Elwood Brehmer

Slope lease sales generate $36 million in state, federal bids

Hopeful companies spent nearly $17.8 million to win leases on more than 630,000 acres of state parcels in one of the most fruitful North Slope oil and gas lease sales in the past 20 years. The sealed bids were opened at state offices in Anchorage Wednesday morning. Winning bids for North Slope leases totaled more than $16.9 million for 599,880 acres — the second-largest sale by acreage and the third-largest amount spent by industry since the state started areawide sales in 1998, according to DNR. In total, the state Division of Oil and Gas received 402 bids on 384 lease tracts on the North Slope. The state-area Beaufort Sea sale attracted eight bids for seven tracts totaling 33,460 acres of near shore leases. The winning Beaufort bids totaled $870,000. No one bid on state leases in the North Slope Foothills area. State officials said the sealed bid results show the oil and gas industry still views Alaska as a prudent investment. “This is great news — for the state and the industry. As Alaska grapples with a $3.5 billion deficit, these $17.8 million of oil and gas lease sales are the first stage to getting much-needed production in our state,” Gov. Bill Walker said in a release from his office. Independents Accumulate Energy and Burgundy Xploration dominated the North Slope sale, picking up more than 420,000 acres on either side of the Dalton Highway south of the developed area of the Slope. Australian-based 88 Energy owns Accumulate and is partnering with Burgundy on the unconventional Icewine exploration project. The acreage the partners won this year adds to their already significant holdings on the southern Slope. The joint venture’s total position will be over 690,000 acres once the leases are transferred, according to an 88 Energy release. 88 Energy has announced promising but highly prospective results from seismic data and a well drilled last winter that includes conventional plays. “Our success in this bid round provides us with the ability to significantly increase our acreage position on the North Slope and highlights the confidence that management has in both the HRZ unconventional play as well as the conventional prospectivity at project Icewine,” 88 Director Dave Wall said in a company statement. ConocoPhillips and Armstrong Energy competed for leases on the western portion of the available state acreage, with Armstrong spending up to $111 per acre to win some tracts. ConocoPhillips walked away with 146,600 additional acres and Armstrong won rights to 39,000 acres of state leases, according to preliminary DNR figures. Armstrong Energy is working to delineate and permit its Nanushuk prospect to the west of the Kuparuk River field, which the company estimates could produce upwards of 120,000 barrels of oil per day once fully developed. NPR-A ConocoPhillips controlled the federal oil and gas lease sale for acreage in the National Petroleum Reserve-Alaska that followed the state sale Wednesday. The federal sale conducted by the Bureau of Land Management attracted $22.5 million in bids and netted more than $18 million in high bids on 613,000 acres in the western North Slope NPR-A. Half of the federal lease revenue will go to the State of Alaska, as part of revenue sharing arrangements for the NPR-A. ConocoPhillips won each parcel it bid on, spending up to about $765,000 each to outbid Armstrong Energy on a couple tracts near the company’s Colville River Unit on the eastern edge of the federal petroleum reserve. The major already holds significant federal acreage and is progressing its two large Greater Moose’s Tooth projects in the NPR-A. Elwood Brehmer can be reached at [email protected]

BlueCrest starts drilling, gets state loan modification

BlueCrest Energy got its $30 million loan with the state reworked days after the rig at the center of the deal began drilling its first oil well. The Alaska Industrial Development and Export Authority board of directors unanimously approved modifications to the terms of its loan to BlueCrest on Dec. 1, which officials of the Texas-based independent say were necessary after Gov. Bill Walker vetoed most of the funding to pay the state’s 2017 fiscal year oil and gas tax credits. The loan changes were met with significant opposition coming primarily from residents of the southern Kenai Peninsula, where BlueCrest is developing its oil project. AIDEA staff received more than two dozen emails and voice messages from Alaskans urging the authority to reject the loan changes after multiple news stories outlined the terms of the proposal in the days leading up to the Dec. 1 meeting. The resistance stemmed mostly from environmental concerns with the company’s plan to hydraulically fracture the wells at its 38-acre onshore drill pad just north of Anchor Point. While the above ground portion of BlueCrest’s Cosmopolitan project is onshore, the angled oil wells are aimed at an oil pool that is just offshore and underneath Cook Inlet. Residents expressed worry that the activity could harm the Inlet’s salmon fisheries, which play a large role in the local economy, and impact the endangered Cook Inlet Beluga whales. Others testified at the meeting during the normally quiet public comment period that BlueCrest’s trucking of its crude about 70 miles north to the Tesoro refinery poses another unnecessary risk and urged AIDEA to invest in renewable energy projects instead. Leaders of state oil and gas industry trade associations supported the proposal during the comment period, contending the new development is a positive in the mature oil basin that has provided many well-paying jobs for the area. BlueCrest Chief Financial Officer John Martinek said in an interview that more than 150 of the 173 individuals employed on the “drilling side” of the operation are local hires. Martinek also said that BlueCrest would need to frack the producing length of each well only once, with a reach of about 220 feet from the well, as opposed to the repeated fracking common in Lower 48 shale oil and gas production. Fred Parady, AIDEA director and deputy commissioner of the state Commerce Department, said during a brief board discussion that worries about potential environmental impacts should be directed to the appropriate regulatory agencies instead of the financiers. “AIDEA’s role as a financing entity is predicated upon the other parts of the process doing their job,” Parady said. He added that AIDEA is only making “minor modifications” to the loan package to accommodate “certain realities of a project that’s viable and ongoing.” The initial $30 million loan was approved amid less scrutiny in April 2015. It was intended to fund construction of the drill rig that is now in place. The seven-year loan terms called for a 15-month “line of credit period” during which interest would accrue. When the payment period commenced a fixed 10 percent interest rate was set to kick in. Additionally, BlueCrest was required to fund a reserve account with $15 million by Dec. 31, 2016, to cover a potential default on the loan or the difference between the outstanding loan amount and the price the rig would garner if it were to be up immediately in a “distressed” sale situation. Delays during rig construction pushed BlueCrest’s production schedule back several months and the veto of the credit money — which the company intended to fund the reserve account — led to the modification request. AIDEA ultimately agreed to a partial deferral of principal payments with interest-only due Jan. 1 through November 2017, after which the original terms kick in, and a reserve account funded with the greater of $5 million or 120 percent of the difference between the loan amount and the assessed “distress sale value,” according to authority Executive Director John Springsteen. Martinek said the company would not have asked for changes to the loan without the tax credit veto. Currently, BlueCrest holds a $19 million credit certificate, essentially a rebate owed by the state, and has received a $2.3 million partial payment, according to Martinek. He said the company has applied for another $30 million in tax credits for its Inlet work and expects to file for another $10 million to $15 million — for a total of nearly $60 million — in credits from its current drilling before the legislation passed earlier this year to phase out the Cook Inlet refundable credits takes full effect. Had the state paid BlueCrest the full amount up front, the company would have drilled offshore gas wells this summer with the Spartan 151 jack-up rig that has been used by other companies in the Inlet, Martinek added. Gov. Walker said in June when he vetoed $430 million in tax credit payments that he could not approve the spend that would come out of state savings without the Legislature taking action to resolve the State of Alaska’s $3 billion-plus annual deficits. Drilling, production, pipeline BlueCrest started drilling the first of what the company hopes will be many production wells with its brand new rig Nov. 27. Drilling of the Hansen 16 well will take about 90 days, Martinek said. From then it will take about another 60 days to complete and frack, putting first production sometime in April; and immediately thereafter work will commence on a second production well, he said. Initial production from Hansen 16, the first well, is projected at between 2,500 and 4,500 barrels of oil per day. The second well will take longer and likely produce more because it will have a lateral offshoot from the initial well, according to Martinek. BlueCrest is targeting the Cosmopolitan oil field, which sits about three miles offshore and 7,000 feet below Cook Inlet. At more than 3,000 horsepower and with a reach of more than 30,000 feet, the rig the company had built to extract the Cosmo oil is the largest onshore drilling rig in the state, according to company officials. BlueCrest has been producing between 175 and 250 barrels per day from a prior well drilled by prior owners of the prospect since early spring. The current production necessitates one tanker truck about every other day to haul the crude north to the Tesoro refinery in Nikiski, Martinek said. When the two new wells are brought online the transport activity will increase to about one truck per hour. Increased tanker truck activity, and the associated spill risk it brings, has been a primary concern of Kenai Peninsula residents who oppose the project. BlueCrest takes the trucking operation very seriously, Martinek said, adding the company has a triple-redundancy built into its loading system to prevent overfilling of the tankers. However, if and when a pipeline is built to the refinery will depend largely on economics. According to Martinek, the cost of the 72-mile pipeline has been estimated at $1 million to $1.5 million per mile. “We’ll let the wells tell us when it’s time to the pipeline in place,” he said. BlueCrest has indicated Cosmopolitan has the capacity to produce upwards of 17,000 barrels of oil per day from 10 production wells — with 10 associated injector wells — but that level of development will depend largely on oil price and state tax policy, according to company executives. Elwood Brehmer can be reached at [email protected]  

It’s official; Alaska Airlines can buy Virgin America

Alaska announced Dec. 6 via a press release that the U.S. Justice Department has approved the $4 billion merger after a lengthy review of the deal for antitrust issues. Executives of Alaska Air Group Inc., the airline’s Seattle-based parent company, have said since the purchase was announced in early April that they expected it to be approved without issue, although it took longer than planned. “We couldn’t be more excited about receiving DOJ clearance for our merger with Virgin America. With this combination now cleared for take-off, we’re thrilled to bring these two companies together and start delivering our low fares and great service to an even larger group of customers,” Air Group Chairman and CEO Brad Tilden said in a formal statement. Alaska Air Group stock finished trading Dec. 6 at $84.80, up 2.02 percent for the day. Virgin America stock was largely unchanged by the approval announcement; it was up 0.62 percent to $56.80 per share at the close of trading Dec. 6. The deal was spurred, from Alaska’s side, by a motivation to create the “premier West Coast airline” by growing the its foothold beyond the Pacific Northwest and into California by capturing San Francisco-based Virgin America’s network, airline officials have said. Additionally, it should increase Alaska’s East Coast reach through Virgin’s cross-country routes originating from its California hubs. Specifically, it is a $2.6 billion cash purchase with Air Group assuming Virgin’s roughly $1.4 billion of debt. It will result in an airline with a fleet of more than 280 aircraft and making roughly 1,200 flights daily between the U.S., Mexico and Latin America. Alaska Air Group’s operating revenue — dominated by Alaska Airlines — was $4.4 billion through the third quarter and led to an even $700 million in net income in the first nine months of 2016. Tilden said during the company’s third quarter conference call with investors that he expects 2016 to be Air Group’s seventh consecutive year of record profits. Alaska Air Group also held more than $3.2 billion in cash and marketable securities through third quarter. Virgin America ended the quarter with $1.2 billion in operating revenue and $107 million in net income year-to-date. The Dec. 6 release also said the Justice Department did not stipulate Alaska Airlines divest any of its existing assets to get approval and the airline hopes to close the deal “in the very near future.” Air Group expects to have a single operating certificate from the FAA by the early 2018, according to the company. (Editor's note: This story has been updated to accurately reflect the status of a lawsuit brought against Alaska Air Group Inc. A settlement was announced shortly after publication.) The airline company issued a statement Dec. 7 announcing that it had reached a settlement in a lawsuit filed a group of attorneys in federal Northern California District Court attempting to halt the merger on the grounds that it would violate federal antitrust laws. The terms of the settlement were kept confidential. The initial complaint, filed in September, called Virgin “a significant rival of Alaska,” as well as “the most innovative, passenger friendly, premium low-cost and unique airline in the industry” and claimed “the lessening of competition and tendency to create a monopoly in the airline industry is unmatched and unparalleled.” Alaska Air Group has said purchasing Virgin America would give the company just 6 percent of the overall domestic market, compared to the nearly 70 percent combined domestic market share held by the four largest airlines — American, Southwest, Delta and United — according to the U.S. Department of Transportation. It would also bump Alaska up one spot to the fifth-largest domestic airline in terms of market share, leapfrogging JetBlue, the carrier Alaska Air Group reportedly beat out in bidding to acquire Virgin America. “We remain confident in the merits of this transaction,” Tilden said further. “The expanded West Coast presence and larger customer base create an enhanced platform for growth, which is good for investors, employees and especially customers — who benefit from more choices, increased competition and low fares.” It remains to be seen how Virgin America will fit under the Alaska Air Group umbrella, that includes regional carrier Horizon Air, but Virgin founder Richard Branson has said he would use the Virgin America name to start another airline if his former startup is enveloped and Air Group decides to discard the Virgin name. Branson, who founded the Airline in 2007, opposed the merger in an open letter he wrote shortly after it was announced. However, there was little he could do to stop the deal, as he is a minority-share investor in the airline through his Virgin Group companies, according to Virgin America. To win the government's approval, Alaska will stop selling seats on American Airlines flights - a so-called code sharing agreement - on 45 routes. Alaska said the concession will cost it between $15 million and $20 million a year in revenue, assuming it gets many of those customers back on Alaska planes. Alaska gets $320 million, or 6 percent of its revenue, from code-sharing. Of that, $190 million comes from American, $65 million from Delta Air Lines, Inc., and another $6 million from other carriers. Alaska also agrees to notify the government before it tries to sell or trade assets that Virgin America received from American Airlines and US Airways when those two carriers merged in 2013. The assets include takeoff and landing slots at New York's LaGuardia Airport and Reagan Washington National Airport and gates at Dallas Love Field. The Associated Press contributed to this story. Elwood Brehmer can be reached at [email protected]  

Fights over oil taxes and the fiscal cliff

The incoming Alaska Legislature is going to face the same daunting fiscal issues as its predecessor, but the Walker administration is hoping the impending session will at least have a different theme. “We don’t want the 2017 legislative session to be dominated by fights over oil taxes, we just don’t. I can’t stress that enough,” said Tax Director Ken Alper said during a Thursday morning address to the Resource Development Council for Alaska. “We actually have bigger issues in front of us right now, mainly Alaska’s fundamental imbalance: our giant structural budget shortfall.” While much was said and written regarding the state’s $3 billion-plus budget deficit over the past year, ultimately, little was done. The marathon 2016 legislative session bogged down into a political fight over oil and gas tax credits and how much, if at all, the state can afford to subsidize or incentivize growth in its trademark industry. That largely relegated the bigger issues Alper referenced to be heard during legislative overtime and subsequent special sessions called by Gov. Bill Walker. By then, legislators that convened in January were clearly weary as the calendar turned to summer, and with two-thirds of them up for reelection the prospects of passing bills that would not only overhaul state budgeting but touch the pocketbooks of every Alaskan in some way faded quickly. That said, the tax credit issue will come up again, Alper acknowledged, as the administration still needs to “stop the bleeding” from the North Slope credit program, that was mostly untouched in last session’s legislation that focused on Cook Inlet. The status quo could leave Alaska on the hook for $4 billion or more if the major recent discoveries by Caelus Energy and Armstrong Energy, which could cost upwards of $13 billion combined to develop, are seen through to fruition because of the North Slope net operating loss credit that allows small companies to claim up to 35 percent of exploration and development costs in refundable credits. There are several options available to alleviate the prospective bill, but finding the fairest of them all without chasing business away is the challenge. “If you’re going to do that — changing a major benefit that only accrues to the explorers, how do you make it a fair impact so that we’re not overly tilting the field again towards the major producers? That’s the conundrum that we’re wrestling with internally at this point,” he said. The more immediate conundrum the administration hopes will garner more attention come Jan. 17 when the Legislature gavels in is the $3 billion one. Gov. Bill Walker said time and again last session — as ratings agencies downgraded the state’s credit ratings and in-state companies threatened to pull investment — that a comprehensive solution to close the budget gap and reduce the state’s dependence on oil revenue was badly needed then. Alper painted the picture that if Alaska was speeding towards the “fiscal cliff” over the past year; the front tires are now over the edge. “If no (fiscal) solution is passed this coming session it means that the Legislature in 2018 can’t balance the budget, period,” he said. That would lead to a “panic, hair on fire budget a year from now,” Alper described. That’s because at the end of the current 2017 fiscal year next June the State of Alaska will have about $4 billion left in the Constitutional Budget Reserve, or CBR, its lone remaining legitimate savings account. Therefore, if the gap is not closed and another $3 billion or so is drawn from the CBR, only about $1 billion will be left to fund the 2019 fiscal year budget, a situation that could lead to damaging budget cuts, dramatically high taxes, or both. The new, bipartisan-led House Majority coalition formed with the stated goal to fix the problem this year after much of the governor’s fiscal legislation stalled last year. The current unrestricted General Fund budget is about $4.4 billion. When adjusted for population and inflation, the 2017 budget is on par with 2006 levels and “it’s well below the average for all 40 years since (the Trans-Alaska Pipeline) started flowing,” Alper said. The $4.4 billion budget is also down more than 45 percent from the peak spending years of 2012 and 2013. But to those who insist more budget cuts must be the primary the solution, Alper said that simply isn’t an option. “We are part of the effort to further downsize state government. We know that our state has the highest per capita spending in the country,” he said. “But it’s also true Alaska really is different. Just like industry, we have high costs of living; we have big logistical costs; the state funds the majority of public education, which is not true all over the country where it’s largely supported by local property taxes and you get big disparities between wealthy school districts and poor. “Alaska has made that go away by the state funding public education.” With a negligible rural tax base to support education, successfully shifting that major expense away from the state would be a nearly impossible feat. “There truly are limits to how far we can cut government, but the budget has been trending downward severely for four years now and it will continue,” he said. And since, according to Alper, it would take $102 per barrel oil or each adult Alaskan suddenly smoking 10 pounds of legal, state-taxed marijuana per year to balance the current budget, two options remain: broad-based taxes and a structured draw from the earnings of the Permanent Fund. The Permanent Fund bill that passed the Senate last year would have provided at least $1.6 billion to the state General Fund yearly, barring another financial market meltdown. That, on top of the roughly $700 million that could come from $1,000 per person in additional taxes and $60 per barrel oil — a more realistic possibility after other oil producing nations recently agreed to cut output — would leave the annual deficit in the low hundreds of millions, not billions. While new taxes understandably go over like flatulence from the front pew, Alper noted even with an additional $1,000 per person in personal taxes, up from about $500 currently, “Alaska would rocket past New Hampshire” to become the 49th least taxed state in the union. Last session the governor proposed an income tax to raise about $200 million and a suite of other industry tax increases. Alper said several weeks ago that the administration is working on its own income tax system, rather than piggybacking on the federal tax, as its previous bills did. Tax credit trading Alper also said the state’s liability of refundable tax credits, those which the state pays explorers or small producer companies directly, is starting to change as time passes after Walker’s vetoes of the credit payments in the last two state budgets. Alper told the Journal in mid-November that the Revenue Department was projecting the credit liability under current law to be about $1.1 billion at the end of the 2018 fiscal year — in a year-and-a-half. He said Thursday that figure has been revised down to less than a billion dollars as companies holding the unfunded credit certificates look for ways to get paid something. Some of those companies have started selling the credits to the large North Slope producers. State law prohibits companies producing more than 50,000 barrels of oil per day — a group that for years was limited to BP, ConocoPhillips and ExxonMobil, but now includes Hilcorp Energy — from receiving direct payments for tax credits. The large producers can, however, use the credits against their production tax liability. And that liability should keep growing if global oil prices continue to stay above the roughly $45 per barrel break-even threshold for production from the longstanding North Slope fields. The credit trading doesn’t change the state’s situation much; it means less money out in exchange for less future oil tax revenue in. But the smaller companies selling the credits are still taking a hit on the deal. While the details of the private transactions aren’t disclosed, administration officials with extensive knowledge of the issue have speculated the credit certificates are usually sold for just 20-30 percent of face value. Alper offered additional insight into the mostly confidential industry tax credit program, saying the Revenue Department has identified 16 oil and gas projects now in production that have benefitted from the roughly $3.5 billion the State of Alaska has spent on the credits since 2008 — about two-thirds of which went to Slope work. A snapshot of the eight North Slope projects now online with state help show that if production from those projects is divided into the amount the state spent on them, “the state is into these projects on average for about $24 per barrel,” Alper said. For the eight projects in Cook Inlet, primarily a natural gas basin today, the state investments average out to about $2.10 cents per thousand cubic feet, or mcf, of gas, according to Alper. He noted that the per volume dollar amount will continue to fall as long as production continues to flow from the fields aided with the money. Elwood Brehmer can be reached at [email protected]

Port defendants argue Anchorage has no claim to state, federal project funds

The defendants in the Municipality of Anchorage’s lawsuit over its failed port expansion project have banded together to demand the city’s claim for monetary damages be tossed because they contend it has yet to specify what exactly it seeks to recoup. Attorneys for Anchorage-based PND Engineers filed a joint summary judgment motion in U.S. District Court of Alaska Nov. 21 on behalf of co-defendants Integrated Concepts and Research Corp. and GeoEngineers, a Seattle-based firm that consulted on the long-dead project. The group alleges the municipality’s damages claim contains numerous “fatal flaws” that will keep it from being successful at trial, which is currently scheduled to begin next April. Chief among their arguments is that Anchorage has yet to detail who owes it money, and how much, in its lawsuit filed more than three years ago. The Municipality of Anchorage filed suit in March 2013 against dock designer PND, which owns the patent for the Open Cell Sheet Pile used in the Port of Anchorage Intermodal Expansion Project; the project management firm ICRC, formerly owned by Alaska Native corporation Koniag Inc.; and CH2M, which bought VECO Alaska, another engineering firm with a small consulting role in the effort. GeoEngineers was brought into the fray later. Work on the project — started way back in 2003 — was halted in 2010 and never resumed after extensive damage to installed sheet pile was discovered. PND has been adamant that the damage was due to faulty installation, noting the proprietary sheet pile design has been used widely at ports across Alaska. The municipality’s case is based at least in part on a CH2M study finalized in early 2013 that deemed the sheet pile dock system unsuitable for use at the port. Anchorage settled out of court with Quality Asphalt Paving and MKB Constructors, who installed the Open Cell Sheet Pile, for a combined $10.6 million earlier this year. Municipal attorneys said during oral arguments in 2014 that they were seeking upwards of $340 million total from this lawsuit and another filed in February 2014 against the U.S. Maritime Administration, or MARAD, the federal agency that Anchorage ceded control over the project to early in order to help attract federal funding. Up to $300 million of that was expected to come out of the suit against the private contracting firms, they said at the time. A 2014 Inspector General report was highly critical of MARAD’s handling and lack of oversight at Anchorage and other large port projects it has handled across the country. The Anchorage project was the first such port construction the federal agency had managed. The municipality’s original and amended complaints, the latter filed more than a year later, both cite damage claims “in excess of $100,000 for each defendant.” By the time the project was stopped, $439 million had been approved for the project in federal, state and municipal funds; about $132 million went unspent. A July 2016 report commissioned by the municipality for the lawsuit found it is owed at least $180 million, but the defendants still assert no damage figures have been tied to specific parties. Municipal attorneys, traveling to conduct depositions in the lawsuit, could not respond to questions about the damage claims in time for this story. Additionally, the defendants note that approximately $134 million specified in the July 2016 report would be used for a new dock structure as part of the scaled back construction project Anchorage has since undertaken at its aging port. “In other words, (the municipality) is seeking to have its new vision for the port built entirely at the cost of the defendants in this matter, in addition to recovering all money spent on the original design and construction of the port, all money spent to fix the work performed on the project, and all money that might be spent in the future to rip out the original project,” the defendants’ motion states. Further, they note that the municipality “maintains in a separate lawsuit that some or all of the same damages at issue in this litigation are the sole responsibility of MARAD.” The group of defendants also contends the city government has no right to recover state and federal dollars spent on the project; and neither the state nor the feds have sued the contractors to get that money back. According to a 2012 municipal report to the state Legislature, Anchorage put up $80.3 million, split about equally in debt and equity, on the original project. Finally, the defendants argue the memorandum of understanding signed by MARAD officials and then-Anchorage Mayor George Wuerch in 2003 to give management of the project on the city-owned port to the federal agency also turned control of the project’s money to MARAD, meaning the municipality has no right to the funds later. “Congress never intended (the municipality) to have such an unrestricted right to those federal funds and (the municipality’s) attempt to recover ‘lost’ federal funds, if successful, would result in a fundamental change to the character and purpose of the federal funds that were appropriated by Congress for the PIEP,” the motion states. The departments of Defense and Transportation contributed $138.6 million to the Port of Anchorage Intermodal Expansion Project. The State of Alaska spent about $219 million through capital budget appropriations and a $50 million worth of general obligation bonds.  Elwood Brehmer can be reached at [email protected]  

Pebble suits proceeding; DNR rebuts reclamation report

Pebble Limited Partnership is asking for legal fees to wrap up one lawsuit against the Environmental Protection Agency and hopes to settle another out of court. The company pursuing the embattled massive copper and gold mining project in the Bristol Bay area filed a motion in U.S. District Court of Alaska Nov. 22 to recover $227,056 in attorneys’ fees stemming from a suit filed in October 2014 in which Pebble claimed the EPA withheld documents after a Freedom of Information Act request. While the suit was ongoing the EPA released more than 320 documents to Pebble related to its FOIA filing, and additional documents were shared during a June 2016 private review of the materials ordered by Judge H. Russel Holland. Pebble filed the FOIA request in January 2014 — shortly after the EPA released its Bristol Bay Watershed Assessment that determined a large mine would cause irreparable harm to the region’s world-class salmon fisheries — to unearth the process the agency used in reaching the conclusions in the Bristol Bay Assessment. The mining company has claims the assessment is based on hypothetical scenarios and it was developed strictly as a means to substantiate the EPA’s predetermined effort to prohibit the Pebble project. Pebble ultimately contends the EPA should cover its attorneys fees “because it substantially prevailed in obtaining scores of improperly withheld documents that it would not have obtained” if not for the suit. The legal action caused the agency to produce “scores of previously “undiscovered’ documents” and Pebble successfully challenged about 75 percent of the documents the EPA had withheld under privilege claims, the motion states. In a related lawsuit also before Holland, Pebble and the EPA have agreed to go before a mediator and negotiate issues prior to a trial. Here, Pebble sued the EPA in September 2014 on the belief the agency was not objective in compiling the Bristol Bay Assessment and violated federal laws by improperly collaborating with mine opponents in the crafting of the Bristol Bay assessment. Pebble spokesman Mike Heatwole said the group is hopeful the whole suit can be resolved outside of court, but declined to offer any further detail on the issues being negotiated. A Justice Department spokeswoman said the attorneys representing the EPA could not comment on the ongoing litigation. The motion to enter mediation was filed Oct. 27, but Heatwole said he did not think the sides had convened yet. Pebble reclamation controversy After a preliminary review, the Alaska Department of Natural Resources is downplaying the conclusions drawn in a report published Nov. 3 that is highly critical of Pebble’s efforts to clean up after its extensive exploration program. Conducted by the Center for Science in Public Participation, or CSP2, and titled, “Investigation of Reclaimed Drill Sites, Pebble Prospect,” the report concluded that more than 40 percent of the 107 exploration drill sites the CSP2 team inspected had “environmental issues” including dead vegetation, water leaking from the boreholes and open drill casings. The report proves a need, at a minimum, for increased monitoring of Pebble’s exploration sites, according to a release by United Tribes of Bristol Bay, the group that commissioned the work and has fought hard against Pebble. “DNR needs to stop rubberstamping Pebble’s (miscellaneous land use) permits and instead require Pebble to clean up the mess it left behind before taxpayers are stuck with the cleanup bill,” UTBB Executive Director Alannah Hurley said in a statement when the report was released. Pebble has applied with DNR for a two-year MLUP permit to allow it to continue reclamation and maintenance work through 2018 on the more than 1,300 holes it drilled during exploration and its equipment that remains at the claims. Pebble’s activity occurred on state land. Pebble Partnership was not required to put up a reclamation bond to back its work because it did not cumulatively impact more than five acres of land. The group chose to conduct operations via helicopter, thus reducing its footprint, and all of its temporary facilities were placed on “tundra mats,” which limit impacts to vegetation that will grow back once the equipment is removed, according to DNR officials monitoring the project. A report following a DNR inspection of Pebble’s work this summer concluded that Pebble’s “operation is in good condition and is consistent with industry standards.” DNR spokeswoman Elizabeth Bluemink said agency staff requested a full copy of the report from CSP2 after the summary was released in early November and found the Montana-based research group “may have misunderstood or misstated” some requirements of the state’s reclamation statutes and land use permits. “For example, dead vegetation, as observed by both DNR and CSP2 in the field, does not constitute a violation of permit conditions,” Bluemink wrote in an email. Further, the exposed drill casings highlighted in the report are “allowed, and expected” in exploration projects, according to Bluemink. She noted that DNR and staff from other state agencies have performed 56 field inspections of Pebble since 2003, the most for any mineral exploration project in the state. At the same time, the state welcomes public input and uses pertinent information provided from any source in regulating state lands. “A number of the observations reported by CSP2 could be helpful to DNR as it continues to regulate (Pebble’s) activities,” Bluemink wrote. “DNR staff will be able to take the CSP2 observations into account when we visit those sites in the future.” Elwood Brehmer can be reached at [email protected]  

Gov’s veto forces loan modification for Inlet producer

BlueCrest Energy is asking state borrowers to amend the terms of a $30 million oil project loan after the state failed to pay tax credits the company was expecting. Documents outlining the loan amendments were attached to the Alaska Industrial Development and Export Authority board of directors Dec. 1 meeting agenda posted on the authority’s website. According to the draft board resolution, the small Texas-based independent and AIDEA staff have tentatively agreed to change several loan terms and lessen the amount BlueCrest is required to hold in a contingency reserve account. In April 2015, the AIDEA board approved a $30 million loan to support the company’s acquisition of an onshore drilling rig to develop the Cosmopolitan oil and gas field near Anchor Point on the southern Kenai Peninsula. The total cost of the rig, capable of drilling up to 30,000 feet, was about $40 million when costs for transportation to Alaska, outfitting, setup and commissioning were included, according to the original loan documents. At the time, BlueCrest was wrapping up engineering for the project’s oil production facility. The company held a ceremony to formally open the facility in late June and is producing small amounts of oil in from an existing exploration well drilled in 2001 by ConocoPhillips. The draft AIDEA board resolution notes that a delay in completing the drill rig caused a delay in production and Bluecrest’s overall plan; however the rig is currently on-site and operational. When the loan was made the company projected it would be producing about 3,000 barrels per day by mid-2016, with production continuing to grow thereafter. According to Alaska Oil and Gas Conservation Commission records, the Hansen oil field, from which the Cosmopolitan project is drawing, produced 4,702 barrels of oil in October. That oil is being trucked north roughly 70 miles to the Tesoro refinery in Nikiski. BlueCrest has indicated it hopes to produce up to 17,000 barrels per day from 10 onshore production wells that will reach the oil pool, situated just offshore from the production facility and pad. An independent consultant confirmed to AIDEA the field holds reserves sufficient to produce in excess of 8,000 barrels per day. The new loan proposal to go before the Authority board would push back the date when the $30 million converts from a line of credit to a term loan by about 6 weeks to Dec. 10, and also institute a period of interest-only payments from Jan. 1 to Nov. 1, 2017. The loan’s maturity date of July 24, 2022, would not change. The initial deal called for a 15-month line of credit, during which interest was capitalized to the loan principle when the conversion to a term loan was made. An interest rate of 10 percent, compounded daily, was then set to kick in as well. Additionally, BlueCrest agreed to set up a reserve account by Dec. 31 of this year with $15 million to cover a loan default or shortfall between the loan balance and the sale price of rig in the event BlueCrest could not fulfill its obligations. The loan amendment would cut the contingency amount to $5 million. AIDEA was given exclusive title to the rig as security for the loan. According to the resolution, “The state’s postponement of tax credit payments the borrower had expected to receive has affected the funding for the reserve account the borrower is required to establish under the terms of the (2015) loan agreement.” Gov. Bill Walker vetoed nearly all of the state’s $460 million 2017 fiscal year appropriation to pay the state’s oil and gas tax credit obligations in June after the Legislature failed to take significant steps to reconcile Alaska’s $3 billion-plus annual budget deficits. The governor’s prior year veto of $200 million from a $700 million tax credit payment and subsequent legislation to drastically scale back the subsidy program caused BlueCrest to delay plans for offshore development of the field’s natural gas reserves, company CEO Benjamin Johnson has said. Johnson could not be reached for comment in time for this story. Other, primarily small producer and explorer companies, have said the payment vetoes threw the lending market that had sprouted around the expectation of the tax credits into disarray. Walker and his cabinet members have said the administration is working near daily on solutions to mitigate the impact of the vetoes to industry. The issue will again be a focal point of debate in the upcoming legislative session. Elwood Brehmer can be reached at [email protected]  

Permanent Fund starts FY17 with 3.86% return

Alaska’s money managers are off to a solid start in the first months of the state fiscal year. The Alaska Permanent Fund Corp. announced Monday that it earned a 3.86 percent return, or $2 billion, in the first quarter of the 2017 fiscal year on its namesake fund, which had a total balance of $54.8 billion on Sept. 30. Of that, $9.7 billion was in the Fund’s Earnings Reserve account. The Fund ended the 2016 fiscal year with a total value of $52.8 billion. As of Oct. 31, $1.15 billion of the Earnings Reserve balance is unrealized income, which represents the appreciation of assets not converted to cash. The state fiscal year started July 1. “Diversification among asset classes and geographies, each with meaningful long-term expected returns has delivered a combination of strong overall investment earnings with only modest portfolio volatility on both a short- and long-term basis,” said Permanent Fund Corp. CEO Angela Rodell, a former state Revenue commissioner, of the first quarter results. “We will continue to identify and secure those opportunities worldwide which can deliver these benefits to the people of Alaska for many years to come.” As of Oct. 31, the Permanent Fund’s balance stood at $54.6 billion, down 0.36 percent in October, according to its unaudited monthly report. The principal of the Fund, built largely on a portion of historical state resource royalties, was at $45.1 billion at the end of the quarter. The strong quarter followed a tough 2016 fiscal year, in which market losses early in the fiscal year led to a 1.02 percent overall return. Gov. Bill Walker’s legislation to reallocate a portion of investment earnings from the Fund to pay for state government  — that passed the Senate and died in the House Finance Committee — called for an annual draw equal to 5.25 percent of the total Fund value. Similar proposals will assuredly be debated in the upcoming legislative session. The Fund’s rolling 12-month return stood at 9.75 percent at the end of the first quarter, better than both its three-year and five-year averages of 6.83 percent and 9.10 percent, respectively. The highest quarterly yield came from foreign stocks at 7.86 percent, which comprise 17 percent of Fund investments. Domestic and global stocks each make up 12 percent of the portfolio and both had returns greater than 5.6 percent, according to the quarterly report. Real estate holdings, which account for 11 percent of Fund investments, returned 2.27 percent. Traditionally safe U.S. bonds — 19 percent of the portfolio — earned 1.2 percent for the first quarter of the state fiscal year and 6.35 percent over the 12 months ending Sept. 30. Elwood Brehmer can be reached at [email protected]

Doyon gas well strikes out; Ahtna work ongoing at Tolsona

Alaska Native corporations are 0 for 1 in their hunt for natural gas so far this year, but the search is still long from over. Doyon Ltd. President and CEO Aaron Schutt said Nov. 17 that the Interior region corporation did not find a commercially viable resource from the well it drilled near Nenana this summer. Doyon, in a financial partnership with Cook Inlet Region Inc., drilled the Toghotthele No. 1 well starting in June and evaluated the results this fall. It was the third well Doyon has drilled on its mix of Native corporation and state land holdings in the Nenana basin southwest of Fairbanks over the past decade.  The company has also conducted five seismic mapping programs over the roughly 440,000 acres it holds there. Schutt said despite the minor disappointment from the Toghotthele well results, Doyon is not done at Nenana. “We’ve invested a lot of money in that basin — a lot of time — it has great potential. We’re very excited about it,” he said. Doyon’s board of directors sanctioned another 3D seismic program for Nenana Nov. 12. According to Schutt, the detailed geologic mapping will commence in January and cover 64 square miles to the north of Doyon’s existing work, which is just to the west of the City of Nenana along the Parks Highway. The upcoming seismic work will be closer to Minto and on roughly half Native corporation and half state land. Data from the program should be available late next spring, Schutt added. A substantial natural gas find by Doyon has long been seen as a potential alternative energy supply to fuel oil for Interior Alaska. “We believe in the potential of our own land, but we also would really like to help solve the Interior energy problem long-term with gas,” Schutt said. “We figure 50 miles into Fairbanks versus wherever else it might be coming from makes a lot of sense and I think economically it does as well.” Individuals working on the Interior Energy Project, the state-subsidized effort to truck LNG to the region either from the North Slope or Cook Inlet have said a Doyon gas find could act as a base load supply with the trucked gas covering peak winter demand. Ahtna Inc., the Copper River valley Native regional corporation, is close to wrapping up work in its Tolsona No. 1 gas well near Glennallen, Ahtna President Michelle Anderson said. Anderson and Schutt spoke at the Resource Development Council of Alaska annual conference in Anchorage. Ahtna spudded the Tolsona well in late September with a target depth of about 4,000 feet. Anderson said the drilling results should be available in the coming weeks, but couldn’t comment further. “We’re getting close to where we need to be,” she hinted. Elwood Brehmer can be reached at [email protected]

Independent explorers and the oil tax pendulum

The tune being heard from independents exploring on the North Slope has changed subtly but significantly over the past year. A previous insistence throughout the winter and spring legislative sessions to keep the Alaska’s industry-favored oil production tax and credit system intact has dropped an octave to a message that hints the companies have accepted that change is coming — hopefully for the last time. Pat Galvin, a former state Revenue commissioner and now chief commercial officer for Anchorage-based Great Bear Petroleum, said Nov. 17 at the Resources Development Council of Alaska conference that above all else Alaska’s oil tax “pendulum” needs to stop swinging. “We have to find a way to reach an equilibrium, not just to avoid future changes, but also to avoid the perception that there’s going to be future changes,” Galvin asserted. “It’s not enough to just create a new law or to say we were able to successfully defeat an attempt to change (existing law). We have to create something that we can positively point to and say ‘This is the end. This is the last of it,’ and have people on both sides of the argument accept it and state so publically so that those of us talking to the financial markets have something tangible to point to and say that Alaska is on a new track and Alaska is now stable.” Galvin managed to reference most of the recent high points in the state’s almost perpetual oil tax fight in his plea. There was the brief cease-fire in the philosophical fiscal battle after an August 2014 statewide referendum upheld the current More Alaska Production Act tax system, more commonly referred to by its legislative title, Senate Bill 21. Then, after oil prices dropped by half Gov. Bill Walker in June 2015 vetoed $200 million from the state’s $700 million oil and gas tax credit payment to small producers and explorers. The move not only reignited the tax debate, but also sent financial institutions that had made loans based on receipt of the credit funds scrambling. Another $430 million veto this past June just made the situation worse, but Walker said he could not approve the spend while the state’s savings deteriorate rapidly. Sustained low oil prices have helped put the state in continuous annual budget deficits exceeding $3 billion while the credit bill keeps rising. According to state Tax Director Ken Alper, Alaska will owe credits to the tune of $1.1 billion at the end of fiscal year 2018. On top of that, massive Slope oil finds by Caelus Energy and Armstrong Energy have the potential to add up to $4 billion to that bill over the next handful of years. Without the revenue — oil prices in the $100 per barrel range were supposed to be the norm when SB 21 was passed and upheld — to offset the credit obligation, something has to give. Galvin and Caelus Energy Vice President Pat Foley, who has worked in Alaska with other companies, both said the “give” must include a way to pay the current credits owed. Great Bear is owed “tens of millions of dollars” in credits, according to Galvin, while Caelus expects its bill to the state to hit $200 million by next spring. “It’s been made clear to us that the ongoing liability that’s created by the refundable tax credits is just not sustainable by the state, so I hope that the Legislature is able to come up with a plan that first finds a way to pay the companies the money that they’re owed for the tax credit certificates; and then if changes need to be made, let’s design a program that’s durable and sustainable,” Foley said at the RDC event. “We really need some kind of tax system that’s very broad.” Galvin stressed the final debate needs to be resolved next year. At a high level at least, the message seems to jive with what incoming House Resource Committee co-chairs Reps. Andy Josephson and Geran Tarr said in interviews with the Journal. The Anchorage Democrats, part of the new bipartisan House majority caucus formed on to fix the deficit in the upcoming session, have been ardent opponents of SB 21, but said they recognize the value of some state assistance for project development on the high-cost North Slope and emphasized the need for a plan to pay off what the state already owes. Great Bear prospects Great Bear’s work in the field has shifted along with oil prices. The company originally set out to produce oil from shale plays on the central North Slope that have been so prolific in the Lower 48, but the drop in prices and new data have pushed it towards conventional opportunities. Great Bear holds about 570,000 acres of state leases immediately south Deadhorse and existing Slope production. The large swath of leases is bisected by the Dalton Highway and Trans-Alaska Pipeline corridor and roughly matches the east-west reach of the giant Kuparuk River and Prudhoe Bay fields to the north. The conventional oil Great Bear is now targeting is “embedded” within the shale intervals the company was originally pursuing in the Brookian and Kuparuk formations that are currently producing elsewhere on the Slope, Galvin said. “(Over geologic time) the oil has migrated from the south to the north. It’s likely gone through all of the layers that we’re interested in and the challenge for us is…can we produce it from either the traps along the route or by going back to the source itself and that’s really the concept that Great Bear is pursuing,” Galvin described. “We believe that we can with today’s technology.” Australia-based 88 Energy, working with Burgundy Xploration on state leases immediately to the south of Great Bear, also announced in October that it has conventional plays indicated on seismic that could hold upwards of 750 million barrels of recoverable oil. Similar to Great Bear, 88 and Burgundy, working jointly as the operating subsidiary Accumulate Energy, started with ideas of shale production that have since shifted. In early 2015, Great Bear drilled one well on its central Slope leases near the highway-pipeline corridor, but record spring flooding on the nearby Sagavanirktok River cut well testing short. Galvin said company officials are excited about the potential results from that well, on top of other prospects revealed in the 1,025 square miles of seismic data Great Bear has acquired over the past four years. That seismic data covers all of the company’s contiguous lease holdings. Smith Bay Caelus Energy’s Foley also offered a little more detail on the company’s highly publicized Smith Bay prospect on a remote section of the western North Slope. The company believes it could recover between 1.8 billion and 2.4 billion barrels of oil from the field that overall holds more than 6 billion barrels. That would equate to about 200,000 barrels per day at peak production. However, doing so could also require upwards of $8 billion of investment, according to Caelus leadership. Foley said Nov. 17 the investment would translate into $28 billion of revenue for the state over the life of the field, based on 2 billion barrels recovered at $70 per barrel. Developing the field will also require an estimated 2,100 jobs during peak construction. The infrastructure would include 400 wells on four drill pads and a 125-mile, $800 million pipeline just to get the oil to TAPS. “For a little perspective, it’s going to be an oilfield that looks a lot like Kuparuk River Unit,” Foley said. Caelus announced the discovery in early October based on results from two exploration wells it drilled. The company plans to drill an appraisal well in early 2018 to better delineate the find. Elwood Brehmer can be reached at [email protected]  

Murkowski lays out path on Arctic leases

Republicans have options to counteract the Obama administration’s move to pull Arctic waters from the federal offshore oil and gas lease plan, but they are far from immediate. When the Interior Department released its 2017-2022 outer continental shelf, or OCS, lease plan document on Nov. 18 sans sales in Alaska’s Beaufort and Chukchi seas, the state’s leaders were instantly livid as environmental watchdogs rejoiced, tallying the news as a victory on the climate change front. A draft version of the lease plan included one lease sale in each of the Arctic waters. However, the release date of the plan was almost as important as what it contains. The “proposed final plan” instantly entered a 60-day congressional review period when it became public. In the absence of procedural or technical errors in drafting the plan, it amounts to a two-month window for the Republican-controlled Congress to object and adopt a joint resolution of appeal — back to the president. With the Nov. 18 release of the plan, the review will end in the last couple days of President Barack Obama’s term, essentially locking in the plan as final. An exasperated Sen. Lisa Murkowski said in an interview with the Journal, soon after the plan became public, that her staff will do the requisite due diligence in reviewing the 269-page document, more as a formality than anything. Her focus is on how to best mitigate the perceived damage with a Republican president and a new Congress. “Is (the lease plan) something that I wish we could, the first day of a new administration, the president-elect could wave a wand and make this all better, if you will? It’s not that simple; and that’s why we worked so hard to make sure the (Obama) administration did not do what they did,” Murkowski said. She noted that it is not just Alaska’s congressional delegation and industry pushing for the leases, but also North Slope mayors and Alaska Native corporations pushing for the potential economic benefits of Arctic OCS activity, as well as military commanders touting the need for national energy security. Hopeful the administration would take those pleas into account, Murkowski added she was particularly “ticked off” that “President Obama is telling the new administration to stand up to Russia, and then what does he do — he basically cedes leadership on Arctic energy production to the Russians. It is just incredible to think (the Russians) get the payroll; they get the jobs; they get the revenue and we’re just watching.” As chair of the Senate Energy and Natural Resources Committee, Murkowski’s office did not get a “heads up” call from Interior Secretary Sally Jewell or Bureau of Ocean Energy Management Director Abigail Hopper on the news. Alaska’s senior senator has battled with Jewell, most notably on the secretary’s 2013 decision to reject construction of a medical access road through the Izembek National Wildlife Refuge. Murkowski has said several times she regrets voting to confirm Jewell for the cabinet post. “We actually heard of it through a press release, so I think we’ve been cut off by the Department of the Interior,” she quipped. Murkowski also expressed frustration over one of the main justifications behind pulling the Arctic areas from the plan — a lack of industry interest — one she sees as a self-fulfilling prophecy. “It’s such a circular, hypocritical position to take that somehow or other the reason they did this was because there was lack of interest. Keep in mind that when you are exploring you’re looking beyond what happens in this five-year window, and particularly in the Arctic where development just takes so much longer than most anywhere else,” Murkowski said. “In order to attract interest in the leases themselves industry needs to know that they will be made available. It is amazing to me that they actually put that in writing, that one of the reasons is there is lack of interest.” Shell and ConocoPhillips relinquished federal Chukchi leases last spring after the former cut its Arctic exploration program off Alaska in 2015, citing high costs and regulatory uncertainty. She introduced legislation this summer to mandate annual lease sales in federal waters off of Alaska’s North Slope and will likely do so again, she said. The House passed the Midnight Rules Relief Act Nov. 17, a bill aimed to give the next Congress a workaround against regulatory actions in the last 60 days of a presidency. Rep. Don Young called for the Senate to take up the “common sense proposal,” as he characterized it in a release from his office, but the odds of it moving further would not seem great at this point. The delegation will also certainly push President-elect Donald Trump to begin reversing the Democrat plan as soon he takes office. The five-year lease plan is also subject to annual reviews. However, changing a final plan entails its own, up to three-year, environmental review. Murkowski described that course of action as “painfully long, but it would allow for a process where we can get these Arctic leases back online.” The legislative route would seem to be the simplest and most direct remedy for Republicans especially given they will again hold both chambers of Congress — albeit barely in the Senate — and the White House. What could end up as a 52-seat Republican majority in the Senate after a runoff election in Louisiana still leaves Democrats holding the ability to filibuster. And it’s unlikely they will go quietly on Arctic environmental issues that have become a hot political topic and will be a part of Obama’s legacy. “Nuking” the filibuster has been a topic among conservative circles, but Sen. Dan Sullivan’s Chief of Staff Joe Balash has said he does not see that happening in the new Congress. Regulatory changes by the Trump administration are almost a sure bet to be met with lawsuits, too, as Republicans have done with Endangered Species Act listings for polar bears and other marine mammal protections in Alaska. Murkowski said the need for Arctic energy activity will still be imperative for the delegation to impart on the new administration’s leadership team. She is going to use her committee position to advance that message to upcoming Interior agency appointees and affirm their commitment on the issue for confirmation support, she said. Cook Inlet While much of the focus on the federal offshore oil and gas leasing plan has centered on the Arctic, Alaska was not completely cut out. The plan calls for a single Cook Inlet sale in 2021. The vast majority of Cook Inlet is state waters, but the southern portion of the Inlet is under federal jurisdiction. The lease plan states that ample considerations were given to protect the endangered Cook Inlet beluga whale population and other marine wildlife in selecting the leasable areas, and it notes the significant amount of existing oil and gas infrastructure already in place to support potential exploration without significant additional development. Bob Shavelson, executive director of the Alaska-based environmental group Cook Inletkeeper, contends a lack of interest in the Southcentral basin has been proven over the prior three federal sales that have garnered no industry bids. “We’re wasting tens of millions of dollars to study and hold lease sales in Cook Inlet, when instead we should be exploring renewable energy options in federal waters,” Shavelson said in a formal statement. He noted the region’s extremely high tides as a prime energy source that continues to go unharnessed. Energy package Murkowski was more upbeat about her omnibus energy reform bill that is in a House-Senate conference committee, the final negotiations before heading to the president’s desk. “We’re in the process now of making offers and counteroffers (between House and Senate conferees) and so my hope is that in these next few days we’ll make some good progress and be able to take this up when we get back from Thanksgiving,” she said. There have been roughly 75 meetings over less than three months on the Energy Policy Modernization Act, her signature piece of legislation — also supported by ranking Energy and Natural Resources Democrat from Washington Sen. Maria Cantwell — Murkowski noted. No one on the conference committee is interested in pushing a bill that is likely to get vetoed and nothing in the Senate version has been “flagged as veto bait,” she described. Murkowski pushed back against some Republican interests in Washington, D.C., that have suggested since the election the party should focus on pushing a new energy bill through the next Congress after gaining control of the White House. She emphasized that moving contentious legislation through the Senate will not be easier next year, as the 60-vote majority will still be needed. “I think it’s very important to recognize that we’ve not only spent two years building a product that has been very broadly supported, but it’s a longer story because it’s been nine years now since we’ve done any energy reform, so wrapping this up right now I think is very important,” Murkowski said. “I am continuing to push and be optimistic and hopefully will have more to report when I’m back into session after the Thanksgiving break, but this is too important to Alaska; I think it’s too important to the country and we’ve done it the right way and I think that needs to be recognized as well.” Elwood Brehmer can be reached at [email protected]  

Obama administration culls Arctic OCS from five-year lease plan

Interior Secretary Sally Jewel reversed course and pulled Alaska’s Arctic waters from the latest federal outer continental shelf oil and gas leasing plan released Friday morning. The final five-year OCS lease plan is the 2017-2022 oil and gas lease sale schedule for federal waters three to 200 miles offshore. It includes one Cook Inlet sale in 2021, but leaves out the large Arctic Beaufort and Chukchi seas, which were part of an earlier draft plan with one sale each. The Interior Department estimates there are more than 23 billion barrels of oil and 104 trillion cubic feet of natural gas contained in the bedrock under the federal waters off the North Slope.  “The plan focuses lease sales in the best places — those with the highest resource potential, lowest conflict and established infrastructure — and removes regions that are simply not right to lease. Given the unique and challenging Arctic environment and industry’s declining interest in the area, forgoing lease sales in the Arctic is the right path forward,” Jewell said in a formal statement. Bureau of Ocean Energy Management Director Abigail Hopper added the lease plan, which is dominated by 10 Gulf of Mexico sales, makes available more than 70 percent of the economically recoverable oil and gas resources in federal waters. Environmental groups naturally hailed the decision, and equally as unsurprising, Alaska’s political leaders did not. Gov. Bill Walker said in a statement from his office that he is very disappointed with the omission of Arctic waters. The state-supported plan balanced the concerns of the region’s subsistence users with Alaska’s overall need for economic development, which should have made for easy decision to include areas in the sale, according to the governor. “With the Trans-Alaska Pipeline three-quarters empty, we must spur more oil production. When Alaska became a state, the federal government mandated that we live off our resources — but we must be able to access them,” Walker said. “My administration will reconvene with the whaling communities and industry to determine next steps.” Alaska’s congressional delegation issued a lengthy joint statement accusing the Obama administration of ignoring the wishes the majority of Alaskans who support Arctic OCS development. Sen. Lisa Murkowski said she is “infuriated” with the decision that she characterized as not only bad domestic, but also foreign policy. “We have shown that Arctic development is one of the best ways to create jobs, generate revenues and refill the Trans-Alaska Pipeline. Why the president is willing to send all of those benefits overseas is beyond explanation. And it is even more stunning that just one day after urging the new administration to stand up to Russia, he continues to cede leadership on Arctic energy production to them. I will do all that I can to counteract this shortsighted decision,” Murkowski said. Sen. Dan Sullivan and Rep. Don Young said the announcement lends credence to the belief that the administration supports environmental interest groups more than its own purported “all-of-the-above” energy policy. “Let’s hope that this is the final chapter in the Obama administration’s harmful legacy of putting the interest of anti-energy activists over those of hard-working Alaskans and their families,” Sullivan said. “Our state and country still have a promising future in responsible resource development. I am hopeful that with the incoming Trump administration we will be able to reach our potential as a state and nation in this important area.” Arctic Slope Regional Corp. issued a statement Friday saying it is also disappointed in BOEM’s decision, contending it disregards the economic health of North Slope communities and damages the Alaska Native-owned corporation’s ability to benefit its shareholders as mandated by the 1971 Alaska Native Claims Settlement Act. ASRC also noted that it recently purchased federal leases in the Beaufort Sea formerly held by Shell. Specifically, the OCS lease plan has one Cook Inlet sale because the basin already contains significant oil and gas infrastructure in state waters that would likely support any activity in the federal waters at the mouth of the Inlet to the south, according to the plan document. As for the Arctic, it cites the fact that the number of active federal Arctic OCS leases has dropped from 527 in February to just 43 currently — an indication of declining industry interest in the extremely prospective but high-cost region as oil and natural gas prices remain low. It also notes that Shell’s exit from the Chukchi Sea last year further indicated industry’s declining interest in the region. “Although the Arctic OCS has the potential to provide domestic energy production when economic conditions are considerably more favorable, the increase in domestic onshore production from shale formations, and other market factors, have shifted expectations regarding oil and gas price trajectories and have substantially reduced the incentive for expensive Arctic exploration and production,” the plan states. In July BOEM issued a more stringent set of Arctic drilling regulations for mobile drill rigs that the agency estimates could add $2 billion in compliance costs over 10 years. ConocoPhillips and Shell both relinquished their federal Chukchi leases off Northwest Alaska earlier this year. Last September Shell announced it was pulling out of the Chukchi after an unsuccessful, controversial and incredibly expensive multi-year exploration program. The Dutch oil giant said it spent nearly $7 billion to end up drilling just one dry well in the Chukchi. While Shell had self-induced problems in its Arctic program, the company said complex and burdensome federal regulations hindered its progress. Elwood Brehmer can be reached at [email protected]

AK LNG transition misses first benchmark in state takeover

The Alaska LNG Project handoff to state leadership is progressing, albeit slower than expected. “Negotiations are continuing,” Alaska Gasline Development Corp. President Keith Meyer told the AGDC board of directors at a Nov. 10 meeting. “We did not meet our intended target of October for a signed agreement as we had talked about a number of months ago when this started. However, I would say that all things are moving well. I don’t detect anything that’s going to stop the process.” Meyer had said previously that he hoped to have a deal signed with the producers to give the state control of the project by Oct. 31 so the transition could be wrapped up by the end of the year. Despite missing the first self-imposed deadline, the Dec. 31 target for state control is still in sight, according to Meyer. The negotiations are parsed into three separate agreements: a transition agreement that allows the state to use the technical information developed and held by Alaska LNG Project LLC; an agreement granting the state control of the acreage purchased for the LNG plant site in Nikiski; and a confidentiality agreement governing what information the state can use and what is restricted from being used to further the project. Meyer added that the “thousands of documents built up over time” and held by the project corporation are already being transferred to AGDC. The state and its partners in the $45 billion-plus North Slope natural gas export plan, BP, ConocoPhillips and ExxonMobil, have been building to a state-led model for most of the year. It became clear late last winter that the equity-share project model, with each company participating in the project financially equal to its share of the 35 trillion cubic feet North Slope natural gas resource and the state responsible for 25 percent, was not going to pan out as hoped.  Concerns from the producers about fitting the project’s 20 million tons of LNG per year into a currently flooded and depressed global market, as well as cash flow considerations stemming from low oil prices led the oil majors to look at slowing or reworking the project before collectively committing to spend roughly $2 billion to fully design the project in the next step known as full front-end engineering and design, or FEED. Gov. Bill Walker, however, took the opportunity for the state to lead the project on the premise that potential federal tax exemptions wrought from state ownership and third-party investors could improve its economics. Meyer, who has significant experience in the LNG industry from work in the Lower 48, insists the mid-2020s Asian market window for the project is narrow but still exists. Missing that chance and allowing other LNG projects to feed East Asia’s demand likely means waiting another decade or more to monetize Alaska’s natural gas, according to Meyer. Making a smooth change to state leadership yet this year will be important to keep the project on schedule. Meyer said AGDC plans to submit its Alaska LNG license application to the Federal Energy Regulatory Commission — part of the agency’s environmental impact statement process — in the first half of 2017, ideally right away in the first quarter. History has shown FERC will not approve an LNG project unless the proponent holds the both land rights to the project site and the federal LNG export authorizations. Both are currently held by the Alaska LNG Project LLC formed by the producers. Industry experts following the project have uniformly said shifting the land rights and export permits to satisfy FERC shouldn’t be an issue, but it’s another step that takes time. BP and ConocoPhillips indicated in a September letter to Walker that they are willing to transfer their interests in the Alaska LNG Project LLC to AGDC, while ExxonMobil officials said the company would “sell” its stake to the state. Meyer has said he does not foresee a large payout to the producers, so how the negotiations, which are confidential, play out on this issue remains to be seen. FERC sent back 296 pages of questions and comments compiled from the federal agencies reviewing the project on Oct. 26. Meyer said the request is one of several AGDC expects to get from the agency and is “somewhat reflective of the fact that we filed 33,700 pages (of resource reports) with FERC, so now we have lots of questions that they’ve asked.” The expectation is that AGDC will be able to answer most of the queries internally, but the state also has access to the contractors that helped compile the resource reports if need be, he said. As AGDC preps to file the license application for the project next year, it will also be ramping up worldwide project marketing and lining up the contracts that will ultimately underpin the project’s financing, Meyer said. Those contracts would be for shipping, gas liquefaction and the LNG itself, among other things. Adding to the challenges of leading what would be the largest infrastructure project in the country’s history is the state’s multi billion-dollar budget deficit. “We’re very cognizant of the austerity measures that the state has on, so we’re going to try to live within some of those guidelines,” Meyer said of AGDC’s fiscal year 2018 budget. He said previously that AGDC is preparing for several budget scenarios, including one that would see the state corporation operate an extra six months, through the 2017 calendar year, on its $10.3 million 2017 fiscal year operating budget. The 2017 state fiscal year ends July 1. AGDC was about 25 percent under its operating budget forecast in the first quarter of the fiscal year, Senior Vice President for Program Management Frank Richards said Nov. 10. The reduced operating costs were due in part to staffing vacancies in the corporation and bills not yet seen from contractors, he noted. Overall, AGDC spent just $12.8 million of $23.6 million allocated for the first quarter when the state’s share of project funding is included, according to Richards. “(The budget under-run) reflects the work within the AK LNG Project, mainly the reduction in cash calls that have gone out to all the producers and AGDC for their reimbursement of expenditures,” he said. “It represents really that there is significant slowdown in the work on AK LNG as they wind up the pre-(front-end engineering and design) effort.” Elwood Brehmer can be reached at [email protected]

New House Resource chairs ready to take on oil credits and AK LNG

The shakeup in state House control seemingly gave Gov. Bill Walker allies in leadership positions on fiscal issues, but the upcoming session will still be an uphill battle on the Alaska LNG Project. Anchorage Democrat Reps. Andy Josephson and Geran Tarr will co-chair the House Resources Committee, the first stop for any oil and gas tax bills on their way through the legislative process. They take the Resources gavel from Reps. Dave Talerico, R-Healy, and outging Ben Nageak, D-Barrow — strong supporters of the state’s oil and gas tax credit program — when the 30th Legislature convenes in two months. All indications are the credit debate, which dominated this year’s marathon session, will again be front and center in 2017. The refundable credits for work in the Cook Inlet basin ultimately went the way of the horse and buggy when the dust settled, so now the administration and the new House Majority and have their sights set on at minimum reworking the North Slope incentives. The challenge will be threading the needle to reduce the state’s future credit obligation without discouraging industry activity on the Slope that the state needs to keep its largest revenue stream flowing. Any credit reform legislation that makes it out of the House will also have to appease at least a few Republicans in the Senate, which cut major changes to Slope credits out of last year’s bill, in order to make it to the governor’s desk. Josephson said the fact that the state will have burned through more than three-fourths of its savings from when budget reserves peaked at about $17 billion — and will be left with about one year of cash left at the end of this fiscal year — means “we have to do something (on oil tax credits). The idea that we could choose not to do something is, frankly, at this point ludicrous.” The central issue, the new Resource chairs said in separate interviews, is that the state is no longer generating meaningful revenue from its production tax since oil prices have fallen and largely stabilized at sub-$50 per barrel prices. The Revenue Department projects that net operating loss, or NOL, credits claimed by the state’s large producers and used against tax liability will virtually offset production taxes through 2021, with the state taking in about $130 million in production tax revenue over that time based on its oil price forecast. On top of that, Alaska could owe upwards of $1.1 billion in refundable credits to smaller companies by the end of fiscal year 2018, according to state Tax Director Ken Alper. New House Finance co-chair Rep. Paul Seaton, R-Homer, was central in drafting a credit reform-reduction bill that passed the House last session with support from Democrats and moderate Republicans, but was picked apart when it got to the Senate. Tarr acknowledged that the Legislature has at times been fairly criticized for frequent oil tax changes — also noting some recent changes came at the request of industry — but added that the oil prices of today weren’t even considered when Senate Bill 21 and other oil tax laws were passed. “It’s been proven now the low price environment is the new normal,” she said. “There’s just no denying that when we created the current tax structure — the record is clear — we only looked at the $60 to $120 (per barrel) band. We did not create a system that works at these prices and I believe 100 percent we would not have the system we have today if we had done that.” As challenging as it might be, her goal is to come out of the next session with an oil tax system that is durable for the next 10 years, and last year’s lengthy debate should help legislators pick up where they left off, Tarr said. Josephson and Tarr both served on the Resources Committee previously, so they have significant working knowledge of the issues at hand. Tarr said she would support capping the amount of losses companies can claim in any one year to spread the tax deductions or allow them to be deducted at a reduced rate. “You just can’t do what you can’t afford,” she said. Walker proposed phasing out the 35 percent NOL in legislation his administration submitted during the final and short-lived fifth special session in July. On refundable credits, the Democrats said they are open to ideas on how to change the system, but not interested in the status quo. Currently, small and non-producing companies working on the North Slope can claim the 35 percent NOL credit for cash, an incentive aimed at spurring development in the high-cost regime, under the theory that the state will ultimately recoup the credits in royalty and taxes when the oil starts flowing. The large Pikka and Smith Bay discoveries recently announced by Armstrong Energy and Caelus Energy, respectively, which together could produce more than 320,000 barrels per day when fully developed, would be eligible for the refundable NOL. Those discoveries are also estimated to cost a combined $13 billion or more to bring online, costs that could translate into a roughly $4 billion NOL liability to the state. “The $4 billion we would spend helping those fields is not practical; it’s not something that’s affordable, so (the state help) is going to have to be something less than that,” Josephson said. He added that does not mean doing away with state support for early-stage projects. “What I’m interested in is a more iterative plan that is more like royalty relief where the industry would carry the burden and they would be able to prove up to our geologists and our DNR team and Revenue team that something is truly viable and not pie in the sky,” Josephson said. “If anyone thinks that I’m going to be supporting the abolition of all cashable credits; that is not necessarily going to be my position at all. “It would be foolish to look at a prospect like (Caelus’) Smith Bay and say, ‘Well, we’ll just walk away from this sort of thing.’ That would be extremely foolhardy.” Tarr also said she sees a place for direct state investment in the exploration and early development phases of projects. She added finding ways to encourage companies to partner on projects could reduce the dependence on state subsidies. “What we have to recognize is what we can afford. It may be that it means at lower prices there’s less (money) available for support,” she said. Tarr noted that Caelus has said the tax credits were influential in bringing the Dallas-based independent to Alaska. Caelus expects to have about $200 million in credit certificates by next spring, according to spokesman Casey Sullivan. Josephson emphasized that the current North Slope credit system isn’t working for anyone, as Walker’s collective $630 million in vetoes to tax credit payments in the last two years have thrown the current program into disarray. “I think anyone would look at this and say things are so dire that all you have to do is look at the last two years of governor’s vetoes — no one benefits from this anymore because (the credits) are just not something you can rely on,” he said. “It frankly becomes a fiction at some point and you might as well deal with something that is more predictable and reliable.” Tarr concurred. She said the state “looks like an unreliable partner at this point and we need to change that.” Josephson said he would support paying the credit obligation off in full to start fresh with a new system and hopefully restore some confidence in the state’s business climate. Open to that possibility, Tarr added at a minimum there needs to be a plan to pay them off sooner than later. “There’s a lot of uncertainty about Alaska and I think we need to try and address that quickly,” she said. Alper said at a Nov. 15 Alaska Common Ground fiscal policy forum that he expects the administration to include a mechanism to pay off the outstanding credits “in the short to medium timeframe” with its coming tax credit legislation. Walker’s original tax credit bill last year included a lump sum appropriation to pay off all expected refundable credit liabilities, but that was pulled from the bill that passed the Legislature. He said his $430 million veto in the 2017 budget was a consequence of the House failing to pass a plan to use Permanent Fund earnings to help pay down more than half of the state’s roughly $3.5 billion deficit and the state could not afford to pay the credits without its own budget solutions. Tarr summarized that further changing the program has to be a part of the state’s larger fiscal plan “because there’s just not going to be any public support for using people’s PFDs to pay down oil tax credits.” AK LNG Gov. Walker will have a harder time finding partners on his plans for the Alaska LNG Project in House Resources, however. Josephson, who generally characterizes himself as a “stalwart supporter” of the independent governor, said he wants to see concrete information that the administration’s plan for the state to lead the $45 billion-plus project is progressing. Minus a revelation that the Alaska Gasline Development Corp. has lined up a major investor, or news on par with that, he said it will be hard to support much more state spending on the project. “If there was some amount of money that I thought could be justified based on the work plan and based on the potential and prospects, I would look at it,” Josephson said. “But I do think that the hope and optimism that came with Senate Bill 138 (that outlined the state’s role in the project), that I was very much apart of, has seriously waned and I don’t think anyone is to blame for that; I think it’s just the way things are.” The House and Senate Resources committees hold joint quarterly hearings on the project that serve as the Legislature’s Alaska LNG status reports. How much funding the administration will request for the project is unclear; the governor has until Dec. 15 to release his budget, but AGDC president Keith Meyer has said the corporation is trying to stay within general state budget restraints. The corporation’s operating budget is $10.3 million this fiscal year. Walker and Meyer have also said it will take about a year to determine if there is a place for the Alaska LNG Project in the global market. Tarr has been an outspoken critic of a state-led project because of concerns about the state’s ability to handle what is the epitome of a complex mega project. She would also need to hear more details about the administration’s plan and the prospect of success before supporting more funding for a project that the producers have backed away from because of market conditions, she said. Spending more on a project that won’t come to fruition simply isn’t an option, Tarr added. “It’s not even about supporting or not supporting a project. But it’s just infuriating to me that we spend money on things that never get done,” Tarr said, noting the state ended up spending nearly $500 million on developing a gasline under the Alaska Gasline Inducement Act, or AGIA. “That project, it’s going to happen. That resource is not going anywhere but we can’t undercut our future trying to force it at the wrong time. I need more to tell me there’s a reason to go forward,” she said. (Editor's note: This story has been updated to correctly list Rep. Dave Talerico as a current co-chair of the House Resources Committee. A previous version had Rep. Mike Hawker, who is vice-chair of the Resources Comittee, in that role.) Elwood Brehmer can be reached at [email protected]

Trump and a GOP Congress have chance to shape energy policy

Donald Trump’s election is generally viewed as a win for Alaska’s core resource industries, but whether or not it translates into better business in the Last Frontier will have much to do with his relationship with those on Capitol Hill. Republicans unsurprisingly maintained control of the House after election Tuesday and also managed to hold serve in the Senate, if not by the slimmest of margins. As it stands, there are 51 Republicans firmly in U.S. Senate seats for the upcoming Congress. The Senate Republican caucus is also expected to grow by one after a December run-off election in traditionally red Louisiana. Sen. Joe Manchin, D-West Va., has also not ruled out switching sides, which could give the GOP 53 seats. Joe Balash, chief of staff to Sen. Dan Sullivan and former Alaska Department of Natural Resources commissioner, said Nov. 10 that the split between Republicans and Democrats often makes a significant difference in committee votes, “particularly in the budgeting process.” He spoke to a crowd of Alaska Support Industry Alliance and Alaska Miners Association members at a joint breakfast meeting in Anchorage. Having a Republican in the White House could also encourage red-state Democrats to break ranks on some issues, Balash surmised, as the need to toe the party line for the president’s sake is no longer there. “The question is going to be: How much of the current administration’s agenda can be rolled back or reversed? And a lot of that really is going to be in the (Trump) administration’s hands,” Balash said. “To the extent that Congress needs to get involved, I think they’re going to find willing partners.” Hopes that Congress will immediately pass legislation to open up the coastal plain of the Arctic National Wildlife Refuge to drilling are likely a bit ambitious, particularly because it is unlikely the Senate Republican majority will dramatically change longstanding parliamentary procedure and “nuke” the filibuster, according to Balash. But that doesn’t mean nothing will happen in regards to energy or general resource development policy. Trump has already set expectations that his administration will reverse President Barack Obama’s signature Environmental Protection Agency regulations, the Clean Power Plan and Waters of the U.S., or WOTUS, rule. The comprehensive sets of regulatory changes — both finalized in the last 16 months — are currently held up in court after legal challenges by dozens of states. Alaska was exempted from the Clean Power Plan, which outlines a strategy to cut carbon emissions from power plants by nearly one-third by 2030. The WOTUS rule, however, could greatly impact Alaska resource projects and development in general, according to Alaska’s congressional delegation. Sullivan has led the delegation’s fight against the regulations that he says would greatly expand the EPA’s authority and add time and expense to projects in Alaska, which is half wetland. Supporters of the rule contend it simply clarifies the agency’s existing presumed authority. Indications from Washington, D.C., are that the Bureau of Ocean Energy Management, or BOEM, will release its much-anticipated five-year Outer Continental Shelf oil and gas leasing plan any day. Publishing the federal lease sale plan in the Federal Register prior to Nov. 21 would allow for the requisite 60-day window for it to become final to pass before Trump takes office Jan. 20. Rep. Don Young spokesman Matt Shuckerow said the congressman has heard concerns from Alaskans about other potential “midnight rules” coming down in the last days of the Obama administration. The environmental regulations already put in place by the administration have cost Alaska jobs and established “an unworkable regulatory climate for new development,” Young said in a statement to the Journal. “As the president prepares to leave office, there is serious concern that the next two months will be used to advance some of the most extreme and drastic regulatory policies,” Young said further. “Although I have little hope in this, I strongly encourage the president to heed the advice of his own 2008 transition team and Democrat majority, which called upon the Bush administration to halt the issuance of midnight rules and regulations.” Balash also said Congress “neutered itself” in regards to budget items with its 2011 ban on earmark funding because specific appropriations have been left to the discretion of the agencies. Directly appropriating funds now requires a 60-vote majority in the Senate, he added. Having Congress and an administration politically aligned with Alaska’s delegation could mean good things for the state in that regard. “We’re uniquely positioned with the new Trump administration to affect a lot of things as far as Alaska goes. I think it’s going to be a good working relationship,” said Chad Padgett, Young’s state office director. Balash doesn’t believe that relationship with the delegation will be challenged by October statements from Sullivan and Sen. Lisa Murkowski, in which they called for Trump to step down as the party nominee after lewd comments he made in 2005 about how he treated women surfaced during his campaign. Trump has been characterized as holding grudges, including against members of his recently adopted party. “I’m not convinced that the worst parts of him portrayed are what we’re going to actually see in real results come January,” Balash said. “In fact, I think his history as a businessman, a property developer in New York City, would suggest that he can be quite pragmatic. And if he were to go down the road of not working with the (Republican) members of the Senate who either withdrew their support or challenged him — that’s a list of Republicans that gets you under 50 pretty quick, really quick. “Unless he’s willing to embrace (Democrat Minority Leader Sen.) Chuck Schumer and (Democrat Sen.) Diane Feinstein I don’t think that is going to help him accomplish what he wants for the country.” Even if Trump lets bygones be bygones Balash noted that it will undoubtedly take time for Western Republicans to get through to the New Yorker president how much their states are impacted by decisions made in Washington, D.C. “It’s very difficult to expect him to understand the West and the relationship that people who live in the West have with the federal government. It is frankly foreign to the president-elect,” Balash said. Elwood Brehmer can be reached at [email protected]

ConocoPhillips can again grow its Colville River oil field

ConocoPhillips can again grow its Colville River North Slope oil field after a Nov. 4 decision by Natural Resources Commissioner Andy Mack that reversed an earlier disputed agency ruling. Mack approved the major producer’s request to absorb 22 oil and gas leases totaling 9,146 acres into the Colville River Unit, which the company operates. Anadarko Petroleum Corp. holds a 22 percent working interest in the unit. A day prior, Mack authorized the retroactive transfer of 15 of those leases to ConocoPhillips, setting the stage for the unit expansion. The anecdotally high-value leases were previously held by Anchorage-based independent Brooks Range Petroleum Corp. and made up the now-defunct Tofkat Unit. The acreage is on the southern edge of the Colville River Unit and also near Armstrong Energy’s Pikka Unit, which Armstrong believes has the potential to produce upwards of 120,000 barrels per day once it is fully developed. ConocoPhillips’ said it would plan to drill at least one exploration well in the area by June 2017 if the company’s request for expansion, first submitted to the Division of Oil and Gas March 31, were approved. Further, it expects development will trigger the National Environmental Policy Act and environmental impact statement procedure, putting first production from the expansion area in late 2024, according to ConocoPhillips’ expansion application. ConocoPhillips Alaska spokeswoman Natalie Lowman said via email that the company still plans to drill an exploration well on the acreage this winter if the permitting can be done in time. “We are pleased that the state approved the lease assignments and the expansion of the Colville River Unit to include the leases, and believe this is the fastest route to developing the acreage,” Lowman said. The unit, commonly referred to as Alpine, currently produces about 60,000 barrels of oil per day. Former Oil and Gas Director Corri Feige, who resigned her post in September, denied the March 31 application because ConocoPhillips did not hold leases in the expansion area at the time. The leases near the Native village of Nuiqsut are jointly held by the state and Arctic Slope Regional Corp., the result of a prior settlement. Feige approved the transfer of seven of the 22 Brooks Range leases to ConocoPhillips on June 15. Transfer of the remaining 15 was denied because Brooks Range held those leases at the time only because of a 90-day lease extension that kicks in after the unit holding the leases is terminated. DNR terminated the Tofkat Unit Jan. 27 after Brooks Range failed to meet drilling obligations described in the unit plan of exploration. The termination process started way back in 2013 under Gov. Sean Parnell’s administration and then-DNR Commissioner Joe Balash. Brooks Range was afforded multiple extensions to make good on its plan, but never ended up drilling in Tofkat. The company did not appeal the Jan. 27 decision. According to Feige, allowing Brooks Range to benefit by transferring the leases during the 90-day period meant to give the operator one last chance to make good on its plan would “circumvent the intent of the extension provision.” She also noted that ConocoPhillips previously held the leases in the mid-1990s and relinquished them back to the state after doing little with the property. Feige ultimately concluded that putting the potentially high-value leases back up for competitive bid in a lease sale would be the best way for the state to realize the maximum benefit from the parcels. ConocoPhillips appealed the lease decision June 28, the same day it resubmitted its unit expansion application. Brooks Range also appealed the decision July 1, Mack’s first day as DNR commissioner after taking over for retired agency head Marty Rutherford. Feige then denied the second unit expansion application July 21 because ConocoPhillips still did not hold an interest in any leases in the requested area. The major appealed that decision to Mack July 27. Mack wrote in his Nov. 3 lease decision that “the plain language” of the state regulation establishing the 90-day extension does address which company must conduct operations on the leases, making ConocoPhillips eligible to be that company. He also found that “prior lack of good faith development by assignors and assignee is not determinative of an assignee’s current intent or commitment to develop the leases,” the Nov. 3 document states. By retroactively approving the lease transfer to June 1, Mack also set the stage for the unit expansion approval to be little more than a formality. Elwood Brehmer can be reached at [email protected]

Walker fires back after getting ‘D’ for business grade

Gov. Bill Walker took umbrage with the conclusion drawn by Alaska business groups that his policies have almost failed the state’s private sector. The governor wrote a six-page point-by-point rebuttal to the “D” grade he received on the Alaska Business Report Card put out jointly by the Alaska Chamber, the Alaska Support Industry Alliance, the Resource Development Council for Alaska and Prosperity Alaska. Specifically, Walker responded to a two-page letter from the business groups informing him that he had “demonstrated success on just one of eight reasonably attainable policy priorities” and thus earned the poor mark. Chamber President and CEO Curtis Thayer said the groups’ letter to the governor was a step that hadn’t been taken before, but they felt it was important to explain their position. The governor’s counter came as a surprise, he added. “In reading the points of the (governor’s) letter and our concerns, I think what it really showed to me is we fundamentally have some disagreements that are going to take a lot more effort to resolve than I think we originally intended,” Thayer said. The Alliance is a trade association of oil and gas and mining contracting companies. Prosperity Alaska is a business advocacy group. Thayer, RDC Executive Director Marleanna Hall and Support Industry Alliance Deputy Director Renee Limoge Reeve sit on Prosperity’s board of directors. Walker’s eight “assignments” included cutting government spending; establishing a framework to draw on part of the earnings of the Permanent Fund for government services; keeping the state’s oil and gas tax system intact; advancing the original Alaska LNG Project concept; prioritizing long-term investments and generally promoting policies to grow the Alaska’s private sector. The only topic the governor received positive marks for was proposing the Alaska Permanent Fund Protection Act, which would have set up an annual draw from the Permanent Fund and changed how Fund dividends are calculated. The Senate passed a modified version of the legislation — the centerpiece of the administration’s plan to resolve the roughly $3.5 billion budget deficit by fiscal year 2019 — that was ultimately killed by the House Finance Committee. Walker wrote in his Sept. 30 response that “it is difficult to take the grade or analysis seriously” because of changing criteria and inaccuracies of fact. “Of far greater concern to me is the message your analysis sends: that Alaska’s business community is ignoring the reality and complexity of our state’s current fiscal situation,” Walker alleged. While accounting for only one, but by far the largest, issue of the previous Legislature, House Republican Reps. Lynn Gattis, Lance Pruitt and Dan Saddler, who voted down the Permanent Fund bill in the House Finance Committee, all received A- grades. Republican Sen. Mike Dunleavy, who voted against the bill that passed the Senate, got an A on his Alaska Business Report Card. The report card was critical of the administration’s 2017 budget proposal for $4.8 billion in unrestricted general fund, or UGF, spending, as the Alaska Chamber has long pushed for a $4.5 billion all-in UGF budget. It characterized the $4.8 billion bill as “well above a sustainable budget level” that reduced the operating budget by “only” $140 million versus 2016. Walker noted his original budget was 21 percent lower than the budget in place when he took office and that the Report Card evaluation failed to recognize his vetoes that cut 2017 spending to $4.4 billion. “This is a new low not seen in ten years,” the governor wrote. “And it is below the $4.5 billion spending target the Alaska Chamber called for in its 2016 state priorities. Moreover, we achieved the target a year ahead of the Chamber’s timeframe.” Thayer, who was Administration Department commissioner  under former Gov. Sean Parnell before joining the Alaska Chamber, said he understands the inherent political challenges that come with cutting government spending. He added that neither Parnell nor Walker likely get the credit they deserve for the work they’ve done to reduce the state’s budget. Thayer also said the groups were glad Walker vetoed spending after the Legislature shot down the new plan for the Permanent Fund, but added that vetoing $430 million in oil and gas tax credit payments damaged the state’s credibility in the private sector for a second straight year. Walker has said repeatedly since the June vetoes that the 2017 credit payment veto was necessary to preserve state savings after the Legislature failed to enact a comprehensive fiscal plan and reiterated that in his letter, also noting the state made its required payment of $30 million. “I can’t in good conscience use scant state funds to pay corporations hundreds of millions of dollars in excess of what is statutorily required when we are reducing education, public safety, and Alaskans’ dividends,” the governor retorted, adding that his fiscal plan cut the credit program but also originally called for paying off the entire expected obligation. On raising existing industry taxes and reestablishing a state income tax, other aspects of Walker’s New Sustainable Alaska Plan, Thayer commented that the eight tax proposals laid out by the administration would have raised just $855 million per year but discourage the notion that spending would be cut further because of a fear that “you’ll never reduce the size of government because you’re feeding the size that it currently is.” Walker responded to criticism of higher taxes by asserting that a stable state fiscal situation is much more beneficial to its business climate than the additional tax burden would be detrimental. “My aim was to keep taxes to a minimum and to spread the impact across all sectors in the interest of fairness,” he wrote. “If your group had a credible proposal to balance the budget in a sustainable way without taxes — and without bringing (Permanent Fund) dividends to zero — I never heard or saw it.” Looking ahead to the rapidly approaching legislative session that will resurrect many of the themes from this year’s political marathon, Thayer said the Report Card coalition’s message will remain consistent given the state’s fiscal problems remain. “One thing we don’t want to do, the Chamber in particular, we don’t want to appear we’re changing the goalposts,” he said. Thayer noted that establishing a long-term fiscal plan and cutting state spending have long been goals of the Alaska Chamber. Elwood Brehmer can be reached at [email protected]

Dems pull trio of Republicans for new House Majority

The more things change, the more they stay the same. Alaska still has a bipartisan House Majority caucus, but it will be led by Democrats for at least the next two years. The new House Majority leadership includes former minority leader and Anchorage Democrat Rep. Chris Tuck as majority leader, Dillingham Democrat Rep. Bryce Edgmon as House Speaker, and Republicans from Homer and Anchorage Reps. Paul Seaton as Finance co-chair and Gabrielle LeDoux as Rules Committee chair. Nome Democrat Neal Foster will co-chair the Finance Committee alongside Seaton. The 22-member majority also includes Rep. Louise Stutes, R-Kodiak, Alaska’s new House majority whip. “I think we are what Alaskans want to see,” Tuck said during a Wednesday afternoon news conference to announce the new group. The Democrat-led caucus differs from the previous bipartisan House Majority because it has bipartisan leadership, Tuck said further. Members of the caucus said repeatedly during the gathering that they formed with the sole purpose of closing the state’s $3 billion-plus budget deficit with a comprehensive package of budget cuts, reforms and new revenues — a message similar to that echoed by Gov. Bill Walker since unveiling his fiscal plan of cuts, taxes and Permanent Fund earnings revenue a little less than a year ago. “The severe drop in oil revenues, coupled with legislative inaction, has contributed to the current recession that threatens our economy, the livelihoods of thousands of Alaskans and essential services like education and public safety. The members of the new House Majority are dedicated to passing a legislative agenda that addresses the fiscal crisis and the root causes of the crisis,” Edgmon said. He added that one of the primary goals will also be moving the state away from near total dependence on oil-based revenues to give Alaska a strong and long-term fiscal foundation. Edgmon had previously caucused with the former Republican House Majority, a strategic move made by other rural Democrat legislators to secure better committee positions and funding for projects in their communities. Seaton said a percent-of-market-value draw on the earnings of the Permanent Fund, much like the proposal that passed the Senate but died in the House last session, and a broad-based tax would almost certainly be part of the majority’s fiscal plan. Seaton has introduced both income tax and a combined Permanent Fund restructuring-income tax bills in recent years to try and resolve the state’s budget problems. His legislation gained little traction in the Republican majority, however. Using the Permanent Fund partially to fund government was a notion that numerous House Democrats opposed last year because it almost assuredly means smaller dividend checks in the future. Seaton reiterated the notion championed by Walker and others who supported his Fund legislation that balancing the budget is the only way to assure any PFD payments long-term. Seaton added that any tax proposals will not be “putting taxes in place so we can spend more,” but rather adding revenue streams to avoid the severe budget cuts called for by some House Republicans. Several Republicans who called for drastic cuts to state services lost their reelection bids. The Republican Majority under outgoing Speaker Rep. Mike Chenault fractured last year over oil and gas tax credits with a group of dissenters led by Seaton who called themselves the “Musk Ox” caucus, leading to speculation that a new Majority could form in this Legislature. Tuck said lessening the industry subsidies will again be an issue for the coalition, but the group also wants to encourage competition on the North Slope among producers. Alaska Republican Party Chairman Tuckerman Babcock did not take kindly to the turnabout, calling LeDoux, Seaton and Stutes “deceitful” in a letter directed at the three and released following the announcement. “You won your elections running as Republicans in your respective districts. That was an illusion, a false picture you presented to the voters of your districts,” Babcock wrote. “Because of your recent actions abandoning your team and joining with the House Democrats, we invite you to drop the pretense that you are Republican and leave the Republican Party.” Babcock continued to ask Stutes to return the party’s $1,000 contribution to her reelection campaign because it was “accepted under false pretense.” Tuesday night’s election results increased the number of Democrats in the House, but still left the party with a 17-member minority in the 40-seat House, plus Ketchikan independent Rep. Dan Ortiz, who caucused with the Democrat-led minority in the previous Legislature. With incoming Anchorage freshman House member Jason Grenn, who defeated Republican Rep. Liz Vazquez, and the group of Republicans, the Democrats were able to pull together their own majority less than a day after the election results were apparent. Senate caucuses The Alaska Senate will look much the same as it has for several years, but it will be led by Fairbanks Republican Sen. Pete Kelly as the state’s new Senate president, taking over for Anchorage Republican Sen. Kevin Meyer. Meyer is now chair of the Senate Rules Committee. Sen. Anna MacKinnon, R-Eagle River, will remain as a Finance co-chair along with new Finance co-chair Sen. Lyman Hoffman, D-Bethel. Republican Sen. Cathy Giessel of Anchorage, who won a hotly contested race, will keep her position as Resources chair as well. Golovin Democrat Sen. Donny Olson also returned to the minority following a brief stint with the Republican majority last session. Still, the Republican-led Senate coalition holds a super-majority with 15 members in the 20-seat body. Elwood Brehmer can be reached at [email protected]

Live Election Results

While the nation elects a president, Alaska will decide whether it votes for familiar faces or throw out the incumbents in the Legislature. Although there is a total of 50 races, the competititve races are far fewer. Republican Sen. Lisa Murkowski is running against the Libertarian candidate Joe Miller, Democrat Ray Metcalfe and independent Margaret Stock. Going for his 22nd term as the state’s lone representative in the U.S. House, Don Young, Republican, faces off against the Democrat candidate, Steve Lindbeck, a former Anchorage newspaper journalist and more recently, a general manager of Alaska Public Media, and Libertarian candidate Jim McDermott of Fairbanks. Fairbanks senator and Republican Majority Leader John Coghill of North Pole is challenged by former Democrat mayor Luke Hopkins. Anchorage Sen. Cathy Giessel is challenged by Vince Beltrami, president of the Alaska AFL-CIO. Justin Parish and Cathy Muñoz, once considered a safe incumbent, are battling it out for House District 34 More than a dozen races are not being contested because there are no party opponents. (For example, Dean Westlake of District 40, who won a hotly contest primary, will automatically represent House District 40 instead of North Slope Rep. Benjamin Nageak.)  The Alaska Journal is on the scene: 12:30 a.m. FInal update: With 100 percent of the votes in, Democrats failed to knock off most all of their big targets. Former House Majority Leader Lance Pruitt won by just more than 100 votes against Harry Crawford; current House Majority Leader Charisse Millett held off Pat Higgins by 45 votes; Sen. Cathy Giessel defeated AFL-CIO President Vince Beltrami by nearly 600 votes; and Sen. John Coghill of Fairbanks had no problem with former Democrat Mayor Luke Hopkins with a winning margin of 10 percent, or about 1,300 votes. 11:40 p.m. With 100% precincts reporting, Cathy Muñoz loses House District 34 to Justin Parish. 11:33 p.m. With just 39 votes separating Beltrami from Giessel in state Senate district race N, perhaps those write-in votes may have made a difference. (With 64.7% reporting, 58 write in votes have been tallied.) 11:19 p.m. Watching Trump's speech, Williwaw in Anchorage is as silent as it's ever been. Nobody moves except to hug the person next to them or lift a drink. Or to shake or hang their heads. A pair of indigenous Alaskans expressed fear for the future but resilience. "I feel motivated. I feel like it's a fight," said Aiko Brandon. "There's more of an urgency for it. I'm scared of how it might empower racist people. As an Alaska Native I've experienced a lot of racism." "Seeing what's happened in this election has made me scared for the next four years," said Maka Monture, "but It's our duty to not give up and abandon ship." 10:57 p.m. Beltrami has overtaken Giessel in state Senate district race N with lead of about 70 votes....but still a long way to go. 10:48 p.m. Regarding Donald Trump winning, Sen. Lisa Murkowski said, "This is an opportunity on the energy front to move ahead. We don't know what he'll do about energy but what he said is very encouraging." And, "Count me among the millions of Americans who were suprised by what's happening. My sense is they (Democrats) are pretty stunned." 10:45 p.m. Hillary Clinton has called Donald Trump to concede election. Trump to speak soon, but even Alaska is falling asleep. 10:40 p.m. Party seems to be losing steam at Williwaw in Anchorage. Democrats are putting on coats and going home while the national results linger. Meanwhile, Alaska Young Democrats president Laura Herman ran down the results for local elections. Only a handful wanted to keep the national coverage going. (And no one cared what John Podesta had to say. He spoke at the Javits Center in New York, advising Clinton supporters to go home and get some sleep.) 10:28 p.m. Vince Beltrami pulls ahead of incumbent Anchorage Sen. Cathy Giessel. 10:13 p.m. Incumbent North Pole Republican Sen. John Coghill has a comfortable lead over challenger and former Fairbanks Borough Mayor Luke Hopkins with more than half the precincts tallied. 9:47 p.m. Song mix at Sen. Lisa Murkowski event ranges from Miley Cyrus' Party in the USA, to Neil Diamond's Coming to America, to Staying Alive by the Bee Gees. Festive. 9:34 p.m. State Senate incumbent ANC Republican Cathy Giessel has a strong lead over independent challenger Vince Beltrami with about 20% of precincts reporting 9:30 pm. A cheer went up at 49th State Brewing Co. as the first numbers in the Alaska US Senate race show Lisa Murkowski with a large early lead. As she headed in to her party she offered a quick take on the national races. "I just got confirmation we're still in the majority, which is a good thing." (She was referring to Pat Toomey of Pennsylvania who won relection, clinching the majority hold.) 8:55 p.m. What could Trump's win mean for Alaska? At Republican watch party on prospect of Trump pulling it off, Eagle River Rep. Dan Saddler said he's "tremendously excited to have a federal machinery that is even fair in evaluating our resource development projects, a huge win for Alaska." "Just having a fair shot, that's all we can ask for." House Speaker Mike Chenault said it "might not mean opening ANWR but it's a much better outlook. Let us as a state develop our resources and we'll be less of a burden on the rest of the country." (Alaska has highest per capita fed spending.) 8:48 p.m. The young progressive crowd sips wine and shakes their heads. "I don't know how you can support a person supported by the KKK," said Victoria Manning, a University of Alaska anchorage student. Manning chalks up Trumps strong numbers to white males afraid of losing control. "If this was a man saying the same things and doing the same things it wouldn't even be close," she said. "I think they're voting out of fear. Fear of losing control. White men have been in power in this country ever since it started. They already lost it for eight years to a black man. They don't want to lose it again to a woman." 8:30 p.m. The Republican party at the ANC Hilton is just getting underway with Trump in the lead. 8:25 p.m. Democrats at Williwaw in Anchorage seem pessimistic and gearing up for a loss as Trump is within striking distance of the presidency. "Tonight sucks so far," said Laura Herman, president of the Alaska Young Democrats. "But there are lots and lots of local elections that are actually more important to our everyday lives." A singer playing songs in a vein similar to Woodie Guthrie echoed the sentiment. "If this plays out like we're afraid it plays out, it just means job security for the next four years. You'll all have a lot of work to do." 7:45 p.m.: "Nationally, things are going great, but we are monitoring our race," said Robert Dillon, campaign manager for Sen. Lisa Murkowski. "We've been focused on Alaska and that hasn't changed."  7;34 p.m. Restrained happiness for Trump happening at the 49th State Brewing Co. However, the camp is more than delighted about Ron Johnson, the Republic incumbent from Wisconsin. Robert Dillon campaign manager for Sen. Lisa Murkowski, said Johnson did a "miraculous job" because many polls had him for a loss. Without this seat, the Republicans could have lost the Senate. Now, should Murkowski win, she will remain Chair of the Senate Energy and Natural Resources Committee, a crucial position for Alaska.  7:30 p.m. The numbers are closer than Democrats would like. "How's everybody doing?" said Wigi Tozzi, a spokesperson with the Anchorage Democrats, the party's sponsor. "Not so good, I know." Tozzi implored the crowd to get in all the votes they can still muster, asking to text friends and family to fill still open voting booths. "If you haven't voted, take a moment, go down the street and vote...There's still lots of ways we can win this." 7:25 p.m. Senate races are shaping up well for GOP Majority as Sen. Murkowski looks to join victory party at 49th State Brewing Co. in Anchorage.   7:12 p.m. All eyes at Anchorage's Williwaw are glued to MSNBC's analysis. With the West Coast reporting, Clinton pulls ahead. If Trump wins Wisconsin and Michigan, he wins the presidency, they say. There are audible hisses of people taking in nervous breaths. 7:08 p.m. The official Republican election party at the Anchorage Hilton is quiet, but the same cannot be said for the Trump party as Fox projects him leading with 216 electoral votes to Clinton's 202 after she claims California. 6:56 p.m. The Trump party at Flattop pizza erupted when Fox News projected North Carolina and Ohio as wins for their Republican candidate. "I was in the U.S. Military," said Taylor Feece, who cheered the loudest. "That should say enough. I'm not voting for Hilary." 6:30 p.m. This election has ended friendships - both on and off Facebook.  Frenetic conversation carried a desperate edge at Anchorage's Williwaw where the Alaska Democrats are holding their viewing party for the national, and later the local, elections. Democrats in pantsuits and flannel plaid and business attire rehashed arguments they've had for months. “We're not voting for her just because she's a woman; we voted for Obama over her before.” “We don't want to take anybody's guns. We don't want a redo on Roe v. Wade. We fear for the Supreme Court. We fear for the LGBTQ community and for women and for people of color. "She knows how to work. She knows how to get things done. She's the right person for a job, this job." "She can't even forward a Yahoo article on relationship advice without her aides, let alone mastermind a complex server takeover." "Benghazi wasn't her fault. If she'd been evil for so long, why is she still in politics?" A single thread emerged while they watched the numbers roll in, the familiar tune of the lesser of two evils the 2016 election has amplified to a justification of its own. "I just don't want this election to be about electing Hilary just because we don't want Trump," said Dr. Christine Hallas, an Anchorage pediatric nurse practitioner. Clinton takes Virginia and the crowd lets out a roar.

AIDEA buys out Salix for work on Interior Energy Project

The Alaska Industrial Development and Export Authority has quietly parted ways with its private industry partner on the Interior Energy Project for a second time. The authority’s IEP team lead Gene Therriault said in a written response to questions from the Journal that the decision to end its relationship with Salix Inc., which was working on a plan to expand the LNG plant used by Fairbanks Natural Gas and is owned by AIDEA, was made after it was determined a new model to develop the LNG facility could lower the financial risk for potential Interior natural gas customers. “The IEP team and Salix together developed the agreement for the sale of the pre-FEED (front-end engineering and design) project development work product that concluded Salix’s involvement in the project,” Therriault said. “The IEP team has enjoyed the professional manner in which Salix has participated in the project development.” Salix is a subsidiary of the Washington-based utility company Avista Corp. Avista purchased Juneau’s electric utility Alaska Electric Light and Power Co. in 2014. Company spokeswoman Jessie Wuerst said the amicable parting was a joint business decision. “Salix is still very excited about potentials in Alaska and we’re continuing to work to explore those opportunities,” Wuerst said. The company — formed in 2014 to explore LNG business ventures — had proposed to expand processing capacity at the LNG plant through its own $10 million equity investment in the project, a $30 million investment by AIDEA and a $28 million low-interest loan from the authority. AIDEA’s financial contributions to the plan to build out the plant would have come from the $330 million grant, loan and bond package the Legislature passed to fund the Interior Energy Project in 2013. Salix was never under contract with AIDEA to work on the IEP, but was selected as the authority’s preferred partner in March after an eight-month public selection process that generated plans from 13 firms with plans to get affordable energy to the Interior. When the authority’s project team selected Salix in March, the expectation was the two would sign a deal to make the partnership official by the end of June. The finalizing of that agreement was pushed back and ultimately never materialized. AIDEA cut ties with MWH, the large engineering firm that was working on a North Slope LNG plant for the IEP, in December 2015 after capital costs for the plant came in higher than anticipated to meet the IEP goal of $15 per thousand cubic feet, or mcf, of natural gas. The subsequent drop in oil prices has translated to Interior fuel oil prices that have fallen upwards of 40 percent since the AIDEA began working on the IEP. Lower fuel oil prices have tempered the rate at which residents are expected to invest themselves and convert to natural gas, an unavoidable reality that has further financially strained every aspect of the project that was always going to rely on thin margins. AIDEA’s purchase of Fairbanks Natural Gas and its sister companies also gave the authority in-house, small-scale LNG expertise. According to Therriault, Salix was first approached about possibly selling its pre-FEED work in early August. The AIDEA board unanimously approved a resolution to buy Salix’s pre-FEED work on the LNG plant expansion for $250,000 at its Oct. 27 board meeting without discussion. The prospect of buying out Salix also was not mentioned in the authority’s Oct. 11 quarterly update to the Legislature on the project. Additionally, Therriault did not discuss ending work with Salix during his status report on the project at the Oct. 27 meeting just before the resolution was passed. He said in a follow-up interview that the final decision to take the pre-FEED purchase to the board was made shortly after the Legislature’s report was drafted. In hindsight, Therriault added, the deal should have been communicated better. A source close to the project said work to investigate a “utility model” supply chain had been ongoing for nearly a year and with that as a financial benchmark, Salix’s proposal requiring a nearly 12 percent rate of return on the private firm’s investment and tax payments, just couldn’t compete. There was also concern that news about another change in the project would leak out in bits without the understanding the parting was mutual and actually beneficial to the project, according to the source. Fairbanks Rep. David Guttenberg, who has at times been an open critic of AIDEA’s handling of the IEP, said he was not upset that the buy out was not in the Legislature’s report. The Legislature, deep in the middle of an election cycle, would not have been the best place to make the news public, he said. Guttenberg added that all large projects evolve, and the happenings with Salix are just part of this one’s maturation. Getting a different perspective on any project, as Salix provided, is an important and beneficial part of the work, he said further. “AIDEA now has the obligation to explain that this project has survived this, that this was healthy, that the relationship with (Salix) was good or bad; here’s what we got out of it and we’re moving forward,” Guttenberg concluded. Elwood Brehmer can be reached at [email protected]


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