Elwood Brehmer

Private sector leads decline in construction forecast

A cautious private sector is likely to drive construction activity down in the coming year, according to an industry forecast released Jan. 28. The annual outlook commissioned by the Associated General Contractors of Alaska pegs statewide spending on construction projects at about $4.3 billion this year with a near even split between the public and private sector. If it holds, the $4.3 billion projection would be roughly one-third less than expectations for 2020, when roughly $6.7 billion worth of construction work was predicted. However, Katie Berry, an economist with McKinley Research Group, the Alaska-based firm that compiled the forecast, said in a video conference presentation that accurately comparing what is likely to happen this year to last year is a major challenge because of the plethora of complications brought on by the pandemic. Berry said researchers were able to identify roughly $100 million worth of canceled contracts and deferred spending but she believes that estimate is low. According to preliminary state Labor Department data, construction industry employment averaged 15,700 workers last year — not counting self-employed contractors — down about 4 percent from 2019. The $4.3 billion forecast is also about 40 percent less than 2019 when work stemming from the November 2018 Southcentral earthquake buoyed construction activity in the region. Public sector projects are likely to account for approximately $2.1 billion, or 48 percent, of all the construction work done in Alaska this year while they usually make up just about a third of it in any given year, according to Berry. “What’s really weighing on this (public-private sector) breakdown is COVID-19, oil prices; all of these factors that have really impacted the ability of private companies to move forward with investments and that’s what’s really rebalanced this mix in 2021,” she said. As a result, the education and utility sectors are the only areas where growth in construction spending is expected to occur. The state and school districts are expected to spend $290 million replacing several rural schools across the state and work will continue repairing and replacing quake-damaged schools in the Anchorage and Mat-Su districts, according to Berry. Utilities are pegged to spend about $300 million, with much of that going towards ongoing investment in 5G wireless networks by telecoms. Oil and gas industry spending is likely to be in the $1.1 billion range, less than half of what it has been in recent years. While oil prices have rebounded nearly to pre-pandemic levels, global markets remain fragile with oil demand lagging behind some industry projections. ConocoPhillips CEO Ryan Lance said during the company’s Feb. 2 earnings call that the major producer plans to spend enough money this year to maintain, but not increase, its energy production. However, Alaska was the one place Lance said the company would spend $400 million on development and appraisal work as the company has several advanced stage prospects on the North Slope. Berry said the forecast was completed prior to President Joe Biden’s executive orders pausing oil and gas permitting and leasing on federal lands so it’s unclear how those may impact North Slope capital spending in the coming years. Berry said Defense Department spending — a boon particularly for Interior contractors of late — is likely to be flat at approximately $525 million this year but she noted that some of the large projects in the region, such as the bed-down of the F-35 fighters at Eielson Air Force Base, are nearing completion. Residential construction should remain stable as well in the $350 million range, according to the forecast, as low interest rates and growth in the Fairbanks and Mat-Su areas spur home construction despite a continued decline in the statewide population. Elwood Brehmer can be reached at [email protected]

Pebble releases appeal to Corps permit denial

Pebble Limited Partnership leaders argue Army Corps of Engineers Alaska District officials ignored their own findings and set arbitrary wetlands protection requirements when they rejected the company’s hotly contested mine plan, according to Pebble’s appeal documents published Jan 27. Pebble’s parent company, Vancouver-based Northern Dynasty, released the 91-page appeal days after the State of Alaska filed its appeal, in which officials in Gov. Mike Dunleavy’s administration argued the Corps’ decision prevents the state from fulfilling its obligation to develop its mineral resources. Pebble previously announced it had filed its appeal with Army Corps of Engineers Pacific Division leadership but had not made the details of its arguments public. The company insists the Nov. 20, 2020, record of decision, or ROD, signed by Corps Alaska District Commander Damon A. Delarosa denying Pebble the wetlands fill permit for its project directly contradicts what the agency’s regulatory officials wrote in the final Pebble environmental impact statement, or EIS, published last July. The Army Corps of Engineers administers Clean Water Act Section 404 wetlands permits nationwide but the EPA has final say over whether a wetlands fill permit is issued. The appeal states that the ROD “speculates” that the project — primarily the mine site in the Koktuli River watershed, which would permanently lose 22 miles of stream habitat — would likely degrade stream productivity. It also cites excerpts from the final EIS that indicate the ecosystem could withstand the development. “This loss of habitat is not expected to have a measurable impact on fish populations downstream of the mine site because these narrow, steep, higher-gradient streams have lower habitat values and low fish densities compared to downstream reaches,” the final EIS states, according to the appeal. Pebble also highlighted references in the final EIS to the projects impacts on commercial fisheries in which Alaska District officials wrote that the mine and its extensive network of support infrastructure “would not be expected to have measurable effects on the number of adult salmon returning to the Nushagak and Kvichak district(s),” the two major watersheds that the project straddles. The final Pebble EIS largely maintained the conclusions reached in the draft version published in early 2019. However, officials from several state and federal resource agencies issued comments on the draft they believed were largely critical of the review for significant gaps in background data and what they viewed as overly broad and simplified conclusions made by Corps officials. According to Pebble, the denial decision was also based on an unprecedented standard that the mine would have a “more than trivial” impact on the Koktuli River drainage, which Corps officials relayed to the company in June, several months before the ROD was issued. Alaska District regulators determined the project would have some impact on 29 percent of the wetlands in the Koktuli watershed, the appeal states, adding that they concluded the project would cause “significant degradation” — a key finding in environmental reviews — based on a “preponderance” of significant impact findings for various factors. “The District recognized that its ‘significant degradation’ determination was unprecedented and acknowledged that it was not aware of any other similar findings for large projects in Alaska,” the appeal states. Pebble additionally alleges that the requirement for the company to mitigate its wetlands damage via actions within the Koktuli drainage also flies in the face of prior Corps precedent in Alaska. The appeal notes that several large North Slope oil and gas projects were approved with mitigation measures, such as improving local wastewater facilities, that Pebble initially proposed and Alaska District officials approved the similarly massive Donlin Gold mine project in the Kuskokwim region with a mitigation plan that included preserving large tracts wetlands outside the immediate watershed because of a lack of available options near the mine site. While Army Corps Pacific Division Commander Col. Kirk E. Gibbs will have the final say on the merits of the Pebble ROD appeals, some prominent opponents of the project claim the appeal submitted Jan. 22 by Gov. Mike Dunleavy’s administration is simply a political ploy because the state is not eligible to challenge the ROD. Agency regulations limit administrative appeals to “affected parties,” which includes permit applicants and landowners — Pebble is on state land — who also have “received an approved (jurisdictional determination), permit denial, or has declined a proffered individual permit,” Corps regulations state. While the state is an impacted landowner, the permit denial was specific to Pebble Limited Partnership’s proposed project. “The state’s efforts to appeal the Corps of Engineer’s Pebble permit lacks legal merit, runs against the best interests of Alaskans, and is an unnecessary distraction at a time when the State of Alaska has far more pressing demands on its budget and legal resources,” said Dan Cheyette, lands and resources vice president for Bristol Bay Native Corp., which has helped lead in-state opposition to the mine project, in a statement for the Journal. Pacific Division spokesman Luciano Vera wrote via email that division officials were reviewing the state’s appeal and no determinations have yet been made. A spokeswoman for the Department of Law referred questions about the state’s standing to the arguments made in the appeal document. The appeal, signed by then-Attorney General Ed Sniffen, contends that the state “is an ‘affected party’ given its substantial and identifiable legal interests in the property in question and in the precedent the permit denial sets for all future projects in Alaska requiring individual (Clean Water Act) Section 404 permits.” Corps officials typically have a goal of issuing appeal decisions within 90 days but there is no deadline by which a decision must be made. Elwood Brehmer can be reached at [email protected]

North Slope gas write-down drives $772M reported loss for C-P

Despite semi-recovered oil prices, ConocoPhillips reported a loss of $772 million in the fourth quarter of 2020 on Feb. 2 with much of that attributed to an asset downgrade in the company’s Alaska operations. According to a corporate statement, the Alaska segment loss stemmed from “non-cash impairments related to the Alaska North Slope gas asset.” A detailed breakdown of the company’s quarterly financials lists an $841 million impairment in its Alaska business, which subsequent to other adjustments led to a $643 million special item expense. Alaska spokeswoman Rebecca Boys wrote via email that the loss was “driven primarily by $648 million (after-tax) impairment of the Prudhoe Bay gas cap and related affiliate investments” recorded in the fourth quarter. ConocoPhillips, the largest oil producer in the state, reported adjusted earnings of $5 million in Alaska during the quarter. For the full year — one in which the industry was crushed first by a Saudi-Russian battle over market control and then the global pandemic — ConocoPhillips reported a loss of $2.7 billion in 2020, a wholesale reversal from the nearly $7.2 billion the company netted in 2019. The 2020 results translated to a loss of $2.51 per share. The $772 million quarterly loss was on the back of just more than $6 billion in revenue, the highest quarterly figure in the year but well short of the $7.7 billion the company generated to end 2019. Full-year revenue was off 42 percent at nearly $18.8 billion, according to the Feb. 2 report. CEO Ryan Lance said during a call with investors that ConocoPhillips will mostly hold its position in 2021 as oil markets continue a gradual recovery after wholly collapsing early in the pandemic last spring. “Demand recovery is taking longer, spare supply remains and (oil) inventories remain elevated. It makes no sense to grow into this market environment so we’re choosing to stay at a sustaining level for the year,” Lance said. Sustaining in 2021 means largely returning to 2019 operating levels after the company drastically curtailed production earlier this year only to bring much of it back when oil prices began to improve. The price of Alaska North Slope crude averaged $50.32 per barrel in December and $55.56 per barrel in January, each the highest price at the time since March. Lance said ConocoPhillips plans to spend roughly $5.5 billion on capital projects this year primarily aimed at sustaining production. He specifically mentioned about $400 million will be set aside for project development and appraisal work predominantly in Alaska. “We’re driving for free cash flow growth not production growth,” Lance said of the next 11 months. Last year ConocoPhillips generated $5.2 billion in cash from operations, which resulted in approximately $500 million in free cash flow after capital expenses. The company’s global production is expected to average about 1.5 million barrels per day, on-par with 2019. As for the executive actions taken by President Joe Biden in the first days of his administration to “pause” oil and gas leasing on federal territory, Lance said ConocoPhillips leaders were not entirely surprised by the moves, as they made good on promises he made during his campaign. He added that ConocoPhillips has sufficient “low-cost, low-GHG,” or greenhouse gas reserves, to withstand a longer-term moratorium on federal oil and activity without meaningfully changing its business. “Obviously we hope these temporary actions are resolved in a timely fashion and we are certainly watching this situation closely,” Lance said. He noted ConocoPhillips has set internal emissions targets in-line with Paris Climate Accord goals and is trying to reduce its methane emissions companywide. “At least for now we believe the highest value we can create for all our stakeholders is by being the best (exploration and production) company in the business,” Lance said. “The world needs clean, low-cost barrels that are safely delivered by disciplined, free cash flow and returns-focused companies like ConocoPhillips.” Judge allows Willow activity U.S. District Court of Alaska Judge Sharon Gleaon rejected an attempt by North Slope Alaska Native and conservation groups to delay ConocoPhillips’ work this winter at its large Willow oil prospect in a Feb. 1 ruling. Gleason ruled that early gravel work planned this winter and early spring for the up to $6 billion Willow project in the National Petroleum Reserve-Alaska is not likely to “irreparably injure” the population of south Beaufort Sea polar bears that are protected under the Endangered Species Act before she can rule on the broader merits of the combined lawsuits. ConocoPhillips plans to open a gravel mine and construct up to 2.8 miles of gravel road extending west from its smaller Greater Mooses Tooth-2 oil project, which is also under construction and is expected to start producing oil late this year. The Inupiat for a Living Arctic and other groups opposing the Willow plan filed a preliminary injunction motion in late December urging Gleason to stop the company’s work this winter as the lawsuits filed following the Interior Department’s October approval of the Willow Master DevelopmentPlan, which calls for ConocoPhillips eventually develop three drill sits in a prolonged, phased construction period. They argue Bureau of Land Management Alaska officials under the Trump administration failed to conduct a sufficiently rigorous review of the oil project’s environmental impacts. The Willow project is expected to produce upwards of 100,000 barrels of oil per day at its peak, with first oil currently scheduled for sometime in 2026, according to ConocoPhillips. Elwood Brehmer can be reached at [email protected]

Forecast: 2021 job gains won’t replace 2020 losses

Anchorage’s battered economy should rebound strong this year but it will likely take several years to recover what was lost to 2020. Anchorage Economic Development Corp. CEO Bill Popp said the business group expects the city will add approximately 4,000 jobs this year, which would be the greatest annual employment growth the city has seen in 20 years and equates to about 3 percent growth year-over-year. “There is no sector that is forecast to lose jobs in 2021,” Popp said during AEDC’s annual economic forecast presentation. However, he emphasized that realizing the positive outlook is contingent upon continued efforts to suppress COVID-19. “We are counting on the citizens of Anchorage to do their part by wearing masks and getting vaccinated until COVID-19 is a bad memory,” Popp said. (Read the Business Confidence Index Report) The forecasted strong job gains would still account for less than a third of the 12,400 jobs Alaska’s largest city lost last year alone. On top of that, when it started 2020 was supposed to be the first year of employment growth, albeit modest, following years of recession. The city’s unemployment rate averaged 8.1 percent last year — on par with the national average — after peaking at nearly 14 percent in April, according to preliminary Bureau of Labor Statistics data compiled in the forecast. Alaska as a whole finished 2020 with an average unemployment rate of 8.7 percent. For comparison, Anchorage averaged 5.1 percent unemployment in 2019, which was slightly below statewide levels. “To be sure, this will be a long journey to full recovery; we have both the five-year recession and the pandemic to recover from,” Popp noted. In total, Anchorage has lost roughly 18,500 jobs from a workforce that peaked at just more than 156,000 workers in 2015. Not surprisingly, the industries hit hardest by government restrictions and general consumer apprehension are expected to add the most jobs in the next 11-plus months — if COVID-19 case counts don’t spike again. Anchorage’s leisure and hospitality industry is pegged to add 1,700 jobs this year after losing more than 4,300 jobs, or about 25 percent of total 2019 employment in the sector. The retail, healthcare and transportation sectors are all expected to add approximately 400 jobs this year, which for retail would be the first growth in years but also follows the loss of about 1,300 jobs last year. The relative dearth of passenger traffic through Ted Stevens Anchorage International Airport last year — down 59 percent through October, according to AEDC — similarly led to the loss of about 1,300 jobs in transportation and logistics, while the volume of cargo passing through the Anchorage airport continue to grow; it was up 15 percent year-over-year through October. The airport, which AEDC estimates already supports roughly 10 percent of the jobs in Anchorage, should be a source of continued growth with more than $500 million of warehouse and logistics facilities in the works from multiple prospective investor groups. The many firms in the professional and business services sector, collectively Anchorage’s third-largest employment group, should add 300 jobs with somewhat stabilized oil markets after shedding roughly 800 last year. Popp called the forecast “good news with a lot of caution,” but added that Anchorage and Alaska still face significant long-term challenges that in some ways have been exacerbated by the pandemic. Anchorage’s population is expected to fall by about 2,000 people this year after the city lost more than 3,500 residents last year. The city’s population has declined every year since 2013. “Population declines are becoming a red flag for future opportunities for growth,” Popp said. As it stands, Anchorage has lost approximately 4 percent of its population since peaking at about 301,200 residents in 2013, according to state Labor Department figures. Additionally, Popp echoed a refrain common in his economic outlook presentations of recent years; that lawmakers need to reach a long-term solution to the state’s structural budget deficit this year. He said among Anchorage business leaders the sustainability of the state operating budget is equally as important to the city’s economy as ending the spread of COVID-19, according to AEDC’s annual business confidence survey. Elwood Brehmer can be reached at [email protected]

Alaska Air betting on summer vacation recovery after $1.3B loss in ‘20

The gradual recovery of Alaska Air Group’s business stalled last fall following the pre-holidays surge in COVID-19 cases nationwide but company leaders said during a Jan. 26 earnings call they remain confident that wider vaccine distribution and pent-up vacation demand will greatly help improve business by mid-year. Alaska Air Group Inc. reported a $430 million net loss in the fourth quarter, which was nearly identical to the company’s third quarter results and pushed its full-year losses to more than $1.3 billion. For comparison, a year ago the Seattle-based parent company to Alaska Airlines and regional carrier Horizon Air reported a $181 million profit in the fourth quarter of 2019 and annual income of $769 million. The recent losses translate to $3.47 per diluted share for the quarter and $10.59 per diluted share for the full year. Air Group stock ended Jan. 26 trading at $51.83 per share, down about 2 percent for the day. Still, Air Group executives stressed their company will be amongst the best positioned in the ravaged industry to capitalize on demand growth whenever the pandemic truly begins to wane. CEO Brad Tilden noted Air Group’s revenues fell by $5.9 billion, or 59 percent, last year while its net debt remained “essentially unchanged” at $1.7 billion throughout the year. “I’ve watched the industry and our company my entire (30-year) career and I can’t remember when two numbers stood out in such sharp contrast,” said Tilden, who is retiring. Current Alaska Airlines President Ben Minicucci is slated to take over for Tilden on April 1. Tilden attributed the static debt load to management’s ability to aggressively cut spending while also thanking the roughly 10,2000 employees — of 23,000 — that took some form of leave to help mitigate the financial damage to the company and preserve jobs for other employees. Air Group also received $753 million in federal payroll support grants from the CARES Act early in the year and is scheduled to get another $400 million early this year, according to Tilden. “Not burdening the company with a massive amount of new debt means that our balance sheet is unimpaired and strong, which means that we can all look forward to using it in the months and years ahead to find new opportunities for all of us,” he said. According to Chief Financial Officer Shane Tackett, Air Group cut $2.4 billion in expenses over the year, some from its capital program, but largely tried to execute structural savings that could be realized into the future. The company’s debt-to-capitalization ratio stands at 61 percent, Tackett said, and with a smaller capital investment program in the $150 million to $250 million range this year, Air Group should be able to withstand a lower cash balance and begin repaying its debt to get back to the goal of having a debt-to-cap of less than 50 percent. The company currently holds more $3.4 billion in cash, according to the fourth quarter report, and $5.2 billion in total liquidity with approved but unused financing options. Minicucci said bookings and enplanements declined in November as the third wave of the virus spread across the country following several months of demand growth. But bookings have increased about 20 percent in December and January, he added, with travel to warm weather destinations making up the bulk of the sales. Demand has fallen most for Alaska Airlines transcontinental flights Business travel is at about 15 percent of pre-pandemic levels and is likely to plateau at about 50 percent of historical averages in the long-term, according to Minicucci, who referenced surveys of the Air Group’s corporate customers. However, the company is planning to bring back its capacity levels to about 80 percent of 2019 levels by mid-summer if current expectations pan out. “We’ve been treading water recently and believe sustained, progressive improvement will begin when we have a widespread vaccine rollout and states are able to relax their restrictions,” he said. “We are confident leisure travel will lead the recovery and there’s a substantial pent-up demand for leisure travel.” Air Group expects to operate at about 70 percent of 2019 capacity levels in the first quarter with planes 40 to 45 percent full, according to Minicucci, who said much of the added-back capacity will be out of the company’s strongest Pacific Northwest and Alaska hubs. On the finance side, Tackett said Air Group leaders expect per-unit costs to be up about 20 percent in the first quarter of this year with cash flow flat or negative by up to $100 million. However, that could improve with quicker vaccine distribution, he added. In late December Alaska Airlines announced a new agreement with Boeing to take 68 new Boeing 737-900 aircraft through 2024. Alaska executives said the new planes will mostly replace the 51 Airbus A320s Alaska took when it purchased Virgin America in 2016. Prior to that Alaska Airlines for years had flown an exclusively Boeing fleet. While Boeing has moved its headquarters to Chicago nearly 20 years ago, the aerospace giant has kept its manufacturing facilities in the Seattle area. “The partnership between Alaska and Boeing is strong as ever,” Tackett said. “We have employees with spouses, parents, sons and daughters that are Boeing employees. The ties between our to companies are deep and we’re excited about our futures together.” On a personal level, other Air Group executives praised Tilden’s leadership and desire to build and maintain “a fortress level balance sheet” — a common refrain of his — during what would be his last earnings call with the company. “(Tilden) has laid the groundwork for the financial discipline we are proud to have today,” Minicucci said. “Brad’s focus was always long-term, sustainable growth and our company is stronger for it.” For his part, Tilden said Air Group employees have an uncommon loyalty to the company and are the primary reason for its success, particularly in recent years. Tilden, who has been with Alaska Air Group in various roles over 30 years, took over as CEO and chairman in 2012. “Serving this great company has been an honor and while I look forward to staying involved my primary job is going to be to step back and support Ben and this great team as they take Alaska to the next level,” Tilden said. Elwood Brehmer can be reached at [email protected]

DNR proposes changes to water reservation process

The Department of Natural Resources is pitching reforms to Alaska’s water reservation program via regulation that previously failed to make it through the Legislature. State Division of Mining Land and Water officials published new proposed water reservation regulations that, among numerous technical updates and phrasing changes, would add language stating that water reservation certificates currently issued to private parties would instead be held by the Department of Natural Resources, which adjudicates water use and reservation applications. Resource development advocates insist the change is needed so control of a public resource is kept within a public agency and to prevent opponents of a given project from attempting to impede development by chasing water rights. For their part, conservation groups insist the change would strip Alaskans of their rights to protect the fish — another public resource — in waters vulnerable to development. Alaska’s current system of water rights is generally viewed as one of the most open in the country; it allows anyone to apply for temporary water use authorizations as well as water reservation, or in-stream flow, rights to maintain sufficient stream flows for fish and other wildlife. Reviewing water reservation applications often takes DNR years in coordination with the departments of Fish and Game and Environmental Conservation. Alaska Miners Association Executive Director Deantha Skibinski said the policy of DNR holding water reservations is something that her group believes is “absolutely critical.” “I think we could all agree on having a state agency managing state water is the right thing to do,” Skibinski said. In-stream flow reservations have been used as a tool to stop projects such as North Slope oil exploration in the past, which “just provides a ton of instability and uncertainty in our process,” she said, adding that there are likely many individuals who would not want the Alaska Miners Association to hold water reservations in the state. “Ultimately I think the state having control over (water reservations) is one of the ways that gets us to a more fair system for both sides,” Skibinski said. Bob Shavelson, advocacy director for Homer-based Cook Inletkeeper stressed the change would give an agency that is “controlled” by resource companies further discretion in how to allocate the state’s water. “From our perspective it’s just a matter of fairness,” Shavelson said, noting that companies can and would continue to be able to remove water from streams with temporary use authorizations from DNR. “A big mining corporation, Pebble, Donlin, anybody, they can take water out of the stream but now Alaskans can’t keep water in the stream. To us, that’s unfair.” He contended the change could also raise constitutional issues regarding how the state would treat similarly situated parties. The proposed regulations are a continuation of an attempt by former Gov. Sean Parnell’s administration to overhaul the water reservation structure, according to Shavelson. House Bill 77, which drew strong public opposition and died in the Senate in early 2014, would have limited water reservations to public agencies among many other revisions to state resource policies. DNR officials said they could not comment in detail on the proposed regulations during the public comment period but Water Section Chief Tom Barrett said in an interview that the agency takes water reservations very seriously. “These flow reservations are pretty significant and they can have an impact on other water users or potential users,” Barrett said. He added that the state is not trying to withhold water rights for any one group, noting the DNR commissioner — who approves water reservations — currently has the discretion to discontinue them as well. Skibinski said the odds of DNR leaders ever invoking their authority to revoke a water right are very slim. However, former DNR Commissioner Andy Mack in 2017 reversed a 2015 decision to grant an in-stream flow reservation to the Chuitna Citizens Coalition, a group aimed at stopping the since-abandoned Chuitna coal project on the west side of Cook Inlet. Mack ruled that because PacRim Coal scrapped the project, the circumstances that led the agency to issue the reservation had changed and therefore it was no longer needed. Legislators contacted to discuss the proposed changes were not aware of them, but former House Resources co-chair Rep. Andy Josephson, D-Anchorage, said it initially sounds to him like another attempt to make the changes in HB 77 and they will likely be challenged on whether or not the changes can be made by regulation. Currently, the Department of Fish and Game holds the vast majority of flow reservations; Barrett estimated approximately 95 percent. Another handful is held by federal resource agencies such as the U.S. Fish and Wildlife Service. The Nature Conservancy is one of the few private entities to hold water reservations. It secured four flow reservations near the Pebble deposit in 2017. TNC Alaska representatives said they were reviewing the regulations and couldn’t yet comment on them. DNR’s public comment period closes Feb. 26. Elwood Brehmer can be reached at [email protected]

Pantheon spuds haul road prospect; 88 Energy buys Umiat

A small British explorer spudded an early winter appraisal well Jan. 13 in a haul road-adjacent prospect company leaders believe can be developed quickly even amidst tenuous market conditions. Pantheon Resources CEO Jay Cheatham said in an interview that drilling of the Talitha-A appraisal well into its namesake oil prospect began a couple weeks ahead of schedule on what was already an aggressive timeframe to put the work together. Getting the project started early gives Pantheon “much more leeway on the testing program” later in the winter, Cheatham said. The drilling, being done with Nordic Calista’s Rig 3, is expected to take 30 to 40 days and will intersect four zones that collectively have the potential to hold upwards of a billion barrels of recoverable oil, according to Pantheon leaders. The well is planned to reach the base of the Kuparuk sand formation at a depth of about 10,200 feet and will also cut through two Brookian zones and the shallower Shelf Margin Deltaic that is the primary target. “Each zone has the potential to change the trajectory of the company,” Technical Director Bob Rosenthal said. Pantheon funded the well with a $30 million capital raise in November. An independent resource assessment of the Talitha acreage conducted last year by the Oklahoma-based consultancy Lee Keeling &Associates estimated the Shelf Margin Deltaic holds 302 million barrels of recoverable oil and 1.1 billion barrels in place. London-based Pantheon Resources’ Talitha project is being built off of new analyses of a well drilled in 1988 and data from a modern 3D seismic shoot of the broader area roughly 20 miles south of Prudhoe Bay. The Pipeline State-1 well was drilled by ARCO just west of the Dalton Highway-TAPS corridor and though the 10,000-foot vertical Pipeline State-1 well has a roughly 2,200-foot oil-bearing column over four reservoirs, the technology and oil prices of the late 1980s it did not add up to a viable prospect at the time, according to Pantheon leaders. Pantheon merged with Anchorage independent explorer Great Bear Petroleum in early 2019 and the blended operating company Great Bear Pantheon is conducting the fieldwork. Since then, Pantheon, which holds 100 percent working interests in the Talitha and nearby Alkaid prospect leases, respectively, has pressed ahead with advancing Talitha towards development despite pandemic-driven oil market conditions that drastically curtailed work on in oil basins worldwide, the North Slope included. Company leaders have stressed the project’s location — adjacent to the Dalton Highway and pipeline — as a driver of its economics. Recent improved oil prices — in the mid-$50s per barrel range for Alaska oil — have made company leaders “more optimistic” about the future Cheatham said, but their work plans did not change much even with the market disruptions of 2020. That’s because Pantheon estimates its projects have a break-even price of roughly $30 per barrel primarily because of their locations. The company also holds the 76 million-barrel Greater Alkaid prospect just to the north and bisected by the transportation corridor. “The (capital expenditure for development) is so much less because we’re that close to the haul road and the pipeline,” Cheatham said. State Division of Oil and Gas officials approved the company’s applications to form the Talitha and Alkaid units in November; another formal but necessary step towards development. Cheatham also said that the company has the state permits it needs for a long-term production test of a second well it hopes to drill at Alkaid this summer from a gravel pad near the Dalton. While Pantheon would likely start with a phased development and a gradual ramp-up of production, the 2020 resource assessment envisions full build-out of Talitha as an 85,000 to 90,000 barrels per day project at peak production from 91 producing wells. The Great Bear-Pantheon venture also picked up 46 tracts covering more than 66,000 acres in the state’s North Slope lease sale under the holding company Great Bear Petroleum Ventures II LLC, in which bids were opened Jan. 13 as well. The new acreage gives Pantheon 160,000 contiguous acres in the area. Umiat changes hands Farther south and well off the beaten path, Australian explorer 88 Energy announced Jan. 11 that it has purchased the legacy Umiat oil prospect from Malamute Energy. The Umiat prospect in the far southeast corner of the federal National Petroleum Reserve-Alaska has long been believed to hold commercial quantities of oil — it was first discovered in the mid-1940s — but its isolated location far away from other North Slope projects and other factors to-date have impeded development. However, Umiat is also just south of 88 Energy leases the company has dubbed its “Project Peregrine.” The Umiat Unit formed in 2019 consists of two leases covering 17,633 acres, according to 88 Energy. “Our operational activity at Project Peregrine has provided 88E with a unique position from which to acquire the Umiat oil field at an opportunistic price point,” 88 Energy Managing Director Dave Wall said in a company statement. “The asset has potential to add significant value for shareholders, possibly as a standalone development but certainly in the event there is a material discovery in the imminent Project Peregrine drilling program.” 88 Energy plans to drill the Merlin-1 well at Peregrine starting in February. A 2015 independent resource assessment pegged Umiat’s total proven and probable oil resource at approximately 127 million barrels. Now-defunct Linc Energy drilled two wells at Umiat in 2013-14 and 88 Energy took on the liability to abandon those wells, which is estimated at about $1 million, as part of the deal. Elwood Brehmer can be reached at [email protected]

AIDEA forecloses on Mustang assets after $70M investment

Leaders of the state development bank now must decide what to do with a failed North Slope oil project in which they have invested $70 million. The Alaska Industrial Development and Export Authority took control of the Mustang project in December following years of fits and starts by former operator Brooks Range Petroleum Corp. that ultimately led the state-owned authority to foreclose on the project assets. Approximately a year ago the AIDEA board of directors approved what ended up being the last in a series of amendments to its $70 million total equity investment in Mustang, which had previously been morphed into a loan to Brooks Range’s parent companies. The January 2020 loan modification came after Singapore-based Caracol Petroleum, a majority owner in Brooks Range, failed to make its first two $3.1 million quarterly payments to AIDEA on a $64 million loan to Caracol that the authority approved in May 2019. The amended loan agreement called Caracol’s parent company, Singapore-based Alpha Energy Holdings to commit $60 million for project development by mid-April last year and repay a $10.5 million loan AIDEA made to Mustang in 2019 when Brooks Range failed to meet development targets. However, when Alpha again failed — despite relaxed loan terms — to meet its obligation AIDEA began searching for a partner to lead the project. Majid Jourabchi, President of Houston-based Thyssen Petroleum, a 35 percent owner in Anchorage-based Brooks Range, told the Journal last May that he was part of a team of investors attempting to buy a majority stake in Mustang from Caracol, a 65 percent owner in Brooks Range, according to state business records. The current Brooks Range ownership group is the latest in a series of convoluted structures since oil prices first fell in 2014 and funding for the project became scarce. The Mustang field is adjacent to the southern portion of ConocoPhillips’ large Kuparuk River field and also near the Pikka oil project being developed by Oil Search. The field is estimated to hold about 22 million barrels of oil and could peak at production rates of about 12,000 barrels per day when fully developed. Brooks Range drilled test wells at Mustang in 2011 and 2012 that led AIDEA in December 2012 to take a stake in Mustang with $20 million investment in the holding companies set up for the project’s infrastructure. The $20 million funded the lion’s share of work to build a five-mile access road and a 19-acre drilling and facility pad. The gravel road and pad — in which AIDEA was an 80 percent owner — were finished in April 2013. The road and pad have since been used by other oil companies as an access route and staging area for winter exploration drilling programs. In 2014 the authority put another $50 million toward the originally proposed $225 million processing facility that gave it a 96 percent stake in the holding company, Mustang Operations Center-1 LLC. Full development of the field was estimated to cost about $580 million at the time and included drilling 11 production and 20 more gas and water injection wells, according to AIDEA’s project documents. Brooks Range later changed its plans to utilize smaller, modular production facilities to spur development. Brooks Range leaders said when AIDEA made its first investment that they hoped to have Mustang in production by late 2014 and said when AIDEA made its second payment to the project oil would start flowing in late 2015. The Department of Revenue made the $22.5 million loan to Mustang Operations Center-1, or MOC1 LLC, in October of 2015 to provide the Mustang project operator, Brooks Range Petroleum Corp. with the capital to continue advancing work on the small oil development. It followed a partial veto of the state’s annual oil and gas tax credit payment by then-Gov. Bill Walker as the state deficit ballooned while oil prices fell. Global oil prices fell in late 2015 before bottoming out at less than $30 per barrel in early 2016, a situation that made it difficult for Brooks Range to secure construction capital, leaders of the small Anchorage-based independent said at the time. Legislators ordered a review of the loan by their auditors, who concluded in a report released in November that the loan was inappropriate because it potentially created a conflict of interest for the Revenue Commissioner but it did not violate any state laws. Brooks Range briefly started production from the small field in November 2019 through temporary facilities after years of delays but funding issues precluded additional development and sustained production. According to documents submitted to the state Division of Oil and Gas, AIDEA took control of the Southern Miluveach Unit that holds the Mustang project through Mustang Holdings, a wholly owned subsidiary of the authority that was formed Sept. 21, 2020. AIDEA officials had been in discussions with Finnex LLC, a newly formed company owned by Thyssen Petroleum Alaska and led by Jourabchi, according to state business records. Jourabchi did not return calls in time for this story. The authority informed Oil and Gas officials in late October that a deal for Finnex to become the operator of Mustang could not be reached and the project would remain in cold shutdown while officials pursued a new operator. Oil and Gas Director Tom Stokes required Mustang Holdings to provide a year-end report on any progress made to find a new operator and advance the project in early December when approving the Southern Miluveach Unit plan of development for this year. AIDEA Executive Director Alan Weitzner wrote to Stokes in a report dated Dec. 28 that Mustang Holding had assumed storage contracts for project equipment; was working on a security contract for the project infrastructure; and had paid annual rent for the Southern Miluveach leases. AIDEA had additionally set up a data room and had entered into confidentiality agreements with several “qualified parties who are capable of operating and/or providing capital required for the intended full SMU development drilling program. “Mustang Holding and major creditors that have recorded liens in connection with prior work on the SMU have been and continue to work closely to finalize plans to advance the resumption of development activities,” Weitzner wrote. AIDEA executives have declined multiple requests for interviews over the years that it has been involved in the project and a spokeswoman for the authority did not respond to questions in time for this story. Elwood Brehmer can be reached at [email protected]

Interior Gas Utility inks supply deal with Hilcorp Alaska

Most of the leaders of the Fairbanks-area gas utility believe they finally have a gas supply contract that will afford it the security needed to grow. The Interior Gas Utility board of Directors voted 5-2 Jan. 19 to approve what could end up being an 11-year feedstock supply contract with Hilcorp Alaska. The agreement has an initial five-year term as well as a pair of three-year buyer options to extend the terms. Hilcorp cannot turn down an extension option if IGU exercises it, according to utility General Manager Dan Britton. The contract could also be the end of a long and circuitous search for additional natural gas supplies for the Fairbanks area that began in 2013 as the state-sponsored $330 million Interior Energy Project. “We can know what our gas cost will be for Titan (LNG plant) feedstock for 11 years and anything we do in the future could improve on that,” Britton told the utility board. Board member Gary Wilken called the contract building block for the utility’s long-term success. “This is a very big deal for this utility,” Wilken said. The initial price of $7.60 per thousand cubic feet, or mcf, of gas is a 1.5 percent price cut from the $7.72 the borough-owned utility pays Hilcorp under its current contract, which was set to expire March 31, according to meeting documents. Britton said the lower gas price — set to rise 8 cents per year — amounts to $100,000 per year in collective savings. Hilcorp also agreed to make the price retroactive to Jan. 1, a $30,000 savings for the utility, according to Britton. Board member Pamela Throop said IGU shouldn’t bind itself to a single gas supplier at a price that is still higher than what Southcentral utilities pay when it has received other proposals to buy potentially cheaper LNG. Former board member Patrice Lee said during a public comment period that the contract all but assures IGU will move ahead with expanding its Southcentral Titan LNG plant — upwards of a $70 million project — despite having other options to lower the cost of gas to customers. IGU currently trucks LNG from the Susitna-area plant to Fairbanks before regasifying it for distribution to customers. Increasing the availability of natural gas in the Fairbanks area has been a primary goal for many attempting to clean up the city’s at-times dangerously poor winter air quality as well as those seeking a more affordable energy alternative to heating oil. Britton said the gas price is about 1 percent higher than most other contracts for Cook Inlet gas because IGU purchases just a fraction of the volumes that most Southcentral utilities do and Hilcorp has agreed to match its supply to IGU’s highly seasonal demand swings. He noted the agreement allows IGU to lessen the volume of gas it will buy for the remainder of the contract once, which allows the utility to continue to search for other options. However, he stressed the contract from the dominant Cook Inlet producer with multiple fields to draw gas from gives the utility the security it needs to grow its firm customer base. “I share the goal to lower prices but you cannot, in my view, supply our customers, to whom we have made a firm commitment, with an interruptible (LNG) supply,” Britton said. Under the deal IGU must purchase a minimum volume of gas that equates to the current demand from its roughly 1,400 customers, according to Britton. The utility also has the option to more than triple its gas requirements of Hilcorp with advanced notice if it decides to expand the Titan LNG plant. The utility was set to make a final investment decision on the expansion project last April but the wildly uncertain economic conditions at the onset of the pandemic made Britton pause his recommendation to approve the expansion. The board has not formally revisited the topic since. He said while Hilcorp could provide gas to feed an expanded LNG plant under the contract IGU management is still open to other LNG sources should a supplier propose a reliable plan. IGU and the Alaska Industrial Development and Export Authority — which led the Interior Energy Project before transferring Fairbanks Natural Gas to IGU — both entertained proposals from other entities pitching lower cost LNG. IGU leaders notably spent months discussing LNG deliveries with Siemens Government Technologies in 2019; however, the neither the global government contractor or other firms could provide AIDEA or the utility with detailed and firm gas supply plans and cost structures. ^ Elwood Brehmer can be reached at [email protected]

State nets $7M from five companies in Slope lease sale

The State of Alaska’s North Slope oil and gas lease sale netted only about half of the bid revenue that the Bureau of Land Management’s sealed bid auction for the Arctic National Wildlife Refuge coastal plain did, but interest from industry was still far greater. The Division of Oil and Gas collected approximately $7 million across 115 bids from five companies, officials announced Wednesday afternoon following the morning bid opening. The state’s North Slope and Beaufort Sea lease sales are traditionally a minor annual event with a small audience of industry representatives, reporters and others present to watch the bid opening. COVID-19 precautions prevented that this year. BLM generated about $14 million in its ANWR sale in which bids were opened a week ago; however, the individual coastal plain leases are many times larger than the state tracts that are usually about 2,500 acres or less and 11 tracts were leased to three bidders. Most of that bidding was from the state-owned Alaska Industrial Development and Export Authority. Oil and gas officials said in the statement announcing the sale results that the bid activity is encouraging despite the rough conditions of oil markets over the past year. “This is good news for Alaskans. We look forward to working with these companies to ensure Alaska’s future in energy development,” Oil and Gas Director Tom Stokes said. The state oil and gas lease auctions have typically been held in late fall. The December 2019 sales netted generated nearly 70 bids totaling about $7.5 million, while more than $28 million was spent on state land by explorers in 2018. The five bidders collected 191,248 acres of state land and near shore areas of the Beaufort Sea and are a mix of small explorers and larger, established producers. Hilcorp Energy was the only bidder on Beaufort Sea acreage and won three tracts along the north edge of the Prudhoe Bay Unit. Per usual, there were no bids for the North Slope Foothills area. Oil Search, the Papua New Guinea-based producer that is developing the large Pikka oil project on the Slope, collected 46 tracts primarily to the south of its current work. The vast majority of the sought-after acreage between the producing fields near the coast is currently leased. Great Bear Petroleum Ventures II also picked up 46 tracts largely to the south of the producing fields as well, spending more than $100 per acre on some of the leases to do so. Great Bear was originally founded as an Anchorage-based independent explorer and held significant North Slope when it was purchased by British Pantheon Resources in 2019. Lagniappe Alaska, an offshoot company of Bill Armstrong, who’s namesake Armstrong Oil and Gas led discovery of the Nanushuk oil formation that is the main source Pikka prospect in the mid-2010s, also won 13 leases mostly on the eastern portion of the Slope near ExxonMobil’s Point Thomson gas field. Explorers have shown more interest in eastern Slope areas in recent years; the area was partly explored in the 1980s and some oil was found but for several reasons was not developed. New North Slope player Arctic Circle Exploration — a Kansas-based independent, according to state business records —also acquired seven leases south of Prudhoe. Elwood Brehmer can be reached at [email protected]

Peter Pan deal increases Alaskan fisheries ownership

One of Alaska’s largest fish processors is officially back home as part of a deal that makes it a “vertically integrated global seafood company,” according to the new owners. The new Peter Pan Seafoods ownership group of McKinley Capital Management, RRG Capital Management and Rodger May of Seattle-based Northwest Fish Co. took control of the once Alaska-based fish company Jan. 1. The new company merges Peter Pan’s commodity-based processing business with Northwest Fish’s expertise in fresh and value-added seafood processing and trading into one domestically owned company. McKinley Capital CEO Rob Gillam said the transaction is the Anchorage-based private equity firm’s way of “betting on Alaska.” For decades Peter Pan — founded in Dillingham — had been owned by the Japanese seafood giant Maruha Nichiro Corp. “We’re excited about the Bristol Bay fishery. We’re excited about Peter Pan Seafoods and we’re excited about the acquisition,” Gillam said. The new company’s vision is to “produce sustainable seafood for the benefit of oceans and people”; May and Gillam said in separate interviews that a major key to Peter Pan’s future success will be the company’s ability to adapt to changing markets because it is now a more complete, integrated fish processing and selling business. “It’s not just about selling fish, it’s about the ability to adapt and tilt your selling operations towards demand,” Gillam said. May, who leads the company’s operations, said the former Northwest Fish plants in the Puget Sound area will largely continue to operate as they have, processing fresh and value-added seafood for retail and food service customers. In Alaska, they want things at Peter Pan’s plants in Dillingham, Port Moller, King Cove and Valdez to be much busier. “The goal is to add more pounds to those plants and do more with those pounds in those plants,” May said. The company’s headquarters will remain in Bellevue, Wash. The specific terms of the deal aren’t being disclosed, but Gillam said his firm and Los Angeles.-based RRG Capital financed the acquisition in an equal partnership. RRG’s expertise “is the dinner plate,” he described. “They do food, agri, water, seafood. That’s they’re specialty and specifically focused on sustainability of your dinner plate.” Gillam, May and RRG co-founder Ari Swiller have known each other for years, which also helped the complex transaction come together, they said. “We believe that sustainably managed, vertically integrated seafood companies are attractive investments and create environmental and social benefits,” Swiller said in a statement about the closing. “By focusing new Peter Pan on its customer and fleet services, we’re confident we can create tremendous value for our customers and our stakeholders.” Gillam said one of the most fruitful ways create that value is to simply operate one’s plants more efficiently, which he believes will be possible with the workforce they have. “We’re very fortunate to have inherited a great group of people,” he said. Peter Pan representatives have already started working to improve the company’s relationship with its fishermen, according to Gillam. Multiple Bristol Bay-area fishing industry representatives working said they are encouraged by what bringing a large processor under local control could mean for fishing in the region. “We’ve made a massive outreach to the Alaska fleet to say, ‘hey, be blunt, let us know,’” Gillam said. “Fishermen are not known for their shyness so we’ve gotten a lot of good feedback.” According to May, Peter Pan leaders have plans for significant growth over the next three-to-five years. “It’ll benefit the fleet; it’ll benefit Alaskan workers. It’ll benefit local communities with more tax revenue,” May said. Slightly more philosophically, he added that he believes avoiding further consolidation among Alaska processors will help the industry also help the industry as a whole. “The simple fact that we were able to keep Peter Pan intact is huge,” May said. Communities buy crab quota With the help of local development groups, 30 Western Alaska communities have bought further into Bering Sea crab fisheries. Bristol Bay Economic Development Corp. and Coastal Villages Region Fund announced a complex transaction in which 30 communities across the Bristol Bay and Yukon-Kuskowkim Delta regions purchased snow and red king crab quota valued at approximately $35 million from the Seattle-based Mariner Cos. that collectively totals about 3 percent of the total crab fishery. As part of BBEDC’s role of the deal, the community development quota, or CDQ, group will increase its ownership share in Mariner crab vessels and take outright ownership of four of them. “Owning boats quite frankly is a headache,” CEO Norm Van Vactor quipped, but he added that the benefit of the transaction for BBEDC is more crab available for its vessels that should make overall operations more efficient. With the CDQs playing a facilitating role in what are really separate deals for each community to own quota, according to Van Vactor, the revenue from the crab fishery will flow directly back into local government coffers. “There’s no middle man,” he said. “I hope the structure that we’ve put together actually makes this just a starting point. The infrastructure is there, if you will, is there now for communities to do more of this.” Coastal Villages CEO Eric Deakin said the crab fishery revenue should help fund solutions to some of the critical issues in the region. “Rural Alaska continues to face high poverty rates and lack of access to resources and there is a growing need for services in the Y-K Delta and Bristol Bay regions, which this deal will help address. We welcome a new generation of Alaskan owners and operators fishing in the Bering Sea and improving livelihoods here,” Deakin said. Van Vactor emphasized that at its core the deal brings more of Western Alaska’s fisheries under local control because of the value of the deal. “This wasn’t a grant or federal program; this was Alaskans through a competitive sales process buying back ownership to Alaska’s Bering Sea resource,” he said. Elwood Brehmer can be reached at [email protected]

State to appeal Corps’ denial of Pebble permit

The Pebble Partnership will have the State of Alaska on its side when the company appeals the federal decision to deny the company approval to construct its mine later this month. Gov. Mike Dunleavy announced via a Jan. 8 statement from his office that his administration would appeal the November U.S. Army Corps of Engineers record of decision, or ROD, denying Pebble the ability to secure a key Clean Water Act wetlands fill permit. Dunleavy said in the statement that the decision signed by Army Corps of Engineers Alaska District Commander Damon Delarosa’s rejecting Pebble’s mine plan sets a “dangerous precedent” that will harm future development in the state. “We have to prevent a federal agency, in this instance, the Alaska District of the Army Corps of Engineers, from using the regulatory process to effectively prevent the state from fulfilling a constitutional mandate to develop its natural resources,” the governor said. The decision was based on flawed conclusions and “usurped the entire public interest review process,” the statement reads. Corps Alaska District leaders found that Pebble’s plan for a large open-pit mine and extensive support infrastructure does not meet Clean Water Act criteria for minimizing development impacts and “is contrary to the public interest.” The Pebble ROD followed draft and final versions of the project’s environmental impact statement — intended to inform the record of decision — that largely concluded the Bristol Bay region’s prolific salmon fishery wouldn’t be meaningfully impacted by the project. Those findings were blasted by conservation, commercial fishing and Alaska Native groups opposed to Pebble for fears it would degrade water quality in productive salmon habitat and the mines waste would be a constant threat to the area’s salmon stocks, particularly in the Nushagak River. Public surveys have consistently found a majority of Alaskans are against the Pebble mine plan. Several state and federal agencies logged criticisms of the draft EIS for cursory analysis and conclusion drawn with incomplete data in official comments on the massive document. Acting Attorney General Ed Sniffen said in the statement from the governor’s office that the Pebble ROD “ignored long-standing guidance that required it to tailor mitigation requirements to recognize Alaska’s unique position of holding more intact wetlands than any of the Lower 48 states combined.” In the first indication that Pebble could have trouble obtaining a wetlands fill permit the Corps officials in late August imposed mitigation requirements mandating the company conduct direct, in-kind mitigation — restoration or preservation — in the Koktuli River drainage, a Nushagak tributary, where the mine would be located. Pebble proposed preserving 112,000 acres of predominantly state land, including 31,000 acres of aquatic resources to offset impacts to 3,300 acres of wetlands and 185 miles of streams. The company did not propose any compensatory mitigation for its west Cook Inlet port site. In June 2018 former Environmental Protection Agency Administrator Scott Pruitt and Assistant Army Secretary for Civil Works R.D. James signed a memorandum of agreement laying out Alaska-specific guidelines generally calling for less rigorous requirements for wetlands fill permits in the state. The memo encouraged Alaska District officials to allow for compensatory mitigation over a larger watershed scale “given that compensation options are frequently limited at a smaller watershed scale,” its states. “Given this flexibility, Alaskans should be assured that discharges of dredged or fill materials into waters of the United States will be evaluated in a reasonable manner, consistent with the agencies’ goal of fair, flexible, and effective protection of the nation’s wetlands resources,” the memo states. Department of Law spokeswoman Maria Bahr wrote in response to questions about the specific flaws in the ROD that the department is preparing the appeal that will identify the state’s arguments and it will be filed by the Jan. 25 deadline. The appeal would be adjudicated by the commander of the Army Corps Pacific Ocean Division headquartered in Honolulu, currently Col. Kirk E. Gibbs. Dunleavy has insisted his administration is neutral in regards to the development of Pebble while many of the project’s opponents consider the appeal further proof the governor is doing what he can to spur its development. Norm Van Vactor, CEO of the Bristol Bay Economic Development Corp., a group that works to support the region’s communities through its ownership of Bering Sea fishing quota, said he is disappointed but not surprised by the governor’s decision to appeal the Pebble denial. Dunleavy has not missed an opportunity to back the project, he said. “There’s been evidence that literally some of the governor’s correspondence are cut and pasted documents that originated with the Pebble Partnership; it’s just blatant,” Van Vactor said in reference to a letter Dunleavy sent to Corps officials in 2019. “He might as well be their spokesman.” He said regardless of the expected appeals he expects the combination of President-elect Joe Biden’s incoming federal administration and Sens. Dan Sullivan and Lisa Murkowski, who both took positions against Pebble late last summer should provide opportunities to protect the Pebble area, something Murkowski has already discussed. Dunleavy spokeswoman Lauren Giliam wrote via email that the governor has always advocated for a “consistent, predictable and fair” permitting climate. “Supporting the attributes of a robust regulatory regime is not the same as cheerleading for a particular project. The Pebble project’s proposal has, for the better part of 20 years, been snarled through ad hoc political decisions as opposed to objective regulatory determinations. The U.S. Army Corps of Engineers most recent decision, a literal 180-degree reversal in the span of a month, is a clear case-in-point,” Giliam wrote. “Time and again, the governor has always deferred to the science of the project, and if it was found to be good for Alaska, he would welcome the opportunity.” Pebble spokesman Mike Heatwole said company representatives briefed administration staff about their plans to appeal the project but they did not request the action from the state. The company still plans to file its own appeal, according to Heatwole. ^ Elwood Brehmer can be reached at [email protected]

Congress pays for another icebreaker, authorizes more

Congress paid for a second new heavy icebreaker among its year-end spending flurry and also helped Nome move one step closer to having a place to moor it. Inside the federal budget portion omnibus spending package that also included the second round of COVID-19 aid money and Sen. Lisa Murkowski’s energy reform bill is $555 million for the U.S. Coast Guard to spend on another icebreaker, or a polar security cutter in Coast Guard parlance. Sen. Dan Sullivan said in a press briefing following the passage of the bills that the funding is proof that the Alaska delegation’s years of effort to focus more attention on the nation’s Arctic are paying off. That was also partly borne out in the annual water resources and infrastructure bill portion of the omnibus legislation that approves port and harbor development and maintenance spending nationwide. “We killed it in that bill,” Sullivan said. The 2020 water development bill authorizes $379 million for the federal share of a long-sought deep-draft port in Nome among other projects in the state. While Congress still has to actually appropriate the money, Sullivan said he’s confident that will happen within the next couple years. The 2018 version of the legislation authorized the U.S. Army Corps of Engineers, which is leading the project, permitted the agency to engineer and design the roughly $600 million expansion of Nome’s current port. The ultimate goal of the project to deepen the Western Alaska port and further develop shore side infrastructure is to have a more northerly location from which to launch Arctic search and rescue, research and law enforcement missions in the increasingly active region. Sullivan said senators on both sides of the aisle recognize the national security need for the project as other countries continue to grow their icebreaker fleets and particularly Russia continues to ramp up its presence in the region; Dutch Harbor is currently the closest deepwater port to Alaska’s Arctic. “They get it — that this is a key piece of infrastructure to protect our interests as Americans, not just something that’s important to Alaskans,” Sullivan said. “There’s excitement about this, and not just in Nome.” As chair of the Commerce, Science, and Transportation subcommittee on security, Sullivan sponsored the Coast Guard authorization bill that was rolled into the $740 billion 2021 National Defense Authorization Act. The members of the Alaska delegation supported a Jan. 1 override of President Donald Trump’s veto of the NDAA. Provisions in the defense bill also authorize the Coast Guard to maintain the current contract for three heavy icebreakers and to award contracts for construction of up to three more. It also authorizes $745 million for construction of another icebreaker. As with the authorization for the Nome port, the approvals in the Coast Guard bill do not appropriate construction funds but Congress has now invested in icebreakers in three consecutive years with the $555 million that is intended to fully-fund the second new icebreaker. The first new icebreaker in decades was funded in 2019 and is expected to be complete in 2024 with the second coming a couple years later. Murkowski said in a prepared statement that she’s proud of the recent progress that’s been made to strengthen the country’s security presence in the Arctic. “The authorization of additional polar security cutters in the final NDAA is significant and a sign that we are moving in the right direction,” Murkowski said. Currently, the country’s only heavy icebreaker — the 43-year-old Polar Star — does most of its work on the other end of the world, returning to its homeport of Seattle each summer for maintenance and repairs. It breaks ice and escorts supply vessels to access the National Science Foundation’s McMurdo Station research center in Antarctica. This year, however, limitations on Antarctic research activities stemming from the pandemic have turned the Polar Star north and it will spend much of the winter off the coast of Western Alaska. Sullivan has routinely noted his frustration that the Polar Star doesn’t primarily operate off of Alaska and emphasized that the new cutters should not only work around the state, but also call it home. “Just putting icebreakers in Seattle because current icebreakers are in Seattle to me makes no sense,” Sullivan said. Elwood Brehmer can be reached at [email protected]

State tops bids in first ANWR lease sale

The State of Alaska is officially in the oil business. The Alaska Industrial Development and Export Authority dominated bidding and won roughly a half-million acres across nine tracts in the long-awaited, oft-debated first Arctic National Wildlife Refuge coastal plain lease sale bid opening on Jan. 6. According to an initial tally of the bids opened by Deputy Interior Secretary Kate MacGregor via a video live stream, the sale netted $14.4 million in 11 winning bids, with approximately $12 million of that attributable to the state-owned development bank, which bid on at least 11 tracts. A lone bid for another tract from an unknown bidder was deemed incomplete by Bureau of Land Management officials. Half of the bid revenue will go to the State of Alaska per language in the 2017 Tax Cut and Jobs Act that mandated the sale. Small Texas-based explorer Regenerate Alaska LLC outbid AIDEA for Tract 29 on the far western edge of the coastal plain with a bid of approximately $778,000. Regenerate also owns several leases on state lands adjacent to the area. Anchorage-based Knik Arm Services LLC outbid AIDEA for Tract 25 in the western portion of the coastal plain with a $1.6 million bid. No oil majors bid on ANWR coastal plain leases. BP and Chevron long held data from the only well drilled into the coastal plain, the 1986 KIC well, and the data BP owned was transferred to Hilcorp under the sale completed in 2019. The AIDEA board of directors authorized management to spend up to $20 million from its roughly $1.3 billion Revolving Fund on ANWR coastal plain lease bids in late December on the premise that if minimum bids were submitted the pro-development corporation could ensure some acreage in the refuge was secured when it was made available — given the political and legal efforts against the sales — and eventually transfer the rights to an operating company. AIDEA Executive Director Alan Weitzner alluded to that in a statement issued shortly after the bid opening. “By acquiring these tracts, Alaska preserves the right to responsibly develop its natural resources. This will create new, good-paying jobs on the North Slope and generate revenue for the local economies of Alaska’s Arctic and the state’s general fund,” Weitzner said. An AIDEA spokeswoman did not immediately respond to questions about how authority officials chose to bid on the tracts they did. In all, the sale generated 16 bids over 12 tracts covering 552,000 acres, according to MacGregor, who called it a “momentous” and “historic” occasion before opening the bids. BLM offered 22 tracts covering approximately 1.1 million acres up for bidding. The oil and gas that will hopefully be developed from the coastal plain will benefit the economies of the nearby Village of Kaktovik, the State of Alaska and the nation as a whole, MacGregor said. “To all of those who have played a role in making today possible and happen, thank you for your grit and determination,” she said. The bidding fell far short of expectations for some who supported the four-decade effort to lease the 1.5 million-acre coastal plain for oil exploration. The Congressional Budget Office estimated the current sale and an expected future sale, combined with annual lease rents would collectively net the federal government $1.1 billion by 2027 when the tax bill was being debated in November 2017, with that much also going to the State of Alaska. Other estimates at the time were for as much as $1.8 billion in federal revenue. Conservation groups noticed the sale largely transferred state money to the federal government — half of which will go back to the state treasury. Alaska Wilderness League Executive Director Adam Kolton called the sale an “epic failure” for the Trump administration and Alaska’s congressional delegation in a prepared statement. “After years of promising a revenue and jobs bonanza they ended up throwing a party for themselves, with the state being one of the only bidders. We have long known that the American people don’t want drilling in the Arctic Refuge, the Gwich’in people don’t want it, and now we know the oil industry doesn’t want it either,” Kolton said. A coalition of conservation organizations had their attempt to stop the lease sale in court through a preliminary injunction rejected in a late Tuesday ruling by U.S. District Court of Alaska Judge Sharon Gleason; however, three lawsuits objecting to the Trump administration’s handling of the environmental review that preceded the sale are ongoing. BLM Alaska Director Chad Padgett said in a follow-up press briefing that the sale was a success, with more than half of the available acreage receiving bids. He emphasized, as other administration officials have, that leasing does not authorize drilling or any other on-the-ground activity. Additional permits are needed for exploration work such as conducting seismic surveys. “It reflects an interest in further development of Alaska’s energy resources,” Padgett said of the sealed bid auction. In regards to the unique participation of a state-owned entity, BLM officials said AIDEA corporate status generally qualifies as a valid lessee and they do not foresee problems working with the state development bank because it is run much like a traditional business. Industry representatives consistently said in the lead-up to the sale that it was unclear what the results would be given the political tensions involved and vague prospectivity of the area. Alaska Oil and Gas Association CEO Kara Moriarty said in a post-sale statement that AIDEA’s participation helps reduce future uncertainty about the availability of acreage to explore on the coastal plain; she also acknowledged the activity level in the sale. “While the results may not have been as robust as we might have expected, industry still supports future access to this area,” Moriarty said. “Today’s sale reflects the brutal economic realities the oil and gas industry continues to face after the unprecedented events of 2020, coupled with ongoing regulatory uncertainty.” The U.S. Geological Survey officially has a mean oil estimate for the coastal plain of approximately 10 billion barrels of recoverable oil, but that is based on fairly little on-the-ground research particularly given the size of the area and much of what has been done was conducted with 1980s technologies. President-elect Joe Biden opposes oil development of the coastal plain and many congressional Democrats have vowed to overturn the rider to the tax bill if they can take control of the Senate over the next four years. Elwood Brehmer can be reached at [email protected]

Murkowski energy bill crosses finish line

Tucked amongst the 5,500-some pages of legislation with more than $2 trillion in spending and COVID-19 aid that President Donald Trump signed last month was one of Sen. Lisa Murkowski’s biggest policy accomplishments, but according to Murkowski, that’s sort of how she wanted it. The 532 pages of the year-end omnibus spending bill that comprise the Energy Act of 2020 culminate almost six years of work, procedural hang-ups and near-victories for Murkowski, who credited her staff for their continual effort. However, the progress of the often-wonky energy policy reform package over the year was largely kept under wraps until announcing an agreement with House Democrats just a day before Congress passed the larger bill. Her American Energy and Innovation Act stalled in early March just prior to a planned Senate vote because it went through what she described in a Dec. 31 interview with the Journal as “a very unique process.” “Until we got this thing signed into law I really didn’t want to advertise the fact that this bill didn’t pass the United States Senate,” Murkowski said. The American Energy Innovation Act was already her third attempt at passing major energy reform as chair of the Energy and Natural Resources Committee. It was held up by a bipartisan group of senators who wanted the bill to also include mandatory phase down in the country’s use of hydrofluorocarbons, or HFCs, which are often used in air conditioning and refrigeration systems and are also potent greenhouse gasses. But Murkowski noted that HFCs fall under the jurisdiction of the Environment and Public Works Committee, so the provisions couldn’t be added to the bill and there was little she could to at the time to move it forward. In December 2016, Murkowski watched her Energy Policy Modernization Act die in conference committee during the last days before the Christmas break despite Republican control of both chambers in Congress. She was sharply critical of House leaders who she said at the time chose to attend a holiday party in New York rather than finish negotiations on a bill that had already passed both bodies with strong support. This time, after roughly five months of what she called “much, much, much urging and pressure,” EPW chair Republican Sen. John Barrasso, ranking Democrat Tom Carper and Republican Sen. John Kennedy in early September announced a 15-year phase down compromise to the HFC issue that would be added to Murkowski’s energy legislation. Still further delays of procedural votes for unrelated matters kept the Senate from passing the Energy and Innovation Act before the election. That led Murkowski and ranking Energy and Natural Resources Committee Democrat Joe Manchin of West Virginia to work with Democrat House Energy and Science committee leaders to meld their bill with the Clean Energy Jobs and Innovation Act, which passed the House but was too partisan to pass the Republican Senate, according to Murkowski. “We basically took the two bills — even though ours had not passed the Senate yet — and we just kind of did an overlay. For three months we went back-and-forth, back-and-forth,” Murkowski described, admitting that she thought it was dead around Thanksgiving. “I told leadership we were going to have an energy bill that was going to be ready even though I wasn’t sure it was going to be ready and I said I want this to be included as part of the omnibus,” she added. As for the substance of the Energy Act, it’s an attempt to modernize at-times technical policies that largely hadn’t been looked at in more than a decade. Murkowski called it “almost incomprehensible” that the last major energy reform bill passed by Congress was the Energy Independence and Security Act signed by President George W. Bush in December 2007. Since then the entire country, not just the oil industry, has undergone the shale revolution, which switched the U.S. from being a major longtime importer of oil to a net exporter of oil and natural gas; the closely-tied LNG industry has exploded; and the climate change debate in the public and Congress has shifted from whether it’s real to what should be done about it in addition to major technological advancements in renewable energy production. “It just causes you to think about how much are we holding ourselves back because we haven’t reformed our own policies?” Murkowski said. Democrats have frequently called the Energy Act a “down payment” on cleaner energy production and carbon capture efforts. With provisions from nearly 70 senators, it authorizes investments in renewable energy technologies. Department of Energy geothermal demonstration projects will be funded at $170 million annually, for example, according to a summary of the massive bill by the industry law firm Holland and Knight. Similarly, $125 million per year will go to wind energy research and development programs and $300 million will go towards solar advancements. It also aims to improve permitting for renewable projects on federal lands via improved coordination between Interior Department agencies. House Energy and Commerce chair Rep. Frank Pallone, D-N.J., said in a joint statement with other committee Democrats that the reforms and investments made in the long-overdue bill will help transition the country to a cleaner, low-carbon future. “This legislation includes programs to develop and deploy renewable energy, improve efficiency of our homes and businesses, modernize the grid, reduce carbon pollution from industrial and traditional power sources and more,” the Democrat lawmakers said. Murkowski said she believes a focus on energy storage technologies — large-scale batteries — will be an area where the Energy Act can have a lasting, positive effect. She noted many prominent renewable advocates consider storage the “holy grail” of energy advancements and systems are already being used in small one-off applications such as by the Cordova Electric Cooperative. The Cordova utility uses a 1-megawatt lithium ion battery to store previously forgone hydro energy to be used in summer when fish processors significantly increase the community’s collective electric demand, lessening the use of diesel to supplement the hydro production. “I think that (storage) will really help us as we move forward with different technologies, different energy sources, allowing us to better utilize our intermittent sources with a level of reliability and stability,” Murkowski said. More than $100 million will go to establish a new energy storage and grid integration research program with additional grants for future demonstration projects. She spoke similarly about the potential benefits of mobile, small-scale nuclear reactors in Alaska. “I keep coming back to the various applications that we could have in Alaska that could reduce costs, reduce emissions and allow for a level of reliability we haven’t even seen yet,” Murkowski said of advanced nuclear energy in the state. “We’re talking about units the size of a Connex.” The bill that was the result of six years of work also passed as Murkowski ended her six-year term chairing the Energy and Natural Resources Committee, per caucus rules. She previously spent six years as the ranking Republican on the committee as well, meaning when Congress reconvened Jan. 3 she became a rank-and-file ENR member for the first time in 12 years. Murkowski also noted that her run on ENR was preceded by that of her father, former Gov. and Sen. Frank Murkowski. She was appointed to the Senate by her father in 2002. “My dad was there when they lifted the oil export ban for Alaska and it was under my leadership that we lifted the oil export ban for the country. He worked on ANWR; I worked on ANWR,” she said. “Between myself and my father we have been at the helm of energy policy for 20 of the last 24 years — pretty darn incredible.” Elwood Brehmer can be reached at [email protected]

BLM finalizes revised plan for federal petroleum reserve

Interior Department leaders published their decision to open nearly 7 million more acres of the western North Slope to the oil and gas industry Jan. 4 while federal attorneys prepared to defend the agency’s leasing plan for the other side of the region in court later that day. Interior Secretary David Bernhardt signed the record of decision for the latest land-use plan for the National Petroleum Reserve-Alaska, which authorizes Bureau of Land Management Alaska officials to offer more than 18.5 million acres of the 23 million-acre federal parcel for bid in future oil and gas lease sales. Formally known as the NPR-A Integrated Activity Plan, the management scheme marks another subtle but significant achievement by the Trump administration in its push to increase energy and mineral development on federal lands across the state. Meanwhile, Justice Department attorneys were about to defend BLM’s contentious leasing plan for the Arctic National Wildlife Refuge coastal plain on the eastern Slope during oral arguments in federal District Court over a motion by a collection of national environmental groups to stop the lease sale before bids are scheduled to be opened Jan. 6. The previous NPR-A plan approved under the Obama administration in 2013 allowed BLM to lease just more than 11.7 million acres, or almost exactly half of the reserve. That plan closed to leasing more than 3.5 million acres — much of which is a vast wetlands complex — in the Teshekpuk Lake Special Area. The area is the calving grounds for a distinct population of caribou and is the summer nesting home for large numbers of migratory birds, both of which are important subsistence resources, according to area Tribes opposed to oil development there. However, since then a handful of large oil discoveries have been made in the eastern portion of the reserve and on state land around the Teshekpuk Lake area, including ConocoPhillips $5 billion Willow prospect. In 2017, the U.S. Geological Survey drastically increased its estimate for the amount of recoverable oil in the NPR-A, largely on the belief that additional Nanushuk oil formations are available in and around the Teshekpuk Lake area. The USGS now estimates there are roughly 8.8 billion barrels of available oil in the reserve and adjacent state lands, up from just 896 million barrels in 2010. Interior officials, state leaders and the members of Alaska’s congressional delegation have noted as much as the plan revision has moved along. Sens. Lisa Murkowski and Dan Sullivan said the new plan acknowledges the purpose of the reserve and will help the state’s long-term prosperity while also ensuring the protection of environmentally sensitive areas. “This strikes the right balance and fulfills the statutory purposes of the petroleum reserve — to produce energy for our state and country,” Murkowski said in a statement from her office. “I thank Secretary Bernhardt and the team at BLM Alaska for their hard work to develop this plan, and for listening to input from Alaskans throughout the drafting process.” While the pending ANWR lease sale receives most of the public attention because of the decades-long political battle over it, industry sources have consistently said they believe there will be more near-term interest from oil companies in the NPR-A because of the Nanushuk discoveries and the fact that there is less — but still some — political tension over the reserve. ConocoPhillips currently holds a majority of the leased acreage and has done by far the most work in the NPR-A, with its two mid-sized Greater Mooses Tooth oil projects in addition to Willow. The new plan mostly opens the Teshekpuk Lake Special Area to industry leasing but would defer leasing in two areas totaling approximately 132,000 acres for 10 years. It also eliminates the Colville River Special Area, which provides habitat protections over 2.4 million acres adjacent to the river as well, but would extend raptor protections previously required along the Colville to the rest of the reserve, thereby eliminating the need for the special area as well, the record of decision states. The Colville River makes up much of the eastern boundary of the NPR-A. Those protections for birds of prey include setbacks that prohibit permanent infrastructure other than critical roads and pipelines from being developed up to one mile from many of the rivers in the reserve. BLM Alaska Director Chad Padgett said in a prepared statement that the plan is responsive to requests from the state and local governments. “Our team of subject matter experts worked diligently to provide a robust environmental review that achieves a balance between conservation stewardship, being a good neighbor, and responsibly developing our natural resources to boost local and national economies.” The North Slope Borough, recent state administrations and area Alaska Native corporations have continuously pressed the federal agencies to relax development restrictions in the reserve while several North Slope Tribal governments have pushed back, arguing the westward-moving oil development on the Slope will impact wildlife and thus subsistence harvests. A handful of state and national environmental groups sued the Interior Department in late August after the release of the final NPR-A plan alleging in-part that BLM Alaska leaders violated the foundational National Environmental Policy Act, or NEPA, by only conducting a cursory review of the impacts of additional development in the petroleum reserve. The agency also did not consider any management alternatives in the final NPR-A land-use environmental impact statement, or EIS, known as the reserve’s integrated activity plan, meant to substantially increase protections for the reserve’s wildlife and aquatic resources, another NEPA violation, according to the complaint. The groups, including the Alaska Wilderness League, Trustees for Alaska, the Northern Alaska Environmental Center and Audubon Alaska said in a joint Jan. 4 statement that BLM officials ignored the comments from nearby Tribal governments objecting to the plan. “The Trump administration’s BLM has put forward a new management plan designed specifically to accommodate and promote oil development, not to protect key areas utilized by the Teshekpuk Lake caribou, migratory birds or other wildlife resources, and certainly do not protect communities in the region already facing unacceptable impacts on health, food security and cultural sovereignty due to existing industry activity,” the statement reads. The final NPR-A EIS published in late June identified the agency’s preferred alternative as one that would open slightly more of the reserve to industry than was contemplated in any of the three action alternatives detailed in the draft review. ^ Elwood Brehmer can be reached at [email protected]

Federal court rejects arguments to stop ANWR lease sale

U.S. District Court of Alaska Judge Sharon Gleason rejected a late attempt to stop the Trump administration’s Arctic National Wildlife Refuge coastal plain lease sale Jan. 5 when she denied a preliminary injunction motion from a group of national conservation organizations less than 24 hours before the bids are set to be opened. Gleason wrote in a 27-page opinion issued a day after oral arguments that claims leasing would likely hasten the pace of environmental damage to the refuge from activities such as seismic exploration are premature because Bureau of Land Management officials have not yet approved a seismic exploration plan submitted by Kaktovik Inupiat Corp., or KIC. She also ruled that the conservation groups would not suffer the “imminent irreparable harm” that would be cause for a preliminary injunction to stop completion of the lease sale because the record of decision authorizing the sale as well as the subsequent lease rights do not authorize any on-the-ground exploration activity. Bidding in the sale closed Dec. 31. “Plaintiffs have listed various threats to their enjoyment of the Arctic Refuge’s solitude posed by, for example, aircraft noise and the presence of trucks, but they have not shown that these harms are likely to occur during the pendency of this action,” Gleason wrote. The original suit filed Aug. 24 is one of three separate legal challenges against BLM’s EIS review of the coastal plain leasing program brought by a collection of Alaska Tribes and local and national environmental organizations. The order against the preliminary injunction does not alter the broader lawsuits. In oral arguments Jan. 4, attorneys on behalf of the Audubon Society, the Center for Biological Diversity and Friends of the Earth insisted that allowing Bureau of Land Management Alaska officials to open bids for the sale Jan. 6 would increase the likelihood of seismic activities, aerial surveys and other activities that could disturb wildlife before the full merits of the case have been adjudicated. Earthjustice attorney Katharine Glover contended that allowing the sale to be finalized while the case is pending would also continue the “bureaucratic momentum” of the leasing program while acknowledging that further permit authorizations would still be needed for on-the-ground activities such as seismic surveys or drilling. KIC is the Alaska Native corporation for the village of Kaktovik, the only community within the coastal plain. Kaktovik leaders largely support oil development in the area on the premise it would bring additional revenue to North Slope communities and provide more basic infrastructure for the region. Attorney Paul Turke emphasized on BLM’s behalf that issuing the leases is an administrative matter that would not change the physical characteristics of the coastal plain while also noting that Congress mandated the agency to hold the lease sales via language in the 2017 tax bill. “The court retains its full authority to review this case on the merits and to take appropriate action when it reaches a determination on the merits,” Turke said to Gleason, adding she could suspend issued leases or order BLM to redo the environmental impact statement for the leasing program that is at the heart of the suit. “There would be no irreparable injury to the environment or otherwise in the interim period.” The conservation groups, which filed the preliminary injunction motion to stop the sale Dec. 15, shortly after BLM officials announced bids for the sale would be opened Jan. 6, are conflating the “irretrievable commitment” made when the government issues a lease with “irreparable injury,” Turke said. “Leases can be issued and never have any actual effect on the environment,” he said. Natural Resource Defense Council attorney Nathaniel Lawrence said on the broader merits of the case that BLM failed to comply with the National Environmental Policy Act that prescribes the EIS process by not disclosing the full climate change consequences of oil production from the coastal plain in the EIS Interior Secretary David Bernhardt approved in August. The EIS only included estimates for domestic carbon emissions resulting from prospective oil extraction, according to Lawrence, who compared the analysis to that done by the Bureau of Ocean Energy Management in approving Hilcorp Energy’s offshore North Slope Liberty oil project. The 9th Circuit Court of Appeals invalidated the federal approval for Liberty in a Dec. 7 ruling in part based on the fact that the government did not analyze foreign consumption of oil from the project in evaluating Liberty’s environmental impacts. “It painted a false picture because it only included U.S. emissions, not the bulk of the emissions that come from foreign consumption,” Lawrence said of the coastal plain EIS. Lawrence also said that while Congress did require two lease sales offering a little more than half of the coastal plain over 10 years, BLM did not need to open ostensibly all of the area to leasing as it did following the environmental review. “The (leasing) program goes far beyond anything Congress mandated,” he said, which further requires agency leaders to make a written determination of how the new uses of the refuge are compatible with its existing purpose — something Interior leaders did not do. Ryan Steen, representing the Alaska Oil and Gas Association, countered the “bureaucratic momentum” argument by noting that President-elect Joe Biden had made it clear he opposes developing the coastal plain, so any momentum that exists now is likely to be gone Jan. 20. Tyson Kade, representing the North Slope Borough, the Native Village of Kaktovik and KIC said any seismic activity is unrelated to leasing; he referenced SAE Exploration’s unsuccessful attempt to conduct seismic exploration in the 2018-19 winter before a lease sale was planned. “This court should consider the input of the people that live and depend on the resources of the coastal plain,” Kade said. “The tax act and ANCSA provide for the realization of those (economic) benefits.” Glover rebutted that any delay in realizing economic benefits caused by a preliminary injunction would likely only be temporary. ^ Elwood Brehmer can be reached at [email protected]

‘Roadless Rule’ repeal heads to court once more

The time has come once again to see if the latest attempt to abolish the Roadless Rule in the Tongass National Forest passes legal muster. A host of Southeast Alaska Tribes, small cruise operators, commercial fishing and conservation groups collectively sued U.S. Department of Agriculture Secretary Sonny Perdue Dec. 23, alleging the agency pushed through a pre-determined decision that contradicts its own analysis when it completely exempted the Tongass from the strict development limitations of the Clinton-era Roadless Rule in late October. Attorneys for Earthjustice and the Natural Resources Defense Council argued in their Federal District Court of Alaska complaint that USDA and Forest Service leaders pushed the move to make more of the forest available and economically viable for logging through the National Environmental Policy Act despite conclusions in the environmental impact statement, or EIS, that the change would have little meaningful impact on the region’s timber industry. In removing the Roadless Rule from the Tongass, the Trump Administration opened 9.4 million acres, a little more than half of the forest, to road construction to facilitate additional development, most notably logging. While development proponents and Republicans largely hailed the de-regulation as a major victory, they also stressed it would only open about 188,000 additional acres — primarily old-growth — to timber harvest because of limitations in the 2016 Tongass Land and Resource Management Plan. “(The agencies) project that, even with complete elimination of the Roadless Rule on the Tongass, the rule will not result in any new timber industry jobs on the Tongass over the next 100 years and regional impacts from the timber industry will remain the same with the exemption as without,” the complaint states, citing the Forest Service’s final Roadless Rule EIS. Southeast Alaska’s once booming timber industry now provides about 370 jobs in the region, about 1 percent of regional employment, according the Southeast Conference. And with much of the timber harvest coming from Alaska Native corporation and state lands, timber sales from the Tongass currently support just 62 jobs, the complaint states. Advocates of the rule regularly note that tourism and fishing have provided about one-quarter of the region’s jobs in recent years. Additionally, the government’s insistence that lifting the Roadless Rule would not change timber harvest volumes is based on “arbitrary assumptions” that Forest Service leaders would direct managers to follow the forest-level 2016 Tongass land and Resource Management Plan, according to the complaint. Finalized in the final months of the Obama administration, the Tongass plan lays out a strategy to move to limited old-growth timber sales in the forest in five years. Industry representatives contend, however, that even though they support a transition to largely young, or second-growth harvests there are not enough mature young-growth stands yet to supply enough timber for that fast of a transition. The complaint states that the Forest Service has not followed the non-binding forest plan under the Trump administration, selling entirely old-growth stands in 2018, and has consistently offered more old-growth than young-growth stands in timber sales since then. The coalition complaint also alleges that policy arguments claiming the Roadless Rule restricts mining, energy development and other community-level developments are baseless because those projects can explicitly receive exemptions that have nearly always been granted. The Tribal plaintiffs — the organized villages of Kake and Saxman, the Hoonah Indian Association, the Ketchikan Indian Community and the Klawock Cooperative Association — further contend that agency officials conducting the EIS work at times refused to incorporate information provided by the Tribes in their work despite acknowledging its accuracy and rejected requests to hold formal consultations until after the pandemic. The Organized Village of Kake withdrew as a cooperating agency after the October 2019 release of the draft EIS on the grounds that the Forest Service did not sincerely consider its input to that point. Kake is a community of about 600 residents on Kupreanof Island in the central portion of the Tongass. “We still walk and travel across this traditional and customary use area, which is vast and surrounds all of our communities to the north, south, east and west,” Kake Tribal President Joel Jackson said in a formal statement. “It’s important that we protect these lands and waters, as we are interconnected with them. Our way of life depends on it.” Repealing the Roadless Rule from the largest national forest in the country was one of the last in a string of potentially major policy achievements for Republicans in Alaska during the Trump presidency, but the administration has had mixed results in getting its goals in the state to stick. The Interior Department’s attempts to administratively conduct a land swap needed for a road through what is now the Izembek National Wildlife Refuge on the Alaska Peninsula have twice been shot down in Federal District Court and the 9th Circuit Court of Appeals recently invalidated the EIS approving the large offshore Liberty oil project on the North Slope, among other pro-development decisions that have been challenged in court. Questions to the USDA headquarters press office were not addressed in time for this story. The exemption originated from a request by former Gov. Bill Walker to Perdue in early 2018 to craft an Alaska-specific Roadless Rule, as had been done in Idaho and Colorado. It also was not the first time it had been tried. The State of Alaska first secured an exemption from the Roadless Rule for the Tongass as part of a 2003 court settlement to a lawsuit over the rule’s applicability in the state with the Bush administration but that exemption was overturned by a Federal District Court of Alaska judge in 2011. Subsequent appeals and other attempts by the state and resource development groups to have the Roadless Rule invalidated proved fruitless. Elwood Brehmer can be reached at [email protected]

AIDEA to bid on ANWR leases

The leaders of Alaska’s development bank moved the state a big step closer towards being an active oil industry player late Dec. 23 when they approved spending up to $20 million on bids for Arctic National Wildlife Refuge oil leases. The Alaska Industrial Development and Export Authority board of directors unanimously passed a resolution giving the authority’s executive director Alan Weitzner the go-ahead to split up the $20 million among various bids on the 22 ANWR coastal plain tracts the Bureau of Land Management is set to offer in the pending lease sale. Bids were due Dec. 31 and will be opened Jan. 6. While it would be unique for a state-owned corporation to actively bid on federal oil leases, the statute establishing the authority broadly permits it to enter into lease agreements, including with other governments, for project development. Board chair Dana Pruhs said AIDEA was created for participating in opportunities exactly like the ANWR lease sale. “Our goal is to partner with private industry to ensure that these types of development projects that deliver tangible, economic benefits for all Alaskans move forward,” Pruhs said. The U.S. Geological Survey officially estimates there could be in the range of 10 billion barrels of recoverable — not necessarily economic — oil under the coastal plain but very little on-the-ground exploration work has been done over the broad area. Specifically, the resolution allows AIDEA management to evaluate the available coastal plain tracts that range from about 34,000 to 60,000 acres each and determine whether or not to place bids of $25 per acre on any of them. The authority plans to pay for the leases out of its roughly $1.3 billion Revolving Fund; the resolution also allows $20 million to move out of the Revolving Fund to the Arctic Infrastructure Development Fund that was established but never seeded by the Legislature in 2014. Former Govs. Bill Walker and Frank Murkowski in recent newspaper op-eds advocated for the state to make minimum bids on the leases to ensure progress could continue to be made towards developing any oil and gas they may hold even if oil companies opt not to bid on any or all of the politically-charged acreage. Under the concept, the state, through AIDEA, could sell or otherwise transfer the leases to a private enterprise for further evaluation and keep the leases active without the risk of outbidding other entities. Murkowski, who was invited to speak to the AIDEA board prior to a lengthy public comment period, wrote in an email to the Journal that he believes the upcoming lease sale could be the only legitimate shot the state and the industry have at securing and subsequently developing the coastal plain. That’s because although the 2017 tax bill mandates BLM to hold another lease sale by late 2027, it is unclear if another Republican administration will control the parameters of the sale and Democrats have indicated a strong desire to kill the ANWR leasing program if they can gain control of Congress and repeal the law as well. In response to questions about how the authority’s potential participation in the lease sale — and the possibility of a second shot at acreage following more careful examination — might impact other bidders’ plans, AIDEA spokeswoman Colleen Bryan wrote that there is no way to know which tracts will receive bids. AIDEA would have the opportunity to withdraw its bid if a tract received another bid and authority officials have not discussed their plans with any oil companies, according to Bryan. She added that it’s unclear at this point what AIDEA leaders might do and they are currently evaluating the available tracts. BLM Alaska officials pulled 10 tracts covering approximately 475,000 acres from the final sale offering on Dec. 18, a day after the close of the lease nomination period. The agency initially offered nearly all of the more than 1.5 million-acre coastal plain in 32 tracts in sale documents published Dec. 7. The $20 million would give AIDEA enough to bid on up to 800,000 acres at the minimum qualifying amount. The vast majority of public commenters during the AIDEA board meeting opposed the idea of an arm of the state participating in a federal lands lease sale; some cited the need for state resources to be spent elsewhere, while Murkowski noted the State of Alaska would ostensibly get a 50 percent rebate on its bids based on the authorizing language in the tax bill. The Tax Cut and Jobs Act directs half of the coastal plan lease bid, rent and royalty revenue to the State of Alaska. Gov. Mike Dunleavy said in a prior interview with the Journal that he would prefer private industry lead the bidding but encouraging coastal plain exploration should continue to be a priority of the state. Other commenters questioned the validity of the action stemming from an unrelated disagreement between Dunleavy and legislators. Also on Dec. 23, the Legislature, via an 11-1 vote by the Legislative Council, decided to sue Dunleavy to invalidate the governor’s acting but not confirmed boards and commissions appointments, including AIDEA board member and former Sen. Anna MacKinnon. MacKinnon serves as the designee for the Revenue Commissioner Lucinda Mahoney’s seat on the AIDEA board. Mahoney is one of the appointed but not confirmed administration officials. When the Legislature quickly recessed in late March during the onset of the pandemic it passed a bill extending the normal confirmation deadline for the governor’s appointees until the day before the start of next session Jan. 19 or 30 days after the public health emergency issued by Dunleavy in March expired, which happened on Nov. 15. Because the Legislature never took up Dunleavy’s appointments for the year before they expired under the extended deadline, they are not valid, according to the complaint filed by the Legislative Legal Division attorneys. Dunleavy contended in Dec. 16 letters to House Speaker Bryce Edgmon and Senate President Cathy Giessel that his boards and commissions picks who have not been confirmed “continue to serve under valid appointments” and he would be exercising his constitutional authority to continue their appointments. He plans to reappoint the unconfirmed individuals by Feb. 3, Dunleavy also wrote. The Legislative Council, chaired by Kodiak Republican Sen. Gary Stevens, is also seeking to have Juneau Superior Court Judge Phillip Pallenberg prohibit Dunleavy from reappointing the allegedly ineligible appointments until the start of the next session as well. Elwood Brehmer can be reached at [email protected]

Latest Dunleavy budget pitches stimulus, cost-shifting

Gov. Mike Dunleavy prioritized injecting money into a battered economy over solving the state’s ever-worsening structural fiscal problems in his 2022 fiscal year budget but that doesn’t mean he didn’t attempt to save the state some money. The administration wants to split nearly $50 million in unrestricted CARES Act funds into $35 million towards the state’s annual Medicaid payment and $14.6 million for general Department of Transportation funding as well as utilize $101 million of Alaska Housing Finance Corp.’s bonding authority for capital projects as ways to cover some of the 2022 budget deficit pegged at approximately $2.4 billion by the Legislative Finance Division. Aside from spending roughly $3.2 billion on Permanent Fund Dividends over the next 12 months, the governor’s plan would cut state operations spending of about $4.6 billion by $294 million, or about 6 percent, according to Office of Management and Budget documents. Legislation to move about $94 million of the state’s overall employee retirement expense — of late about $350 million — to state agency payroll costs with the expectation the federal government would then cover the pro-rated retirement payments for the many state positions funded at least partly by federal money is in the works for next session. The bill would also raise the employer contribution from a current 22 percent cap to an actuarial rate of about 30 percent for 2022 for State of Alaska participants in the Public Employee Retirement and Teacher Retirement systems that also cover many local government workers across the state. OMB Director Neil Steininger stressed during a Dec. 18 online gathering of the policy group Commonwealth North that the bill would only raise the employer contribution for the State of Alaska. The reshuffling in the bill would allegedly save the state about $43 million per year in retirement contributions subsequently picked up by other entities, mostly the federal government. Steininger noted that K-12 education is flat funded at the per-student level in the governor’s budget, but fewer students means a smaller overall expense. “It’s a fully funded formula that results in a budget reduction,” he said. The base student allocation has been $5,930 since 2017, though the Legislature periodically adds K-12 funds outside of the BSA formula. Statewide K-12 attendance is projected to drop by nearly 2,000 students to a daily average of 126,931 students next year. Dunleavy’s budget would cut the state’s total Department of Education and Early Development budget by $27 million, or just more than 2 percent. The governor is also proposing funding the state’s portion of the recently contentious school bond dept reimbursement program at half of the state’s historical obligation, or $41.8 million, as was the case in fiscal year 2020. After lawmakers and the administration had their nearly $1 billion plan to sell bonds to pay off the state’s oil and gas tax credit obligation unanimously ruled unconstitutional by the Alaska Supreme Court earlier this year, Dunleavy is proposing a return to paying the minimum annual statutory formula payment of $60 million in 2022, a move many Republicans roundly criticized when it was first made by former Gov. Bill Walker in 2016. The $60 million would come out of the Alaska Industrial Development and Export Authority’s large Revolving Fund, according to the budget bill. Dunleavy is proposing general funding for the Alaska Marine Highway System be cut about $3 million, or just more than 5 percent, as ferry system managers attempt to implement cost-saving recommendations made by the governor’s AMHS Reshaping Work Group this year, according to Steininger. While the administration has yet to release its final wish list for the $350 million bond package the governor announced with his budget, Steininger said the emphasis will be on “shovel-ready” projects. “What we’re looking for is (construction) jobs that will put people to work,” he said. Over the longer-term, the administration is looking to develop infrastructure that will lead to additional project development, such as the multiple roads to mining districts the state is currently advancing. There is likely to be broad support in the Legislature for the general concept of a mid-sized project bond package given the state’s $2 billion and growing deferred maintenance backlog, but finding agreement on which projects are included will be the primary challenge. DH-FCS Dunleavy formally pitched splitting the Department of Health and Social Services into two cabinet-level agencies Dec. 22 as a purportedly cost-neutral way to improve outcomes across the current department’s long list of programs. “The idea is to be able to make sure these programs do what they’re supposed to do with better oversight as opposed to a large, stodgy department,” Dunleavy said during a press briefing. The reorganization would put five current DHSS divisions into the Department of Health and another four into the Department of Family and Community Services. Each department would also receive a finance and management division, according to the governor’s office. Dunleavy said it would not add cost to state operations, but administrative expenses associated with the move weren’t immediately available. “It’s really a management issue in terms of redesigning the Department of Health and Social Services,” he said. DHSS currently has about 3,500 employees and a state general fund budget of more than $1.2 billion. “Any attention to one division is diverted from another,” DHSS Commissioner Adam Crum said of the current structure during the briefing. An executive order Dunleavy will submit to the Legislature would enact the split for the July 1 start of the 2022 fiscal year. The Legislature has 60 days to reject the proposal or it becomes law, according to the governor’s office. Elwood Brehmer can be reached at [email protected]

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