Elwood Brehmer

Dunleavy joins attempt to force cruise season through federal court

Gov. Mike Dunleavy is trying to salvage Alaska’s fast-approaching summer tourism season through a Florida court. The governor’s office announced April 20 that the Dunleavy administration would attempt to intervene in the State of Florida’s lawsuit against the Centers for Disease control to lift the federal agency’s Conditional Sailing Order that currently prohibits large cruise ships from sailing in domestic waters. Dunleavy’s administration estimated the cancellation of the 2020 season cost the Alaska economy roughly $3 billion in a statement from his office. “Alaskan families and small businesses need fast action to protect their ability to work and provide for their families,” the governor said April 21. “We have been told to follow the science and facts. Cruise ships have demonstrated their ability to provide for the safety of passengers and crew and Alaska has led the nation in (COVID-19) vaccinations and low hospitalization rates. We deserve the chance to have tourism and jobs.” Acting Attorney General Treg Taylor insisted the CDC “simply does not have the authority to arbitrarily shut down an entire industry.” Alaska lost approximately 9,600 jobs in the broader leisure and hospitality industry last year, according to state Labor Department economists, who estimated in January the industry would likely add about 3,500 jobs back this year. At that time it was largely presumed some level of cruise activity would occur this year. While several small cruise companies that fall outside the CDC rules for large ships are operating this summer with Alaska-only itineraries, the global cruise operators that traditionally sail the inside passage from Pacific Northwest ports brought roughly 1.3 million visitors to the state each summer prior to the pandemic. The tourism industry had been one of the few large industries to grow in recent years along with the once-surging Lower 48 economy as others struggled with the impacts of low oil prices, uncertainties from the state’s now omnipresent multibillion-dollar structural budget deficits. The State of Florida first sued the CDC in a complaint filed April 8 in the Tampa Division of the U.S. District Court of Middle Florida alleging the public health agency has unreasonably delayed the resumption of the major industry for many coastal states and violated the Administrative Procedures Act on multiple levels in issuing the Conditional Sailing Order last October. That order lays out a detailed, phased plan to resume cruise sailings but it does not put a timeline on how quickly the process can play out. Representatives for cruise companies have said they are doing everything they can to comply with the order but have received little information on when exactly they can start sailing again. Despite the strong push by state governments to fight the federal restrictions, it’s unclear what practical impact the suit can have on the 2021 summer season. Holland America Vice President Ralph Samuels said April 9 that the tour operator could resume sailings by early July if given immediate clearance. Dunleavy said during an April 16 press briefing that he was told the cruise companies would likely need clearance within “the next couple days” to start the complex process of readying the ships and crews for sailings in the coming months. Middle Florida District Court Judge Steven Merryday scheduled a May 12 hearing over Florida’s motion for a preliminary injunction to lift the CDC rules in an April 23 court order. The governor also announced April 14 a rough plan for a $150 million state aid package for tourism-dependent businesses in the state. Lt. Gov. Kevin Meyer is currently on a multi-week tour of the state to hear from industry leaders about how most effectively package the funding support. Alaska’s congressional delegation has also been working legislative angles to get the big ships sailing to the state again, but that will also require some sort of waiver to the 19th Century-era Passenger Vessel Services Act, which requires foreign-built large passenger vessels to make a stop at a foreign port when traveling between U.S. ports. Canadian officials announced in February that the country would not allow large cruise ships at its ports again this summer, adding another major hurdle for state and federal officials to clear before the ships can sail again. Sen. Dan Sullivan praised the Dunleavy administration’s attempt to join Florida’s lawsuit in an April 21 statement, arguing the CDC has only given states and the industry “many months of mixed messages, foot-dragging and unresponsiveness.” Sullivan and Florida Republican Sen. Marco Rubio introduced legislation April 13 to revoke the CDC’s Conditional Sailing Order. Federal attorneys had not yet responded to Florida’s complaint as of April 26. Elwood Brehmer can be reached at [email protected]

Alaska Air Group reports $131M Q1 loss, boosted by federal help

Alaska Air Group Inc. is getting closer to breaking even more than a year into the pandemic but it’s not quite there yet. The parent company to Alaska Airlines and regional carrier Horizon Air reported a $131 million first quarter loss April 22. The early 2021 results are a significant improvement over a year ago when the Seattle-based airline company lost $232 million; however, the most recent $131 million loss includes federal CARES Act Payroll Support Program funding. Without that and other special items, the first quarter loss would have been $436 million. according to the company. Alaska Air Group netted $181 million in the first quarter of 2019. The company lost $430 million in the fourth quarter of 2020 and more than $1.3 billion in all of last year. New Alaska Air Group CEO Ben Minicucci thanked employees for helping return the airlines to positive cash flow in March at the end of the quarter in a statement accompanying the earnings report. “We’re such a big company, but still small enough that each person’s work makes a difference,” Minicucci said. “We’re now laser focused on a return to profitability and growth, with aggressive cost control, optimal productivity across all our work groups, and the operational and financial discipline that Alaska is known for.” Minicucci officially took over as Air Group’s top executive April 1 following the retirement of former CEO Brad Tilden, who took over in 2012 and led the company to a long run of record growth that included the 2016 acquisition of West Coast competitor Virgin America. The $131 million loss was on the back of $797 million of operating revenue, a 51 percent year-over-year decline, and translated to a loss of $1.05 per share, according to the financial filings. Alaska Air Group stock closed April 23 trading at $69.21 per share. Despite the losses, Air Group leaders reduced the company’s net debt by approximately $100 million to $1.6 billion during the quarter and reported a debt-to-capitalization ratio of 62 percent at the end of the first reporting period for the year. Air Group leadership has long held a goal of maintaining the company’s debt-to-cap at less than 50 percent, which they had largely achieved prior to the pandemic. The company also issued early recall notices to approximately 350 Alaska pilots who had been on extended leave during the quarter to prepare for summer growth. In the state of Alaska, at least, officials at the Fairbanks and Anchorage international airports have said they expect collective summer passenger capacity across airlines to be in line with or even exceed 2019 levels, partly due to the fact that it’s unclear at this point whether cruise ships will be allowed to sail to the state this summer. Alaska Airlines averaged 12,472 full-time equivalent employees during the quarter, down more than 25 percent from a year ago. Its operating fleet also shrunk by 24 to 201 aircraft over the year. Air Group held $3.5 billion in cash and other liquid assets at the end of the first quarter and more than $5.3 billion in total liquidity, according to the earnings report. Company executives have stressed their ability to rely on what was a very strong balance sheet to ride out the pandemic despite being in an extremely volatile industry. Air Group received $546 million in Treasury Department loans and grants during the quarter and is eligible for another $584 million in the third round of Payroll Support funding, according to a company statement. Elwood Brehmer can be reached at [email protected]

Parties agree to expedited schedule in Willow lawsuit

ConocoPhillips has agreed with a coalition of Alaska Native and conservation groups on a timeline to resolve a court dispute over the adequacy of the environmental review for its multibillion-dollar Willow project that could allow the company to resume on-the-ground activity next winter. Per the agreed-upon timeline to argue the lawsuit, ConocoPhillips will not restart construction work at the large North Slope oil prospect before Dec. 1. The Houston-based oil major intervened in the suit originally filed last November against the Bureau of Land Management over the agency’s approval of the company’s development plan last year. ConocoPhillips was planning to open a gravel quarry to feed road and facility pad construction in the National Petroleum Reserve-Alaska in February before a 9th Circuit Court of Appeals panel stopped work on the project with a preliminary injunction Feb. 13 in which the judges concluded the groups were likely enough to succeed on at least one of the National Environmental Policy Act Claims that allowing the potential environmental harm from the mining work last winter was not worth it. Shortly after the injunction, attorneys for ConocoPhillips requested a July decision on the merits of the case of Federal District Court of Alaska Judge Sharon Gleason so the company could prepare for the 2021-22 winter work season on the North Slope. Timely completion of the project is in Alaskans’ interests because of the economic benefits it can provide, the company’s attorneys wrote. The summary judgment schedule in the case approved by Gleason starts with the conservation groups filing their opening brief by April 23 with defendant replies by May 26 and the plaintiffs’ reply on June 11, according to an April 5 order. As currently proposed, the Willow master development plan calls for the eventual construction of five drill sites stretching north-south over approximately 20 miles in the northeast corner of the federal petroleum reserve. ConocoPhillips also has two other nearby developments in the NPR-A but the Willow project would be several times larger than the single-drill site Greater Mooses Tooth-1 and 2 projects extending from the Alpine field. Full build-out of Willow is estimated at a cost of up to $6 billion, according to the company, with first oil during the 2025-26 winter. The project’s oil production is expected to approach 160,000 barrels per day at its peak. Overall, the project is expected to produce about 590 million barrels over 30 years. ConocoPhillips Alaska representatives have said it’s too early to tell what, if any impact the work stoppage early this year will have on the overall development schedule for Willow. Gov. Mike Dunleavy’s office announced April 15 that the state would also ask Gleason to intervene on BLM’s behalf. Dunleavy said in a statement that developments such as Willow provide the economic base for critical services on the North Slope. “Oil and gas development is critical to North Slope communities, and Alaska has long anticipated bringing the Willow project online. With the potential to produce 100,000 barrels of oil per day, it is imperative that Alaska is given the opportunity to responsibly develop our resources,” Dunleavy said. While the state’s oil production tax applies to projects in the federal petroleum reserve, the state will distribute its 50 percent share of any royalty revenue from Willow through grants to eight North Slope communities. Royalties have been the primary source of petroleum revenue for Alaska since prices fell from their $100 per barrel high in 2014. Department of Law attorneys argued the state has significant economic interests in protecting Willow’s development, not only in the upwards of $3.5 billion the project is expected to generate in state and local tax revenue, but also the direct and indirect jobs it would add to Alaska’s sputtering economy. According to the environmental impact statement for Willow, the project would support at least 1,000 construction jobs and approximately 400 operations positions when finished. Attorney for Sovereign Inupiat for a Living Arctic Bridget Psarianos wrote in an April 19 response to the state’s request that the group does not outright oppose the state’s participation in the suit but waiting to intervene until months after the case was filed could complicate the accelerated briefing schedule the sides had previously agreed to. Editor's note: This story has been modified to note that while construction work won't restart any earlier than Dec. 1, development work will continue. The original version also stated that the state will not receive royalty revenue from Willow. The state will receive 50 percent of the royalties, but under federal law it is required to distribute that money to the North Slope communities as grants. Elwood Brehmer can be reached at [email protected]

Oil industry still reeling from pandemic price crash

The price for Alaska North Slope crude largely recovered months ago from the unprecedented fall it took a year ago, but if a recovery is also going to occur in Alaska’s oil workforce it has yet to materialize. Rather, preliminary employment data for March from the state Labor Department indicates the industry is continuing in the other direction. Approximately 6,300 people were employed in the state’s oil and gas sector last month, which was in line with February but did not reverse a declining trend that has persisted since the start of the pandemic. Following a near-term peak of 10,200 oil and gas jobs in February 2020, the industry has shed nearly 40 percent of its workforce; it is the largest drop among all of the industries the Labor Department tracks. But the recent decline in one of the state’s trademark industries is not an isolated incident. Alaska’s oil and gas workforce has contracted by 57 percent since peaking at an average of 14,800 jobs in 2014. Alaska Oil and Gas Association CEO Kara Moriarty emphasized that while the operating companies would relish the ability to hire more workers again, what has happened in Alaska is reflective of the national picture. Nationally, the industry peaked at nearly 199,000 direct jobs in 2015 and has had 133,000 through the first few months of 2021, a one-third drop in employment. “When you have a price fall like we have from 2014 to today the companies just don’t have as much money to spend and it does force efficiencies and you just can’t drill as many wells when prices are where they’re at today compared to 2014,” Moritarty said. The price for Alaska crude stood at $66.62 per barrel on April 19, according to the state Revenue Department and it has remained greater than $60 per barrel since early February — a return to where it started 2020 — but still far from the $100 per barrel-plus regime the industry enjoyed early last decade. State Labor Economist Neal Fried said the simple price of oil is consistently the best indicator of pending employment trends in the industry. While shale production in the Lower 48 requires more constant and labor-intensive drilling activity, there is clearly no correlation between oil production and jobs in Alaska. Pre-pandemic employment levels are in line with the size of the industry when more than 1 million barrels per day were being produced on the North Slope. Fried said the Labor Department’s definition of an oil and gas worker is quite narrow and is largely limited to employees of the producer companies and others active in exploration or field work, noting employment at Prudhoe Bay includes a host of support professionals, caterers, construction workers and security personnel, among others. While the producers have made significant cuts to their collective workforce, first after 2014 and again since the onset of the pandemic, most of the job losses have been with oilfield service contractors and support companies, according to Fried. “The producer part of the industry changes more slowly,” he said, adding that “right now it’s pretty ugly” in the oilfield support business. Alaska Support Industry Alliance CEO Rebecca Logan said the impact of the negative employment trend is exacerbated by the fact that the state is losing some of its highest paying jobs. “It impacts everyone in one way or another,” said Logan. She generally agreed that the support companies that work on the North Slope have felt the brunt of the cuts via less work from the producers. “You had work stop when oil just hit rock bottom and went below zero (last April). That was the death knell and we haven’t recovered from that,” she said. Doyon Drilling felt the pandemic directly last April when ConocoPhillips informed company leaders that it would lay down its contracted drilling rigs to limit the risk of spreading of COVID-19. The rig de-mobilization came amidst $400 million in cuts to ConocoPhillips’ 2020 capital plan, which previously was approximately $1.5 billion. In early February 2020, Doyon Drilling had 470 employees, according to spokeswoman Sarah Obed, a figure that fell to just 110 by mid-May. The company now employs 222 workers, Obed wrote in an email. ConocoPhillips gradually resumed its drilling program last fall. In contrast, Logan said some of the companies that work more peripherally in the industry, such as logistics and shipping firms, are thriving and she expects the industry to eventually recover at least to pre-pandemic levels because of a small flurry of yet-to-be-developed oil discoveries in recent years. “There’s a very viable industry here,” she said. ConocoPhillips has approximately 1,000 workers in Alaska after a reduction in February of nearly 100 positions across all functions of the company related to a restructuring stemming from the company’s recent acquisition of Texas-based shale operator Concho Resources, according to spokeswoman Rebecca Boys. She wrote via email that the company’s current workforce is “more than sufficient” to advance ConocoPhillips’ existing suite of capital projects, which includes the 100,000 barrels per day-plus Willow project, several smaller satellite prospects and development projects within the Alpine and Kuparuk fields. Boys added that the past year has emphasized the need within ConocoPhillips to “stay focused on cost and become more efficient in what we do. The company must be set up to succeed long-term and be able to provide jobs long-term — across industry cycles and during energy transitions. That said, we will look to grow our workforce accordingly with our projects.” Economist Ed King of King Economics Group and a former state economist said in an interview he believes when several of the current North Slope oil prospects become construction projects — such as Oil Search’s Pikka and Hilcorp’s Liberty prospects in addition to those held by ConocoPhillips — the industry will begin adding jobs again. An outlier, Oil Search bought into Alaska in 2018 when it took over as operator of the Pikka Unit Nanushuk prospect from Armstrong Energy, has added jobs to the industry and currently has about 150 employees in the state, according to spokeswoman Amy Burnett. However, the Australian producer had about 180 Alaska workers a year ago and has since scaled back its development plan for the large Pikka project. “I don’t think that where we are today is the new normal,” for Alaska’s oil industry, King said. “Now that we’re back up in the $60s (per barrel) we should see employment and investment return to where it was two or so years ago.” Longtime Alaska oil and gas attorney and fiscal analyst Brad Keithley sees less reason for optimism in Alaska’s oil fields. Keithley said that largely through 2015 Alaska was a “big project state” with Shell concluding $7 billion of offshore exploration in the Chukchi Sea; ExxonMobil developing the $4 billion Point Thomson gas field; and the major producers also investing significantly in the Alaska LNG Project at the time. He questions whether the market conditions will ever materialize again for multiple large-scale projects like those to occur simultaneously. While Alaska’s political leaders have blasted the growing contingent of large banks that are choosing to formally eschew Arctic oil and gas projects, Keithley said he believes more basic market factors could challenge Alaska’s oil industry for the long-term. The development hurdles of high upfront capital requirements and in some cases decade-long lead times from first discovery to production that have always challenged North Slope operators are likely to become ever-more apparent as the future of oil demand gets increasingly blurry, according to Keithley. He expects ConocoPhillips to see its Willow project and others through as the oil major has bet big on the state in recent years, but he’s unconvinced current prospects are as likely to become producing fields. “We’re getting good geology announcements. What I’m waiting on is financial announcements,” Keithley said. Elwood Brehmer can be reached at [email protected]

AK LNG strikes out on Biden’s infrastructure pitch

It appears officials in Alaska’s gasline agency are starting from scratch in their effort to secure more than $4 billion in federal money to jumpstart the Alaska LNG Project. While still in concept only, the $2 trillion-plus infrastructure plan unveiled by President Joe Biden at the end of March makes no mention of pipelines and discussion about natural gas infrastructure is limited to $16 billion for plugging and abandoning orphaned oil and gas wells and mines. The latest plan to develop an LNG export project for North Slope natural gas backed by Gov. Mike Dunleavy’s administration hinges, at least initially, on a federal subsidy to cover 75 percent of the nearly $6 billion Alaska Gasline Development Corp. officials believe it would cost to construct a large-diameter gasline from Prudhoe Bay to Fairbanks. AGDC President Frank Richards said when the idea was formally pitched to the corporation board of directors in early February that leaders of the state-owned corporation were in confidential negotiations with a “world-class pipeline operator” to potentially lead the pipeline portion of the integrated North Slope gas-to-pipeline-to-LNG effort and also contribute the remaining roughly $1.5 billion for construction of the first pipeline phase. Along with a yet-to-be-built, approximately 60-mile feeder pipeline to draw gas from the Point Thomson field, installing the first few hundred miles of the 807-mile pipeline would provide access to lower-cost natural gas to communities along the pipeline corridor and the Fairbanks area — where the focus is as much on cleaner heat sources as it is cheaper energy — first, and greatly de-risk the rest of the project for private investors, according to the Dunleavy administration. By late January AGDC had identified “likely” lead parties for the North Slope gas treatment plant and pipeline, and corporation officials were working to get the attention of a firm to lead development of and own the LNG plant, which accounts for roughly half of the overall $38 billion Alaska LNG price tag, Richards said at the time. AGDC officials had also informed the members of Alaska’s congressional delegation of their desire to participate in a federal infrastructure and stimulus program and briefed Biden’s transition team on the potential benefits of the project, according to Richards. Approximately two weeks after the president first presented his American Jobs Plan, AGDC spokesman Tim Fitzpatrick wrote via email that corporation officials had no updates on progress to get the Alaska LNG Project included in the massive spending plan because it was still so early in the legislative process and bills have not yet been filed. “We’re confident the project meets the jobs, energy and environmental goals on the table and that we have a number of different legislative paths forward,” Fitzpatrick wrote. Dunleavy spokesman Corey Young wrote in an emailed response to questions about lobbying efforts for the project from the administration that the governor has advocated for the gasline to elected leaders nationwide. “The governor will continue to fight for Alaska resource projects including Alaska LNG as federal legislative opportunities develop and evolve. No one in the world knows how to effectively develop their resources for the benefit of our citizens as well as Alaskans do,” Young wrote. However, congressional delegation staffers working on getting funding for Alaska’s infrastructure priorities said in interviews that securing a $4 billion to $4.5 billion grant for Alaska LNG is an immensely challenged endeavor on several fronts, some more obvious than others. First, the Biden administration has shown little interest in promoting anything related to fossil fuels; it suspended the federal oil and gas leasing program shortly after taking office. And though AGDC leaders have pitched the project as a cleaner source of energy to displace coal, particularly in Asian markets, Dunleavy has taken a highly adversarial approach to addressing his dislike of the Biden administration’s energy policies while at the same time seeking billions of dollars in construction funding for the pipeline. Even if leadership in Alaska and Washington, D.C., can reach a philosophical compromise over what energy is clean enough to warrant federal support, there currently is no legislative avenue to fund the Alaska LNG pipeline — absent an earmark newly revived by Congress last month— because there is no existing federal pipeline development program, according to delegation staff. Some of the earmark appropriations secured by Alaska’s congressional delegation through much of the 2000s drew nationwide scrutiny and provided momentum for a prohibition on earmark funding that lasted roughly a decade before the rule was rescinded by Congress in March. According to the staffers, Alaska Natural Gas Pipeline Act passed in 2004 still contains $18 billion in federal loan authority for an Alaska gas pipeline, but it is only for a project through Canada as currently written, the export route preferred at the time. State level lawmakers consumed by navigating the pandemic and the state’s structural budget problems have spent little time evaluating the most recent Alaska LNG funding scheme since it was first publicized but the federal subsidy request was met with skepticism in the one Senate hearing that covered the topic. Republican legislators who have supported Dunleavy’s desire to pass the project back to the private sector also questioned the realism of the plan to get more than $4 billion in federal funds for a fossil fuel project given the political realities. Elwood Brehmer can be reached at [email protected]

S&P outlook expects Alaska to trail oil peers in recovery

A newly published Outside economic outlook for oil and gas-heavy states backs up what local forecasters have been saying: It’s going to be a long slog back for Alaska. The April 15 S&P Global report entitled, “U.S. Oil and Gas-Dependent States Are Out Of The Woods (For Now),” concludes that Alaska’s economic recovery from the pandemic is likely to be amongst the slowest in the nation, with Texas being the only traditional oil state to be among the national leaders in near-term growth. The international market analysis firm believes the national economy will see gross domestic product, or GDP, growth of 6.5 percent this year and 3.1 percent in 2022 after contracting by 3.5 percent last year, but the recovery will be “uneven,” according to the report. “Without exception, all mineral-producing states were affected by the dual-shock of the pandemic-induced recession and the global energy rout last year, with five of them in the bottom 20 percent of all states in 2020 for economic growth,” the S&P report states. Alaska’s economy contracted by 4.9 percent last year based on state-specific GDP, putting it 42nd nationally and ahead of other oil states like Louisiana, Texas and Wyoming, but behind the likes of North Dakota, New Mexico and Texas. According to figures from the Federal Reserve Bank of St. Louis, Alaska lost $4.1 billion, or 7.5 percent of its total economic output last year compared to 2019. S&P’s authors have pegged Alaska’s growth this year at about 5.1 percent, which would put it 33rd nationally based on the analysts’ projections. That growth is expected to taper to just more than 3 percent in 2022, which would be amongst the slowest growth nationwide. “By 2022, only Alaska and West Virginia (among resource states) are forecast to rank in the bottom 10 states,” the authors conclude. “States that have a high reliance on mining activity and less diversified economic portfolios may see prolonged economic recovery compared to the rest of the sector.” University of Alaska Anchorage economist Mouhcine Guettabi said in a presentation earlier this month that the state’s labor market remains “ugly” with little optimism for significant organic growth in the coming years. The state Labor Department forecasted in January that Alaska this year will recover about 30 percent of the approximately 27,200 jobs lost in 2020 and full recovery to 2019 levels will take several years. Guettabi and other economists also routinely note that prior to the pandemic Alaska was just starting to recover from a three-year recession when most of the Lower 48 economy was strong as well. S&P analysts maintained Alaska’s AA- general obligation credit rating with a negative outlook in the report, a rating issues roughly a year ago when pandemic restrictions were tightest and domestic oil prices briefly went negative. A summary of the state’s fiscal situation notes that improved oil prices are helping the state’s immediate revenue situation, but emphasizes that “Over the long term, the state continues to grapple with sustainable budgeting. While total reserves remain very strong, additional revenue sources will be needed as expenditure reductions have been virtually exhausted over the past several years. The governor’s (10-year) plan recognizes a need for new revenues in fiscal 2023, but it is unclear what that may entail.” Elwood Brehmer can be reached at [email protected]

Utilities’ request for extension to coordinate meets resistance

A request by Alaska Railbelt electric utility leaders to double the time to implement major grid reform legislation has been met with disdain from some key regulators and stakeholders. The general managers and CEOs of the Chugach, Golden Valley, Homer and Matanuska electric associations along with Seward’s utility director wrote to the Regulatory Commission of Alaska in a March 29 letter to ask lawmakers for another year to hash out the regulations needed to stand up a new grid planning organization they’ve dubbed the Railbelt Reliability Council, or RRC. The establishment of such an organization to improve electric generation and transmission coordination amongst the state’s largest power utilities is at the heart of Senate Bill 123 passed last year, which mandated the utilities to work with the RCA on the decades-old issue. Utility leaders noted in a series of subsequent public RCA hearings that most similar legislation comes with a two-year window to complete the accompanying regulations, while lawmakers specifically put a one-year timeline for the complex and often highly technical regulations underpinning SB 123. An audibly frustrated RCA Chairman Bob Pickett responded to the utility’s concerns during an April 7 teleconference that the July 1 deadline for the final RRC regulations has been known since the start of the process. Pickett further said asking the Legislature for such an obscure statutory change at this point in the session is a long shot at best. He also questioned whether the RCA, a sub-agency of the Commerce Department, can make an official request to lawmakers independent of the governor’s office. “At the tail end (of the legislative session) the only way something like this would happen is some kind of lobbyist-driven amendment by the utilities,” Pickett said. Chugach CEO Lee Thibert said the utilities are not trying to stop the process and all backed SB 123 but the regulatory development has taken much longer than expected. “We can’t let this get rushed through and have problems for the next umpteen years. We need to take the time and get it right the first time,” Thibert said.” Matanuska Electric CEO Tony Izzo later told Pickett the utilities would not seek the extension without the commission’s backing, though RCA member Dan Sullivan said he thought the request could be fulfilled if enough weight was behind it. The utilities also contend that early drafts of the regulations maintain too much control over the RRC with the commission and are not in line with the more collaborative intent of SB 123. Renewable Energy Alaska Project Executive Director Chris Rose, who sits on the 12-member RRC Implementation Committee, insists the utilities themselves are having a hard time ceding control over grid infrastructure that under the old system is disjointed, inefficient and intentionally limits third-party investments, namely large renewable energy projects. Rose testified that he and other non-utility committee members have donated countless hours of their time over the past nine months to ultimately improve the region’s electric infrastructure and save ratepayers money. “It was, and still is, stunning to me that the same utilities who like to say that they are working collaboratively with the others on the RRC would submit a letter to you asking to prolong an already too long process for another year without discussing the letter or its implications with the other RRC members,” Rose said. Other RRC committee members said they also believe the utilities want to retain control of the grid and are searching for an opportunity to do so. Suzanne Settle, CIRI Energy Vice President and an RRC committee member, reiterated Rose’s point that the group has put in untold hours in sometimes afternoon-long meetings each week. “Everyone wants to get this right but when you’re trying to do things that are complicated and transformational you’re not going to be perfect, so you just have to do your best and keep improving along the way,” Settle said in an interview. CIRI owns the Fire Island wind project and had plans to expand the project scuttled in 2017 when agreements for tariff rates to transmit the company’s power to Fairbanks couldn’t be reached. It’s those kind of stable-cost deals for renewable power that the RRC should help facilitate, she said. “Regional planning in the long run will reduce electric costs for the bulk of Alaskans, Settle said. “I think it’s 20 years overdue.”

Senate Republicans near agreement on emergency powers

Senate Republican leaders have ultimately agreed to renew the state’s COVID-19 disaster declaration with an option for the administration to scale it back to only the targeted powers and flexibilities Gov. Mike Dunleavy and public health officials have said are needed. The Senate Republicans’ version of House Bill 76 would actually extend the end date of the official disaster declaration from Sept. 30, which the House approved, to Dec. 31 despite the continued instance by Senate President Peter Micchiche, R-Soldotna, that reviving the declaration when the governor doesn’t want it is largely a political game. Staff for Finance Committee co-chair Sen. Click Bishop, R-Fairbanks, said during an April 12 hearing when the committee’s changes to disaster legislation were released that the end date was moved back to align with indications from President Joe Biden that the federal emergency declaration will be in place through the end of the year. Aligning the dates allows the Dunleavy administration to accept additional monthly Federal Emergency Management Administration and Supplemental Nutrition Assistance Program, or SNAP, funds without requiring subsequent legislative action. Micciche said in an April 9 press briefing that HB 76 will be passed in some form to ensure the state gets the $8 million per month in boosted food assistance and other FEMA funding. “We’re going to take our time on (HB 76),” Micciche said, adding that he doesn’t believe the official declaration is necessary and prior indications from state Health Department leaders that the state needed to extend the declaration by April 1 and April 15 in order to get those funds for this month might have been inaccurate. He said administration officials now believe the state has until April 30 to act. Legislative leaders had previously been at odds over the necessity of a full disaster declaration and the disagreement had hampered the progress of the bill most lawmakers say is needed in some form. “There’ll be a Senate position, a House position and hopefully they align,” Micciche said of the disaster legislation. Multiple Senate Republicans have indicated a desire to extend the declaration while others in the caucus — most vocally Eagle River Republican Sen. Lora Reinbold — insist it is an unnecessary ceding of power to the administration. House majority coalition members have been firm in their stance that the official declaration is ostensibly an insurance policy against the unknown that gives the administration the ability to respond quickly if the state’s public health system encounters major problems in managing the pandemic over the coming months, echoing the beliefs of the state’s largest health care organizations and providers. Dunleavy has said since it expired in mid-February that he believes renewing the full declaration would send the wrong signal to Alaskans as well as potential visitors regarding the trajectory of the pandemic in the state. His administration wants only limited powers to support COVID-19 vaccine and treatment distribution; allow for expedited procurement processes; and continued telehealth flexibilities in addition to the emergency funding authority. To that end, Senate Republicans added a provision to HB 76 that would give Department of Health and Social Services Commissioner Adam Crum the power to declare a public health emergency to make the state eligible for the additional federal aid as well as continue Centers for Medicare and Medicaid Services waivers. Crum could enact a public health emergency after Dunleavy issues a proclamation ending the full disaster declaration — seemingly an attempt to satisfy both House leaders and the governor. “As a department we do not believe the facts and science related to COVID-19 currently support a disaster declaration,” Crum said in the April 12 hearing. The “targeted, prescribed responses” contained in the public health emergency provision are what the administration wants, he said, while adding that additional language regarding vaccine and treatment distribution and procurement requirements would be helpful for DHSS officials. The bill also lifts the existing cap on school district funds that limits districts to holding no more than 10 percent of their annual budgets in reserve, which Micciche has said is important to give districts the time to carefully spend and manage open-ended federal COVID-19 aid over several years. As for dealing with the broader issue of federal pandemic aid, the new iteration of HB 76 ostensibly suspends the revised program legislation, or RPL, process for current and future COVID-19 or economic recovery funds in language prioritized by Finance co-chair Sen. Bert Stedman. Stedman, a Sitka Republican, noted the state is preparing to accept another billion-plus dollars in American Rescue Plan funds and stressed lawmakers’ collective responsibility to manage the money. “The concern is there are a significant number of legislators that don’t want to take their obligation seriously enough and to show up in Juneau. We saw that last summer and last fall,” Stedman said in reference to how the roughly $1.2 billion in CARES Act funding the state received was handled. The RPL process allows the administration to amend the state budget out-of-session 45 days after notifying the Legislative Budget and Audit Committee of a change, as long as the committee doesn’t outright reject the proposal. A lawsuit filed last spring alleging the Legislature had shirked its responsibility to appropriate the large sums of CARES money eventually compelled lawmakers back to Juneau for a day to approve the administration’s RPL requests. While many legislators wanted to call a special session to deal with the federal aid, not enough did in a campaign year to reach the two-thirds majority needed to convene and Dunleavy opted against calling them back as well. According to Stedman, the new language in HB 76 that prohibits the administration from using the RPL process on most any federal aid that comes Alaska’s way this year should provide “ample encouragement for the executive branch to call the Legislature to special session to deal with the billions of dollars that are on the table,” he said. Bethel Sen. Lyman Hoffman, the only Democrat in the Senate majority, urged House lawmakers to pass a provision allowing the Legislature to hold remote meetings as the Senate has done, which he said would help alleviate the issue. Bishop called for further amendments to HB 76 but further hearings on the bill have not been scheduled as of late April 13. Elwood Brehmer can be reached at [email protected]

ISER: struggling economy needs targeted help

Alaska’s economy isn’t getting worse, but it could also be a long way from substantial improvement. University of Alaska Anchorage Institute for Social and Economic Research economist Mouhcine Guettabi said many of the indicators showing improvements in recent months are more tied to the normal seasonality of the state’s economy and less about a recovery from the forces of the pandemic. “Our losses ballooned over the summer and then shrunk back down in fall and the winter. That doesn’t mean things are getting better; it just means that we’re losing, or had, fewer jobs in the economy,” Guettabi told a virtual audience during a presentation hosted April 9 by the Alaska policy think-tank Commonwealth North. “I’ll summarize with a very technical term and say the labor market is incredibly ugly and really there are no great signs of an organic recovery or things getting back to normal. “That’s kind of the worrisome part.” According to the latest data available from the state Labor Department, Alaska remained down 22,300 jobs in February, or about 7 percent fewer wage and salary jobs than at the start of the pandemic. The situation is worse when looking strictly at the private sector, which had shrunk by 8.6 percent year-over-year as of February. The oil industry has been hardest hit, having lost 3,900 jobs — nearly 40 percent — over the past year. Alaska’s job losses peaked in June when there were roughly 47,000 fewer jobs than a year prior. The state added 7,000 jobs in February, according to preliminary data from the Labor Department, which is very consistent with a longstanding trend of job growth to start the year. Initial unemployment claims have fallen from a peak of 33,312 last April to 2,195 in February, which is in-line with pre-pandemic levels. However, continuing claims have stabilized at approximately 31,000 to 33,000 in recent months, which is still three times greater than pre-pandemic levels, according to the Labor Department. Alaska’s gross product, or GDP, also fell by approximately $4.1 billion, or 7.5 percent, to $50.2 billion last year, according to figures from the Federal Reserve Bank of St. Louis. “We are nowhere near a return to normalcy,” Guettabi said of Alaska’s unemployment numbers, later adding “It’s important to remember the economy was not humming before this.” State Labor economist Neal Fried also said in an interview that some economists are predicting the Lower 48 economy will “roar” back in the second half of the year and nearly return to pre-pandemic levels but such a scenario is unlikely here. “How long it takes us to get back to the 2015 (employment) high — that’s so far into the future I refuse to even take a guess,” Fried said, referencing the state’s prior recession that ended with very modest growth in 2019. Despite the job losses in 2020, Alaskans have, on the whole, seen their collective income increase by roughly $1.4 billion over the past year thanks to the federal funds, mostly in the form of direct stimulus payments and greatly expanded unemployment assistance, he noted. “As bad as things are the majority of people have kept their jobs and are in a better financial situation than a year ago,” he said. Guettabi also highlighted that while some individuals receiving the initial federal unemployment boost of $600 per week on top of state benefits saw a several-month increase in their income over their prior wages, approximately a dozen subsequent research papers were unable to identify any broad link between the higher level of unemployment income and job hunting. “Because of the pandemic there is very little association at the aggregate level between the boost of (unemployment) payments and the decision to seek employment,” he said. The contradictory nature of widespread job losses and overall income growth exposes the need for continued aid that is highly targeted in an effort to make it as effective as possible, according to Guettabi. “Dollars that are coming in, when they go to households that don’t need them right now, are not necessarily making it into the economy, so things like boosting unemployment insurance for people that need it or helping local governments or helping local businesses makes more sense when you identify exactly that need,” Guettabi said. “Business failure can cripple a recovery.” By the end of the year he expects Alaska’s economy to grow very slightly versus 2020, with most of the improvement coming in the service sector from the kind of spending many folks have largely given up over the past year. Anchorage Economic Development Corp. forecasted in January that Alaska’s largest city would add approximately 4,000 jobs this year, but that was before Canadian government officials extended their prohibition on large cruise ships in the country’s ports through the coming summer, leaving the foundational element of Alaska’s tourism industry — which reaches Anchorage — in-limbo again. For much of Southeast the prospect of any level of rebound is likely to depend on whether or not large cruise ships sail the Inside Passage at all this year, Guettabi noted. Elwood Brehmer can be reached at [email protected]

Dunleavy to CDC: ‘Give us a chance’

The State of Alaska is pulling out all the stops in an effort to get cruise ships, and the people they bring, back to Alaska, Gov. Mike Dunleavy said April 9. The governor insisted in a lengthy press conference from a hangar in Juneau that Alaska has handled the COVID-19 pandemic as well or better than all other states — a message he conveyed to both prospective visitors and Centers for Disease Control officials — and actions need to be taken now to facilitate some sort of cruise season yet this year. The million-plus cruise passengers that arrived to Alaska via the Inside Passage accounted for more than half of the total visitors to the state in most pre-pandemic years. The prospect of a second summer without those visitors — and the money they spend — has generated strong words from the state’s politicians but little progress to-date towards a solution. There was broad belief that Alaska’s cruise industry would resume this spring prior to a Feb. 4 announcement that Canadian officials would not be allowing large cruise ships in the country’s ports. However, the Canadian decision upended cruise companies’ plans because the Passenger Vessel Services Act, an 1880s labor-protection law, requires foreign-flagged and built vessels to stop in another country on trips between U.S. ports. Additionally, the CDC has been slow to lift its “No Sail Order” prohibiting large cruise sailings domestically. The public health agency released new guidelines for ship operators and port town authorities in an April 2 update to its Framework for Conditional Sailing Order but has stopped short of lifting the ban currently in place through Nov. 1. Dunleavy said he wants CDC officials to recognize that while COVID-19 continues to persist “we have the tools to deal with it.” Through much of the pandemic Alaska has had among the lowest COVID-19 death rates and highest vaccination rates in the country. “Through proper planning and execution Alaska’s already demonstrated that we can bring people into the state and do it right. We didn’t have to shut down mining; we didn’t have to shut down the oil industry; we didn’t have to shut down fishing and we don’t have to shut down the cruise industry,” Dunleavy said. “My message to the CDC, my message to Congress is: Look at what we’ve done.” Sens. Dan Sullivan and Lisa Murkowski said following the April 2 CDC announcement they were encouraged by agency projections that cruising could resume by mid-summer with swift implementation of the phased sailing plan. Alaska’s congressional delegation was highly critical of Canadian officials following their decision to ban cruise ships for another summer but legislation to provide a waiver to the foreign stop requirement has yet to gain traction in Congress despite its implications to many other coastal states. Holland America Vice President Ralph Samuels said during the governor’s briefing that if immediately given the clearance to operate, most cruise companies could be ready to sail by early July as a couple months of lead time is needed to hire and retrain crews and prepare the massive vessels. “You’ve got a lot of hoops to jump through,” Samuels said. Sullivan introduced legislation to revoke the No Sail Order April 13 that would also require the CDC to give mitigation guidance to cruise companies in advance of sailings. Florida Republican Sens. Rick Scott and Marco Rubio signed on as co-sponsors to Sullivan’s bill. Sullivan has had direct conversations with Canadian Transport Minister Omar Alghabra and Canadian Ambassador David MacNaughton about lifting the ban, according to his staff. He has also investigated the prospect of an administrative waiver with Homeland Security Secretary Alejandro Mayorkas. Dunleavy said he believes the CDC should be offering advice to industry but not implementing wholesale restrictions on industry activity. An announcement by the CDC permitting cruise sailings could have provided Congress further impetus to act as well, the governor suggested. “This is an economic death-grapple we’re in with industries. (The CDC) is focused on health, that’s a good thing, but we’ve done this better than almost anywhere else and we should be given the opportunity and the respect that we in Alaska know what to do with this,” Dunleavy said. The state’s efforts to receive clearance from the CDC could include litigation, he added. The most recent CDC order directs cruise companies to discuss, among other things, what they would do in the event of COVID-19 on a cruise ship with port town authorities. “We’ve obviously spent a lot of time on that exact scenario,” Samuels said. Concurrently state tourism officials are working on a nationwide marketing campaign to regain the momentum the industry had prior to 2020, Dunleavy said as well. “There won’t be a person across the country that won’t know about Alaska when we’re done with this,” he said, later adding, “Not only is this the place to come because it’s spectacular and has great people but it’s the safest place in the country.” While the sailing forecast isn’t bright, officials at Alaska’s major airports have reported expectations that summer passenger capacity volumes will quickly rebound to record pre-pandemic levels — and possibly higher — this year. Finally, Dunleavy indicated several times that administration officials are also preparing a tourism-targeted aid package to assist visitor industry businesses, particularly if a second cruise season is lost. The governor is expected to unveil it in the coming week. The state’s broader leisure and hospitality industry lost nearly 15,000 jobs at the normal peak of the summer season last year according to Labor Department data and industry leaders fear another year without large cruise ships could force many businesses that had been temporarily shuttered to close for good, particularly in Southeast. The governments in cruise port towns have taken major revenue hits as well. Juneau Mayor Beth Weldon said each year without cruise ships costs the city roughly $26 million in lost tax revenue and the ancillary activity that’s lost is felt by everyone. “You’d be hard pressed to find a business in town that’s not impacted by cruise tourism,” Weldon said.

Disaster extension stalls in Senate

Lawmakers held relatively few hearings around the Easter weekend and instead appear to have manufactured another impasse over time-sensitive legislation that a majority of them feel in some form is critical to running the state. House Bill 76, which would renew the state COVID-19 public health emergency declaration, was pulled from the Senate Finance Committee schedule April 6 and a second Finance hearing for ongoing legislation was canceled as well. As of April 7, lawmakers have gone more than a week without hearing the legislation backed by nearly all of the state’s major business, health care, charitable and seafood industry organizations among others and have roughly a week to hash out disagreements at several layers before the state misses out on $8 million in additional federal food assistance aid. HB 76 had not been scheduled for future hearings as of this writing April 7. It was previously believed the state had to address its lack of an official public health emergency by April 1 to receive the boosted Supplemental Nutrition Assistance Program, or SNAP, funds from the federal government but Department of Health and Social Services officials have since indicated they can get the money retroactively if it is dealt with by April 15; Senate President Peter Micciche called it the “magic day” in a briefing with reporters on the issue. Finance co-chair Sen. Click Bishop, R-Fairbanks, called for amendments to HB 76 by April 2, at which point it seemed likely Senate Republicans would introduce the scaled-back version of the bill they have discussed for weeks to address the food assistance, relaxed telehealth requirements, school district reserve limits and select other issues identified by the administration to better manage the pandemic without a true emergency declaration. Bishop did not elaborate as to why it wasn’t heard. Numerous Republicans in both chambers argue a declaration is unnecessary as daily statewide COVID-19 case counts have been relatively stable at lower levels and vaccines are now available to all adults; case levels have increased in recent days but remain low. Declaring a disaster again will just facilitate the continuation of government restrictions that have been overly burdensome for months, they contend. Micciche has maintained his position that the plan for targeted COVID-19 management legislation is the only way to ensure something is enacted. Gov. Mike Dunleavy originally submitted HB 76 to extend the declaration at the start of the session but no longer supports it. Dunleavy has said since it expired in mid-February — when lawmakers also didn’t act despite clear majorities supporting the declaration at the time — he believes his administration can adequately manage public health concerns without a formal declaration. Doing so is a step towards returning to a state of normalcy, according to the governor. House coalition leaders, on the other hand, have emphasized the broad scope of organizations across the state that have stressed the importance of having an active declaration while unemployment remains high and health care and business practices are altered because of the pandemic. Another prolonged impasse at the start of the session over leadership in the House prevented the chamber from taking up the dealing with the emergency declaration when it first expired. While the House and Senate majorities have been at odds for weeks on the details of the bill, HB 76 seemed on track to pass the Senate with Republicans’ changes before it would be settled either via a concurring vote of the House or in conference committee as is traditionally the case in such instances and can be done quickly. The holdup in Senate Finance further squeezes the timeline for lawmakers to at least address the issues they and the administration agree need to be dealt with. As of late March, Alaska and Michigan — the latter where COVID-19 cases have spiked of late, according to CDC data — were the only states to not have some sort of official emergency order in place, according to a spreadsheet from the National Governors Association. Many other states have since extended declarations that were otherwise set to expire March 31. Elwood Brehmer can be reached at [email protected]

Constantine drilling again at Palmer, water permit in limbo

Constantine Metal Resources plans to put nearly $9 million into further drilling work at its underground Palmer mine prospect near Haines this summer after the pandemic curtailed work last year. The $8.8 million summer work budget is largely for drilling to further delineate the Palmer project resource base as well as collect geotechnical data for the large underground exploration tunnel the company hopes to dig in the coming years. In total, the leaders of Vancouver-based Constantine hope to conduct roughly 6,000 meters of drilling; the work is being funded by large Japanese mining company Dowa Metals and Mining Ltd. Constantine, which has led exploration at the polymetallic Palmer prospect for years and is continuing as the project operator, will see its ownership share drop to no less than 44 percent, according to a March 30 statement. Constantine CEO Garfield Mac Veigh said in an interview that the company advanced its understanding of the environmental factors at play during the $2.2 million surface work program conducted at Palmer last summer. This year the company hopes to find the “offset” to the prospect’s South Wall deposit with some of its drilling, according to Mac Veigh. An offset is generally a similar geologic formation — in this case likely metal-bearing — that has been displaced and shifted by a fault. “That could have a substantial impact on the economics of the project because that offset should be pretty accessible from our underground exploration,” Mac Veigh said. If developed as currently envisioned, the Palmer project would be an underground mine that would process up to 3,500 metric tonnes of ore per day, or approximately 12.5 million metric tonnes over the life of the mine, based on figures from a 2019 preliminary economic assessment. From that, the mine would produce more than 1 billion pounds of zinc, 196 million pounds of copper, 18 million ounces of silver, 91,000 ounces of gold and nearly 2.9 million tonnes of barite, a common industrial mineral, according to Constantine. The deposit is adjacent to the Alaska-Canada border and near the Haines Highway about 40 miles northwest of Haines along the Klehani River, which flows into the Chilkat River. It is on a mix of federal mining claims surrounded by land owned by the Alaska Mental Health Trust Authority, which is open for development. The mine would cost $278 million to develop and require another $140 million for sustaining capital and reclamation costs for an estimated all-in cost of $418 million, according to the 2019 report. About 1,700 meters of the drilling this summer is dedicated to advancing the company’s knowledge of the geotechnical structures and hydrologic systems in the area of the proposed exploration tunnel, according to Mac Veigh. Constantine was moving towards the major exploratory endeavor to blast a roughly 1.25-mile tunnel that would serve as a space to conduct exploration drilling and collect further geotechnical and hydrologic data in 2019 before a Supreme Court case originating from Maui pushed Department of Environmental Conservation officials to remand and review the wastewater discharge permit for the work and the company to reevaluate its wastewater plan. In the Maui case, the Hawai’i Wildlife Fund and attorneys for the national environmental law firm Earthjustice contend the County of Maui for decades has been polluting near shore ocean waters by injecting millions of gallons of treated sewage water into the groundwater. The groups brought a lawsuit against the County of Maui and in 2014 a federal District Court of Hawaii judge found the wastewater injection well operation violates the Clean Water Act because the wastewater seeping up through the ocean floor can be traced back to the injection wells. The county’s appeal to the Ninth Circuit Court of Appeals was rejected as well. A 6-3 Supreme Court ruling hedged the issue somewhat, contending Maui needed a Clean Water Act National Pollutant Discharge Elimination System permit from the Environmental Protection Agency but also narrowing the scope of when such a permit is required from what the environmental groups were seeking. In Alaska, where the state has taken primacy over wastewater management from the EPA, such permits are handled by DEC. DEC spokeswoman Laura Achee wrote via email that Constantine’s wastewater permit remains valid but the company “is revising their wastewater disposal system engineering plans, and will submit their plans to DEC for review and approval.” There is no timetable for how long that will take. Gershon Cohen, project director for Alaska Clean Water Advocacy, originally petitioned DEC officials to reconsider their 2019 approval of Constantine’s wastewater discharge permit, contending it was wholly inadequate for the amount of groundwater contaminated with hydrocarbons, blasting solids and explosive residue prior studies indicate could be released by the blasting for the exploration tunnel. Constantine’s original plan called for diverting the water into two settling ponds to handle 500 gallons per minute and hold up to 358,500 gallons each for 12 hours to allow solid materials to settle out of the water before it is sent back underground. According to Cohen, that would be enough capacity to handle just two days worth of water flow from the tunnel area and doesn’t account for how the system would operate in winter conditions. “This is going to be a truck traffic-sized opening under a glacier for a mile to reach a deposit,” Cohen said, noting nearby Glacier Creek is a major coho salmon rearing stream and insisting the wastewater would reach the Chilkat, treated or not. “Once it starts leaking it’s never going to stop. If they start digging that tunnel they will be setting in motion something that can’t be reversed.” Constantine has dye water tracing tests ongoing in the area and will likely conduct seismic surveys of the Glacier Creek area to better understand the bedrock and soil makeup and how that could impact water flow as well as establishing infrastructure in the mountainous area, according to Mac Veigh. He said it’s too early to tell how much the new water treatment design will differ from the original plan, but added it probably won’t be finished until late this year after the company has been able to digest all of the data it gathers this year, at the earliest. Constantine is also looking at technologies that would allow it to clean the wastewater before it leaves the tunnel, according to Mac Veigh. Elwood Brehmer can be reached at [email protected]

88 Energy hits Nanushuk to the south of advanced prospects

The leaders of a small Australian explorer believe they have continued a trend that is driving two of the largest North Slope prospects in decades. 88 Energy Ltd. has indicated in a series of reports on early test results from the remote Merlin-1 exploration well drilled last month that the company contacted three zones of shallow Nanushuk sands roughly 40 miles south of ConocoPhillips’ Willow prospect. Drilled off of “sparse 2D seismic,” according to 88 Managing Director David Wall, the $12.6 million Merlin well reached a total depth of 5,267 feet and hit potential pay zones between approximately 3,400 feet and 5,100 feet. It is part of the company’s Project Peregrine in the southern portion of the NPR-A adjacent to the legacy Umiat prospect, which 88 Energy also recently acquired. The Nanushuk formation sands encountered by 88 Energy are approximately 500 feet thicker than those hit by ConocoPhillips’ Willow wells, according to the company, and other potential oil and gas-bearing zones were hit as well. Wall said in an April 5 statement that operational challenges prevented the company from collecting hydrocarbon samples in the two most promising Nanushuk zones but the early results already confirm that the Merlin well “has delivered by far the best outcome of any of the five wells drilled by 88 Energy in Alaska over the last six years.” “Particularly encouraging is the apparent presence of oil in a zone that has not previously been targeted in the NPR-A,” Wall said further. “Whilst the potential volumetric size of this zone is not yet known, the formation could be extensive based on initial interpretation.” Other down-hole characteristics show the most prospective sand zones are similar to those found just to the north at the company’s Harrier prospect and will likely be the target for drilling next winter, according to Wall. ConocoPhillips first announced its Nanushuk-based Willow discovery in the northeastern NPR-A in January 2017 based on two wells drilled the previous winter. Italian major Repsol and Denver-based Armstrong Energy partnered to make the initial large Nanushuk find on the North Slope at what is now the Pikka project being advanced by Oil Search Alaska in the years leading up to the Willow discovery. Both Willow and Pikka are multibillion-dollar projects each with the ability to produce more than 100,000 barrels of oil per day, according to the operators, and they have led to other smaller Nanushuk-sourced prospects nearby. Geologist and wildcatter Bill Armstrong has repeatedly said to the Journal that he believes the shallow and long-overlooked Nanushuk plays are prolific across much of the western North Slope, a prediction that appears to be bearing out. 88 Energy holds more approximately 210,000 acres on the North Slope mostly around the edges of other industry activity. The company’s Icewine project is located south of Prudhoe Bay near the Dalton Highway in an area being worked by several other small explorers. Company leaders said in a March 30 statement that 88 Energy has plugged and abandoned two of the legacy Umiat wells for roughly $1 million, thus satisfying the conditions of the purchase made in early January from Malamute Energy Inc. and Renaissance Umiat LLC. The Umiat prospect was first drilled in the mid-1940s and holds a proven and probable resource estimated at roughly 124 million barrels of oil largely in the Nanushuk sandstones, according to 88 Energy. Umiat has never been developed despite being known for many decades because of its remote location and relative small size compared to most other North Slope oil developments. 88 Energy is subsequently undertaking a full field review to determine what market conditions are needed to finally develop the Umiat prospect, according to a company statement. Elwood Brehmer can be reached at [email protected]

Alaska Railroad Corp. took $7.8M loss amid pandemic

The Alaska Railroad felt the brunt of 2020 on multiple fronts, ultimately absorbing its largest loss in decades, according to its annual report published April 2. Sharp reductions in both the state-owned railroad’s passenger and freight businesses led directly to a $7.8 million net loss last year following three years of annual profits in the $20 million range. The railroad’s ridership fell by 94 percent in 2020 to just more than 32,000 passengers after years of consistent growth that put annual ridership at more than 500,000 passengers. Much of the growth in passenger service was the result of cruise companies contracting with the railroad to pull their passenger cars on various tour trains between Seward and Fairbanks; however, pandemic restrictions issued by the Centers for Disease Control last spring prohibited any large cruise sailings last year. Passenger service revenue fell similarly from nearly $40 million in 2019 to just $3.3 million last year. The prospect for this year’s large ship Alaska cruise season also remains muddied as the CDC issued guidance April 2 for the second phase of a gradual, five-step process for large cruise companies to resume domestic sailings. The Canadian government’s continued ban on large cruise ships at its ports this year also indirectly hurt the chances for traditional Pacific Northwest-to-Alaska cruises because of an antiquated U.S. law that requires foreign-built passenger vessels to stop at a foreign port on trips between domestic ports. Despite all that, Alaska Railroad Corp. CEO Bill O’Leary said that he believes the time railroad officials have had to plan this year’s schedule, which is still scaled back from recent norms, will lead to improved operating costs and a schedule that better matches demand compared to 2020. Railroad officials were “scrambling” last year to salvage summer passenger service that did not start summer service until July 1, O’Leary acknowledged; this year the usually popular summer trains will start running in early June. The railroad has also partnered with Alaska Airlines on a promotion to attract passengers with discounted rail and plane tickets. “Demand is not 2019, that’s for sure, but it’s certainly looking better than what we saw last year,” he said in an interview. The 2020 hit to the Alaska Railroad’s flagship freight service came in the form of a roughly 25 percent reduction in tonnage to 2.6 million tons and a 14 percent year-over-year loss in revenue, from $85.3 million to $73.6 million, according to the annual report. It all led to an operating loss of $18.3 million that was partly offset by the railroad’s real estate holdings, which netted $10.4 million last year. The railroad’s total revenue decreased by nearly 27 percent last year to $150.7 million. Railroad leaders expect to generate approximately $4.2 million in revenue from passenger service and $75 million from freight service this year, and the railroad’s overall net financial position is forecast to improve by approximately 0.2 percent, or about $700,000 this year. O’Leary said those budget projections made last fall appear to be holding close to accurate even with all the closely tied and economic and public health uncertainties still clouding the near-term, particularly on the freight side where North Slope oil activity is ramping back up. “Dozens” of capital projects planned for last year were put on-hold when the full severity of the pandemic became clear, according to the report, and much of the capital work this year will be funded with $94 million in federal CARES Act relief the railroad received as a public transportation provider. Alaska Railroad officials also expect to receive some level of funding via the $1.9 trillion American Rescue Plan signed by President Joe Biden last month “but it won’t be anything near the $94 million,” O’Leary noted. The 2021 capital plan calls for $66.5 million worth of projects, with CARES grants covering $20.4 million of that, according to the report. The Alaska Railroad ended 2020 with $32 million in cash, down more than $50 million from the end of 2019, but O’Leary said he believes the corporation is still in a solid financial position with $99 million in total current assets at the end of last year. “We came into this thing with a strong balance sheet — very good liquidity. It’s not as strong a balance sheet as we’re heading into the meat of 2021 but we’re comfortable with where we’re at,” he said. All told, he expects the Alaska Railroad to have much smoother 2021 as long as the late spring and plentiful snow across much of the southern half of the state doesn’t lead to widespread flooding and unexpected track repairs. “We’re looking forward to a better 2021 and a lot of that is going to be how the passenger season plays out,” O’Leary said. Elwood Brehmer can be reached at [email protected]

UA makes public pitch to hit $200M fundraising goal

University of Alaska leaders are going public with the hope to complete a first-of-its-kind $200 million fundraising effort for scholarships, research and other priorities. The “for Alaska” campaign officially kicked off March 25 but University of Alaska officials have already quietly raised approximately $135 million over the past five years towards their $200 million goal, according to UA Foundation President Tod Burnett. Burnett said the campaign is unrelated to the system’s ever-worsening budget challenges and is focused on advancing the system’s ability to increase access to education in the state; train a skilled workforce; lead Arctic research; and support economic development. It’s something he believes UA should be doing regardless of its budget situation to continue to support its students. “We made this public because we are trying to get to the finish line,” Burnett said, which is fairly common in the fundraising realm. There has been a learning curve for campaign managers while they’ve collected gifts from roughly 16,000 donors given it’s the first broad-based donation drive the system has undertaken, he said, while adding that large-scale fundraising is what major universities do to significantly bolster their endowments and scholarship offerings. “The University of Alaska should be no different than every other elite institution, public or private, across the nation,” Burnett said. “I want to take us to the next level and part of that is campaigns like this one.” The UA Foundation’s role is to assist the development teams at each of the three main campuses in seeking out and managing the gifts they receive, he said. The foundation managed $433 million for the UA System at the end of 2020 and distributed $16.2 million in student and program support over the year. The Anchorage-based Rasmuson Foundation, one of the largest charitable organizations in the state, has made the largest donation to-date, according to Burnett. Rasmuson spokeswoman Lisa Demer wrote via email that the foundation has donated $8.4 million to the university system since the “for Alaska” campaign began, with $5 million directed to the popular Alaska Native Science and Engineering Program in Anchorage. Rasmuson CEO Diane Kaplan said in a video launching the public portion of the campaign that the foundation is committed to making UA “an institution primed to lead us through the challenging times ahead.” Kaplan said she wants students to know their community is behind them by helping fund higher education opportunities and highlighted ANSEP, which exposes rural Alaska students to opportunities in science and technology fields. “(ANSEP) is the quintessential example of the power of education — taking underestimated students from rural communities and giving them the tools to become the next generation of engineers primed and ready to build Alaska,” Kaplan said. Most gifts so far have gone into scholarship funds, according to Burnett, who said donors also occasionally donate hard assets like real estate or stocks. While the “for Alaska” campaign is not a direct result of cuts totaling more than 30 percent of the state’s support for the university since 2014, the budget situation does make it all the more important, according to Burnett. “Right now we have a long way to go to have all the private funds we need to help students be successful,” he said, later adding he expects to have more announcements about large donors in the next few weeks. “We’re going to reach the $200 million. It’s not about if; it’s about when,” Burnett said. Elwood Brehmer can be reached at [email protected]

Airlines beef up schedules for ship-less summer

Fewer ships on the water appears to be leading to more planes in the sky according to some Alaska tourism industry leaders. “In general, anyone I’ve talked to, they feel good about what’s happening,” Visit Anchorage CEO Julie Saupe said in an interview. She added that it’s “hard to define optimism right now” in a major Alaska industry that is coming off what was essentially a lost year in many regards but things will almost surely some measure better this summer. “We are very optimistic over 2020. We know that there is going to be a season. For some folks the phones are ringing and people are booking,” Saupe said. While nearly all of the million-plus tourists who make their way to Alaska on a cruise ship in a normal summer arrive via the Inside Passage in Southeast, upwards of 400,000 cruise passengers continued on to Southcentral ports in peak years, generating significant business for the Alaska Railroad and Interior Alaska tour companies. As a result, folks at Visit Anchorage were as distressed as anyone when Canadian Transportation officials announced Feb. 4 they would not be allowing large cruise ships into their ports in 2021, an unexpected move that indirectly killed another summer cruise season in Alaska with few exceptions, according to Saupe. The Passenger Vessel Services Act, an 1886 federal law requires foreign-built and flagged passenger vessels to make a stop at a foreign port if traveling between two U.S. ports, effectively prohibiting cruise voyages with large vessels between Pacific Northwest and Alaska ports. Alaska’s congressional delegation introduced legislation in February to temporarily exempt the cruise ships from the 19th Century law but it’s unclear what the prospects are of getting it through Congress. However, Saupe said the full weight of the cruise ship ban was felt only briefly, as sales staff at the tourism bureau began fielding calls from cruise tour managers looking for alternative Alaska itineraries just hours after the news from Ottawa began to spread. More independent travelers have since been requesting information from Visit Anchorage as well, according to Saupe. Fairbanks International Airport officials fueled optimism for Interior tour operators and hospitality business owners when they issued a prediction March 23 that the airport is expected to see a roughly 33 percent increase in passenger seat capacity to the Lower 48 over 2019 levels, when visitor activity in the state was near record-high levels. If the prediction holds, the Fairbanks Airport would likely see record numbers of flights and passengers despite the continued pandemic. United Airlines is again offering seasonal nonstop service between Fairbanks and Chicago, while Delta and Alaska Airlines are adding additional capacity between Fairbanks and Seattle, according to airport officials. Condor Airlines is also resuming summer service to Germany in late May. The region’s tourism leaders are encouraged by the confidence the airlines are showing in Fairbanks, Explore Fairbanks CEO Deb Hickok said. Explore Fairbanks is also close to releasing an “explore responsibly” marketing campaign for prospective Interior visitors this summer, according to Hickok. Ted Stevens Anchorage International Airport Manager Jim Szczesniak wrote in an email that the summer “looks good” for Anchorage, with seat capacity currently at about 90 percent of 2019, when a record 5.7 million passengers used the airport. More definitive airline capacity figures should be available in a few weeks, according to Szczesniak. Alaska Airlines will start the summer offering about 80 percent of 2019 capacity on routes between Alaska and the Lower 48-Hawaii but will have the ability to adjust capacity to demand if need be, according to spokesman Tim Thompson. That is in line with network-wide projections Alaska Air executives made over the winter for mid-summer flight activity. “We are optimistic this will be a good summer to travel to Alaska. With the reduction in large cruise ship capacity, we are looking at ways to promote Alaska as a safe and attractive travel destination,” Thompson wrote via email. On March 19, Alaska Airlines also announced new nonstop summer service between Anchorage and Minneapolis-St. Paul starting in June. Saupe noted that some of the cruise lines are also reopening shore side facilities even if guests won’t be getting to Alaska on their ships. Cruise majors Holland America Line and Princess Cruises announced March 4 they would be opening their lodges across the state and offering land-based Alaska trips that include Alaska Railroad tours this summer. In past years the Alaska Railroad has typically operated tour trains with passenger cars owned by the cruise companies through an arrangement that wasn’t active last year. Alaska Railroad Corp. spokesman Tim Sullivan said agents are having to reschedule some passengers based on the scaled back summer schedule the railroad released March 11 so it’s difficult to quantify the bookings at this point, but added that early bookings “are definitely stronger than 2020 and we’re really hopeful they’re going to continue to pick up.” Saupe suggested that Alaska’s highest-in-the-nation COVID-19 vaccination rates also fortuitously garnered a lot of national attention at the same time many travelers were making their summer plans. “We’ve kind of been saying it’s an opportunity to get longer stays in Anchorage,” she said, adding many cruise passengers that pass through Anchorage in normal years spend just a single night in Alaska’s largest city either before heading home or to attractions elsewhere in the state. “We have all the different salmon and crab that you need to eat when you’re here,” Saupe quipped of Anchorage. Visit Anchorage spokesman Jack Bonney additionally noted Alaska is much easier to get to right now than many overseas destinations, which could boost summer visitor totals. “Alaska is very attractive right now,” Saupe said. Elwood Brehmer can be reached at [email protected]

Senate takes up House bill extending gov’s emergency powers

The standoff over the governor’s pandemic authorities that has consumed much of the Legislature’s time in recent weeks is slowly nearing resolution. The Senate Finance Committee took two days of testimony on House Bill 76, which would extend the state’s COVID-19 public health emergency declaration through September, but set the bill aside March 30 ahead of expected amendments by Senate Republicans to match what Gov. Mike Dunleavy says he now wants. The House passed HB 76 March 26 on a 22-15 vote. House coalition leaders have been steadfast in their desire to renew the governor’s emergency powers since the disaster declaration expired in mid-February when the House was still struggling to organize. They have the backing of some of the state’s biggest health care and charitable organizations that insist the official declaration is the most reliable way for the state to continue receiving important federal relief and extend numerous regulatory waivers. Shortly before the House passed HB 76, Senate President Peter Micciche, R-Soldotna, told reporters that the Senate majority is aligned with Dunleavy to “nip the overreaching powers inherent in a disaster declaration.” The governor submitted HB 76 and similar legislation in the Senate in January to extend the public health emergency that at the time was still in effect. Dunleavy has since backed away from that position and is now asking for a handful of limited authorities and waivers requested by Department of Health and Social Services officials. According to Micciche, Senate Republicans also intend to temporarily increase the statutory cap on school district reserve funds from 10 percent of their annual budgets to 75 percent, allowing them more flexibility in managing all of the federal COVID-19 aid that continues to flow to local governments. “It’s ironic that the Republicans more aligned with the governor want to pinch back and only allow the powers he needs during the recovery phase,” Micciche said March 26. “(Dunleavy) has signaled quite clearly that he has no intention of a new declaration so we’re giving him what he needs to manage the few remaining issues.” Micciche added that it’s his understanding based on new information from DHSS that the state has until April 15 to pass the bill and still receive the $8 million per month in federal Supplemental Nutrition Assistance Program, or SNAP, funds, which equates to an additional 2.2 million meals per month that can be distributed across the state, according to the Food Bank of Alaska. DHSS officials previously said the deadline was April 1, which is when amendments to HB 76 are due in the Senate Finance Committee. Dunleavy wrote to all legislators March 24 emphasizing his belief that the state’s COVID-19 vaccination program has been extremely successful and renewing the full disaster declaration would damage public trust. Micciche indicated Senate Republicans would likely change HB 76 to more closely resemble what Dunleavy is now asking for rather than start with their own bill at this point in the process. Senate Finance members heard from providers and other public health officials who acknowledged the political implications of a new declaration but again stressed the need to ensure the state is giving itself all the resources it may need. “This is not about fear or crises, it’s about being practical,” Alaska State Hospital and Nursing Home Association CEO Jared Kosin told lawmakers. Kosin and numerous local government leaders across Alaska have stressed the declaration helps facilitate widespread airport testing of incoming travelers for COVID-19. The state’s testing program detected 2,514 COVID-19 cases among incoming travelers through early March, according to DHSS records. Local governments can still require testing at their airports but the state testing program at large airports is mostly unused at this point. Sen. David Wilson, R-Wasilla, who also chairs the Senate Health and Social Services Committee, said he has heard mixed messages from the administration regarding the current severity of the pandemic and how long it is likely to last. State Epidemiologist Dr. Joe McLaughlin said doctors are unsure how long the public health dangers from the pandemic will continue. He said vaccinations are helping greatly but new variants of the virus continue to challenge forecasting. “At this point there is no end in sight in the near future,” McLaughlin said. Members of the public once more largely urged against renewing the declaration, which would happen automatically if the current version of HB 76 were to pass. Finance chair Sen. Bert Stedman, R-Sitka, emphasized during testimony from DHSS Commissioner Adam Crum that nearly all other states continue to have some sort of official public health declaration to help manage the pandemic. “We would be an anomaly outside of everybody else,” Stedman said of not renewing the declaration. Elwood Brehmer can be reached at [email protected]

Donlin owners reports strong results from 2020 drilling

Despite a slow start, the largest drilling program in more than a decade at the massive Donlin Gold prospect ended with better-than-expected outcomes, according to final results published March 25 by the companies backing the work. Donlin Gold contacted mineralization zones in both of the deposit areas the joint-venture is targeting; the results beat prior grade-thickness modeling with higher gold grades than initially predicted across much of the 23,000-meter, 85-hole drilling program the company conducted last year. Mark Bristow, CEO of mining major Barrick Gold Corp., which owns half of the Donlin prospect, said in a prepared statement that the drilling results “represent a major step forward in improving the geological confidence in the Donlin project,” adding the information is an important step in improving the value of the world-scale project. NOVAGold CEO Greg Lang said a near-surface contact in the northerly Lewis pit intersected nearly 18 meters of gold with an average grade of 10.5 grams per tonne with a nearly four-meter zone averaging 28 grams per tonne. “On every level, the results of the largest drill program at Donlin Gold in 12 years have been incredibly rewarding for the partnership and all stakeholders. Since we released the initial results in August last year, the assays have consistently revealed higher-grade gold intersections,” Lang said. Vancouver-based NOVAGold is Barrick’s partner in Donlin Gold LLC. Notable hits in the ACMA pit include a 22.6-meter interval with an average grade of 8.7 grams per tonne and a 10-meter subset with a grade of 15.5 grams per tonne. “Needless to say, the assay results from the 2020 drill program further strengthen our resolve and belief in the extraordinary nature of Donlin Gold and provide us with a wealth of knowledge to integrate into an updated geologic model,” Lang added. He and Bristow also highlighted that the work was done without any confirmed COVID-19 cases at the remote Western Alaska camp. Company leaders restarted work in late May after suspending work for roughly six weeks last spring due to the pandemic when about 120 people were working at the camp . Donlin Gold also secured several state permits and land-use approvals for an access road, fiber optic cable and other facilities last year. As proposed, the open-pit mine in the upper Kuskokwim River drainage would be one of the world’s largest, producing more than 33 million ounces of gold over an initial 27-year life. A 315-mile natural gas pipeline from the west side of Cook Inlet would supply a power plant at the mine and fuel storage tanks would be built at Dutch Harbor, in addition to the very large-scale operation at the mine site. State Division of Mining, Land and Water officials on March 11 published the second notice for Donlin’s water-rights applications, key permits that would allow the company to divert and use water from streams at the mine site in the upper Kuskokwim River drainage. Donlin leaders said the 2020 program and additional drilling this year should lead to a final geologic model for the ore body; the company’s focus will then turn to an updated feasibility study and a final investment decision by the board of directors. A short sale report issued against Donlin last May by J Capital Research argued company leaders have long inflated the economic viability of the project that is challenged by its remoteness on multiple fronts. The report also claims the $6.7 billion cost estimate to build Donlin is dated and artificially low. Lang vehemently rebutted the claims in the report and NOVAGold sued J Capital over them June 29 in federal New York District Court. Shares of NOVAGold lost 22 percent of their value in the two weeks following the release of the J Capital report. That suit is ongoing. The $6.7 billion construction cost estimate was developed from the last feasibility study done on the project in 2011. Donlin representatives have long said the project generally needs sustained, high gold prices because of the extensive network of support infrastructure that needs to be developed but have declined to specify what parameters they believe are needed to green-light development. Spot gold prices have returned to the $1,700 per ounce range after briefly surpassing $2,000 per ounce last summer. The price band over roughly the last 18 months has been significantly higher than prior years when gold was hovering in the $1,200 to $1,400 per ounce range. Elwood Brehmer can be reached at [email protected]

Federal gasline funding pitch gets chilly reception in Senate Resources

Lawmakers expressed skepticism toward the plan backed by Gov. Mike Dunleavy to seek more than $4 billion in federal money to spur construction of the $39 billion Alaska LNG Project in their first official briefing on the proposal. Alaska Gasline Development Corp. President Frank Richards told the Senate Finance Committee March 22 that the state-owned corporation has all 36 of the major federal authorizations and permits it needs to build the megaproject in-hand and is now working to gain support in Washington, D.C. for funding the vast majority of the project’s initial $5.9 billion phase. Pitched as a development-ready project that would fit well into a massive, nationwide infrastructure spending bill — a stated priority of both the Trump and Biden administrations that has yet to materialize — and an energy project that would help displace dirtier coal and oil use in Alaska and abroad, members of Congress and the new administration are becoming more and more receptive to the concept, according to Richards. Dunleavy unveiled the latest Alaska LNG funding concept in a late January newspaper op-ed that would have the federal government contribute 75 percent, or about $4.5 billion, of the $5.9 billion AGDC believes it would cost to build the first section of pipeline to from the North Slope to the Fairbanks area as well as spur lines to connect ExxonMobil’s Point Thomson gas unit and Fairbanks utilities to the 42-inch export mainline. “We’re trying to identify this as an opportunity to build a critical piece of infrastructure for the state of Alaska,” Richards said. Earlier on March 22, AGDC officials received notice that the Department of Natural Resources had approved the right-of-way for the segments of the 807-mile gas pipeline that cross state lands, a necessary but expected step that now gives AGDC access to about 90 percent of the pipeline and North Slope gas treatment plant corridor, he added. Richards said in a prior interview with the Journal that AGDC is in commercial negotiations with a “world-class pipeline operator” that would contribute the remaining investment for the first section of pipeline construction. He emphasized that some members of the Biden administration are starting to see LNG as the “bridge fuel” between traditional fossil fuels and the large-scale clean energy production sought by Democrats that industry representatives have pitched it as. Still, Senate President Peter Micciche — who managed the existing Kenai LNG plant when it was owned by ConocoPhillips — and other Republicans on the committee questioned the economics of the initial phase of the project and the likelihood of getting billions in federal money for a hydrocarbon project given the political implications. “It’s hard to look at the economics of the first stage if the second stage is not a reality,” Micciche said. The second, $20-plus billion phase of Alaska LNG to build the rest of the pipeline between Fairbanks and the Kenai Peninsula as well as the 20 million tons per year LNG plant would have to be ready to go in order to make the first pencil out, Richards acknowledged. “If we are successful in capturing the federal stimulus funds that reduces the (private) cost of this project and makes it even more economically viable,” Richards said in response to Micciche’s questions. He suggested backing the Alaska LNG Project could help the Biden administration smooth over relations with the traditionally Democrat-friendly labor unions upset with the president’s decision to cancel construction of the Keystone XL oil pipeline. “It is an uphill battle but we see if we don’t ask for the funding, if we aren’t willing to march uphill, the funding won’t be made available to us,” he said. Resources chair Sen. Josh Revak, R-Anchorage, said he continues to worry that the state will end up “subsidizing this gas in the future,” a common refrain particularly among Republican lawmakers when former Gov. Bill Walker pushed hard for the state to take control of Alaska LNG from the North Slope producers, which happened in 2016 amid an oil price crash. While AGDC still owns the project — that ostensibly amounts to vast files of engineering and other data along with the government permits — Dunleavy has long said he wants to move it to private control. The AGDC board of directors has a goal for making that hand-off by mid-year, at which point it will be up to the Legislature and administration to determine what, if any, stake in the project the state should keep, Richards said. He noted further that if the state sells the entirety of the project it would capture tax and royalty revenue from the gas but not other potential revenue streams. “What is the optimal percentage that the state should retain and what is the risk associated with it?” Richards asked rhetorically. He additionally said state officials will need to approve a long-term production and property tax plans for the project to attract private investment, which are potentially problematic hurdles. Settling the Alaska LNG “fiscal stability” issue was previously seen as requiring a constitutional amendment to get around the prohibition of one Legislature binding future lawmakers to abide by any contract or legislation. Alaska’s current property tax structure for the project is also about 15 times more expensive to a project owner than payment in-lieu of tax, or PILT, plans negotiated for some Gulf Coast LNG projects, according to Richards, who also said local governments may be able to take a share of the Alaska LNG Project instead of applying existing oil and gas property tax rates. Qilak LNG Former Lt. Gov. Mead Treadwell also told committee members that the offshore North Slope LNG plant his company is proposing should move forward because it would provide one of the cleanest sources of LNG in the country. Treadwell is CEO of Qilak LNG, a Lloyd’s Energy-backed firm that went public with its plan to use icebreaking LNG tankers to export gas from the Point Thomson field directly off the North Slope in October 2019, but has mostly been quiet since. At the time, Qilak leaders said they hoped to complete the project as soon as 2025. The mid-sized $5 billion project would be anchored by an LNG facility located nearly 10 miles offshore from Point Thomson and would produce about 4 million tons of LNG per year for export to Asian markets and potentially some coastal Alaska communities. “There is great interest in our feasibility studies to do a screening on reduction of greenhouse gas emissions, including the possibility of bringing CO2 back to Alaska for reinjection in (oil) fields that could use it such as Cook Inlet,” Treadwell said. He insisted Energy Secretary Jennifer Granholm supports LNG exports because of the role the fuel can play in displacing coal and oil consumption worldwide and the relative efficiency of a North Slope LNG plant — they run best in cold weather — gives Qilak and Alaska a competitive advantage in that regard. “We believe that we are America’s best choice for LNG. We believe that the state of Alaska has much to benefit from pursuing this project,” Treadwell said, adding that Arctic LNG projects in Russia have proven the icebreaking tanker concept. Micciche quipped that the government-backed Russian projects rely on “creative” economics and questioned how the Qilak project competes with LNG deliveries from traditional global suppliers even with Alaska’s logistical advantage of being closer to East Asia ports. “We have a better climate story; we have a better transportation cost story. We do not have competing gas prices at the wellhead with, say, the Henry Hub (market) where you can see a lot of volatility in that area. We do not have the Panama Canal and we have a cost of overall production which I believe is competitive with other supplies,” Treadwell said. The $5 billion price for Qilak’s LNG plant and the subsea pipeline roughly equates to a development cost of $12.50 per ton, Treadwell noted. AGDC officials have said the much larger Alaska LNG Project could provide delivered cargoes for approximately $7 per million British thermal units, or mmbtu, a standard industry measure. That is at the high end of the production and supply chain costs future LNG projects are likely to need to meet to be competitive but it is not out of the realm, according to a paper from the University of Oxford Institute for Energy Studies. Richards said the two, despite seemingly competing for the same gas, can co-exist because of the immense size of the North Slope resource, which is roughly 35 trillion cubic feet, or tcf, of proven gas in Prudhoe Bay and Point Thomson and possibly up to 100 tcf of probable resources, many state and federal officials believe. Treadwell said Qilak primarily needs “moral support” from state officials now but the company could need to discuss fiscal issues down the road. Qilak representatives have discussed their project with Alaska Industrial Development and Export Authority officials, according to Treadwell, who suggested the state development bank could be used as an avenue for Alaskans to take ownership in the Qilak project as much as an underwriter. “While we’re not looking for state support — this project has many financing options — we do look to have some ownership of the project held by Alaskans and I believe AIDEA can help do that,” he said. An AIDEA spokeswoman did not respond to questions in time for this story. Elwood Brehmer can be reached at [email protected]

Low rates, PPP loans drive bank gains for 2020

Homebuyers taking advantage of record low interest rates and businesses utilizing federal disaster funds led to a banner year for Alaska’s banks. The three largest Alaska-based banks all saw increases in annual income and achieved total asset growth greater than 15 percent in 2020. Anchorage-based Northrim led the way with 29 percent year-over-year asset growth to more than $2.1 billion. First National Bank Alaska, the largest Alaska-based institution, surpassed $4 billion in assets and nearly reached $4.7 billion on 23 percent growth. Ketchikan-based First Bank grew by more than 16 percent to $689 million in assets by years-end. Jed Ballard, chief financial officer for Anchorage-based Northrim, said the bank likely had its busiest fourth quarter for mortgages ever. Throughout the year bank officials reported a strong consumer response to sub-3 percent mortgage rates even when the pandemic led long-term plans to be paused in many other aspects of life. “There were just a lot of folks over the past year that upgraded square footage or number of bedrooms — whatever they wanted,” Ballard said in an interview. The Alaska Housing Finance Corp. reported 30-year mortgage rates starting at 2.75 percent March 23. The rate-driven buying spree extended beyond homes to other large items such as cars and recreational vehicles, according to bank leaders. Northrim, which netted $32.9 million for a 59 percent annual income increase, also saw the Small Business Administration ramp up processing of forgiveness applications for the immensely popular Paycheck Protection Program in December, according to Ballard. Best known as PPP, the agency has used it to offer widely forgivable loans to small businesses across the country. That allowed the bank to realize the fee income from the transaction immediately. “When (loans) are forgiven you no longer need to amortize it so you get it all in one fell swoop,” Ballard said. He noted the second round of PPP applications closes March 31 unless Congress extends it. As of March 21, the SBA had approved more than 3.1 million loans totaling $195 billion in this year’s round of PPP funding, leaving roughly $90 billion available. Northrim increased its total loan and lease portfolio 41 percent in 2020 to $1.6 billion. FNBA similarly recorded nearly 10 percent portfolio growth to more than $2.2 billion and First Bank added loans for 14 percent growth to $241 million to end the year, according to the bank’s filings with the Federal Deposit Insurance Corp. Wells Fargo Alaska Market Executive Joe Everhart said the national bank’s Alaska portfolio performed “remarkably well” through the economic downturn of last year and continues to. “Wells Fargo and a lot of banks were really proactive with deferrals and loan extensions,” Everhart said, adding that the stimulus funds, such as PPP loans, have helped keep large numbers of small businesses afloat. Northrim leaders still expect to handle a significant amount of applications in the second round of PPP loans even with added restrictions on the funds, according to Ballard. “There’s still a lot of folks out there that need money, but overall it hasn’t been as bad as originally anticipated,” he said. He noted many tourism-centered companies in Southeast will continue to have extremely tight cash flows through much of this year if a second cruise ship season is ultimately called off or drastically reduced. Traditional borrowers largely made their payments in 2020 as well despite the income disruptions brought by business activity restrictions at various times of the year. FNBA experienced a 3.6 percent increase to the value of loans up to 89 days past due to $2.7 million over the year, while Northrim’s past due volume was cut nearly in half to $889,000 and First Bank held no loans up to 89 days past due, according to the FDIC filings. FNBA did have a rough doubling of its loan volume in nonaccrual; however, it was a return to more normal levels at $13.6 million to end the year. Northrim finished 2020 with $11.1 million in nonaccruing loans, a 27 percent decline and First Bank went from nothing to $781,000. Despite the continued strong financial performance and largely improving COVID-19-related metrics, there is still an air of uncertainty among many bank leaders as is evidenced by a 10 percent increase in their loan loss provisions to end the year each by FNBA, Northrim and First Bank. Ballard said he doesn’t believe the mortgage boom is sustainable because relatively few new homes are being built in Alaska, adding that interest rates are bound to rise at some point. He added that the with the profits came long hours for many bank employees throughout 2020; a lot of the work came from handling deferrals early in the year and later processing PPP loans. It was a significant strain on banks’ IT staff as well, Ballard noted, calling the year an “all hands effort.” “The profits are one thing but the actions are something else, so it was a really tough year,” he said. Everhart said it’s too soon to forecast much on whether the commercial real estate market will take the long-term hit many expect following the pandemic. He noted that while many office-based companies are downsizing their footprint as employees choose to work from home permanently, some of Wells Fargo’s clients that require an onsite workforce have had to increase their workspace to provide more space for their employees. He expects visitor-based businesses along the Railbelt to have a better 2021 even if the cruise traffic doesn’t materialize. “The hope is that we see people on railcars and on busses, using hotels and restaurants from the Kenai Peninsula to Anchorage and Fairbanks,” Everhart said. Elwood Brehmer can be reached at [email protected]

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