Elwood Brehmer

Oil tax increase defeated, but revenue issue remains

With the significant loss at the polls for Ballot Measure 1, a major increase in oil production taxes is again off the table, for now, but that doesn’t mean the Legislature won’t revisit the topic in some form given the state’s dire fiscal situation. Known by its bill name as the Fair Share Act, the citizen-led initiative to sharply raise oil taxes on the three largest North Slope fields, Ballot Measure 1 lost by more than a 15-point margin. Kara Moriarty, CEO of the Alaska Oil and Gas Association and campaign manager for the Ballot Measure 1 opposition group OneAlaska, said the second citizen-led attempt to overturn the current oil tax system known as Senate Bill 21 didn’t lose by a wider margin than the first for anyone one reason; rather, OneAlaska’s messaging resonated with Alaskans for a wide variety of reasons, she said. Many “No” voters were concerned about the potential long-term impact to the Permanent Fund and the dividend; others were worried about the prospect of less North Slope activity and fewer jobs, and some feared the potential secondary economic impacts given the oil industry’s large presence in the state, according to Moriarty, “Ballot Measure 1 demonstrated there is broad opposition to that specific proposal across regions, across parties,” she said, also noting the OneAlaska campaign won in 30 of the 40 state House districts. “Given its complexity it took a while to unpack what it meant and to demonstrate the massive tax increase that it was.” Vote Yes for Alaska’s Fair Share chair Robin Brena could not be reached for comment in time for this story. Specifically, the Fair Share Act sought to increase both the current 4 percent gross minimum and the tiered net profits tax rates on large, mature North Slope fields. Initiative backers stressed that SB 21 has resulted in the state receiving less than 20 percent of the gross revenue from North Slope oil in recent years, while historically the state has gotten 28 percent of that pie. The ballot measure sponsors estimated the tax change would’ve generated about $1.1 billion per year in additional revenue over the long-term. They argued SB 21 has cost the state about $3 billion per year since it became law in 2014 and as a result Alaska receives about half of the overall oil revenue that other states collect. The first attempt to repeal SB 21 via referendum failed by a five-point margin in the August 2014 primary election. Moriarty said the overall economic upheaval of 2020 also likely made some voters hesitant to support additional taxes. “Why would we be raising taxes on any industry at this time?” she said. Alaska Labor Department data indicates Alaska’s oil industry has shed roughly 3,000 jobs this year. Whether or not the issue is a primary debate in Juneau next winter will likely depend on whether Republicans can form a lasting caucus around the small, 21-member majority they would hold based on current election results. That party majority includes Kodiak Rep. Louise Stutes, who has caucused sided with Democrats on many issues in recent years. A majority coalition of Republicans, Democrats and independents was formed — largely to oppose Gov. Mike Dunleavy’s aggressive budget plan — to lead the House in early 2019 that was in-part built on the agreement that oil taxes would not be brought up. While some of the same, more moderate Republicans who agreed to break from the party caucus nearly two years ago remain in the Legislature, the state’s fiscal situation has continued to deteriorate to the point that broader revenue discussions are almost certainly to be had at some level. The State of Alaska is projected to end 2021 with approximately $600 million in savings outside of the Permanent Fund Earnings Reserve Account and have a deficit of more than $2 billion in the upcoming 2022 fiscal year, according to Legislative Finance Division estimates. Moriarty said industry leaders are ready to debate oil taxes in the Legislature — where she insists it should happen — like they have always been. “I think we are fully expecting some conversation and we look forward to having that kind of discussion in the legislative realm where everything can truly be evaluated and weighed in a legislative process,” she said. “We’ve never shied away from that conversation and we wouldn’t shy away from it this session.” In the Senate, the PFD fractured the mostly Republican majority last year and is likely to continue to be a major sticking point in forming a majority caucus despite Republicans continuing to hold a 13-7 majority in the chamber. Dunleavy opposed the Fair Share Act and has strongly resisted other tax proposals but his administration has attempted to push much of the fiscal planning to the Legislature after his cuts-first proposal to reach full PFDs was rejected last year and the state’s finances are worse yet. Elwood Brehmer can be reached at [email protected]

Corps receives, but doesn’t release, final Pebble mitigation plan

The Pebble Partnership submitted its final paper to the U.S. Army Corps of Engineers two days ahead of its Nov. 18 deadline, but the last key piece of the project that has garnered significant attention from the White House will be kept under wraps for the time being, according to Corps officials. Pebble’s final compensatory mitigation plan needs to offset the loss or degradation to nearly 3,300 acres of wetlands and 185 miles of streams, largely through direct “in-kind” compensatory mitigation measures to preserve areas within the remote Koktuli River watershed where the proposed mine sites, according to requirements the Corps of Engineers established in late August. The company was also required to deliver the plan within 90 days in a letter Corps Alaska Regulatory Division Chief David Hobbie sent to Pebble leaders Aug. 24. A spokesman confirmed via email that the Corps had received Pebble’s final mitigation plan and indicated it is currently under review and will be released when it is deemed compliant with applicable regulations, but when that will be is unclear. Questions regarding the authority under which the document would be withheld from the public were not answered in time for this story. Pebble spokesman Mike Heatwole said the company would wait for the Corps to release the mitigation plan. According to officials for the Alaska Department of Natural Resources officials, which manages state land, the agency also has not received a final copy of Pebble’s wetlands mitigation plan either. The compensatory mitigation plan is the last piece of Pebble’s plan the Corps needed before issuing a record of decision on the project — the key federal approval or denial. Ron Thiessen, CEO of Pebble’s parent company Vancouver-based Northern Dynasty Minerals Ltd. said the final Pebble environmental impact statement published by the Corps in July already concluded that the large open-pit copper and gold project can operate in-concert with the Bristol Bay ecosystem and meeting the mitigation requirements will provide further evidence that Pebble “can and will co-exist with commercial, subsistence and sport fisheries in Southwest Alaska.” “The ‘in-kind’ and ‘in-watershed’ requirement for mitigation the (Army Corps) established for Pebble clearly sets a high bar for offsetting project effects on wetlands and other aquatic features, but it’s a challenge we have embraced and believe we can achieve,” Thiessen said. With little development in the Koktuli drainage and large tracts of state land, traditional means of compensatory mitigation such as restoring damaged wetlands or preserving areas under the threat of development were largely viewed as very challenged by the Corps’ requirements by project observers. The Pebble deposit is also on state land. Former Pebble CEO Tom Collier said in response to the mitigation thresholds that the company would likely focus its mitigation plan on preserving an area several times larger than the aquatic areas impacted by the project. Collier abruptly resigned from Pebble in September following the release of a recorded videoconference by individuals posing as potential Chinese investors dubbed the “Pebble Tapes” in which Collier and Thiessen were recorded boasting about their relationships with state and federal officials and plans to greatly expand the mine . The stringent mitigation requirements laid out by the Corps were in sharp contrast to Pebble’s proposed mitigation plan and guidelines issued by the Trump administration in 2018 specifically for Alaska that emphasized flexibility in mitigation requirements for projects in the state given its relative abundance of wetlands. They also seem to contradict the final EIS, which generally maintained the conclusions in the draft EIS and states there would be “no measurable change” in the numbers of salmon returning to the Nushagak and Kvichak rivers or in the long-term health of the commercial fisheries in the region. The Koktuli River is in the upper reaches of the Nushagak watershed. Pebble’s initial compensatory mitigation plan released in January relied on a collection of smaller — and likely less costly — mitigation efforts outside of the Koktuli watershed. The company first planned to replace culverts in the Dillingham area to restore salmon access to about nine miles of spawning and rearing habitat; improve water treatment facilities at villages near the mine site; and periodically clean debris from seven miles of beach around the Cook Inlet port site. DNR spokesman Dan Saddler wrote that the Division of Mining, Land and Water staff met with Pebble representatives four times, the last time on Sept. 10, to discuss state law and processes regarding wetlands. DNR officials did not discuss Pebble’s plan after the Corps’ August letter, according to Saddler. “In the absence of any application for state permits, DNR has no role to play in Pebble’s current activity in support of federal permits,” Saddler wrote. DNR officials have no expectations as to what Pebble will propose to meet its mitigation requirements, according to Saddler. Meanwhile, Sen. Lisa Murkowski — who has stressed her opposition to the project since late August and has since indicated a desire to preserve additional parts of the Bristol Bay region — unveiled an Interior and Environment spending bill Nov. 10 that directly addresses Pebble as well. Murkowski chairs the Appropriations Subcommittee for the Interior and Environment. A committee bill report states the subcommittee continues to monitor Pebble’s EIS process and concurs with the assessment in the Corps’ Aug. 24 statement that the project cannot be permitted as it stands “and appreciates the administration’s commitment to a decision guided by sound science.” It further states that, “In the absence of a valid mitigation plan that has received all necessary approvals at the federal and state levels, the Committee urges the agencies to continue to withhold the applicant’s Clean Water Act permit.” Murkowski spokeswoman Karina Borger wrote in response to questions about the intent language that it indicates Pebble’s wetlands fill permit should not be granted and “that the Army Corps should proceed to a denial of the permit application should Pebble fail to produce a fully viable mitigation plan, including all necessary approvals at the federal and state levels, within the agency’s 90-day timeframe.” Murkowski would prefer the Army Corps deny the permit within the normal process to avoid needing an Environmental Protection Agency Clean Water Act Section 404(c) veto to stop Pebble because of the uncertainty it would bring for future projects, according to Borger. Sen. Dan Sullivan, who like Murkowski was sharply critical of the EPA’s proposed veto in 2014 before Pebble applied for a wetlands fill permit, has said he supports such an action if it’s necessary to stop Pebble. Elwood Brehmer can be reached at [email protected]

BLM advances coastal plain lease sale plans

Bureau of Land Management Alaska officials continue working towards auctioning off oil and gas leases in the coastal plain of the Arctic National Wildlife Refuge ahead of the administration change amid pushback from some opponents who claim it is a political move that doesn’t make economic sense. The agency this week announced a 30-day solicitation period that started Nov. 17 for companies to nominate tracts for inclusion in an upcoming coastal plain lease sale and provide broader comment on what the tracts that may be available in a future sale. In Nov. 16 statements, the members of Alaska’s all-Republican congressional delegation characterized the solicitation as getting “one step closer” to holding a lease sale in the coastal plain, which could happen as soon as January, according to Sen. Lisa Murkowski. “While we face headwinds, from global economic conditions to an organized effort to prevent leasing, the (Interior) Department’s rigorous environmental review has provided a solid framework to ensure responsible exploration and development,” Murkowski said. Sen. Dan Sullivan said a coastal plain lease sale would go a long way towards solidifying the progress the delegation and Trump administration have made for Alaska’s economic future since 2017. “This development could mean thousands of jobs for hard working Alaskans and hundreds of thousands of barrels of in daily (Trans-Alaska) pipeline throughput,” Sullivan said. “I applaud Secretary Bernhardt and the Interior Department for faithfully implementing the law we passed in 2017 and moving us one step closer to responsibly developing the 1002 area.” The roughly 1.5 million-acre ANWR coastal plain has been dubbed by many the “1002 area” in reference to Section 1002 of the 1980 Alaska National Interest Lands Conservation Act that grew the refuge but also explicitly left the door open for oil and gas exploration on the coastal plain if it was subsequently approved by Congress. ANWR is approximately 19 million acres in total. That approval came in late 2017 via a rider to the Tax Cut and Jobs Act. BLM Alaska Director Chad Padgett, a former staffer to Rep. Don Young, said the call for nominations moves the agency closer to satisfying the directive from Congress to hold the sale and advancing “this administration’s policy of energy independence.” The tax bill requires the Interior Department to hold two lease sales over seven years — the first of which will offer at least 400,000 acres — and allows for up to 2,000 acres of total surface development on federal refuge lands. Further development could occur on private ANWR in-holdings largely held by Alaska Native corporations around the village of Kaktovik. BLM officials have separated the coastal plain into 36 tracts that could potentially be available for leasing. The Gwich’in Steering Committee, a group of leaders from Interior Alaska Native villages, and a coalition of conservation groups sued Interior Secretary Bernhardt and sub-agencies of the department Aug. 24 in part for failing to consider the cumulative impacts of development in the environmental review of the lease sale that was signed Aug. 17 by Bernhardt. The Tribal governments of the communities of Arctic Village and Venetie also sued Interior Sept. 9, alleging agency officials ignored the impact that disruption of the Porcupine caribou herd, which calves on portions of the coastal plain, could have on residents of the villages that are outside of the immediate development area. The attorneys general of 15 states took their shot at Interior as well Sept. 8, filing a joint lawsuit to stop the leasing program. The states — from across the country — contend the Trump administration did not analyze a sufficient range of leasing alternatives in its review and, among other things, did not consider the contribution the oil produced from the coastal plain could have on the climate. Those lawsuits remain unresolved. The U.S. Geological Survey estimates more than 10 billion barrels of technically recoverable oil could be available beneath the coastal plain, but how much interest the industry will have in the remote and politically contentious area is a true unknown. That is in part due to the fact that President-elect Joe Biden has long opposed drilling in the coastal plain and, as Murkowski acknowledged, the fact that the oil and gas industry has been among the hardest hit sectors by the pandemic. Alaska Oil and Gas Association CEO Kara Moriarty said in an interview that the group is concerned about the policies that could come from the incoming administration, which Biden has made clear will make addressing climate change a top priority, but the industry stands ready to work with federal agencies and the White House to find a balance between development and conservation measures. “There’s always a way for an administration to slow things down; we’ve seen it before and we can see it again,” Moriarty said, adding that the ability of the Biden administration to achieve major legislative changes to the nation’s energy policy — including reversing the lease sale rider — was dampened by Republicans maintaining slim control of the Senate pending two Georgia Senate runoff elections to be held in January. If the nomination period is part of a politically-motivated push by the Trump administration to hold the sale in the remaining days of President Donald Trump’s term as conservation groups claim, BLM officials have left themselves a tight window in which to make it all happen. According to BLM, the agency will issue a Notice of Sale in the Federal Register announcing a sale date following a review of the nomination comments. The sale notice will be published at least 30 days before the sealed bid auction is held. That leaves at most just a handful of days for the agency to hold a lease sale while adhering to regulatory timelines prior to Inauguration Day Jan. 20, 2021. BLM Alaska spokeswoman Lesli Ellis-Wouters wrote via email that the amount of time it will take for agency staff to evaluate the nominations and prepare the sale notice will depend on the volume of nominations and comments that are received. Autumn Hanna, vice president of the Washington, D.C.-based Taxpayers for Common Sense, said in an interview that the fiscal watchdog group opposes leasing the coastal plain not for concerns about the environmental health of the area but for concerns about the health of the federal budget. Hanna insists using the lease sale rider as a “revenue raiser” for the tax bill was disingenuous from the start as it was first predicted to generate roughly $900 million to offset tax cuts predicted to grow the federal deficit by approximately $1.4 trillion. Taxpayers for Common Sense instead believes the lease sale will generate about $15 million in federal revenue based on average bids for — often more explored — nearby state acreage compiled in a report published by the group in September titled, “Drilling in the Arctic: Broken Revenue Promises in ANWR.” The State of Alaska is entitled to half of the nearly $30 million in lease revenue Taxpayer’s report estimates will spend. “Over the last 20 years, oil and gas companies leased 12 million acres on Alaska’s North Slope, or seven times the acreage of the entire ANWR coastal plain — 1.56 million acres,” the report states. “These leases generated a total of $489 million in bids — roughly a quarter of the projected revenues for the (two) planned ANWR sales.” Hanna emphasized that the Interior Department needs to be strategic in how it leases federal lands for resource development and going through the work to lease a politically charged area for oil exploration while oil markets are down roughly 40 percent from near-term averages is not that, she said. “I think this administration has made it clear they are working with industry with little attention to taxpayer interest,” Hanna said. “We’re concerned about overall leasing prospects in a pandemic. This is not exclusive to Alaska.” Alaska oil industry observers and insiders have repeatedly said it is nearly impossible to forecast the level of interest companies will have in the coastal plain given the myriad of factors at play but it is likely the National Petroleum Reserve-Alaska to the west — where ConocoPhillips has multiple large prospects in varying stages of development — will garner more interest in forthcoming lease auctions. Moriarty said that the near-term political and economic climates can overshadow the long-term reality of remote exploration and development on the North Slope. “Even if Mr. Biden wins reelection four years from now production from the coastal plain wouldn’t start until after he is out of office eight years from now,” Moriarty said. Elwood Brehmer can be reached at [email protected]

Converging forces make for worst Upper Cook Inlet season in decades

Low prices, an oddly timed sockeye run and another year of very poor Kenai king returns combined to result in one of the worst Upper Cook Inlet commercial fishing seasons on record. The 2020 Upper Cook Inlet harvest of roughly 1.2 million salmon was less than half the recent 10-year average harvest of 3.2 million fish and the estimated cumulative ex-vessel value of approximately $5.2 million was the worst on record, according to Alaska Department of Fish and Game’s Upper Cook Inlet Commercial Salmon Fishery Season Summary. The average ex-vessel, or unprocessed wholesale value of salmon caught by the Upper Cook Inlet fleet over the previous 10 years was $27 million and the last time it didn’t reach at least $10 million was 2001 when the total ex-vessel harvest value was $7.7 million. The last time the nominal value of the Upper Cook Inlet fishery — not adjusted for inflation — was at least as low as 2020 was 1972 when a harvest of 2.2 million salmon netted $3.5 million for fishermen. However, the dismal result of the 2020 fishery was not because the primary target species, sockeye, didn’t show up. The preseason estimate for the total Upper Cook Inlet sockeye return of nearly 4.3 million fish, which corresponded to a preseason commercial harvest estimate of roughly 1.7 million sockeye, was just 2 percent less than the total sockeye return of just more than 4.3 million fish to the region’s river systems. The total 2020 Upper Cook Inlet sockeye harvest of just 669,751 fish was 1.9 million less than the 10-year average. The chinook harvest of 2,833 fish; the coho harvest of 133,761; and the chum harvest of 28,355 salmon were all well off from recent averages as well. The Upper Cook Inlet pink salmon harvest — traditionally larger during even years — of 326,594 fish was 42 percent better than the 10-year average harvest. ADFG Upper Cook Inlet commercial fishery management biologist Brian Marston said this year was the latest in a string of several years when the region had roughly average sockeye returns but commercial fishermen were challenged in harvesting them. “The primary problem that limited our ability to harvest sockeye was the abysmal return of chinook; to put a finer point on it, the return of late-run Kenai River chinook,” Marston said. Continued poor late-run chinook returns to the Kenai have forced managers to restrict commercial fishing opportunity for Upper Cook Inlet sockeye, particularly in the near shore areas where the fish are more likely to intermingle. The 2020 Kenai River late-run chinook escapement of an estimated 11,499 large chinook meant the stock failed to reach the lower end of its escapement goal for the second straight year despite season-long restrictions to both the sport and the eastside setnet commercial fisheries. Approximately 250 large Kenai chinook combined were harvested in the sport and East Side setnet fisheries based on preliminary estimates by the department. Managers initially estimated a return of more than 22,700 large late-run Kenai chinook, which would’ve been on par with the recent five-year average but about half the 10-year average, according to ADFG. The restrictions and later than normal sockeye returns largely contributed to the upper end of the sockeye escapement goals being exceeded on the Kenai and Kasilof rivers. The 1.81 million sockeye escapement in the Kenai was far greater than the upper end of the 1.3 million fish sustainable escapement goal and the story was similar at the nearby Kasilof where 545,654 sockeye passed the sonar, more than 225,000 fish greater than the upper end of the biological escapement goal. The sockeye escapement was the largest in the 38 years of the sonar project on the river, according to the summary. Sockeye returns to the Susitna River and smaller Upper Cook Inlet systems were well below preseason forecasts but mostly within escapement objectives. The midpoint of the Kenai sockeye run was Aug. 6 this year, compared to a historical average of July 25, mostly due to a mid-August spike in sockeye numbers. The Aug. 17 Kenai sonar count of 134,874 sockeye is the latest day for peak sockeye passage in the river that the department has observed. Marston noted those fish largely arrived after the peak of commercial fishing activity and were “blushed” or turning color, and thus had minimal commercial value. Salmon markets partly depressed by a lack of demand stemming from the pandemic also impacted the value of the 2020 Upper Cook Inlet fishery. Sockeye prices averaged $1.24 per pound, the lowest since 2009, according to the department. Average prices of 87 cents per pound for Cook Inlet coho; 25 cents per pound for pinks; and $3.57 per pound for Upper Cook Inlet chinook were more in line with recent years. Statewide summary Commercial fishermen across Alaska have harvested approximately 116.8 million salmon worth more than $295 million so far in 2020, according to the statewide salmon summary published Nov. 9. The $295 million ex-vessel value for the harvest was less than half of last year’s value of $673.4 million, when more than 208 million salmon were harvested. Odd-year salmon harvests are typically larger due to the two-year return cycle for pinks in Southeast and Prince William Sound. Bristol Bay sockeye again dominated the statewide salmon scene with a harvest of more than 39.4 million fish — just shy of 200 million pounds — generating an ex-vessel value of $139.4 million, or more than 45 percent of the value of the statewide catch. The statewide average price of 76 cents per pound for sockeye was roughly half the 2019 average of $1.45 per pound; however, the 2020 average prices for other species were in line with last year. Elwood Brehmer can be reached at [email protected]

Walker, Meyer announce new effort on Alaska LNG Project

Former Gov. Bill Walker is revitalizing his quest to see Alaskans capture the full potential benefit of the state’s North Slope gas resources with a new project company dubbed Alaska Gasline and LNG LLC. Joining Walker in co-founding the venture is Keith Meyer, the former Alaska Gasline Development Corp. CEO that Walker selected to lead the project during his administration along with Fairbanks-area entrepreneur Bernie Karl and Joey Merrick representing the Laborers’ Local 341 construction workers union. Walker said during a Nov. 9 press briefing in Anchorage announcing the formation of Alaska Gasline and LNG that the state, through AGDC, has significantly de-risked the now $38 billion Alaska LNG Project by securing more than 70 permits and authorizations “including the ones that take years and decades to obtain,” but it’s time for the work to transition back to the private sector. “Without their leadership and their pushing forward and their completing the permitting process we wouldn’t be here today,” he said of Gov. Mike Dunleavy’s administration. “I think Alaskans are ready for this project to happen.” The Federal Energy Regulatory Commission published a record of decision in May approving construction of the megaproject — North Slope gas treatment and Kenai Peninsula LNG plants connected by an 807-mile gas pipeline — and the state-owned gasline corporation has also secured federal rights of way and other environmental permits for the effort. Meyer, who stressed the importance of attracting customers while leading AGDC from 2016-2019, said the megaproject has no significant technical barriers and can be financed. He acknowledged that the global oil and gas industry has taken a beating from pandemic-depressed prices this year but noted a significant long-term growth trajectory remains for worldwide LNG demand. “The (LNG) industry has matured and Alaska is in a beautiful position to participate in this industry,” Meyer said. The prospect of commercializing the roughly 30 trillion cubic feet of natural gas resources in the Prudhoe Bay and Point Thomson fields has caused the state, private ventures and oil companies to repeatedly investigate various project structures to make a gasline economic. The cost of the roughly 800-mile gas pipeline has generally served as the impediment to developing what is otherwise a world-class resource. Under Meyer’s leadership AGDC attracted interest in the project from several of Asia’s largest LNG buyers, including Tokyo Gas and Korea Gas. Walker and Meyer most notably in November 2017 signed a nonbinding project venture agreement the three national Chinese mega corporations — including Sinopec, the state oil and gas company — to finance and purchase LNG from the project during a trade ceremony in Beijing attended by President Donald Trump and Chinese President Xi Jinping. In early 2016 Walker elected to have the state take Alaska LNG over from the North Slope producers after the industry majors said they would otherwise slow-roll development amid depressed LNG market prices at the time. Prior to becoming governor Walker, an attorney, served as general manager for the Alaska Gasline Port Authority, a joint effort by the City of Valdez and the Fairbanks North Star Borough to develop a gasline from the North Slope to Valdez. The appropriate role for the state in the massive development was a contested topic during the 2018 gubernatorial race; Dunleavy has long said that private industry should lead the work. AGDC leaders under Dunleavy have said they want to transfer the project to private hands by the end of the year or shortly thereafter. Walker said shifting Alaska LNG back to the private sector is the right move now given the state’s ongoing structural deficits and inability to finance major work, stressing that he simply wants the project to move forward. “We didn’t have enough time to put all the pieces in place,” Walker said, adding he hopes to meet with AGDC leaders in the coming week to start negotiations on a transition. Those talks would follow concept-level discussions Walker had with Dunleavy and AGDC board chair Doug Smith earlier this year. The public corporation could still represent the state’s interests in project development if a transition is achieved, he said as well. “This isn’t a matter of AGDC going away necessarily, but it’s us taking the baton,” Walker said. AGDC officials noted in an emailed statement responding to the AGLNG unveiling and request that this year they announced a new, $38.7 billion cost estimate for Alaska LNG that makes the project more competitive — down more than $5 billion from the $44.3 billion price tag given it in 2015, which was below the initial $45 billion to $65 billion range given by BP, ConocoPhillips and ExxonMobil before that. “State of Alaska policymakers have made it clear that adequately funded third parties will need to fund Alaska LNG construction and lead the project forward. Any party with the appropriate resources and qualifications to advance the Alaska LNG Project is welcome to participate in the strategic path for Alaska LNG that the AGDC board defined this past spring,” the statement reads. AGDC has not had any formal negotiations with Alaska Gasline and LNG, according to representatives. In January Meyer pitched the AGDC board to negotiate a transfer of Alaska LNG — its technical data, permits and other assets — to a private consortium he had put together to relieve the state of the financial burden of the project. Meyer said Nov. 9 that after engaging with AGDC he believes Alaska Gasline and LNG will find a receptive investor base to fund acquisition of the project and move towards securing additional investments for construction. “As I said in the past the state should have the option to invest in the future but not the obligation. To me this is not taking (the project) away from the state either,” he said. When asked about silent partners in the venture, Walker said, “What you see is what you get; there’s nobody behind the curtain,” adding, “we’re not out here to get rich off this project; we want to make it happen.” AGDC has spent roughly $460 million advancing the Alaska LNG Project and the smaller, “backup” Alaska Stand Alone Pipeline Project over the past decade. Karl, a well-known Alaska entrepreneur and the owner of Chena Hot Springs Resort said he was long against the project but had his mind changed during a trade trip to China put on by Walker’s administration. “Our gas is wanted all over the world and it’s up to us to get it to market,” Karl said. Elwood Brehmer can be reached at [email protected]

Audit finds $22.5M Mustang loan ‘inappropriate’ but legal

A special $22.5 million state loan for a struggling North Slope oil project that was paid back by another state agency in a complex financial arrangement was likely legal but created conflicts of interest among officials handling the state’s finances, according to a legislative audit released Nov. 6. The Department of Revenue made the $22.5 million loan to Mustang Operations Center-1 , or MOC1 LLC, in October of 2015 to provide the Mustang project operator, Brooks Range Petroleum Corp. with the capital to continue advancing work on the small oil development. It followed a partial veto of the state’s annual oil and gas tax credit payment by then-Gov. Bill Walker as the state deficit ballooned while oil prices fell. Global oil prices fell in late 2015 before bottoming out at less than $30 per barrel in early 2016, a situation that made it difficult for Brooks Range to secure construction capital, leaders of the small Anchorage-based independent said at the time. The loan potentially pitted the Revenue commissioner’s duty to ensure the loan was adequately collateralized — it was backed by state-owed tax credits — against authority over the distribution of the tax credits, according to the audit. Loans were not offered to other tax credit holders. “Overall, the audit found the (Revenue) commissioner’s decision to loan up to $22.5 million to MOC1 under the authority of the department’s investment statutes was inappropriate when compared with behavior that a prudent person would consider reasonable,” the audit states. “In support of this conclusion, auditors noted the following: the loan was made outside of DOR’s established investment procedures and DOR management failed to adequately document consideration of the associated risks when making the loan; adequate internal controls were not implemented over the accounting, reporting, and management of the loan; and the loan created conflicts of interest that were not sufficiently mitigated. These facts demonstrate the need for additional oversight of DOR’s investment functions.” The loan was made to MOC1 and not Brooks Range because of a partnership the operating company had with the Alaska Industrial Development and Export Authority, the state-owed development bank. That eventually led AIDEA to ostensibly pay off the lion’s share of the loan after MOC1 paid down $5.7 million of its debt over two installments made in early 2018 and 2019. Those payments — funded with state tax credit revenue — came only after Revenue officials agreed twice to extend the term of the loan, which was originally due in full at the end of 2016, according to the 45-page Legislative Audit Division report. AIDEA first invested $20 million needed to build a five-mile road to Mustang and a 19-acre pad for production and processing facilities in December 2012. The gravel road and pad — in which AIDEA was an 80 percent owner — were finished in April 2013. At the time, Brooks Range leaders said they wanted to have the field in production by fall 2014 and credited incentives in the just-passed and industry-supported oil production tax structure under Senate Bill 21 for improving the economics of the project and spurring it forward. In April 2014, AIDEA committed another $50 million equity investment in the $225 million Mustang oil processing facility through MOC1. AIDEA held a 96 percent stake in the holding company as Brooks Range’s owners matched the authority’s equity with a $1 million investment of their own. Brooks Range Chief Operating Officer Bart Armfield said at the time that the project would start production in late 2015 and likely hit peak production in 2017. The state development bank assumed the loan balance in September 2018 when its equity investment in the Mustang project was converted to a loan; the new arrangement also guaranteed AIDEA would repay the loan and the interest rate was cut from 7 percent to 3 percent as well, according to the audit. That situation created a conflict for then-Revenue Commissioner Sheldon Fisher because of a seat on the seven-member AIDEA board of directors designated for the Revenue commissioner, the audit concludes. Both Fisher and his predecessor Randy Hoffbeck, who led Revenue when the loan was made, delegated their duties on the AIDEA board to deputy commissioners. The Revenue-designee identified a potential conflict on the AIDEA board in March 2018 and was recused from Mustang-related actions, according to the audit. Hoffbeck said in a 2018 interview that the loan — requested by Brooks Range leaders — was made in an attempt to protect AIDEA’s investment in Mustang. While loans were not offered to other companies holding tax credit certificates, it was determined the loan to MOC1 could be made under the department’s investment policies, according to Hoffbeck. “We had our investment guys look at it and say, ‘yeah, we could fit that in with our portfolio,’” he said in 2018. “Not a large amount but the amount that we did was reasonable within our portfolio with a guaranteed 7 percent rate of return at a time when the markets looked kind of frothy and we didn’t know really which way they were going to go.” The Revenue Department eventually netted nearly $4.3 million from the loan, but AIDEA’s outlays reduced the authority’s net income by approximately $1.8 million, according to the audit. Current Revenue Commissioner Lucinda Mahoney noted in a written response published with the audit that the activity took place during Gov. Bill Walker’s administration before she was appointed and added that there were “control issues identified by this audit” but wrote further that “no financial harm to the general fund ultimately resulted.” Brooks Range’s parent company owed AIDEA $90.5 million as of March 31 after going through several financing arrangements, according to the audit. Brooks Range Petroleum, now under new management, briefly produced oil late last year but development has again slowed with the pandemic-induced disruption to oil markets this year. Mahoney wrote that policies governing “non-traditional” loan requests put in place in 2018 continue to be in place. AIDEA board chair Dana Pruhs wrote in response to the audit that the authority largely defers to Revenue’s conclusions given the report is directed at the department’s loan, but also emphasized that AIDEA board members are prohibited from voting on issues they are otherwise involved in. “Please know that AIDEA and its Board are committed to advancing the public’s trust and transparency in our operations as a public corporation of the State of Alaska,” Pruhs wrote. Elwood Brehmer can be reached at [email protected]

Alaska Communications to go private in $300M deal

Alaska Communications Systems Group Inc. reported solid third quarter results Nov. 5 on the heels of announcing a $300 million deal to go private under new investment house ownership. The Anchorage-based telecom netted $2.3 million during the quarter on, coincidentally, 2.3 percent year-over-year total revenue growth. Total revenue for the quarter was $60.5 million and it is up 2.8 percent for the year at $178.2 million, according to the earnings report. “Despite the pandemic we continue to grow our business while keeping our people and customers safe,” Alaska Communications CEO Bill Bishop said during the Nov. 5 earnings call. Bishop said the cash deal purchase by an affiliate of the global investment firms Macquarie Capital and GCM Grosvenor, valued at approximately $300 million, is a continuation of the company’s efforts to maximize shareholder value. Macquarie and GCM have the desire to invest in Alaska Communications’ networks and better serve its customers, he said. The deal announced Nov. 3 received unanimous support from the Alaska Communications board of directors, according to Bishop, and represents a nearly 51 percent premium on the 30-day weighted average price of Alaska Communications stock as of Nov. 2. Under the deal the Macquarie and GCM affiliate will acquire all outstanding shares of Alaska Communications common stock at $3 per share. There were approximately 54.1 million outstanding shares of Alaska Communications stock in the third quarter, according to the earnings report, which jumped from a Nov. 2 closing price of $1.91 per share to close at $3.04 per share following the sale announcement. The company reported total assets of $567 million and total liabilities of $401.4 million through the third quarter. It held $141.5 million of net debt at the end of the quarter, down from $153.8 million to start the year. Board chair David Karp said in a prepared statement that the Alaska Communications board is confident the deal is in the best interest of the company and its shareholders. “Macquarie Capital has a proven track record of delivering large and complex transactions globally on accelerated timelines, and GCM’s Labor Impact Fund pro ides strategy-driven capital that we expect will generate real value for our customers and the Alaska Communications workforce,” Karp said. The company currently employs more than 600 workers, mostly in Alaska. Alaska Communications will hold a special stockholder meeting to vet and vote on the agreement as soon as practicable, according to a company statement. Per the agreement, the telecom can also solicit better deals from outside parties through Dec. 3. Bishop said the company leaders expect to close the deal in the second half of 2021 presuming the requisite shareholder and regulatory hurdles are cleared. A spokesman for GCM Grosvenor wrote in response to questions that the firm can’t comment on the transaction beyond what was disclosed Nov. 3. The pending Alaska Communications sale would mark the second major Alaska telecom to be sold to Outside investors in recent years. Anchorage-based General Communication Inc. was sold to Colorado-based Liberty Interactive Corp. in 2017 for just more than $1.2 billion. Alaska Communications sold its wireless phone business to GCI in early 2015 in a $300 million cash deal that transferred roughly 109,000 customers between the competitors. Alaska Communications business now focuses on internet service and business phone systems. Operationally, Alaska Communications completed subsea fiber upgrades to increase the capacity of its Northstar fiber system by five-fold and add redundancy to its two subsea fiber connections between Alaska and the Lower 48, Bishop said. “We continue to actively deploy fiber for our 5G wireless backhaul build-out and have completed the work on our prefunded fiber projects in Alaska,” he said, adding the company hopes to expand its “fiber to home” offerings, particularly to multi-family units. Chief Financial Officer Laurie Butcher said year-to-date capital spending was up just more than $1 million at $32.9 million to end the third quarter but COVID-19 restrictions will likely result in a 2020 total capital spend of between $37 million and $39 million, down slightly from prior expectations. Butcher attributed the company’s revenue growth primarily to its broadband business, which accounted for more than 90 percent of the increased revenue. Elwood Brehmer can be reached at [email protected]

Former Gov. Walker, AGDC head lead new gasline venture

Former Gov. Bill Walker is revitalizing his quest to see Alaskans capture the full potential benefit of the state’s North Slope gas resources with a new project company, Alaska Gasline and LNG, LLC. Joining Walker in co-founding the venture is Keith Meyer, the former Alaska Gasline Development Corp. CEO that Walker selected to lead the project during his administration along with Fairbanks-area entrepreneur Bernie Karl and Joey Merrick representing the Laborers’ Local 341 construction workers union. Walker said during a Monday afternoon press briefing in Anchorage announcing the formation of Alaska Gasline and LNG that the state, through AGDC, has significantly de-risked the now $38 billion Alaska LNG Project by securing more than 70 permits and authorizations “including the ones that take years and decades to obtain,” but it's time for the work to transition back to the private sector. “Without their leadership and their pushing forward and their completing the permitting process we wouldn’t be here today,” he said of Gov. Mike Dunleavy’s administration. “I think Alaskans are ready for this project to happen.” The Federal Energy Regulatory Commission published a record of decision in May approving construction of the megaproject — North Slope gas treatment and Kenai Peninsula LNG plants connected by an 807-mile gas pipeline — and the state-owned gasline corporation has also secured federal rights of way and other environmental permits for the effort. Meyer, who stressed the importance of attracting customers while leading AGDC from 2016-2019, said the megaproject has no significant technical barriers and can be financed. He acknowledged that the global oil and gas industry has taken a beating from pandemic-depressed prices this year but noted a significant long-term growth trajectory remains for worldwide LNG demand. “The (LNG) industry has matured and Alaska is in a beautiful position to participate in this industry,” Meyer said. The prospect of commercializing the roughly 30 trillion cubic feet of natural gas resources in the Prudhoe Bay and Point Thomson fields has caused the state, private ventures and oil companies to repeatedly investigate various project structures to make a gasline economic. The cost of the roughly 800-mile gas pipeline has generally served as the impediment to developing what is otherwise a world-class resource. Under Meyer’s leadership AGDC attracted interest in the project from several of Asia’s largest LNG buyers, including Tokyo Gas and Korea Gas. Walker and Meyer most notably in November 2017 signed a nonbinding project venture agreement the three national Chinese mega corporations — including Sinopec, the state oil and gas company — to finance and purchase LNG from the project during a trade ceremony in Beijing attended by President Donald Trump and Chinese President Xi Jinping. In early 2016 Walker elected to have the state take Alaska LNG over from the North Slope producers after the industry majors said they would otherwise slow-roll development amid depressed LNG market prices at the time. Prior to becoming governor Walker, an attorney, served as general manager for the Alaska Gasline Port Authority, a joint effort by the City of Valdez and the Fairbanks North Star Borough to develop a gasline from the North Slope to Valdez. The appropriate role for the state in the massive development was a contested topic during the 2018 gubernatorial race; Dunleavy has long said that private industry should lead the work. AGDC leaders under Dunleavy have said they want to transfer the project to private hands by the end of the year or shortly thereafter. Walker said shifting Alaska LNG back to the private sector is the right move now given the state’s ongoing structural deficits and inability to finance major work, stressing that he simply wants the project to move forward. “We didn’t have enough time to put all the pieces in place,” Walker said, adding he hopes to meet with AGDC leaders in the coming week to start negotiations on a transition. Those talks would follow concept-level discussions Walker had with Dunleavy and AGDC board chair Doug Smith earlier this year. The public corporation could still represent the state’s interests in project development if a transition is achieved, he said as well. “This isn’t a matter of AGDC going away necessarily, but it’s us taking the baton,” Walker said. AGDC officials noted in an emailed statement responding to the AGLNG unveiling and request that this year they announced a new, $38.7 billion cost estimate for Alaska LNG that makes the project more competitive — down more than $5 billion from the $44.3 billion price tag given it in 2015, which was below the initial $45 billion to $65 billion range given by BP, ConocoPhillips and ExxonMobil before that.  “State of Alaska policymakers have made it clear that adequately funded third parties will need to fund Alaska LNG construction and lead the project forward. Any party with the appropriate resources and qualifications to advance the Alaska LNG Project is welcome to participate in the strategic path for Alaska LNG that the AGDC board defined this past spring,” the statement reads. AGDC has not had any formal negotiations with Alaska Gasline and LNG, according to representatives. In January Meyer pitched the AGDC board to negotiate a transfer of Alaska LNG — its technical data, permits and other assets — to a private consortium he had put together to relieve the state of the financial burden of the project. Meyer said Monday that after engaging with AGDC he believes Alaska Gasline and LNG will find a receptive investor base to fund acquisition of the project and move towards securing additional investments for construction. “As I said in the past the state should have the option to invest in the future but not the obligation. To me this is not taking (the project) away from the state either,” he said. When asked about silent partners in the venture, Walker said, “What you see is what you get; there’s nobody behind the curtain,” adding, “we’re not out here to get rich off this project; we want to make it happen.” AGDC has spent roughly $460 million advancing the Alaska LNG Project and the smaller, “backup” Alaska Stand Alone Pipeline Project over the past decade. Karl, a well-known Alaska entrepreneur and the owner of Chena Hot Springs Resort said he was long against the project but had his mind changed during a trade trip to China put on by Walker’s administration. “Our gas is wanted all over the world and it’s up to us to get it to market,” Karl said. Elwood Brehmer can be reached at [email protected]  

GOP dominates early count with thousands to tally

As many predicted, the only thing clear after election night was the sky over Southcentral. Democrats and independents trailed Republicans significantly in every statewide race and democrat candidates led just two state legislative races in which they had a Republican challenger as of this writing early Nov. 4. Republican incumbents President Donald Trump, Sen. Dan Sullivan and Rep. Don Young led their main challengers, former Democrat Vice President Joe Biden and independents Al Gross and Alyse Galvin, respectively, by at least 27 points with 81 percent of state precincts having reported results. On the state level, well-established, incumbent Democrat legislators from several traditionally liberal districts in Anchorage and Fairbanks also trailed their Republican challengers as well. Anchorage Democrat Sen. Bill Wielechowski, a lead supporter of the oil tax increase proposed in Ballot Measure 1, trailed Republican challenger Madeleine Gaiser by 207 votes with all of the precincts having reported results Nov. 4. Incumbent Republican and current House Minority Leader Rep. Lance Pruitt led returning Democrat challenger Liz Snyder by 1,092 votes, or nearly 23 points, the morning after election day despite beating her by less than 200 votes in 2018. Fairbanks Democrat Reps. Adam Wool and Grier Hopkins also trailed Republicans Kevin McKinley and Keith Kurber by seven and nine points. The early results could signal a sudden return to Republican dominance in the already red state; however, more than 122,000 absentee ballots and early votes will not be counted until a week or more after election day, according to Division of Elections. Division procedure calls for early votes cast within five days of Election Day to be counted seven days after the election and absentee ballots can be counted up to 15 days after Nov. 3. With approximately 173,000 votes counted out of more than 595,000 registered voters, the large absentee and early vote tally likely means more than one-third of all votes — a pool presumed to be cast by a larger share of Democrats — still remain to be counted. If the immediate results generally hold, a strong Republican majority in the state House and Senate would go a long way towards helping Gov. Mike Dunleavy achieve his fiscal agenda. While Republicans currently hold majorities in both chambers, several Republican incumbents who helped form a bipartisan majority coalition in the house or otherwise pushed back against Dunleavy’s attempts to make unprecedented cuts to the state budget either lost in primary races or won narrowly against candidates more aligned with the governor’s budget philosophies. That means even if there is a similar number of Republicans in the Legislature the makeup in 2021 is likely to be more conservative. If Dunleavy and his supporters in the Legislature have the votes to advance their agenda — larger Permanent Fund dividends, no new personal taxes and a balanced budget — they will have to find numerous other ways to cut into and cover over a fiscal year 2022 budget deficit currently expected to be more than $2 billion without the historical backstop of significant state savings. Ballot measures Ballot Measure 1, known as the Fair Share Act by its supporters, had received just 59,164 votes out of 168,261 votes counted through early Nov. 4, or about 35 percent of the vote. The citizen-driven initiative to significantly raise oil taxes on the largest North Slope fields was touted as a way for the state to start recouping revenue forgone since the Legislature passed the current oil production tax system known as Senate Bill 21 in 2013. SB 21 then survived a repeal referendum in the 2014 primary election by a margin of 52.7 percent to 47.3 percent, or about 10,000 votes. OneAlaska, the industry-led campaign coalition formed to defeat Ballot Measure 1, spent approximately $25 million on the campaign, compared to $1.3 million by Vote Yes for Alaska’s Fair Share. Ballot Measure 1 opponents stressed the higher gross and net taxes would further damage a primary industry in the state that was already reeling from collapsed oil prices — that briefly went negative in April — during a global pandemic that shows no signs of slowing. ConocoPhillips Alaska leaders have said they are withholding decisions on future drilling plans until Ballot Measure 1 is decided. Supporters insisted the measure would help the state recoup tax revenue more in line with its historical share and over time would likely contribute an average of approximately $1 billion of additional revenue to state coffers. Ballot Measure 2, the elections reform initiative intended to tighten state campaign finance laws, combine state primary elections and move Alaska to ranked-choice voting, had received 43 percent of the vote as of early Nov. 4. Known as the Better Elections initiative, the campaign and voting reforms were staunchly opposed by the Alaska Republican Party leaders and while the state Democrat Party did not formally endorse or oppose the measure, many longtime Alaska Democrats opposed it. Elwood Brehmer can be reached at [email protected]

What comes after the Roadless Rule repeal?

The Roadless Rule survived nearly 20 years of legal challenges in Alaska but not the Trump administration. U.S. Department of Agriculture officials published a new regulatory framework for Southeast Alaska’s Tongass National Forest in the Federal Register Oct. 29 that exempts the massive forest from the national rule established during the final days of the Clinton administration in early 2001. The Roadless Area Conservation Rule, which originally prohibited new roads across roughly 58 million acres of forestland nationwide, largely put a stop to new infrastructure across approximately 9.4 million acres of the Tongass. At about 17 million acres, the Tongass is by far the largest national forest in the country. The basic conservation versus development debate surrounding the oft-contentious Roadless Rule is as old as public lands, but what really happens next? According to many proponents of the repeal, actually very little. That’s because lifting the development impediments imposed by the Roadless Rule is about far more than restoring Southeast’s now niche timber industry to its glory years, they say. Sen. Lisa Murkowski, who chairs the Senate Energy and Natural Resources Committee until the new Congress convenes in January said in a joint statement from the Alaska delegation that the repeal of the Roadless Rule improves the ability to develop lower cost energy sources and public infrastructure for the region’s 35 mostly isolated communities. “A full exemption from the Roadless Rule means access to more affordable and renewable energy to power homes and schools, access to technology at a time when more Americans are logging online for health care and education, and access for transportation and recreation jobs and economic activity in the region — all while ensuring continued good stewardship of our lands and waters,” Murkowski said. Robert Venables, executive director of the Southeast Conference, a regional development group that has supported revising the Roadless Rule also wrote via email that energy projects — which often means hydropower in the Tongass — stand a better chance of being developed in the future and mineral exploration could continue to increase with easier access under the new Forest Service rules, but he stressed there is no money in the agency’s budget to suddenly start building roads. “There is no master plan or pent-up project list ready to explode its way through the old-growth forest,” Venables wrote. However, he also stressed a belief that the primary reason for the lack of ready community development projects is the inability of regional leaders to set long-term plans while the legal battles over the Roadless Rule have played out. “The uncertainty with the Roadless Rule has been a debilitating factor for the last 20 years and I do not see that ending unless the courts put a stop to it — the political revolving door will keep it in play as long as there are elections,” Venables wrote. The Alaska exemption from the Roadless Rule is specific to the Tongass, meaning the rule remains in place over the 5.5 million-acre Chugach National Forest in Southcentral where historical timber harvests have been minor. The State of Alaska first secured an exemption from the Roadless Rule for the Tongass as part of a 2003 court settlement to a lawsuit over the rule’s applicability in the state with the Bush administration but that exemption was overturned by a Federal District Court of Alaska judge in 2011. Subsequent appeals and other attempts by the state and resource development groups to have the Roadless Rule invalidated proved fruitless. Timber industry advocates also contend that even the complete exemption will not enable the widespread clear-cutting of old-growth stands that many Roadless backers fear in part because the forest-level land-use plan doesn’t call for it. The Tongass Land and Resource Management Plan finalized in 2016 by the Forest Service allows for roughly 188,000 acres of timber to be harvested across the Tongass without the Roadless Rule, according to the record of decision. A 2019 Alaska Forest Association analysis of the impact of repealing the rule on the available timber supply commissioned by the State of Alaska determined about 165,000 of those newly harvestable acres would consist of old-growth stands. “No matter the (exemption) alternative selected in the record of decision for the ‘Rulemaking for Alaska Roadless Areas’ at least 82 out of every 100 acres of suitable old-growth forest within the Tongass National Forest will not be available to maintain the existing timber industry through transition (to completely young-growth harvests),” the AFA analysis states. As a result, AFA leaders have pressed the Forest Service to also start the lengthy public process to again revise the Tongass Management Plan. Southeast Alaska Conservation Coalition Tongass Program Manager Dan Cannon said in an interview that the group expects the Forest Service to start planning timber sales in previously roadless areas soon, particularly if President Donald Trump wins reelection, and the commercial fishing, eco-tourism and other industries that benefit from intact forestlands will have to adapt. “The true economy (of Southeast) is really going to have to pay attention and navigate the potential impacts” of additional logging and development, Cannon said. Roadless Rule supporters regularly note that tourism and fishing have provided about one-quarter of the region’s jobs in recent years, while the timber industry — more than 4,000 workers strong at its peak — now accounts for less than 1 percent of current Southeast jobs, according to Southeast Conference data. Cannon also dismissed the notion that doing away with the Roadless Rule is necessary to facilitate public infrastructure projects that would otherwise be noncontroversial, pointing to Forest Service exemption decision documents that state the agency approved nearly 60 projects in Roadless-designated areas over the years. “There’s a lot of talk about it being a problem and that’s not the reality,” he said. “The Roadless Rule was well-designed and you can see that by the exceptions that have been made.” Timber harvesters and project developers emphasize that while the rule did not explicitly prohibit activity in roadless areas, it ostensibly did by requiring more complex logistics, transportation and added time to project construction. According to Cannon, compromises were made in the 2016 Tongass Management Plan approved under the Obama administration after stakeholder input. The plan calls for a faster transition to young-growth timber harvests than industry leaders say is practical. The Southeast Alaska Conservation Coalition is among the groups contemplating litigation to reverse the Tongass-specific repeal of the Roadless Rule, Cannon said. “We will do whatever we need to reinstate the protections of the Roadless Rule,” he said. According to Venables, the sudden swings of full repeal or fully Roadless make it difficult to reach a consensus that everyone could plan around. He was also part of a working group formed by former Gov. Bill Walker’s administration to draft recommendations for crafting an Alaska-specific Roadless Rule, though the USDA indicated early in the process it intended to move forward with a full repeal. Forest Service headquarters spokeswoman Babete Anderson wrote in response to questions that the decision-making process for local forest managers reviewing project applications will “change very little” without the Roadless Rule. “The Tongass Forest Plan, along with other conservation measures, will continue to guide management decisions, allowing roadless area values to play a role on the Tongass while offering additional flexibility to achieve other multiple-use benefits,” Anderson wrote in an email. She added that the agency currently has no plans to revise the Tongass Land Management Plan. ^ Elwood Brehmer can be reached at [email protected]

ConocoPhillips reports Q3 losses of $450M, $16M in Alaska

ConocoPhillips lost $450 million in the third quarter, with $16 million of that coming from the company’s Alaska operations, according to a quarterly earnings report published Oct. 29. The losses come as Alaska’s largest oil producer, and the state’s industry in general, awaits the fate of a citizens’ initiative in the Nov. 3 election, known as Ballot Measure 1, that would significantly raise production taxes on the three largest North Slope fields. Results from Nov. 3 showed the measure trailing with 65 percent against and 35 percent for with just more than 168,000 votes counted. ConocoPhillips Alaska President Joe Marushack said in a statement provided by the company that there are no active drilling rigs as a result of the pandemic-induced price collapse at the large Alpine, Kuparuk and Prudhoe Bay North Slope fields for the first time since each was developed. ConocoPhillips Alaska leaders have said they will make decisions regarding future drilling activity after Ballot Measure 1 is settled; the company instructed its drilling contractor, Doyon Drilling, in early April to lay down its North Slope drilling rig fleet indefinitely. According to the company, ConocoPhillips paid taxes and royalties of approximately $136 million to the state in the quarter. For the year, the company has incurred a net loss of $76 million from its North Slope operations, paid taxes and royalties estimated at $442 million, and spent $882 million on capital projects. In mid-March the company announced the first of multiple spending cuts to its 2020 Alaska spending plan that ultimately totaled approximately $400 million. ConocoPhillips lost $141 million in the state during the second quarter when Alaska North Slope crude prices briefly went negative early in the pandemic but netted $81 million in the first quarter. The $450 million companywide loss left ConocoPhillips with a $1.9 billion year-to-date net loss and translated to a loss of 42 cents per share, according to the earnings report. ConocoPhillips netted $3.1 billion a year ago. ConocoPhillips stock traded for $28.82 per share near the end of trading Oct. 29, in line with it’s pre-earnings closing price. The Houston-based oil major with an upstream exploration and production focus has generated total quarterly revenues in the $4 billion to $5 billion range in 2020 after producing between $8 billion and $10 billion in revenue in each quarter of 2019. CEO Ryan Lance said in a call with analysts that the third quarter results were largely what the company expected and ConocoPhillips “remains cautious on the timing and pace of recovery” for global energy prices as oil has hovered around $40 per barrel for months. Lance also noted the company ended its production curtailments over the summer and completed all of its seasonal turnaround work. “We remain very well-positioned financially and operationally thanks to our strong balance sheet and exceptional performance,” he said in a prepared statement. “Now that we’re back to more normal business, we’re focused on continued strong execution of our programs and progressing our announced transaction with Concho Resources.” ConocoPhillips announced Oct. 19 that it has acquired Texas-based independent producer Concho Resources Inc. in a $9.7 billion all-stock sale that grows the company’s Lower 48 shale oil portfolio. In May, ConocoPhillips began implementing oil production cuts on the North Slope that were originally planned to peak at about 100,000 barrels per day as part of a broader strategy to curtail up to 460,000 barrels per day companywide. The North Slope cuts were reversed to start July as oil prices pushed back above $40 per barrel. Early indications are the company’s 2021 capital program will be in line with this year, Lance said, but firmer plans are forthcoming. ConocoPhillips has spent $3.6 billion on capital projects worldwide so far this year — with the aforementioned $882 million in Alaska — compared with more than $6.6 billion in the first nine months of 2019. The company is entering the second of two major winter construction seasons for its Greater Mooses Tooth-2 oil project in the National Petroleum Reserve-Alaska, which is scheduled to start production in late 2021. The Bureau of Land Management on Tuesday issued a record of decision authorizing construction of ConocoPhillips roughly $5 billion Willow oil project in the NPA-A as well. While first oil from the large remote prospect is likely at least five years away, Willow is expected to produce nearly 160,000 barrels of oil per day at its peak, according to the company. Elwood Brehmer can be reached at [email protected]

Supreme Court hears case in dispute over fisheries landings tax

Millions of dollars of fish landing taxes are at stake in a lawsuit now being deliberated by the Alaska Supreme Court and the decision could hang on when the court decides processed fish are “in-transit.” The court heard oral arguments Oct. 21 in a lawsuit brought against the State of Alaska by Seattle-based Fishermen’s Finest Inc. in which the company argues Alaska’s fishery resource landing tax violates a prohibition on taxes or fees levied against goods on the way to export in the U.S. Constitution. Jim Torgerson, an attorney for Fishermen’s Finest, argued that the fish harvested and processed in federal waters by the company’s catcher-processor vessels have started their journey to foreign markets when it arrives at Alaska ports but before being shipped worldwide. Torgerson stressed that the fish are caught and preserved in the federal Exclusive Economic Zone, or EEZ, that starts three miles offshore and therefore the fish products are in-transit when they cross the three-mile boundary and enter state waters from the EEZ or, at the latest, when they are transferred elsewhere at the port. He said in response to questions from the justices about what constitutes a “significant movement” that crossing the three-mile boundary into state waters after all of the work on the actual fish has been completed is a key legal trigger. “The last thing for (the company) to do was to transfer the fish to the foreign markets and that transport process started when the vessels left the EEZ and spent a day or two traveling to Alaska into the ports, trans-loaded into the foreign vessels or into the refrigerated containers, so it was that actual movement, that actual transportation, that was commencement of that in-transit process,” Torgerson told the court. Fishermen’s Finest filed the lawsuit — technically an appeal of an administrative ruling in favor of the state — in May 2018. Superior Court Judge Dani Crosby sided with Fishermen’s Finest in a November 2019 ruling in which she concluded it violates the import-export clause because the fish are “in continuous export transit” when the tax is applied. The fishery resource landing tax generated nearly $12.5 million for the state and local governments in 2019, according to Tax Division records. It is levied based on 3 percent of the catch’s unprocessed value in established fisheries and 1 percent of the value in developing fisheries, as determined by the Alaska Department of Fish and Game. Unprocessed fish is not subject to the resource landing tax but could fall under the broader fisheries business tax. Leaders of coastal communities across the state said the fish tax revenues, which the state shares with local governments, are crucial for developing and maintaining the shore-side infrastructure used by the industry in those communities when Gov. Mike Dunleavy in 2019 proposed the state keep the local share of fish tax revenue to help close the state’s longstanding budget deficits. The Legislature ultimately rejected the governor’s plan for the state to retain all of the fish tax revenue. While the fish taxes are generally split 50-50 between the state and the local governments in which they are collected, qualifying statutory language can lessen a local government’s share below 50 percent. As a result, the local share of the fishery landing tax has been in the $5 million range shared by between eight and 14 mostly Western Alaska communities in recent years, according to Tax Division records. Fishermen’s Finest operates three catcher-processor vessels primarily out of Dutch Harbor and Kodiak. Assistant Attorney General Laura Fox countered that the fishery resource landing tax, which targets catcher-processors, is not the kind of levy the constitutional framers envisioned because it doesn’t burden other states or harm any federal interests. “Catcher-processor operators take advantage of Alaska to further their business and Alaska’s landing tax merely requires them to pay their fair share for doing business in Alaska like other businesses do,” Fox told the justices in her opening remarks. She said the tax is applied when the processed fish lands at an Alaska dock and could still be sold domestically, while the export process starts when the fish “actually leaves Alaska.” According to Fox, applying legal tests to parse out exactly when the processed fish is “in-transit” in attempting to determine the constitutionality of the tax would simply lead to fishing companies altering their business models or the state restructuring how it is applied to “get around the technical line-drawing that’s trying to be done.” Torgerson acknowledged in response to questioning that the tax would not violate the import-export clause if the fish products stayed stateside, but emphasized the products in question in the case were sold in foreign markets. Elwood Brehmer can be reached at [email protected]

Assessment shows 300M-barrel Slope play, drilling to follow

A small U.K. explorer is sitting on more than 300 million barrels of recoverable oil alongside the Trans-Alaska Pipeline, according to an independent assessment of the prospect. London-based Pantheon Resources’ Talitha project is being built off of new analyses of a well drilled in 1988 and modern data from a modern 3D seismic shoot of the broader area roughly 20 miles south of Prudhoe Bay. The Pipeline State-1 well was drilled by ARCO just east of the Dalton Highway-TAPS corridor and though the 10,000-foot vertical Pipeline State-1 well has a roughly 2,200-foot oil-bearing column over four reservoirs, the technology and oil prices of the late 1980s it did not add up to a viable prospect at the time, according to Pantheon leaders. Pantheon bought Anchorage-based Great Bear Petroleum and the roughly 200,000 acres of North Slope leases the company held in January 2019. Pantheon is focusing its work first on the shallowest of the four reservoirs intersected by the Pipeline State well, the Shelf Margin Deltaic, which holds 302 million barrels of recoverable oil and 1.1 billion barrels in place based on a resource assessment by the Oklahoma-based consultancy Lee Keeling &Associates. Pantheon expects to drill the Talitha-A well into the prospect itself starting early next year, and company leaders have stressed the work is appraising what is already known about the Pipeline State well and the surrounding area; it’s not greenfield exploration. In addition to the potential Shelf Margin Deltaic resource, Pantheon estimates internally that the prolific Kuparuk formation also holds upwards of 340 million recoverable barrels. Pantheon stands out because it is one of few companies working aggressively to delineate and develop an oil prospect on the North Slope or elsewhere in Alaska while the coronavirus pandemic continues to constrain oil demand and prices worldwide. Company leaders have stressed the project’s location — adjacent to the Dalton Highway and pipeline — as a driver of its economics. Pantheon estimates its projects have a break-even price of roughly $30 per barrel primarily because of their locations. The company also holds the 76 million-barrel Greater Alkaid prospect just to the north and bisected by the transportation corridor. “Our modeling shows Talitha is economic at very low oil prices because of the size, reservoir qualities and proximity to the Dalton Highway and Trans-Alaska Pipeline,” CEO Jay Cheatham said. “This is important for a company like Pantheon as we can reduce upfront capital by utilizing modular production units instead of large central processing facilities to expedite development and reduce risk.” Pantheon wholly owns the Greater Alkaid prospect and holds an 89 percent stake in Talitha. While the company is likely to start with a phased development and a gradual ramp-up of production, the assessment envisions full build-out of Talitha as an 85,000 to 90,000 barrels per day project at peak production from 91 producing wells. Pantheon filed an application with the state Division of Oil and Gas to establish the 44,000-acre Talitha Unit Sept. 4. The prospective Talitha Unit operator is listed as Great Bear Pantheon LLC.

Deficits continue to limit ferry system reform options

A work group tasked with making recommendations to Gov. Mike Dunleavy for improving the financial viability of the Alaska Marine Highway System identified the issues raised by other analyses but concluded a potential long-term fix popular among ferry advocates isn’t worth trying now. The Alaska Marine Highway Reshaping Work Group advised against restructuring the governance of the ferry system to a public corporation model and instead suggested the governor appoint a nine-member “operations” board of individuals with maritime business expertise and labor and stakeholder representatives. The group’s Oct. 22 report to Dunleavy, subtitled “Red Sky at Morning,” states that while lessening the political influence over the AMHS and particularly its budget through a new governance model is desirable, the change is not likely to accomplish that goal as long as the state is running large budget deficits. That’s because — as has been concluded before — the system will almost certainly always require an annual state subsidy on some level. Work group chair Adm. Tom Barrett, a former U.S. Coast Guard officer, deputy Transportation secretary and Alyeska Pipeline Service Co. CEO, said in an interview that the connection between ferry service and budget levels pulls the system into the political process. Leaving the system as an agency of the Department of Transportation and Public Facilities also should help state officials more efficiently plan and manage the state’s intermodal transportation network, he said. Barrett also said the system’s issues go beyond just funding problems. “Throwing more money at it is not going to solve the problem,” he said. A ferry system reform study conducted by the Alaska research firm McDowell Group in collaboration with the Southeast Conference and DOT under former Gov. Bill Walker acknowledged the continued budget challenges the system is likely to face but concluded transitioning to a public corporation was the best long-term structure because it would allow system leaders to plan with more certainty rather than being subject to frequent changes of political leadership and vision. However, Barrett said the work group, which included Southeast Republican Sen. Bert Stedman and Republican Rep. Louise Stutes of Kodiak, did not want to recommend changes that would require years of work on significant legislation and that is why the group settled on the governor-appointed operations board. Work group member, Marine Transportation Advisory Board chair and Southeast Conference Executive Director Robert Venables also said the group looked to prioritize actions that could be taken quickly to improve the reliability and cost effectiveness of the ferry system with longstanding revenue problems. He noted that the report does not discount the possibility of moving to a public corporation if the state’s broader financial situation can be improved. Barrett said the operations board could fold in the Marine Transportation Advisory Board, which largely provides regional and community-level input to the system but is not an expert group, to maintain public involvement in system management. While a lack of long-term planning and subsequent struggles to adapt to evolving markets are partly to blame for fare box recovery — the amount of revenue generated to cover operations — falling from historical averages of about 50 percent to less than 40 percent in recent years, an aging fleet and budget cuts compounded reliability issues last winter. Dunleavy initially proposed cutting the previously $85 to $90 million annual AMHS operating subsidy down to about $22 million, a level that would have officially shut the system down over the 2019-20 winter as the administration worked on a plan to restart with a more cost-efficient system. Dunleavy and the Legislature eventually settled on a roughly 50 percent cut that drastically reduced service but maintained a level of fall and winter service. A series of ill-timed mechanical issues and shipyard delays combined with a thin sailing schedule from significant budget cuts meant many isolated communities throughout the system went months without ferry service before sailing frequencies increased in late spring. Dunleavy’s spokesman Jeff Turner wrote via email that the administration is still reviewing the report it released Oct. 22. The report includes a prospective implementation timeline that would have the administration move quickly — starting yet this year — to revamp the system by assessing union contracts for cost savings and improved operational flexibility as well as refining the duties of the operations board and drafting its charter. The board would begin meeting by February and start reviewing and recommending changes to the fare structure for the summer schedule nearly immediately, under the work group’ timeline. The board could work to develop a longer-term operating strategy and vessel replacement plan by early to mid-2022, according to the report. Venables said he is looking forward to seeing an implementation plan from the administration over the coming months. Elwood Brehmer can be reached at [email protected]

Alaska Air Group improves financials as COVID-19 impacts continue

Alaska Air Group executives remain confident the airline company is one of the best positioned in the industry to rebound from the catastrophic toll of the pandemic despite losing $431 million in the third quarter and the acknowledgment the company will not break even this year. The loss compares to a $322 million profit the Seattle-based parent company to Alaska Airlines and regional carrier Horizon Air turned a year ago when the industry was riding the wave of a strong U.S economy. Excluding payroll support program wage offsets, special items and fuel hedging adjustments the loss was $399 million, Air Group reported Oct. 22. Company executives — as they often do — stressed Air Group’s strong underlying balance sheet that they feel will help them be nimble in restructuring their operations and recover quickly. CEO Brad Tilden said the combined cash burn rate at Alaska and Horizon has been cut from $13 million per day during the worst of the pandemic down to $4 million per day currently. That has enabled Air Group to maintain the same debt level net of cash of about $1.7 billion that it had at the end of 2019, according to Tilden. “This is an incredible achievement and one we believe few of our peers will replicate,” he said, adding Air Group’s treasury team added $4 billion worth of new liquidity to the company’s reserves when they had a goal of adding $2.5 billion. Air Group’s debt-to-capitalization ratio stood at 59 percent at the end of the quarter, compared to 41 percent at the start of the year. Chief Financial Officer Shane Tackett said the company took a $1.9 billion CARES Act loan from the Treasury Department because it came with an attractive interest rate and provided additional financial flexibility. The loan, which Air Group has made relatively small draws from according to Tackett, gives the company roughly $5.5 billion in available liquidity — about four years’ worth — and he doesn’t expect to need any more. “The next decision in front of us is whether to pay down or refinance our credit facility and 365-day term loans due in March and April of next year,” Tackett said. The third quarter loss takes Air Group’s year-to-date loss up to $877 million, versus a $588 million profit it turned a year ago. The $431 million quarterly loss translated to a loss of $3.49 per share. Alaska Air Group stock closed Oct. 22 trading at $40.60 per share, up slightly from a pre-earnings opening price of $39.15 per share. Air Group generated $701 million in total revenue in the third quarter, which was down 71 percent from a year ago, but an improvement over the second quarter, Tilden noted. Alaska and Horizon similarly carried about 70 percent fewer passengers in the third quarter compared to 2019 on capacity that was down 55 percent. Air Group executives also stressed that the company’s current — and many now former — employees have helped immensely in stabilizing its finances and operations through the industry collapse. Nearly 7,000 Alaska and Horizon employees have taken short-term leave and another roughly 4,000 volunteered for long-term leave or early retirement packages, according to Tilden. “Many of these people have been with Alaska for decades and are the folks that truly built Alaska,” he said. “They did nothing to cause this crisis and yet they’ve made a substantial personal sacrifice to contribute to our future and to save a job for someone else.” Tackett added that the employees that took voluntary leave and furloughs helped limit the number of involuntary furloughs Air Group had to issue earlier this month to about 400. The company also cut 350 management positions, he said. He estimated the temporary payroll savings to be about $350 million and said the annual savings from a smaller payroll should be more than $130 million per year. “Our goal is to bring back our flying and our people as soon as demand allows us to,” Tackett said. Air Group reported a workforce that averaged 16,027 full-time equivalent employees in the third quarter, which was down 28 percent from more than 22,200 employees a year ago. Tackett said the airline industry as a whole likely needs additional help through Treasury’s payroll support program, or PSP, in-part because the recovery from the near-total spring shutdown has been slower than expected. Air Group received $992 million in PSP funds in April and the company reported having utilized $760 million in payroll support wage offsets through the first three quarters of the year. “Only continued PSP support can reliably help avoid balance destruction for the industry — balance sheets that will be needed to fuel future industry recovery and growth, which would, we believe, support the broader economic recovery and growth needed in our country,” Tackett said. Negotiations on another large pandemic relief package between the House, Senate and White House have slowed prior to the Nov. 3 election. The recovery to the all-important “breakeven” point for Air Group will continue to be slower than first hoped primarily because Alaska Airlines also announced it will continue blocking middle seats in its Boeing 737 and Airbus aircraft through Jan. 6. Air Group leaders set a broad goal to reach zero cash burn by year’s end at the start of the pandemic but Tackett said blocking middle seats limits the load factor — how full each flight is — to just below what is needed for the company to reach cash breakeven. Alaska and Horizon had a combined load factor of 48.5 percent for the quarter, while the airlines’ planes were typically about 85 percent full pre-pandemic. Alaska Airlines President Ben Minicucci said surveys indicate passengers are much more likely to feel safe enough to fly again after making an initial trip and observing all of the precautions airlines are taking to protect customers. Minicucci also cited several scientific studies that generally conclude that a traveler is less likely to contract COVID-19 on a commercial flight than they are in other aspects of daily life. “It’s safe to fly right now but we’ve got some work to do getting that information out there,” Minicucci said. He added that bookings to Hawaii, which recently removed a mandatory 14-day quarantine period for travelers arriving with a negative COVID-19 test result, and other warm weather locations are steadily improving as people resume vacationing and look to work remotely from warmer climes. Minicucci said while the near-term recovery has been slower than first expected, Air Group still expects to be flying at about 80 percent of 2019 capacity next summer, with a full recovery coming “well into 2022.” Elwood Brehmer can be reached at [email protected]

Young pitches Jones Act waiver to aid cruise ships

Opening up the economy to help the country overcome the pandemic should be the priority, according to Rep. Don Young, who said he fears another multitrillion-dollar coronavirus relief package could start to push the country towards a period of rapid inflation. Young said during an Oct. 15 interview at his Anchorage campaign office that the Senate proposal for a smaller relief bill to aid the hardest hit industries of roughly $500 billion makes the most sense in the long-term. “We have a lot of people that say, ‘Just print more money,’” Young said. “We have to be very careful about a country that spends money it doesn’t have.” He expects the debate over the size and contents of the latest relief bill won’t be settled until after the election. “I don’t think they would dare call anybody back right now,” he said of congressional leadership calling a vote during the final days of campaign season. The Trump administration has floated a $1.8 trillion package in negotiations with House Democrats, who are backing their roughly $3 trillion HEROES Act. The CARES Act passed in March totaled about $2.2 trillion. By Oct. 21 national outlets were reporting negotiations on the relief package were stalling and a deal seemed more likely to come after the election. A spokeswoman for the campaign of Young’s independent challenger, Alyse Galvin, did not respond to questions about pandemic aid in time for this story. The best way to help the hardest hit industries in Alaska — the intertwined aviation and tourism sectors — is to get the Lower 48 economy producing again, according to Young. He noted the absence of the more than 1.3 million cruise ship passengers expected visit the state this year not only hit Southeast where the ships spend most of their time but Fairbanks and other parts of the state where blended tour itineraries take visitors. “Tourism money is surplus money and if you don’t have a strong economy in the Lower 48 you’re not going to get tourists to Alaska,” Young said. To that end, he is working on finding ways to make sure cruise ships can get to Alaska if the passenger demand materializes next year but Canadian ports and border crossings remain closed. Young said while he supports the broader objectives of the Jones Act, a century-old law meant to bolster the domestic maritime industry by requiring commercial ships traveling between U.S. ports to be U.S. made, he would like to see a temporary exemption for cruise ships traveling between Alaska and Pacific Northwest ports. As it stands, large cruise ships — nearly all of which are foreign-flagged — departing from the West Coast must stop in Vancouver before sailing to Alaska. However, federal officials in Canada continue to extend border closures and there’s no indication as to when the situation will change. Young said he is in conceptual discussions with airline and cruise industry representatives regarding ways to reroute the traditional flow of cruise tourists into and out of the state if Canadian ports are still off-limits when the cruise season starts next spring. “We believe the demand will be there; again, it all comes back to the Lower 48 economy,” he said. Cruise Lines International Association Alaska spokeswoman Lanie Downs wrote via email that a Jones Act waiver could not have salvaged the 2020 season for the group’s member companies, which generally operate larger vessels, because of a Centers for Disease Control “No Sail” order prohibiting vessels carrying more than 250 passengers from operating through Oct. 31. She emphasized that the cruise association is greatly appreciative of the delegation’s work to support the industry through the pandemic, but it’s far too early to tell what might be possible, or needed, for 2021. “The industry has been completely shut down in the U.S. since March and right now we are primarily focused on a safe resumption of service with strong measures in place to protect passengers, crew and communities we visit,” Downs wrote. Alaska Travel Industry Association CEO Sarah Leonard noted the group started advocating in March to the delegation for a Jones Act waiver for vessels with a capacity of 500 passengers or more until Canadian ports are open. “This action remains a high priority federal assistance for tourism businesses in Alaska as a way to mitigate continued job and revenue loss due to COVID-19,” Leonard wrote in an email. Alaska’s leisure and hospitality industry was down more than 15,000 jobs at the peak of the summer season compared to last year, according to Labor Department data. ^ Elwood Brehmer can be reached at [email protected]

Alaska receives $46.5M grants for remote broadband

A pair of Alaska telecoms are getting $46.5 million from the U.S. Department of Agriculture and pitching in some of their own to install new fiber optic broadband networks in parts of the state’s remote island regions. Unicom Inc., a GCI subsidiary, will match a $25 million grant with its own $33 million investment to build a roughly 800-mile subsea fiber network stretching from Kodiak along the Gulf side of the Alaska Peninsula to Unalaska. Residents and businesses in Unalaska will also receive “fiber-to-the-premises” network capable of providing internet speeds of up to 1 gigabit per second. The Kodiak Island, Alaska Peninsula and Aleutian communities of King Cove, Sand Point, Chignik Bay and Larsen Bay will also receive terrestrial broadband for the first time, according to GCI. Southeast utility Alaska Power and Telephone Wireless Co. will receive $21.5 million for its SEALink broadband project, which aims to provide a fiber optic network to all premises in the Prince of Wales Island communities of Kasaan and Coffman Cove. Contributing $7 million of its own capital to the project, Alaska Power and Telephone also plans to install a 214-mile fiber optic cable running from Prince of Wales north to Petersburg and Juneau. The rural Alaska broadband grants are part of $550 million in grants awarded through the second round of the USDA’s ReConnect Program. CEO Ron Duncan said the GCI Alaska United-Aleutians Fiber Project will give Unalaska internet capacity on par with urban Alaska. “Fiber service, the gold standard of broadband connectivity, will enable Unalaska, the nation’s largest fishing port and a gateway to the American Arctic, and the other project communities to realize their full economic potential while advancing the national security interests of the United States,” Duncan said in a formal statement. Alaska Power and Telephone CEO Mike Garrett called the grant-funded project a “once-in-a-lifetime opportunity for residents of Kasaan and Coffman Cove to leap ahead of the digital divide.” Work on the SEALink project in Southeast is scheduled to continue until 2025; at which point Alaska Power and Telephone says it will likely be able to extend high-speed broadband to other Prince of Wales communities. GCI expects its Alaska United-Aleutians Fiber project will be substantially complete by the end of 2022. Sen. Lisa Murkowski noted the need to conduct work and school remotely stemming from the coronavirus pandemic has highlighted gaps in Alaska’s broadband infrastructure and said the congressional delegation needs to continue to help rural communities gain the internet capabilities that are commonplace elsewhere in the country. Sen. Dan Sullivan said high-speed internet access can be “life-changing,” particularly for rural Alaska residents without access to other communications infrastructure. “Thousands more Alaskans across the state will finally experience a utility so many of us take for granted, one that has shown itself to be absolutely indispensable in the age of COVID-19,” Sullivan said in a formal statement. Combined, the projects will connect approximately 7,700 residents and more than 360 businesses among other public facilities, according to information provided by the congressional delegation. The grants follow the Alaska Legislature’s passing of Senate Bill 74 last spring, legislation sponsored by Sen. Lyman Hoffman, in part requiring that the minimum acceptable internet speed in Alaska schools be increased from 10 to 25 megabits per second. Hoffman thanked the USDA, the congressional delegation and GCI in a statement from his office. “This infrastructure expansion is critically important, especially with many students receiving an education online at home due to COVID,” he said. Hoffman’s district covers much of Western Alaska, including the Aleutians and Alaska Peninsula. Elwood Brehmer can be reached at [email protected]

Alaska Airlines adds newer, smaller jet to state fleet

Alaska Airlines has launched new passenger service to the Bristol Bay region despite the pandemic that has devastated the airline industry with the help of its sister airline’s smaller, more efficient jets. Horizon Air began daily service to Dillingham and King Salmon Oct. 18 with its Embraer 175 commuter jets. The regional carrier is also flying the E175 between Anchorage and Fairbanks on behalf of Alaska Airlines on flights advertised as AlaskaHorizon, marking the second time in the last six years the airlines have attempted to utilize smaller planes for in-state flights. Alaska and Horizon are owned by Seattle-based Alaska Air Group Inc. For years Alaska Airlines flew passenger service to the Bristol Bay hubs only during the summer months, when demand for flights to the region spikes from the large commercial salmon and sport fisheries and supports flying the major carrier’s larger Boeing 737 jets. Historically, in-state carriers PenAir and more recently Ravn Alaska operated daily scheduled Part 121 service to the Bristol Bay communities. However, the jointly owned PenAir and Ravn fleets were grounded in April following a 90 percent drop in demand due to the pandemic, company leaders said at the time. The Ravn and PenAir fleets were subsequently sold in a July bankruptcy auction and the new ownership group is currently working to resume scaled back service statewide. Even before Ravn and PenAir stopped flying many residents Dillingham and Naknek-King Salmon were already urging Alaska Airlines to serve the region year-round because of increasingly unreliable service from the other Part 121 carriers. Nathan Hill, manager of the Lake and Peninsula Borough, which has its offices in King Salmon, wrote via email that he believes the region’s demand for air service has largely been met with adequate capacity by several carriers over the years but added that he thinks the main concern among residents “revolves around consistency and predictable airline delivery services.” Marilyn Romano, Alaska Airlines regional vice president for the state said Alaskans who have traveled via the E175 in the Lower 48 have also routinely asked specifically about when the twin-engine jet might be deployed in Alaska. Utilizing the 76-seat E175s — versus the 124-plus seat 737s the airline otherwise uses — for Anchorage-Fairbanks service provides Alaska the flexibility to increase the frequency of flights between the state’s largest cities to up to seven per day, according to Romano. The airlines are currently flying four or five round-trip Anchorage-Fairbanks flights per day, mostly with E175s. Romano also said the E175 could help unlock other markets in the state down the road. One of the Alaskans who has occasionally hassled Romano about getting the E715 to Alaska is her longtime friend and former Fairbanks state senator Gary Wilken, she said. Wilken, who stands 6-feet-8-inches tall, first flew in an E175 several years ago out of Seattle and wrote in an email that he has “been a fan ever since.” Wilken who estimated he has made the flight between Anchorage and Fairbanks upwards of 800 times over 35 years, wrote that the small jet has a deceptively “roomy” feel to it, not only between seats but the ceiling above the seats feels higher as well. He also noted that the windows are larger than those in a 737. “I don’t have to bend way over to look horizontally out the window,” Wilken wrote. “One can actually look up and see the sky above.” Horizon’s 30 Embraer 175s are on average less than three years old, according to the company. Alaska previously employed Horizon planes in the state in the spring of 2014 when Horizon began flying its 76-seat Bombardier Q400 turboprop aircraft between Kodiak, Anchorage and Fairbanks. However, the airlines pulled the Q400 out of the state in 2017 citing challenges with operating the regional aircraft in the remote Alaska market. Romano and Horizon President Joe Sprague said in interviews that the airlines considered the Q400 operation in Alaska a success, but emphasized that the E175 should improve the logistics of using regional aircraft in the state because it is a faster jet that can start each day in Seattle, where Horizon conducts the vast majority of its maintenance. Sprague said starting the Alaska-bound E175 in Seattle allows the airlines to use it for a passenger revenue flight to Anchorage each day before it flies elsewhere in the state, thus improving the finances of the operation. With its range of more than 2,100 miles and a top cruise speed of about 620 miles per hour the E175 “is not what you would historically consider a regional aircraft,” Sprague said, adding it feels more like a 737 inside the cabin. “It’s a perfect airplane for these thinner markets.” Horizon will continue to honor Alaska’s policy of three free checked bags on in-state flights with the E175 for passengers that are members of the airline’s popular Club 49 program for Alaska residents, Sprague said as well. However, many passengers might prefer the E175 to the larger jets because — while they are temporarily blocked on all Alaska Airlines flights — it does not have the dreaded middle seats. The E175 has two seats on each side of the main cabin aisle and three seats across each first class cabin row. Sprague said Horizon is also currently blocking one of the aisle seats in each row of its aircraft, which reduces the planes’ overall capacity by about 25 percent. ^ Elwood Brehmer can be reached at [email protected]

Senators toughen stances against Pebble project

After years of stressing process over policy, Alaska’s U.S. senators have both announced their opposition to development of the Pebble mine. Sen. Lisa Murkowski made her most definitive statement to-date against the massive Southwest Alaska mine plan Oct. 15 during an address to the Alaska Federation of Natives virtual annual convention, saying there is a need for new economic development in Southwest Alaska and that she plans on working to ensure “longer term protections for the region that can also provide enduring value for Alaskans” in the next Congress that will convene in January. “I simply think that this is the wrong mine in the wrong place. The administration has said that Pebble cannot be permitted as proposed, and I agree with that,” Murkowski said. “I plan to build on my appropriations language from last year to ensure that the Bristol Bay region remains protected. But while we may have stopped Pebble today, I think now is the time to start thinking about the future.” Jason Metrokin, CEO of Bristol Bay Native Corp., which has helped lead the opposition to the mine, thanked Murkowski and Sullivan for agreeing Pebble should be stopped. “BBNC has long-opposed Pebble because the science is clear on the mine’s potential impacts — it would pose a significant risk to our region’s world-class fisheries and our shareholders’ economic livelihoods and subsistence way of life,” Metrokin said in a formal statement. “By stopping this ill-conceived mine, we defend 14,000 sustainable commercial fishing jobs, protect subsistence, and preserve the world’s most prolific wild sockeye salmon runs. Pebble is and always has been the wrong mine in the wrong place. We look forward to continuing to work with our senators to protect Bristol Bay and secure its future.” Late last year Murkowski added language to the 2020 Interior Department budget bill noting concerns from other state and federal agencies that commented on the draft Pebble environmental impact statement and questioned the veracity of the review. Murkowski’s spokeswoman Karina Borger highlighted the Interior appropriations language in an email and wrote that “throughout the process, (Murkowski) has continually said the Pebble project must meet a high bar as adverse impacts to the Bristol Bay ecosystem and its world-class salmon fishery are unacceptable.” Borger could not provide further detail about the senator’s plan for the appropriations process, she wrote. The hard line against what would be one of the largest resource development projects in the state’s history follows mixed messages from the U.S. Army Corps of Engineers — the agency conducting the environmental review — about Pebble’s ability to coexist with the largely untouched ecosystem and currently salmon-dependent economy in the region and the Sept. 21 release of a seemingly damning undercover video that led to the resignation of then-Pebble Partnership CEO Tom Collier. In the lengthy video, Collier and Ron Thiessen, CEO of Pebble’s parent company Northern Dynasty Minerals Ltd., touted relationships with Gov. Mike Dunleavy and Corps of Engineers Alaska officials that they claimed would benefit mine development to Environmental Investigation Agency personnel posing as potential Pebble investors. The project leaders also claimed to already have plans to expand the mine beyond the proposal submitted to the corps, despite previous claims to the contrary. According to Pebble, its official 20-year mine plan would employ up to 2,000 workers during construction and 750-1,000 workers during operations. Corps Alaska District Regulatory Chief David Hobbie wrote to Pebble leaders Aug. 20 that the project would have to come up with a new wetlands mitigation plan to compensate for varying impacts to more than 3,200 acres of wetlands and 184 miles of streams across the mine site and the project’s extensive support infrastructure within 90 days. The strict mitigation requirements juxtaposed the Corps’ overarching conclusions in the final Pebble environmental impact statement issued in July, which largely states that developing the massive copper and gold deposit would result in “no measurable change” in the numbers of salmon returning to the Nushagak and Kvichak rivers or in the long-term health of the commercial fisheries in the region and was touted by Pebble Partnership upon its release. The senators both said in statements following the mitigation letter that the project should not be permitted as proposed. Sullivan has since been more emphatic about Pebble; he said during a live radio interview on Alaska Public Media that the Environmental Protection Agency should use its authority to stop the project if the corps issues a favorable record of decision, or ROD, for the project. The Pebble ROD could be issued at any time after the company submits its mitigation plan. Sullivan and Murkowski were extremely critical of the EPA under the Obama administration for proposing in 2014 to prohibit Pebble or other large mines in the area via its authority under Clean Water Act Section 404(c) to override wetlands permit decisions by the corps if the agency deems a project too environmentally damaging. That was before Pebble had submitted its permit application to the corps, which meant it was not even giving the company a chance to develop a viable plan, the senators and many resource development advocates said, dubbing the move a “preemptive veto” of Pebble. However, Pebble’s plan is not final yet. Interim Pebble CEO John Shively wrote in an emailed statement about the senators’ opposition to the mine that the company believes federal permitting should be a scientific and not a political process and the company remains focused on finalizing what it needs to provide the corps for the ROD. “The (Corps) asked for our final mitigation plan by Nov. 18 and we will meet that deadline. This is our near term focus,” Shively said. Resource Development Council for Alaska Executive Director Marleanna Hall wrote in an email that without a final mitigation plan or ROD there is nothing for the industry advocacy group to comment on. Rebecca Logan, CEO of the Alaska Support Industry Alliance, the trade association for mining and oil and gas industry contractors in the state noted in an email that the Alliance has maintained that the permitting process should be followed “no matter what.” “Because the mitigation plan is not yet final and there is no ROD yet — it is premature to say that the project shouldn’t be built. If we allow the process to be hijacked for one project — it will set a precedent that harms the future of responsible resource development for Alaska,” Logan wrote. She added that she understands and respects the senators’ decisions to publicly oppose Pebble but that doesn’t mean she agrees with them. “Sens. Sullivan and Murkowski have been the backbone for resource development in Alaska — and their leadership has allowed us to make great gains in the last four years towards developing our oil, gas and mineral resources,” Logan continued. “Both of them have been strong defenders of the support industry, Alliance members, noting that the Alaskan jobs that accompany resource development are the highest paying jobs in the state and make a significant impact on Alaska’s economy. They both have fought hard in D.C. to protect these Alaskans.” Elwood Brehmer can be reached at [email protected]

Greens Creek owner files request to reroute road for tailings expansion

The operator of the largest silver mine in the country is asking the U.S. Forest Service to approve a tailings storage expansion plan that would allow the mine to produce into the 2030s. Hecla Mining Co., which owns the underground Greens Creek mine on Admiralty Island near Juneau, filed an amended plan of operations with the Forest Service Oct. 1 that calls for expanding the Greens Creek tailings disposal facility footprint by 14 acres, or about 20 percent, to store an additional 4 to 5 million cubic yards of tailings and waste rock produced at the mine. Hecla expects the current 66-acre facility will likely be filled by about 2031, at which point the mine would have to be closed, according to a company statement. The tailings facility expansion would not push the mine’s growing tailings stack further into Admiralty Island National Monument, but the plan does call for disturbing an additional two acres within the monument to relocate a portion of the road between the Greens Creek mill and tailings facilities. Greens Creek General Manager Brian Erickson said Hecla leaders believe the plan maximizes the area available for tailings storage while minimizing newly disturbed areas in a formal statement. “This amendment culminates years of careful planning to develop a plan that minimizes impacts on Admiralty Island National Monument and the fish-bearing sections of (nearby) Tributary Creek,” Erickson said. Mining within the monument was authorized by Congress in the 1980 Alaska National Interest Lands Conservation Act, which established or grew many of the federally protected areas in the state but also carved out exceptions for resource projects in several parts of Alaska that otherwise would be off-limits to development. Greens Creek facilities bisect the monument boundary between the Admiralty Island Monument and more open-access lands of the Tongass National Forest. The mine’s infrastructure, which includes a port and access road, is largely along the western coast in the northwest portion of the island. Hecla employs the dry-stack tailings process at Greens Creek, which eliminates the need for a tailings dam as well as this risk of a release of tailings water or slurry. The company’s plan for incremental expansion is the third such request by the Greens Creek operator in the past 20 years. Most recently Hecla proposed a 116-acre expansion to the mine’s tailings storage facilities in 2010; the Forest Service ultimately approved an 18-acre project in 2013. Hecla Greens Creek spokesman Mike Satre wrote via email that the Forest Service’s 2013 decision for a smaller expansion has helped support existing operations but prohibited the company from expanding the mine’s footprint within the monument. “After analyzing the record of decision and re-evaluating our design basis, we realized that there was an option to extend the facility to the north in non-monument Forest Service land that would give us sufficient space,” Satre wrote. Hecla has not disclosed a cost estimate for the proposal, according to Satre. The Forest Service opened a scoping comment period on Oct. 9 for the environmental impact statement — a supplement to the 2013 review — will likely be needed based on the size of the proposal. The 45-day comment period closes Nov. 23. The plan calls for decommissioning one of the existing water management ponds and subsequent modifications to other ponds or construction of a new pond in the first stage of the project, which would include storage for roughly 1.9 million cubic yards of tailings and waste rock. The second stage of the project entails re-routing a portion of the access road through the monument, a new transmission line and substation and a water collection system at Cannery Creek. The combined phases of development would add approximately 4.6 million cubic yards of storage capacity to the tailings facility, according to the plan documents. Idaho-based Hecla on Oct. 8 reported producing 2.6 million ounces of silver at Greens Creek in the third quarter; the mine has produced roughly 8.2 million ounces of silver so far this year and is expected to break the 10 million-ounce mark for annual production this year. Greens Creek also produced 38,000 ounces of gold in the first nine months of the year. Hecla acquired 100 percent of Greens Creek in 2008 and has since increased silver production from the 6 million ounces per year range to the upwards of 10 million ounces expected from the mine this year. The remote mine employs approximately 440 people and produces about 2,350 tons of ore per day, according to the amended plan. Elwood Brehmer can be reached at [email protected]

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