Elwood Brehmer

Cook Inlet oil activity slows in response to price drop

Glacier Oil and Gas leaders are asking state regulators to let them shut in two West Cook Inlet oil projects indefinitely as oil prices continue to hover about 30 percent below pre-pandemic levels. The Anchorage-based independent wants to put facilities in both the West MacArthur and Redoubt into “cold-shutdown and unmanned” status, according to applications filed Sept. 29 with the Division of Oil and Gas for the long-term suspension of operations at the facilities. Glacier’s plans, if approved, would formalize actions the company took earlier this year in response to once-collapsed oil markets. In early June, Division of Oil and Gas Director Tom Stokes approved Glacier’s plan to suspend production at both units and put the corresponding facilities into “warm-standby” status until oil markets improved. At the time the price for Alaska North Slope crude had just returned to the $40 per barrel range that it has since stabilized around, but prices in April and May averaged less than $30 per barrel as coronavirus-induced travel restrictions and a price war between Saudi Arabia and Russia combined to briefly put prices in domestic oil markets into the negative. The warm-standby status is currently approved through April 30, 2021, in line with the annual development plan periods for the units. The unit is operated by Glacier subsidiary Cook Inlet Energy LLC. The long-term shutdowns would involve shutting in wells and disconnecting them process piping, in addition to draining all fluids from all of the pipelines and tanks in the facilities to eliminate the risk of spills. According to the application, Glacier would inspect the facilities monthly to make sure they remain in condition to meet state and federal requirements. Glacier leaders could not be reached in time for comment in this story. Stokes wrote in approving the initial warm-standby suspensions that while the state has an interest in seeing its oil and gas resources developed, production from the Osprey platform would be marginally economic at best and have a “significantly reduced royalty value for both the State and private mineral owners.” According to Division of Oil and Gas figures, roughly 5.3 million barrels of oil and 2.6 billion cubic feet of gas have been produced over the nearly 20-year life of the Osprey platform, which has been shut-in before. The Osprey platform was installed by Forest Oil in 2001 but reservoir production problems pushed the Pacific Energy, a subsequent owner, to suspend operations in 2009, according to Journal records. The platform was restarted in 2011 by now-bankrupt Miller Energy. In April, prior to the warm shutdown oil production averaged 1,675 barrels per day from four wells on the Osprey Platform, according to Alaska Oil and Gas Conservation Commission Records. More than 15.6 million barrels of oil have been produced from West MacArthur facilities over approximately 30 years, according to the division. Approximately 370 barrels of oil per day were produced from two West MacArthur wells in April, according to AOGCC production data. Glacier subsidiary Savant Alaska LLC also suspended production at its small Badami North Slope oil field in June but restarted activity there in August, according to state records. ConocoPhillips also curtailed production at its major North Slope fields by an average of 45,000 barrels per day in the second quarter. Cosmo slowed Across Cook Inlet, activity at BlueCrest Energy’s Cosmopolitan project on the Southern Kenai Peninsula is also in a holding pattern until oil markets strengthen. The small Texas-based independent planned to drill what the company calls a Trident well — a long, angled main well with laterals extending out both sides of the wellbore — this year but paused the work early in the year as well, according to the Cosmopolitan Unit plan of development submitted to the Division of Oil and Gas Sept. 25. Instead of drilling the extensive well, BlueCrest focused its resources on further evaluating the large Cosmo natural gas cap above the oil reserves held by the company. BlueCrest also commissioned what it has dubbed a “Mechanical Refrigeration Unit” to increase its processing capacity up 35 million cubic feet of gas per day to pipeline quality specifications, the POD states. BlueCrest leaders are confident the shallow, near shore Hansen pool holds upwards of 500 million barrels of oil, which the company aims to extract with long reach wells from an onshore drilling pad near Anchor Point. The oil is also accompanied by a large gas accumulation, but it’s previously been presumed developing the gas resource would require an offshore platform that would challenge the economics of the project. Drilling of the first Trident well will continue to be contingent upon improvement in oil market conditions, according to the POD. BlueCrest produced just more than 1,000 barrels of oil per day from five wells, according to AOGCC production data. Elwood Brehmer can be reached at [email protected]

State CARES plan splits $50M among fishery sectors

Alaska Department of Fish and Game officials plan to evenly distribute $50 million in fisheries pandemic relief aid among the sport, commercial and processing sectors with smaller amounts set aside for mitigating impacts to aquaculture businesses and subsistence harvesters. The department’s draft plan allocates 32 percent of the $50 million, or about $16 million, for the three major sectors of Alaska’s fishing industry; $500,000, or 1 percent of the funds would go to aquaculture businesses and $1.5 million, or 3 percent of the total would be dedicated to offset challenges to subsistence harvests. The money is Alaska’s share of $300 million Congress directed for fishery relief nationwide in the $2 trillion CARES Act passed in the early days of business shutdowns and travel restrictions nationwide. While the state reliably accounts for more than half of the country’s commercial seafood landings and has a robust sport fishing industry, the CARES fisheries money was calculated state-by-state based on the residency of commercial harvesters and the homeport for at-sea processing vessels, per guidance from the National Oceanic and Atmospheric Administration, the seven-page spending plan states. According to the plan, NOAA Fisheries calculated the total revenue from the sport, commercial and processing sectors in eligible jurisdictions. “For Alaska, average annual landings revenue data in the commercial harvesting sector was adjusted to attribute landing to each vessel owner’s state of residence to better reflect where fishing income accrues,” the plan states. “The adjustments were made by determining the proportion of landings in Alaska fisheries attributed to vessel owners residing in another state and attributing that portion of the revenue to the respective states of residence.” Eligible applicants in a fishing business must certify that they incurred a revenue loss of more than 35 percent during the period from March 1 to Nov. 1 directly resulting from the pandemic. Revenue figures from that period will be compared against gross revenue totals from the previous five years for the period. Applicants must have operated their business in 2018 and 2019 but those without revenue records for all of the previous five years will be able to average gross revenues from the available years. Projections of income or losses will not be accepted, according to the plan documents. The revenue information NOAA Fisheries used to reach the $50 million allocation for Alaska attributed 5.5 percent of qualifying revenue to the sport charter sector, 35.2 percent to the commercial harvesting sector and 59.3 percent to seafood processors, wholesalers and distributors. However, those revenue splits were based on historical information and do not reflect the likely loss in each sector due to the pandemic, according to ADFG. The sport charter allocation was increased significantly “to help mitigate loss to that sector resulting from travel restrictions and health mandates that reduced demand for sport charter services,” the plan states. While state officials deemed fishing an essential industry in spring when other business sectors were forced to temporarily close, nonresident sport charter customers were not given special clearance to travel to Alaska as nonresident commercial fishing and processing workers were. United Fishermen of Alaska Executive Director Frances Leach said she could not comment on the plan because the large organization’s board of directors had not formally reviewed it. Leaders of several other commercial fishing groups across the state said they were similarly in the process of reviewing the plan. ADFG is taking public comments on the draft plan through Oct. 19. Kenai River Sportfishing Association Executive Director Ben Mohr said the even split among the three large sectors is a recognition of that issue. Mohr noted that many commercial fishery participants dealt with lower market prices stemming from a lack of restaurant demand, particularly in spring, but emphasized that they were still able to fish. “Many of our sport and charter folks didn’t get to fish at all. The tourist business that these guys rely on didn’t materialize,” he said. Mohr said anecdotal reports indicate many Southcentral sport fishing guide and charter operators took between a 60 to 70 percent loss in revenue this year and the losses were often worse for those in more remote locations where travel was even more difficult. In Southeast, where cruise ships bring more than 1 million potential charter customers to Alaska each year, the losses for some businesses have reached 90 percent of their usual revenue, according to Mohr. He added that some operators likely offered deep discounts or resident specials in order to generate more business and questioned how many of them would not hit the 35 percent loss threshold because of it. The Pacific States Marine Fisheries Commission will publish the final application materials and review and approve the federal aid applications for the state, according to the plan. The $1.5 million subsistence allocation is set to be split evenly among qualify applicants, provided a member of an applying household participated in a marine or anadromous subsistence fishery in at least two of the previous four years. ADFG Legislative Liaison Rachel Hanke wrote via email that discussions with members of communities with high rates of subsistence harvests revealed that the biggest impact to them was from travel restrictions. Many younger Alaskans that have moved to urban centers were unable to travel to their home villages and communities to participate in harvests, according to Hanke. She wrote that the eligible subsistence impacts could be broad and “any impact at all that meets the intent of the act” will be allowable. Elwood Brehmer can be reached at [email protected]

Judge denies State request for injunction against Subsistence Board

Rural subsistence hunters won the initial round in the latest battle between state and federal wildlife managers that also underscores the long-simmering tensions between Alaska’s rural and urban fish and wildlife harvesters. U.S. District Court of Alaska Judge Sharon Gleason denied the State of Alaska’s petition for a preliminary injunction to reopen federal lands in the area of the popular Nelchina caribou hunt to hunters from across the state in a Sept. 18 order. Gov. Mike Dunleavy’s administration filed a lawsuit against the Federal Subsistence Board Aug. 10 in an attempt to overturn the board’s July decision to close federal public lands in state game management units 13A and 13B to non-local moose and caribou hunters for the 2020-21 and 2021-22 fall and winter hunting seasons. State officials contend the federal restrictions on moose and caribou hunting in the Upper Copper River basin violate the Alaska National Interest Lands Conservation Act, or ANILCA, and impair the Alaska Department of Fish and Game’s ability to fairly and effectively manage the game resources. They additionally allege in the same complaint that the Federal Subsistence Board overstepped its authority by opening special, unrelated moose and deer hunts in Southeast Alaska last summer. The board approved the closure at its July 16 meeting as a means to reduce competition for game between federally qualified subsistence hunters who live in the area and hunters from elsewhere in the state — often from the Anchorage, Fairbanks or Mat-Su areas. State law mandates that all Alaska residents are eligible to participate in state-sanctioned subsistence harvests across the state, while federal law can offer preferential harvest status on federally managed lands to residents of qualifying rural areas. The diverging structures have long spurred often convoluted but reliably contentious debates between state and federal land and resource managers. State Game Management Unit 13 encompasses most of the upper Susitna and Copper River valleys and is a particularly popular region among urban hunters because of its road access. The 13A and B subunits can be reached by Denali, Glenn and Richardson highways. Many residents of the area have long insisted the annual influx of non-local hunters hinders their ability to successfully harvest moose and caribou for subsistence purposes. The closure, which applies to nearly 3 percent of the land within Unit 13, was first proposed to the board by a resident of Glennallen. Those federal lands are largely along the Delta and Gulkana rivers. State attorneys wrote in their original complaint that the board first violated ANILCA and related regulations by issuing the closure to reduce hunter competition, which they claim is an unlawful justification for the move. “Congress (in ANILCA) did not authorize restrictions on hunting based on competition or number of hunters in the area,” the complaint states. The board also extended the proposed closure to two years so the board wouldn’t have to address future special requests rather than limiting it to the “minimum period necessary” required by regulation, according to state attorneys. According to state and federal data compiled by board staff, between 600 and 700 hunters participated in the federal moose hunts for all of Unit 13 in recent years with an average success rate of about 11 percent, compared to state moose hunts in the unit that attract an average of about 4,700 hunters per year with a success rate of about 17 percent. The number of state Unit 13 caribou hunters — and their success rate — can vary widely year-to-year, primarily due to animal abundance, according to board reports. In 2016, state hunters harvested 5,785 caribou in Unit 13, but the harvest dropped to 1,411 animals by 2018. Qualified hunters participating in the Unit 13 federal subsistence hunts harvested 320 caribou and 61 moose in 2018 and 102 caribou and 71 moose in 2019, according to Office of Subsistence Management Wildlife Biologist Lisa Maas. ADFG officials typically do not limit the number of Unit 13 subsistence caribou hunting permits — known as Tier I permits — issued to Alaska residents; rather, managers limit harvest by closing the season early if hunters approach the yearly harvest quota based on in-season reporting. The Unit 13 Tier I caribou hunt started Aug. 10 and closed Sept. 20. It is scheduled to reopen Oct. 21 following a closure to protect the animals during their breeding season, or rut. The season could remain open until March 31 if the harvest quota is not met before then. Dunleavy administration officials also argued that the board overstepped its authority in June by approving special moose and deer hunts requested by the Organized Village of Kake. Tribe leaders claimed in court filings that the COVID-19 pandemic caused shortages of food and cleaning supplies in Kake, a Kupreanof Island community with about 550 residents. In June, the Federal Subsistence Board authorized area U.S. Forest Service officials to permit a special 30-day hunt in which two bull moose and five male Sitka blacktail deer could be harvested by Tribal members. Hunters harvested those animals in the hunt that took place from June 24 to July 24 and distributed the meat to more than 100 households in Kake, according to court filings. The Organized Village of Kake intervened as a defendant in the state’s lawsuit against the board. As for the Unit 13 issues, Gleason in part agreed with the board’s justifications that the closures would “ensure continued subsistence use opportunities” and “address public safety concerns resulting from overcrowding and user conflict along the Richardson Highway,” she wrote in an order denying the state’s request for a preliminary injunction. Gleason also concluded that at first blush that the two-year closure appears to be in line with the regulatory cycle of the Office of Subsistence Management, or OSM, which the board operates under. “Because the closure term is consistent with the outer limits of (OSM regulations) — the end of the current regulatory cycle — and the record provides support for the conclusion that two years might be the ‘minimum time period… necessary under the circumstances’ due to the ongoing nature of the issues in Unit 13, the Court finds that the State has not demonstrated either a likelihood of success or serious questions going to the merits of its claim,” she wrote. Gleason did not rule on the state’s claims regarding the Kake moose and deer hunt or the state’s claims overall. Elwood Brehmer can be reached at [email protected]

Chum, chinook returns fall short across Yukon, Western Alaska

Poor chum and coho returns led to some of the lowest commercial harvests in decades across much of Western Alaska and biologists are unsure why far fewer Yukon chinook are making it to Canada in recent years. The Yukon River summer chum return of approximately 733,000 fish was sufficient to meet the minimum escapement goal for the entirety of the massive drainage but it did not allow for a significant commercial fishery and was far less than expectations. Fishing was closed through the first half of the run while it was unclear if a harvestable surplus of chum would be available according to the Alaska Department of Fish and Game’s preliminary Yukon River summer fishery summary. Commercial fishermen, primarily in the lower Yukon, harvested just 13,968 chums in the summer fishery, which was 97 percent less than the five-year average of nearly 449,000 fish. The minimal catch translated to a total-fishery ex-vessel value of just $51,440 in 2020 for a fishery that typically generates roughly $1.5 million, though prices of 60 cents per pound for lower Yukon chum and 29 cents per pound were in line with previous years. Prices in some other salmon fisheries were low — particularly early in the season — as the pandemic slowed restaurant demand for fish. Managers had predicted a rather average return of about 1.9 million summer chum, which would have left a harvestable surplus of about 1.1 million fish, according to ADFG. The summer fishery comprises chinook and chum that enter the river generally before July 15, at which point management in the lower Yukon transitions to the fall chum and coho runs. The chinook return of an estimated 161,859 fish to the Pilot Station sonar was less than last year when 219,624 chinook reached the lower Yukon, but was in line with the expected return. However, an unusually small portion of the fish passed the sonar at Eagle near the Canadian border. Managers estimated 77,000 of the chinook were of Canadian origin based on in-season run assessments, yet just 33,005 fish were counted at Eagle, according to the summary. The minimum escapement goal for passage beyond Eagle is 42,500 chinook, which also does not provide for harvest in Canada per the Pacific Salmon Treaty. Managers speculated that near record-high water levels in the Yukon from a deep snowpack possibly fatigued fish that otherwise would have reached Eagle. They also documented reports of high rates of Ichthyophonus, a parasite, in salmon caught in the upper river, which could have increased mortality. On the bright side, the chinook sampled by ADFG biologists at Eagle were older and more of them were female than in recent years. Age-6 chinook comprised 53 percent of the sampled fish — above the 10-year average — and 3 percent were age-7 salmon. Females comprised 54 percent of the sampled fish, compared to 44 percent over the past decade, according to department data. Biologists have documented a general decrease in the size of chinooks across their range in recent years, largely because more of the fish are returning at age-4 or age-5. The smaller salmon are less likely to spawn successfully and smaller females carry fewer eggs, which also reduces the odds of offspring. Kotzebue Sound To the north, low commercial catches in July and concerns from subsistence harvesters about poor chum catches along the Kobuk River caused Kotzebue-area managers to cut commercial fishing time from 60 hours per week in July to as little as 24 hours per week in early August. The harvest of 149,808 chums was the lowest in the Kotzebue District set net fishery since 2007 and netted $542,308 in ex-vessel value, according to ADFG figures. The fishery has a long-term average harvest of approximately 230,000 chum but it produced a catches of greater than 400,000 fish from 2016-2019. Kotzebue chum sold for an average of 45 cents per pound this year, which was up from 39 cents a year ago. Norton Sound In addition to also having their smallest chum harvest since 2008, Norton Sound fishermen dealt with a very small coho return. The poor showings from the primary species targeted in the district led to a catch of 50,679 salmon in all, which was just 15 percent of the 10-year average harvest, according to the Norton Sound season summary. The cumulative ex-vessel value of $290,302 for the five-species harvest was just 12 percent of the five-year average. The Norton Sound catch generated approximately $2.1 million last year and more than $4 million in 2018. The Norton Sound pink salmon run was — as it has been of late — a near-record return. However, processors shied away from purchasing them, according to ADFG managers, resulting in a catch of 6,950 pinks. That was down from a harvest of more than 75,000 a year ago. The 2020 Norton Sound coho harvest of 14,650 fish was less than 10 percent of the five-year average and the 26,365-fish chum harvest was 17 percent of the five-year average of 151,442 salmon. Additionally, 906 Chinook and 1,808 sockeye were harvested from Norton Sound. Elwood Brehmer can be reached at [email protected]

Appeals court rules ANCs ineligible for CARES Act Tribal aid

Additional pandemic relief aid could be out of reach indefinitely for nearly 200 Alaska businesses following a ruling by Washington, D.C., Appeals Court judges. A three-judge panel of the D.C. Court of Appeals ruled Sept. 25 that Alaska Native corporations are ineligible for a portion of $8 billion allocated to Tribal organizations across the country in the $2 trillion CARES Act passed by Congress in late March. The decision reversed a June 26 District Court ruling in favor of the Native village and regional corporations, in which D.C. District Court Judge Amit Mehta determined Native corporations are eligible for CARES Act funds, “as Congress intended — no more, no less,” Mehta wrote in his order. Title V of the massive spending package lays out how $150 billion in coronavirus relief funds were to be distributed by the Treasury Department, stating that $8 billion of the broader pool going to states, municipalities and Tribes shall be reserved for “making payments to Tribal governments.” However, the appeals panel concluded that specific wording in the 1975 Indian Self-Determination and Education Assistance Act, or ISDA, excludes Alaska Native regional and village corporations from receiving the aid intended for Tribes, regardless of what Congress meant in the CARES Act. The CARES Act defines a Tribal government as “the recognized governing body of an Indian Tribe,” according to the court, and uses the definition of an “Indian Tribe” found in the ISDA. The ISDA generally references Alaska Native village and regional corporations among other organizations in its definition of a Tribe, but also requires the entities be “eligible for the special programs and services provided by the United States to Indians because of their status as Indians,” according to the ruling. The appeals court concluded that Alaska Native corporations, commonly known as ANCs, cannot be eligible for a portion of the $8 billion “because no ANC has been federally ‘recognized’ as an Indian tribe, as the recognition clause requires, no ANC satisfies the ISDA definition.” The ruling stems from lawsuits filed by 18 Tribes from across the country, including six Alaska Tribes, against the Treasury Department in late April, in which the Tribes argued the for-profit corporations should not get money set aside specifically for Tribal governments. The members of Alaska’s all-Republican congressional delegation said in a joint statement that the Tribal funds were intended to provide pandemic relief for all American Indians and Alaska Natives; it matters not how they would receive the money, according to the delegation. “It is unconscionable that COVID-19 aid would be withheld from a subset of Alaska Native people simply because of the unique tribal system that exists in Alaska,” the delegation said. “Furthermore, this decision goes beyond the CARES Act, erasing more than 45 years of precedent and practice, with the potential to undo tribal systems of health care, housing, education, workforce development, and more in our great state.” The delegation’s statement eludes to the 1971 Alaska Native Claims Settlement Act, which established the 12 current Alaska Native regional corporations and the 174 village corporations in operation today and collectively allocated them 44 million acres in the state in-lieu of the Tribal reservation system used across the country to resolve land disputes between Tribes and the federal government. The Alaska Regional and Alaska Native Village Corporation associations, which intervened in the case on behalf of their members, said in a joint Sept. 25 statement that the “deeply flawed” ruling will only worsen the effects of the pandemic in Alaska by limiting access to critical health services and economic relief in remote communities across the state. “For forty years, courts and administrative agencies have consistently recognized that Alaska Native communities are uniquely organized, as designed by Congress. Within this framework, that includes both regional and village corporations, we strive every day to bring our ‘shareholders’ — our Alaska Native brothers and sisters — economic opportunity as well as vital social, health, cultural and educational services. Until today, our status as Indians under the Indian Self-Determination and Education Assistance Act, which expressly includes Alaska Native corporations among other types of Indian Tribes, has never been called into doubt,” the ANC associations said. Treasury officials have not disclosed exactly how much of the $8 billion was set-aside for ANCs, but the Appeals Court ruling indicates $162 million was meant for the Alaska companies. The ruling does not prohibit the 229 federally recognized Tribes in Alaska — some of which backed the original lawsuits — from receiving a portion of the $8 billion. Additionally, many of the smaller village corporations and regional corporation subsidiaries were among the roughly Alaska-based small businesses that collectively received more than $1.2 billion in forgivable federal loans through the Small Business Administration’s popular Paycheck Protection Program. Leaders for the Alaska Regional Association did not respond to questions in time for this story about whether or not the group will appeal the decision, among other issues. Elwood Brehmer can be reached at [email protected]l.com.

Kinross adds Tok-area gold deposit to portfolio for $93.7M

The operator of the Fort Knox gold mine north of Fairbanks paid $93.7 million for a majority stake in a gold deposit south of Tok, roughly 250 miles away. Kinross Gold Corp. announced Sept. 30 that it has acquired a 70 percent interest in the Peak Gold project from Royal Gold and Contago ORE Inc. Kinross intends to develop the Peak Gold deposit into a short-lived open pit mine and truck the ore north to the Fort Knox mill for processing. The trip would involve hauling the crushed ore up the Alaska and Richardson highways, through Fairbanks and up the Steese Highway to the mine site near Chatanika. Scheduled to open in 2024, the Peak Gold mine is expected to produce roughly 1 million ounces of gold equivalent from grades of about 6 grams per ton over 4.5 years. Kinross estimates the $110 million project will have an all-in sustaining cost of approximately $750 per ounce. Paul Rollinson, CEO of Toronto-based Kinross, said in a company statement that it is a high-margin project at current gold prices. “The relatively high-grade, low-cost Peak Gold project is an excellent addition to our portfolio, as it allows us to leverage our existing mill and infrastructure at Fort Knox and strengthens our medium-term production and cash flow profile,” Rollinson said. The project would add roughly 220,000 ounces of gold equivalent production to Fort Knox, more than double the mine’s production from 2019 of just more than 200,000 gold equivalent ounces, according to Kinross, which expects blending the ores will cut the mine’s all-in sustaining costs by about $70 per equivalent ounce. In the deal, Kinross sent $49.2 million to Royal Gold for its 40 percent stake in the project and $44.5 million in cash and Contago ORE shares purchased from Royal Gold to a Contago subsidiary. Contago, which previously held a 60 percent stake in the project, will retain a 30 percent interest in Peak Gold. Royal Gold CEO Bill Heissenbuttel said the deal allows the company to focus on its core royalty and streaming business. Kinross said it expects to conduct initial permitting and drilling for the open-pit mine concurrently and hopes to complete permitting and feasibility reviews by the end of 2022 before a year of construction. The company will charge Contago a management fee and mill toll to process its 30 percent of the ore mined from the project. Kinross plans to rename the project after consulting with leaders of the nearby Native Village of Tetlin, according to the statement. Tetlin Chief Michael Sam said in a statement issued by Kinross that he is pleased to see the company investing in the project. “We look forward to the safe and responsible development of the project and the positive benefits it is expected to generate for our community,” Sam said. The 675,000-acre Peak Gold property also holds other exploration targets that could extend the life of the project, according to Kinross. A 2018 preliminary economic assessment of the project estimated measured and indicated resources of about 1.2 million ounces of gold equivalent at a grade of 4.1 grams per ton and inferred resources of about 116,000 ounces of gold at an average grade of 2.7 grams per ton. Elwood Brehmer can be reached at [email protected]

Dunleavy: Gov’t lead needed for pandemic recovery

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

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

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

Forest Service affirms preference to repeal Tongass ‘Roadless Rule’

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

DEC: Shortfall in spill response fund requires revenue or appropriation

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

Public seeks link between oil taxes and state services

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

Bank income reflects PPP loan processing

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

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

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

Ballot Measure 1 wins final battle at state Supreme Court

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

Mandated ANWR lease sale challenged by politics

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

USDA announces tariff relief for seafood harvesters

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

Analysis: initiative would ‘erode’ Slope competitiveness

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

Tax credit bond scheme shot down

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

Trilogy: Copper prospect still profitable at higher costs

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

AOGCC considering revisions to well bonding requirements

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

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