource for another,” and that is what has happened. The Army Corps of Engineers administers Clean Water Act Section 404 wetlands permits nationwide but the EPA has final say over whether a wetlands fill permit is issued. “I have been clear that given the important aquatic system and world-class fishery resource at stake, Pebble, like all resource development projects in Alaska, has to pass a high bar — a bar that the Trump administration has determined Pebble has not met,” Sullivan said. “I support this conclusion — based on the best available science and a rigorous, fair process — that a federal permit cannot be issued.” Sen. Lisa Murkowski said she supports the decision and agrees that “a permit should not be issued.” “After years of extensive process and scientific study, federal officials have determined the Pebble project, as proposed, does not meet the high bar for large-scale development in Bristol Bay,” she said. Sullivan’s challenger in the November election, independent Senate candidate Al Gross opposes the Pebble project. Corps officials released the final Pebble EIS July 24. A record of decision on the EIS and Pebble’s Clean Water Act wetlands fill permit could be issued 30 days after the EIS was published in the Federal Register. The voluminous final EIS generally maintained the conclusions in the draft EIS and states there would be “no measurable change” in the numbers of salmon returning to the Nushagak and Kvichak rivers or in the long-term health of the commercial fisheries in the region. The Koktuli River is in the upper reaches of the Nushugak watershed. Murkowski and Sullivan previously expressed concern that the Corps’ EIS did not sufficiently analyze the full range of potential impacts of the mine, particularly following highly critical comments from federal and state resource agencies about the scope of the review. Bristol Bay Native Corp. CEO Jason Metrokin said in an interview that while the mitigation requirements aren’t an official death knell for the project, he was happy to learn that, from his perspective, the Army Corps has finally concluded what the BBNC, and a majority of Alaskans have; that Pebble’s plan is insufficient. “They can’t produce a quality mitigation plan in three months if they haven’t been able to do so for years,” Metrokin said, noting Pebble has not backed up the claim that its smaller 20-year mine plan is economic. BBNC has long opposed the project and has refused to allow Pebble access to its land for development. Pebble CEO Tom Collier downplayed the significance of the requirements, saying the letter is a normal part of the permitting process and the company is well on its way to developing a mitigation plan to meet them in a prepared statement. The company has had teams totaling about 25 people in the field this summer and a large part of their work has been mapping wetlands in the region over about the past month, according to Collier. Pebble’s new mitigation plan will likely focus on preserving an area multiple times larger than the aquatic areas impacted by the project, which should meet the requirements based on discussions with Corps officials, Collier said. “Anyone suggesting a different opinion — i.e. that Pebble will not be able to comply with the letter or that such compliance will significantly delay issuing a (record of decision) — must be ignorant of the extensive preparation we have undertaken in order to meet the requirements of the letter,” he said. Pebble spokesman Mike Heatwole wrote in an email to follow-up questions that Collier’s statement provides the best information the company has on the work right now and more details will be made public when they are available. Shares in Pebble’s parent company, Vancouver-based Northern Dynasty Minerals Ltd., closed Monday trading on the New York Stock Exchange at 90 cents per share, down 38 percent on the day after the letter was made public. Pebble’s initial compensatory mitigation plan released in January relied on a collection of smaller — and likely less costly — mitigation efforts outside of the Koktuli watershed. The company first planned to replace culverts in the Dillingham area to restore salmon access to about nine miles of spawning and rearing habitat; improve water treatment facilities at villages near the mine site; and periodically clean debris from seven miles of beach around the Cook Inlet port site. All of that potential work is outside of the remote and undeveloped Koktuli watershed. Pebble’s permitting executive Fueg acknowledged when the draft mitigation plan was published that the lack of development in the region beyond the immediate communities made it difficult for the company to identify opportunities to restore damaged wetlands or preserve areas threatened by other development — the more traditional means of wetlands mitigation now being demanded by the Corps. A Corps Alaska District spokesman did not immediately respond to additional questions for this story. Former EPA Administrator Scott Pruitt and Assistant Army Civil Works Secretary R.D. James signed a joint memo in June 2018 that updated guidance from the early 1990s as to how the agencies would handle wetlands mitigation specifically in Alaska. The revised guidance states that Alaska’s situation — more than half of the state is classified as wetlands with relatively little development — means specific, focused compensatory mitigation requirements traditionally used in the Lower 48 often aren’t realistic in Alaska. When avoiding or compensating for development impacts to wetlands is not practicable, minimizing wetlands impacts will be the main means of complying with Clean Water Act requirements, according to the 2018 memo. It also explains that compensatory mitigation over larger watershed scales could be appropriate for Alaska given that options to offset wetlands losses on a more localized scale are often limited. The guidance does not lay out quantitative thresholds for determining major versus minor impacts — that is decided on a case-by-case basis — but it outlines what should be considered in making that determination, an EPA spokeswoman said at the time. Elwood Brehmer can be reached at [email protected]

Greens Creek silver output up; Constantine investigates gold

The owners of a Southeast silver mine again reported production growth last spring despite the pandemic and an explorer in the region believes it is honing in on the source of historic placer gold deposits. Hecla Mining Co. produced 381,000 more ounces of silver at the Greens Creek underground mine near Juneau in the second quarter from a year ago — a 17 percent increase to 2.7 million ounces. For the year, silver production at Greens Creek is up more than 920,000 ounces, or nearly 20 percent, from the first half of 2019 to 5.5 million ounces total, according to the company’s quarterly earnings and operational report. Gold production at Greens Creek was down 8 percent, however, to 25,300 ounces in the first half of the year. The improved production at Greens Creek helped Idaho-based Hecla increase its overall sales revenue by 24 percent to $166.4 million in the second quarter. Hecla’s Alaska mine accounted for 51 percent of the company’s revenue in the quarter. The company also has precious metal mines in the Lower 48, Canada and Mexico. While Hecla still absorbed a net loss of $14 million despite the production growth, CEO Phillips Baker emphasized that the company produces roughly a third of all the silver mined in the U.S. and the second quarter production totals were the best since 2016. “I am extremely proud of our workforce’s adaptability and commitment in this challenging time, which positions Hecla well to improve cash flow generation in this higher silver and gold price environment,” Baker said. Hecla generated $27 million in free cash flow during the quarter. The company has leased a hotel in Juneau where incoming workers are quarantined for seven days before traveling to the Admiralty Island mine for three weeks of work, according to a monthly investor presentation. With the long-term upward trajectory of production at Greens Creek — Hecla has increased annual ore throughput at the mine 15 percent since purchasing it in 2008 — the company also increased silver reserves by 22 percent at the property last year and expects to operate Greens Creek with strong production into the 2030s, according to the presentation. Constantine gold To the north of Greens Creek on the mainland, Constantine Metals reported Aug. 13 that the company had identified prospects with “high-grade gold sampling results” at its Porcupine Creek property north of Haines. The prospects, dubbed Golden Eagle and McKinley Creek Falls, are located up a valley from historical placer operations. Historical mineral sampling by the U.S. Bureau of Mines produced samples with mineralization of up to 531 grams per ton of gold, according to Constantine. Company President Garfield MacVeigh said the high-grade occurrences have received little investigation for their potential, particularly given geological similarities with other known gold deposits in the region. “We look forward to evaluating these previously untested areas of prospective high-grade mineralization,” MacVeigh said. Earlier this year Constantine scaled back the summer exploration program at its nearby Palmer copper prospect from initial plans to limit the risk of spreading COVID-19. The McKinley Creek area, which is 100 percent owned by Constantine, is about five miles east of the much more advanced Palmer deposit. The company spun off the rest of its gold-focused program into HighGold Mining Inc. last year. HighGold is conducting 15,000-meter drilling program at the Johnson Tract prospect within Lake Clark National Park and Preserve. Elwood Brehmer can be reached at [email protected]

New CEO: Safety, customer service top priorities for restarting Ravn

The new leadership team at Ravn Alaska is hopeful scheduled service to many of the hub communities the grounded airline used to serve can resume in mid-September with a renewed focus on customer service. Ravn Alaska CEO Rob McKinney said in an Aug. 18 interview that there is no set return-to-service date because the approximately $9.5 million bankruptcy asset sale closed Aug. 8, meaning the group could not dive into what it had earlier agreed to purchase until then. Restarting the Part 121 business — scheduled service with large aircraft — will require mechanical inspections that became due for several aircraft over the five-month period after it stopped flying; it was by far the largest passenger airline based in Alaska and Ravn’s people will be taking refresher courses before getting back in the air as well, according to McKinney. “Virtually every flight crew is being sent back to training, so everyone’s going to be going to flight safety. All of the flight attendants are going to train from scratch just because of the length of time (since Ravn suspended operations),” McKinney said. “We just want to make sure we err on the side of being conservative.” Ravn Air Group Inc. filed for Chapter 11 protection in Delaware Federal Bankruptcy Court April 5, three days after grounding its fleet of 72 regional and commuter aircraft. Airline leaders said at the time they were forced to shutter following a roughly 90 percent drop in passenger demand at the outset of the coronavirus pandemic. Before closing, Ravn employed approximately 1,300 people and served 115 communities across the state. McKinney said Ravn will need about 400 employees when it starts flying. The Anchorage-based carrier is actively recruiting both former and new employees on its website. Having purchased the Federal Aviation Administration Part 121 flight certificates for both Ravn and Penair, which was purchased out of bankruptcy by Ravn in 2018, McKinney’s group also acquired the associated Ravn-branded aircraft: nine DeHavilland Dash-8s. He said service will be added over several weeks after it initially starts and the plan is to eventually operate in all of the hub communities Ravn previously served with the exception of Kodiak and Kotzebue — also served by Alaska Airlines — at least for the first year. “We’re not going to be able to roll out 14 cities on Day 1, but by the end of week three or so we hope to be over 10 cities that we’re service and be back to probably all 16 cities within six weeks or so,” McKinney said. Ravn won’t be refunding previously booked tickets for unfulfilled flights but passengers can re-book the reservations for future flights as they become available. Unalaska and St. Paul are the “top two” communities on Ravn’s list to serve first primarily because their remote locations mean limited transportation options, he added. Last October, a Penair Saab 2000 aircraft operated by Ravn Air Group skidded off the end of the runway at Unalaska, killing one passenger. Ravn immediately suspended service to Unalaska, which left the major fishing hub without scheduled flight service. The company resumed service after nearly a month on Nov. 14 with the smaller Dash-8 aircraft after experts’ preliminary conclusions that the Saab 2000 overshot the 4,500-foot runway while attempting to land in a swirling tailwind. The pilot also had relatively little experience in the Saab 2000, according to an initial National Transportation Safety Board report on the crash. McKinney noted that Ravn will be flying its Dash-8s to Unalaska when it resumes service. McKinney was part of the group that started Float (Fly Over All Traffic) Shuttle, a Southern California air taxi largely focused on serving Los Angeles and San Diego-area commuters. When state and local coronavirus travel restrictions forced Float to suspend operations, the group began searching for opportunities amidst the most severe downturn in the history of the passenger airline industry and quickly focused its attention on Ravn because of prior time in Alaska, he said. Both McKinney and new Ravn Chief Commercial Officer Dan Kitchens had worked in Alaska aviation before; McKinney for a Southeast carrier and Kitchens for multiple operators in the state, including Ravn. “As soon as we saw in April that they filed for bankruptcy we went to pursue this because we just knew from our experience what an opportunity it was. We knew how much the communities depended on the service to connect them to the city and medical and shopping as well as the rest of the world. We felt that of every airline in the country, Ravn had the best opportunity because so much of the business is freight and people really have to travel regardless of whatever happens to be going on in the world,” he said. While in the process of permanently relocating to Anchorage, McKinney, who has flown extensively as a commuter pilot and managed flight operations for several carriers, offered a common refrain as to why he has come to favor his work in the city over his prior time in Alaska: “Southeast…it rains a lot,” he said. Getting enough people to fly with Ravn again will also require repairing an image that is damaged in many communities. Increasingly unreliable service from Ravn often accompanied with multi-day waits following non-weather-related cancellations in the year-and-a-half after purchasing Penair pushed residents in Bristol Bay-area communities to petition for year-round service from Alaska Airlines, which the major carrier started this summer. Ravn said in statements issued last year that airline leaders reduced scheduled flights in an attempt to right-size the Bristol Bay market specifically following the acquisition of Penair, a former competitor, which at times resulted in more demand than available seats. McKinney acknowledged that a question from the Journal regarding the perception of Ravn statewide was one of many he has received in the same vein. However, he doesn’t believe it would be a worthy investment to rebrand the airline. “I think that’s just needlessly spending money painting airplanes and changing out signs when really people know it’s the same company. They’re going to see a lot of maybe the same employees, but I tell you what — when you come in here with a new message to the employees that customer service is the most important thing and — and I think that if we’re transparent and we publish our completion stats and our on-time performance, I think over time people will see that it’s a new Ravn and we really do care about the customers that we serve,” McKinney said. “It’s not just about doing what hits the bottom the best, but actually making sure that we’re taking care of our customers as best we possibly can and that will pay us dividends in the long-run.” Ravn’s new leaders conducted detailed modeling to determine what business outcomes will be necessary to be successful, but the airline will also be aided greatly by its ownership structure of one, according to McKinney. California entrepreneur Josh Jones is the airlines’ sole investor and he will be patient as Ravn rebuilds its operations, McKinney said. “(Jones) is not a private equity guy. He’s done well for himself. He’s been an incubator of other businesses and started and sold several businesses of his own but just a really, really sharp guy and he saw an opportunity here and saw the vision that we have, so yeah, we have to keep one guy happy, which makes life a lot easier,” McKinney said, adding that Jones wants Ravn to offer free wi-fi at all of its facilities. “He’s very, very customer service driven and believes strongly that if we take care of our customers they will take care of us.” Ravn’s prior majority owners were the New York-based investment firms W Capital Partners and J. F. Lehman and Co., according to bankruptcy filings. Attempts to reach Jones in time for this story were unsuccessful. “We really are a different Ravn; same planes and the same paint but we have such a different attitude towards the people that we serve,” McKinney said. “We truly care about the communities and we want to be a part of their lives that they can depend on.” Elwood Brehmer can be reached at [email protected]

Final Willow review out; production estimate grows again

Oil companies worldwide are struggling to adjust to the immediate pandemic-induced market reset but ConocoPhillips took a step towards the long-term with the Aug. 13 release of the final environmental review of its $4 billion-plus Willow project on the North Slope. Bureau of Land Management Alaska officials backed the company’s amended design for the largest oil development to date in the National Petroleum Reserve-Alaska in the final environmental impact statement for the Willow Master Development Plan. That plan calls for the eventual construction of five drill sites stretching north-south over approximately 20 miles in the northeast corner of the federal petroleum reserve. ConocoPhillips also has two other nearby developments in the NPR-A but the Willow project would be several times larger than the single-drill site Greater Mooses Tooth-1 and 2 projects extending from the Alpine field. ConocoPhillips Alaska leaders have continually increased the expectation for peak oil production from Willow since announcing its discovery in January 2017, from approximately 100,000 barrels per day initially to upwards of 160,000 barrels per day now, according to the EIS. It is being designed with a processing capacity of up to 200,000 barrels per day. Overall, the project is expected to produce about 590 million barrels over 30 years. ConocoPhillips Alaska spokeswoman Natalie Lowman wrote via email that first oil from Willow is planned for the winter of 2025-26. She noted the company had previously disclosed that peak production rates would likely be in excess of 100,000 barrels per day, but the final rates and overall recovery volumes may differ from what is described in the EIS. Company leaders in Alaska have said it will cost roughly $4 billion to achieve first oil at Willow and full field development will be upwards of $6 billion. BLM Alaska Director Chad Padgett said Willow will provide access to valuable resources as well as jobs and revenue for the state; the members of Alaska’s congressional delegation lauded the regulatory progress for the major project in formal statements. “With this important review process completed, we are one step closer to bringing this massive North Slope development to fruition — including hundreds of good-paying jobs for hard-working Alaskans, thousands of barrels a day in TAPS throughput, and billions of dollars of economic activity — without negatively impacting the environment Alaskans cherish,” said Sen. Dan Sullivan. Conservation groups such as the Alaska Wilderness League, however, insist the review downplays the impact the development would have on waterfowl and caribou in the Teshekpuk Lake Special Area, which is currently off-limits to industry and primarily designated to protect breeding and calving habitat for wildlife also harvested by subsistence hunters. “Since the Trump administration took office in 2017, it has been laser-focused on handing some of the largest expanses of wild lands left in North America over to the extraction industries. The rubber-stamping of ConocoPhillips’ Willow proposal is just the latest example,” Alaska Wilderness League Conservation Director Kristen Miller said, also alleging BLM “fast-tracked” the review in the midst of the coronavirus pandemic despite calls to suspend the process until stakeholders could again focus on analyzing a supplemental portion of the EIS. Arctic Slope Regional Corp. and North Slope Native village corporation Kuukpik requested an extension to the spring comment period for the supplemental EIS. Both are significant landowners in the region. BLM officials maintained the original 45-day comment period and held virtual public meetings on the project in early May. Willow is primarily targeting the shallow, conventional Nanushuk formation that has been the source of several North Slope oil discoveries over the past five years, including the $5 billion Pikka project being advanced by Oil Search. It will be the farthest west oilfield on the North Slope if it is developed. ConocoPhillips proposed connecting Willow to GMT-2 with approximately seven miles of gravel road as well as linking the drill sites with year-round roads; BLM officials preferred that plan over options leaving either the drill sites without year-round road access or limiting surface access to Willow to winter ice roads. The company’s plan calls for 37 miles of new roads, seven bridges and one airstrip. The alternative plan to leave the drill sites disconnected from the processing and operations facilities includes two airstrips. Former Assistant Interior Secretary and state Natural Resources Commissioner Joe Balash, who led the Trump administration’s work on numerous Alaska resource development priorities, said recently that subsistence hunters often complain that aircraft activity necessitated by roadless oil projects affects their hunts more than permanent infrastructure. North Slope oilfield roads are also generally open to local use and ConocoPhillips will construct boat ramps at Fish and Judy creeks for subsistence access as part of its work at Willow. The company initially proposed building a temporary island north of the project near Atigaru Point for offloading facility modules barged to the Slope in summer; however, the plan was scrapped after BLM officials heard from residents that construction of the island could disrupt coastal and marine hunts, which spurred the supplemental draft EIS published earlier this year. Instead, ConocoPhillips will build 80 miles of ice roads and an ice bridge across the Colville River to reach the Willow development area. Construction will require 495 miles of ice roads in total over nine seasons, according to the EIS. Elwood Brehmer can be reached at [email protected]


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