Elwood Brehmer

Budget picture gets worse with TAPS flow cut

Alaska’s finances are deteriorating so fast it’s even hard for the professionals tasked with doing so to keep up. Legislative Finance Director Pat Pitney told the House Finance Committee on April 22 that the Department of Revenue’s updated spring revenue forecast — which looked bleak when it was released April 6 — is likely “very optimistic” given what happened in the interim. That’s because what started as a small budget surplus before the Legislature approved this year’s Permanent Fund dividend distribution of $1,000 per eligible Alaskan, required supplemental spending and COVID-19 gripped the world has turned into a $1.3 billion deficit this year that will likely be at least $1 billion next year, according to Legislative Finance calculations. Revenue officials revised their spring forecast downward by nearly $530 million based on Alaska oil prices generally being below $30 per barrel for the rest of the 2020 fiscal year, ending June 30. At the time, Alaska North Slope Crude was selling in the $30 per barrel range following a broad agreement by major producing countries to cut global production in May by nearly 10 million barrels per day, or about 10 percent of total oil production worldwide. However, the promise of major oil supply cuts was still not enough to offset the demand drop from a global economy idled by COVID-19 work and travel restrictions. On April 20, domestic market oil prices fell into the red with the price of Alaska oil falling by $18 in a single day to -$2.68 per barrel, which Legislative Finance analyst Alexi Painter called a “paper negative” driven by trades in the futures market. While, according to Painter, there likely was no oil actually traded at a negative price and the price quickly rebounded to $9.01 per barrel the following day, it is an apropos descriptor of the State of Alaska’s fiscal situation. Civic-minded Alaskans are very familiar with the mantra that the state needs to fix its structural budget deficit as the debates over spending cuts and taxes have dominated lawmakers’ time since oil prices started falling in late 2014. Lawmakers off all stripes have routinely been sharply criticized — and voted out of office — for supporting unpopular budget remedies. But Pitney, former Gov. Bill Walker’s budget director, briefly revisited that history to illustrate just how drastically the State of Alaska’s fiscal picture has changed in less than 10 years. She noted that the state took in nearly $9 billion of petroleum-generated tax and royalty revenue in 2012. The “very optimistic” projection for this year is just less than $1.1 billion. The 2021 budget passed in late March calls for more than $5.1 billion of state spending, but Pitney noted that both the 2020 and 2021 deficits could grow further with supplemental spending packages needed to combat the effects of the pandemic and other, more common needs, such as wildfire suppression. “That traditional revenue stream is gone and with the price volatility and the uncertainty in the demand drop the coronavirus has brought, that less than a quarter of our revenue stream and our budget needs from oil is probably something we need to get used to,” she said. Alaska oil has temporarily stabilized in the $10 per barrel range in the days since and the Revenue Department expects Alaska oil to average just $37 per barrel in fiscal year 2021. Painter noted that at $10 per barrel companies are barely able to cover the cost of transporting the oil from the North Slope to West Coast markets. “The breakeven for all oil company spending is generally around $40 (per barrel) in Alaska, so even at the forecast price of $37, which would be a substantial increase from where we are, the companies are losing money,” he said. In 2018 lawmakers thought they had solved the majority of the structural budget imbalance by approving an annual 5.25 percent of market value, or POMV, on the Permanent Fund; it drops to 5 percent in 2022. The predictable POMV draw will grow from $2.9 billion this year to nearly $3.1 billion in 2021, but the state will feel the impacts of the COVID-19 pandemic through the POMV for years to come. The lost value of the Permanent Fund from recent financial market declines means the POMV will be $47 million less than previously expected in 2022. The annual POMV revenue forgone from a poor 2020 will peak at about $300 million in 2027, according to Pitney, before the year falls out of the five-year trailing average window used to calculate the POMV. That’s all based on the fund ending fiscal 2020 with a balance of $63.1 billion and immediately returning to its historical 7 percent historical return average. As of April 27, the fund had an unaudited value of $62.5 billion, up from $60 billion at the end of March. It peaked in late January with a total balance of nearly $67 billion. On top of all that, Aleyska Pipeline Service Co. said April 24 that it had begun to cut Trans-Alaska Pipeline System throughput by about 50,000 barrels per day to deal with a lack of oil storage capacity projected for late May in the system. Reducing TAPS throughput directly translates to less money for the state, but exactly how much will be forgone is unclear at this point due to a host of ever-changing variables. What is clear is that the original fiscal year 2020 North Slope production forecast of 492,000 barrels per day — another fundamental factor in the revenue estimates — will not be met. TAPS throughput for 2020 averaged 485,583 barrels per day immediately following the throughput cut. Pitney said before Alyeska confirmed the throughput proration that the Constitutional Budget Reserve, which once held roughly $14 billion and lawmakers have relied on to backfill annual deficits, will be down to $1.4 billion by the end of June and is likely to be functionally exhausted in a little more than a year without making structural budget changes. The Department of Revenue uses the CBR to manage daily cash flow and its March 31 balance of nearly $2.2 billion includes $465 million held in the state’s General fund as short-term cash flow borrowing, according to Pitney. She added that turning to the Permanent Fund’s $16 billion Earnings Reserve Account to backfill what the CBR can’t also has long-term consequences. Each $1 billion pulled from the account — which is the spendable portion of the Permanent Fund — beyond the POMV draw translates to $50 million less available each year in perpetuity. “We have to address the structural budget deficit soon and it’s going to be continued budget reductions, but it’s also got to be new and diversified revenue sources,” she said. “Changing the dividend formula is not enough to close the structural budget deficit.” Elwood Brehmer can be reached at [email protected]

Upside down: Alaska crude prices chart negative territory

Market forces that not long ago pushed refiners to pay a premium for Alaska oil have been turned upside down, further depressing an already collapsed oil market and deepening the financial pain of producers and the state. Alaska North Slope crude sold for an unprecedented price of -$2.68 on April 20, a daily drop of $18.09 according to the state Department of Revenue. At prices near zero, North Slope producers are losing an average of more than $30 on each barrel and oil royalty and production tax revenue to the State of Alaska is nonexistent. Longtime Alaska petroleum economist Roger Marks noted that while the prices for Alaska and West Texas Intermediate, the primary benchmark for Lower 48 oil are shockingly low — WTI sold for -$37.63 on April 20 — the price for Brent crude stayed relatively stable at $25.57 with a daily drop of just $2.51. The price for Alaska oil rebounded somewhat April 21 to $9.01 per barrel and WTI was back to $10.01 per barrel at the end of trading. Brent is the primary benchmark price for many of the water-borne oil trades made worldwide. The name originated from the Brent oil field in Europe’s North Sea. Marks said it’s possible just a small number of “distressed” sales by sellers needing to find a place to offload their oil in a vastly oversupplied market could have contributed to driving the ANS price down further. “ANS is a pretty thin market. There’s just a few sales a month that drive the public market,” Marks said. The vast majority of ANS oil is exported from Valdez to West Coast refineries and transportation constraints limit the amount of oil produced east of the Rocky Mountains that can be sent west. That soft barrier has led to the development of ostensibly two oil markets in the U.S. Per state regulations, Revenue officials estimate daily ANS price in part via reports from Reuters and Platts reporting services. There is no instant spot price data for the ANS market as there is for more widely traded oil benchmarks. The fact that the West Coast oil demand is largely from transportation — a sector hit particularly hard by the virus-induced economic shutdown — just adds to the challenges for those selling ANS crude, Marks said. He also said much of the oil refined in state is traditionally used to produce jet fuel, for which demand has all but dissipated as well. “If you want to buy (ANS crude) you can really lowball them right now,” Marks said. Chief Department of Revenue Economist Dan Stickel said state officials have also heard reports of West Coast refiners slowing their production due to COVID-19 infections among refinery personnel. Analysts expect extremely low or even negative oil prices to be a short-term phenomenon, as prices globally have not bottomed out to the degree of U.S. oil markets that appear to be even more saturated. According to the Energy Information Administration, West Coast refineries processed an average of 1.75 million barrels per day in the week ending April 10, which was down nearly 20 percent from more than 2.1 million barrels per day a year ago. The U.S. had a 35-day supply of oil as of April 10, the most recently available data. That is up about 25 percent from a year prior, according to the EIA. Recent reports worldwide have indicated oil tankers are being used as storage vessels in some instances where traditional storage means are full. Marks said Brent futures for June are still in the $30 per barrel range, indicating buyers feel there will be at least a little more balance to oil markets as global production is scaled back. “Not that $30 is good but at least there’s the right symbol in front of it,” he said. “(Oil prices) will come back. The world’s in a very, very weird place these days on a number of fronts and oil prices are just a response to that.” Leaders from the world’s top oil producing nations on April 12 announced a global agreement to cut 9.7 million barrels from daily production in May, or about 10 percent of oil production worldwide. The spread between the ANS and global Brent prices that is now hammering Alaska was benefiting the state just a few months ago. As recently as January ANS crude was trading at a $2 per barrel premium to Brent and in prior months Alaska oil had sold for up to nearly $4 per barrel more than Brent. At the prior price plateau of $60 to $65 per barrel, each dollar to the positive netted the State of Alaska an additional $42 million over the course of a year, Tax Division Director Colleen Glover said at the time. Industry observers then attributed the positive — for Alaska — differential to increased exports from Valdez to South Korea and President Donald Trump’s re-imposed economic sanctions against Iran that restricted the country’s ability to export oil. However, Marks, Stickel and other oil industry analysts have said ANS crude has been forced to compete with more Middle East oil of late on the West Coast, particularly from Saudi Arabia. Sen. Dan Sullivan has been among members of Congress pushing the administration to respond to Saudi Arabia’s part in flooding oil markets. Trump said April 20 his administration is considering a ban on Saudi oil imports in an attempt to stabilize domestic oil prices. An oil price war between Russia and Saudi Arabia ostensibly ended with the April 12 deal, but the full effect of the drastic production cuts isn’t expected until May and the consequences of the conflict, which started after the countries couldn’t agree to a production cut in February, have already been felt. Oil imports to the West Coast averaged just more than 1 million barrels per day during the four-week stretch ending April 10, a 9 percent year-over-year increase, according to the EIA, while refiners are using much less. Stickel emphasized that even though the current price situation is a scary one for the state’s finances, it’s not nearly as bad as it would have been a few years ago. That’s because since the Legislature and former Gov. Bill Walker approved an annual structured draw from the Permanent Fund’s earnings in 2018, oil now accounts for less than 20 percent of the state’s unrestricted revenue, he said. The Permanent Fund draw provides roughly $3 billion per year to state coffers. Stickel noted that revenue from oil and gas property taxes, which generated $121 million in 2019, is stable regardless of prices. Corporate income taxes from the large producers, on the other hand, will likely be “very minimal” in fiscal 2020, he said. Oil and gas corporate taxes netted $217 million to the state last year, according to the 2019 Annual Tax Division Report. Stickel also said oil production tax calculations are made based off of monthly average prices, so a given day or cluster of days with highly abnormal prices will not dramatically alter the overall calculation. Additional provisions of the state’s blended gross-net production tax system are based off of calendar year prices, making it even less likely that the immediate situation will significantly impact state finances over the long-term. The 4 percent gross tax “floor,” — which kicks in when the gross production tax calculation is greater than the net tax payment — gradually steps down to zero if prices average less than $25 per barrel for a calendar year. ANS prices have averaged about $45 per barrel so far in calendar 2020. The Revenue Department’s official forecast published April 6 for the average price in state fiscal year 2020, which ends June 30, is $51 per barrel. Alaska oil was selling for about $28 per barrel at the time. Additionally, the state receives royalties of at least 12.5 percent of the gross value of the vast majority of oil produced on the North Slope. Royalties are calculated based on the wellhead value of the oil minus transportation costs, which average about $9 per barrel, according to the Revenue figures. “As long as prices are above that (transportation cost) level, there will be a gross value so we’ll get some royalty,” Stickel said. If prices stay extremely low much longer than expected, issues between state auditors and producers could arise from having to interpret portions of the production tax law that haven’t previously been considered, he surmised. “It’s kind of an unprecedented situation,” Stickel said. Marks added that an extended period of ultra-low ANS prices could also lead producers to curb production beyond deferring drilling and other capital expenses. “The last place you can store oil is in your reservoir,” Marks said. “You can’t shut down an oil field but you can throttle it back.” That would go against traditional state policies that typically require companies to produce what they are capable of, but Marks said it could benefit both parties to wait until prices improve — if that’s what the markets eventually dictate. ConocoPhillips announced April 16 it would be cutting production by approximately 225,000 barrels per day in the Lower 48 and Canada. Division of Oil and Gas spokesman Sean Clifton wrote in an emailed response to questions that North Slope oil production typically hasn't fluctuated with oil price swings in part becasue it is sold on futures contracts negotiated well before the oil is produced and delivered. Clifton also noted that maintaining a certain level of throughput in the Trans-Alaska Pipeline System, or TAPS, is important for the operational integrity of the pipeline and upstream assets. Leaders at Alyeska Pipeline Service Co. have said there could be operational challenges with TAPS if daily throughput consistently falls below about 300,000 barrels per day; the pipeline currently carries roughly 500,000 barrels of oil per day. Division of Oil and Gas officials are holding discussions with producers to ensure a balance between resource development, infrastructure integrity and commercial sales, according to Clifton. ^ Elwood Brehmer can be reached at [email protected]

Hendrix bid to acquire Furie revived with AIDEA loan

An Alaskan bid for a struggling Cook Inlet gas producer appears to be back on following revisions to a state-backed loan for the purchase. The Alaska Industrial Development and Export Authority board of directors on April 15 approved technical changes to a March 4 resolution authorizing a loan up to $7.5 million to Hex LLC, a company formed late last year by longtime Alaska oil and gas industry player John Hendrix. Hendrix, through Hex, submitted the winning $15 million bid in a December bankruptcy auction for Furie Operating Alaska, a small Texas-based natural gas producer that operates the Kitchen Lights Unit and has contracts to supply a handful of Southcentral utilities. Originally from Homer, Hendrix was general manager of Apache Corp.’s operations in Cook Inlet prior to becoming former Gov. Bill Walker’s oil and gas policy adviser in 2016. But February court filings by Hex in Furie’s ongoing Chapter 11 bankruptcy case asserted that the auction was advertised as an asset sale but conducted as an equity sale to keep Furie in control of its Inlet operations and eligible to receive outstanding refundable tax credit payments from the state. In its bankruptcy filing, Furie claimed $105 million in outstanding credits owed by the state. Uncertainties stemming from a royalty claim filed by three minority owners in the state leases that Furie operates are alleging collectively shorted them an estimated $50.7 million also prevented Hex from obtaining financing for the sale, Hex attorney David Bundy wrote at the time. Attorneys for Furie and its primary lenders countered in separate court filings that Hex did not negotiate “in good faith” during the process, an allegation Bundy disputes. With Hex unable to finance the purchase, one of Furie’s primary lenders New York-based Melody Capital Partners LP attempted an acquisition by foreclosure through a firm it formed with GFR Holdings LP of Dallas, Kachemak Exploration LLC. Melody Capital Partners was one of several lenders that collectively loaned approximately $244.5 million to Furie, according to court filings. However, Hendrix told the AIDEA board April 15 that he recently signed an agreement to acquire Furie and his company is now moving towards a June 30 closing date. An omnibus court hearing is scheduled for May 8. Hendrix and others involved in the case have declined to discuss details of the proceedings as they are ongoing, but he said to AIDEA leaders that he hopes to increase in-state employment within Furie. Sources said the global recession that has accompanied the COVID-19 pandemic and caused significant downturns in financial and energy markets largely scuttled the Kachemak Exploration proposal. Hendrix said Furie works with Alaska-based contractors, but the company’s workforce is mostly Lower 48 workers. According to a memorandum outlining the $7.5 million loan, Hex’s purchase would initially provide 15 new resident jobs on the Kenai Peninsula and support another 300 indirect jobs. “We see a great opportunity to — it’s called studying the rocks and getting back to base management,” Hendrix said to the AIDEA board, adding that he hopes to look for more drilling opportunities for oil and gas. Furie officials said in 2017 they planned to work on developing oil prospects in the Kitchen Lights gas field, but those plans were largely scuttled because of the state’s delay in repaying millions of dollars in oil and gas tax credits the company earned for its previous work, according to the company’s filings with the state Division of Oil and Gas. The company filed for Chapter 11 bankruptcy protection Aug. 9 in federal Bankruptcy Court for the District of Delaware. According to the company’s bankruptcy petition, Furie owed lenders approximately $440 million when it filed for Chapter 11 protection and was also owed roughly $105 million in refundable tax credits from the State of Alaska. The company installed the Julius R platform in the Kitchen Lights field in 2015, which at the time was the first new production platform the Inlet built since the 1980s. Furie officials estimated the value of the company’s assets at between $10 million and $50 million in their initial bankruptcy filings. The financial challenges were nearly continuous for the company, which had net gas sales of $25.4 million and absorbed a net loss of $58.5 million in 2017, according to the bankruptcy filings. The situation worsened in 2018 when the company sold $42.8 million of natural gas but took a loss of nearly $152 million. Furie lost $21.4 million in the first quarter of 2019, when a freeze-up in a gas production pipeline kept the company from supplying HEA and Enstar with gas for more than a month. Once gas deliveries resumed, Furie was only able to supply Enstar with less-than-contracted amounts for several months as well. Elwood Brehmer can be reached at [email protected]

Bond sale paused for Interior Energy Project

A long-awaited decision on how to increase the availability of natural gas for businesses and residents in the Fairbanks area was put on hold April 21 to allow the current unprecedented economic situation to play out at least a little more. Interior Gas Utility board members started an April 21 work session intending to vote on a resolution authorizing up to $78 million in revenue bonds to fund expansion of the utility’s small Titan LNG plant at Point MacKenzie in Southcentral Alaska. However, IGU General Manager Dan Britton said early in the videoconference meeting that he was rescinding his recommendation to approve the project given the broad financial uncertainties stemming from the COVID-19 pandemic. “I continue to believe that utility-owned liquefaction is best,” Britton told the IGU board, “but we cannot ignore the short-term realities of these unprecedented times.” The Titan LNG expansion project would have roughly quadrupled the plant’s gas liquefaction capacity from roughly 1 billion cubic feet, or bcf, to 4 bcf per year. The final investment decision was supposed to be the culmination of more than six years of work on the $330 million Interior Energy Project to get more natural gas to the Fairbanks area that started with the Alaska Industrial Development and Export Authority’s examination of a North Slope LNG plant. That plan was scrapped following a lengthy economic evaluation that concluded high North Slope construction costs would result in final gas prices to consumers that would be too expensive to entice residents and businesses to convert from wood and fuel oil and heat. IGU board members thanked Britton for not wanting to push ahead on a project that has been years in the making at a time when nearly every aspect of daily life has been disrupted. Britton’s “pause” recommendation came as oil prices worldwide — which the natural gas utility competes with through the price of fuel oil — fell to new lows. The price for Alaska North Slope crude briefly went negative April 20 and ended April 21 at $9.01 per barrel. Public commenters largely concurred with the change of plans, urging the young utility to work on ways to attract new customers that would help grow the demand base for gas when the plant is expanded and improve the economics of the project for everyone. The IGU board did not set a new date to revisit the Titan plant expansion, but some members said they hope a decision can be made soon. Britton thanked IGU staff and contractors for all the work that has already gone into the project as well. “There has been a ton of effort that has gone into this and I don’t want that to go unrecognized,” he said. IGU officials recently completed a 5.25 million-gallon LNG storage tank in Fairbanks that has increased the utility’s annual demand capacity by approximately 40 percent, according to board chair Steve Haagenson. Britton said during a March 4 AIDEA board meeting that while there has been years of study and debate over how many residents will invest the thousands of dollars — in some cases — needed to convert their homes to natural gas, he expects larger businesses, such as retail box stores, to be some of IGU’s first new customers. While residents will mostly focus on whether gas is cheaper than fuel oil or other energy sources, many business owners would sign up for gas to get rid of the inherent environmental liability in large, buried fuel oil storage tanks, he said at the time. Britton said utility leaders continue to examine new options for gas supply but he is not concerned about IGU’s ability to secure a new and larger supply of natural gas. The utility’s existing contract with Hilcorp Energy expires in 2021. In 2018 Siemens Government Technologies pitched what company representatives called a “turnkey” proposal to IGU in which the international industrial company would use modular LNG production facilities and currently undeveloped gas sourced from the Susitna Valley to deliver LNG to Fairbanks via the Alaska Railroad. However, the IGU board ultimately rejected the plan after Siemens representatives could not provide sufficient details regarding their gas supply plan. Elwood Brehmer can be reached at [email protected]

ConocoPhillips announces $200M more in Alaska cuts

ConocoPhillips will cut another $200 million from its Alaska work program this year, company executives said this morning shortly before oil prices fell to the lowest level in 18 years. The formal announcement of the spending cut comes about a week after ConocoPhillips told its North Slope drilling contractor, Doyon Drilling, to demobilize its drilling rigs and crews in an attempt to limit the spread of COVID-19. Doyon Drilling is a subsidiary of the Interior Alaska Native regional corporation Doyon Ltd. In mid-March ConocoPhillips executives announced an initial $200 million capital spending reduction but the company did not elaborate as to where the spending reductions would come from at the time. ConocoPhillips spent approximately $1.5 billion on capital projects in Alaska last year. CEO Ryan Lance said in a conference call that ongoing cuts to oil production worldwide simply have not been enough to offset the demand loss stemming from the economic shutdowns imposed to limit the spread of COVID-19. “We expect prices over the next few months — they will be weak and they will be volatile,” Lance said. On April 12, leaders from the world’s top oil producing nations announced a global agreement to cut 9.7 million barrels from daily production in May, or about 10 percent of oil production worldwide. However, vastly oversupplied oil markets have not responded. The price of Alaska North Slope Crude fell to $16.65 per barrel on Wednesday, according to the Alaska Department of Revenue, the lowest price since January 2002. ConocoPhillips leaders touted a strong and restructured balance sheet after the 2014-16 oil price downturn with a focus on being profitable at oil prices of $40 per barrel. “Current prices are well beyond our planning range and we believe these are prudent levers to exercise in the circumstances,” Lance said. Companywide, ConocoPhillips has reduced spending by $5 billion from prior expectations since early March. The company expects to curtail oil production by about 225,000 barrels per day in the Lower 48 and Canada. Chief Operating Officer Matt Fox said further estimates on oil production were not available in part because of market uncertainty. Spokesman John Roper wrote in an email that no layoffs have been announced. “We continue to monitor the market situation. But at this time, based on our current outlook, we chose to maintain organization capacity so we can resume programs in the future,” Roper wrote. In addition to ConocoPhillips’ overall $400 million capital investment cut, Oil Search Alaska said in March it would reduce development spending on its large Nanushuk oil project by $70 million this year. BP also said in late March that it was suspending its two-rig drilling program at Prudhoe Bay. Fox also said the ConocoPhillips’ exploration drilling program on the North Slope was cut short due to prevent an outbreak of the virus in remote drilling camps. ConocoPhillips Alaska leaders previously said the company planned to drill seven exploration wells in the National Petroleum Reserve-Alaska this winter. An Alaska spokeswoman did not return questions in time for this story about the company’s ongoing near-term North Slope development projects such as Greater Mooses Tooth-2 and Nuna. Look for updates to this story in an upcoming issue of the Journal. Elwood Brehmer can be reached at [email protected]

Satellite broadband project scuttled by coronavirus

An international partnership aiming to boost Alaska’s broadband connectivity is over as a result of the COVID-19 pandemic. London-based OneWeb, an emerging global satellite broadband company, filed for Chapter 11 bankruptcy March 27, effectively ending a deal the company had just made with Anchorage-based telecom Microcom. Microcom founder Chuck Schumann announced in mid-January an agreement to be a distributor of space on OneWeb’s then-growing global broadband satellite network for Alaska and Hawaii through Microcom’s broadband subsidiary Pacific Dataport Inc. A statement on OneWeb’s website says the company had been in advanced negotiations for investment that would have funded it through its commercial launch. “While the company was close to obtaining financing, the process did not progress because of the financial impact and market turbulence related to the spread of COVID-19,” the statement says. OneWeb previously touted large international partners and investors such as fellow telecoms Hughes and Qualcomm as well as Coca Cola and Dutch aerospace giant Airbus. The partnership with Pacific Dataport was targeting large customers with Pacific Dataport selling wholesale broadband capacity on OneWeb’s network, which was based on a massive fleet of low-earth orbit, or LEO, satellites. OneWeb representatives said the broadband network was scheduled to be up in Alaska by the end of the year. Schumann said in an interview that he was very disappointed to hear about OneWeb’s bankruptcy, but noted the partnership was intended to add supplemental capacity to Pacific Dataport’s own Aurora broadband project. “They had funding, everything was going forward and they were in a good place. We had some meetings in (Washington) D.C., that first week of March and everything was in place,” Schumann said of OneWeb. “And then, from the COVID crisis, the oil prices and the stock market tanked, which caused their financers, their backers to back out, so they stepped out and left OneWeb hanging.” The regulatory issues inherent in a global network of LEO satellites are a constant challenge, according to Schumann. He said OneWeb needed to deploy about 200 satellites to make the project work with Pacific Dataport. The company had launched 74 satellites out of a total program of approximately 700, OneWeb said in a statement. About half of its ground 44 stations were complete or under construction as well. Northern latitudes were going to get the first coverage as OneWeb continued to launch its satellite fleet from north to south through much of next year, company representatives said in January. Schumann said it’s unclear at this point what impact the ongoing economic shutdown will have for Pacific Dataport’s Aurora broadband project, but he expects it to be delayed at least several months. Announced in January 2019, the Aurora project will utilize two geosynchronous equatorial orbit, or GEO, satellites specifically positioned to provide broadband coverage to Alaska. Pacific Dataport’s satellite manufacturer, San Francisco-based satellite developer Astranis Space Technologies Corp. is in the process of drafting a report briefing its customers as to what the current economic and supply chain situation means for its business and development schedule, according to Schumann. “The difficulty over the last couple of weeks has been trying to predict what was going to happen next week,” he said. “Things change — I mean, every four hours it seems it’s different.” The first Aurora satellite was scheduled to launch late this year with 10 gigabits of broadband capacity. A second satellite increasing the network capacity to 80 gigabits was set for 2022. Schumann is also trying to determine how satellite launch schedules have changed in recent weeks. “It’s got to impact us a little bit — within a matter of months, anyway,” he said. For a host of reasons, Alaska is consistently listed among the states with the lowest levels of broadband coverage in the country. Currently, Alaska has about 2.5 gigabits per second of satellite bandwidth across multiple broadband providers, according to Pacific Dataport. He said Alaska’s lack of broadband capacity has just been exacerbated by many people being forced to work from home and hold videoconference meetings while health care providers are trying to deliver telemedicine during a health crisis. “Rural Alaska is really hurting for additional capacity, additional connectivity, and there’s just nothing there,” Schumann said. The current work restrictions and health guidelines have added another layer of complexity to Microcom’s ongoing service as well. Microcom has approximately 30 technicians that work in the field while administrative employees are working from home, according to Schumann. As has been the case for many companies similar situations, it was difficult obtaining basic personal protective equipment and hand sanitizer for employees in the first couple weeks that COVID-19 spread across the country, Schumann said, noting that the availability of those products has improved of late. “We’re starting to get a handle on it. Nobody was ready for the crush of requirements — the crush of demand for those products,” he said. Elwood Brehmer can be reached at [email protected]

Doyon wants agreement with AIDEA before Ambler road work continues

As leaders of the state development bank work to advance a controversial road to access remote mining prospects in Interior Alaska, one of the primary landowners along the route contends they have not been adequately consulted and need much more information before they can approve of the project. Doyon Ltd. CEO Aaron Schutt wrote in an open letter to Alaska Industrial Development and Export Authority Executive Director Tom Boutin dated April 7 that while the authority has been deeply involved with the Bureau of Land Management on the environmental review for the road, “AIDEA has for years failed to engage with Doyon in any meaningful communication” regarding the project. Doyon is the Alaska Native regional corporation for most of Interior Alaska. Holding title to just more than 11.5 million acres, Doyon is also the largest private landowner in the state. Doyon owns land that the road would cross at its east end, near the village of Evansville and the Dalton Highway. As proposed, the Ambler Mining District Industrial Access Project, commonly known as the Ambler road, would run west from the Dalton Highway for approximately 211 miles along the southern flank of the Brooks Range to the Ambler mining district. The area in the upper Kobuk River drainage has long been prized by mining companies for its high-grade prospects of copper, gold and other metals. Several companies are in varying stages of exploring numerous claims in the roughly 75-mile long district, but road access has consistently been cited as a required precursor to developing mines in the isolated area. Under the authority’s plan — modeled after the access road and port built to the Red Dog zinc mine in Northwest Alaska — AIDEA would own the road and recoup development costs through tolls paid by the mining companies that use it. State officials backing the plan have long stressed the road would be closed to the public and access would be closely monitored, though many skeptics of the plan question the feasibility and legality of restricting access, as roughly $26 million of state general fund money has already been approved for the project. However, many residents of the area have long opposed the road and the mines. They contend the construction of the road could disrupt the Western Arctic caribou herd that migrates through the corridor and is a primary subsistence food source for the villages clustered at each end of the route. Some are also concerned about the practicality of keeping the road closed to the public, fearing that a new route into the remote area could bring more hunters. The proposed mines have also drawn scrutiny for potential impacts to salmon and whitefish runs in the Kobuk River drainage. AIDEA originally estimated construction of a basic gravel road would likely cost somewhere in the $300 million range, but projections in the Ambler road final environmental impact statement, or EIS, issued by BLM March 27 put the cost at more than $500 million. BLM Alaska officials have supported AIDEA’s plan. The agency led the EIS work because it is in charge of reviewing the authority’s application for a road right-of-way across portions of federal lands in the area. Also on March 27, the AIDEA board of directors approved a transfer of $35 million from the authority’s Revolving Fund to its Arctic Infrastructure Development Fund to eventually support development of the Ambler road. Board members said the money would likely fund engineering, right-of-way acquisitions, public outreach and other pre-construction activities this summer. Schutt emphasized in the letter that AIDEA does not have an access agreement with Doyon either for the road right-of-way or for additional field work. Though many opposed are Doyon shareholders, the company does not have a formal stance on the project; the company has filed comments through the EIS process outlining the concerns with the project it wants the authority to address, according to Schutt. “AIDEA has never even presented a written proposal to Doyon for such access, much less a written proposal or detailed information regarding the (right-of-way). As such, AIDEA and its contractors do not have permission to enter or cross Doyon lands to conduct any field work in the summer of 2020, or at any time,” he wrote, while also noting that AIDEA does not have eminent domain authority granted to some state agencies. AIDEA spokesman Karsten Rodvik wrote in an email that the board approved the transfer of the $35 million “in support of Gov. Dunleavy’s Open for Business initiative.” “AIDEA is committed to working with all stakeholders to move this project forward in a responsible manner, to utilize the state’s extensive mineral resource potential to provide much-needed long-term economic growth and development, and to create job opportunities,” Rodvik wrote further. According to Schutt, Doyon is open to discussing the project and he specifically requested AIDEA officials provide Doyon with technical information for the portion of the road that would cross the company’s lands; information regarding a financial proposal for a right-of-way across Doyon lands; a detailed financing plan for the overall project; and how AIDEA plans to address concerns raised by the Evansville Tribe and Evansville Inc., a Native village corporation. In 2014, the Evansville Inc. board of directors passed a resolution prohibiting the road from crossing the company’s land around the village and the Evansville Tribal Council also passed a resolution in 2017 opposing the road. Doyon spokeswoman Sarah Obed also said representatives for the Native corporation have met with AIDEA officials several times over the years to discuss the Ambler road and generally asked each time about the items outlined in the letter. Elwood Brehmer can be reached at [email protected]

ADFG: Safe conduct of salmon fisheries is possible

State fisheries managers insist it is too early to close commercial salmon fisheries to prevent the spread of COVID-19 despite growing concerns from many in small communities about the coming influx of seasonal workers. Alaska Department of Fish and Game Commissioner Doug Vincent-Lang said in an interview that he is certainly aware of the issues that could arise from holding spring and summer salmon fisheries that start next month as everyone also attempts to limit the spread of the disease, but he stressed state officials are drafting plans to provide extra protection to local residents and fisheries workers. He also noted that salmon is just one sector of the state’s diverse and year-round fishing industry. “I think people are wondering whether we’re going to have fisheries; I think they forget that we actually have a lot of fisheries in the water right now and we’re geared up to manage those,” Vincent-Lang said. In addition to numerous federally managed fisheries, commercial boats are currently targeting crab, halibut, rockfish, pollock, Pacific cod and other species in state waters. Commercial and charter fishing have been deemed essential industries by state officials through the COVID-19 travel and work restrictions, meaning they can continue as long as participants submit operating plans to the state Commerce Department that adhere to current health mandates. Those ongoing fisheries “have been operating fairly smoothly,” he said, and ADFG managers are learning a lot about the daily operations of a fishery in the era of social distancing and travel restrictions that can be applied to the upcoming salmon seasons. “We’re learning how to be adaptive,” Vincent-Lang said. For example, managers are using new ways to sign fish tickets that verify catches and take biological samples used for management from harvested fish, according to Vincent-Lang. Dillingham Mayor Alice Ruby and Curyung Tribe First Chief Thomas Tilden urged Gov. Mike Dunleavy to consider closing the Bristol Bay sockeye fishery in a letter dated April 6 citing concerns about the region’s limited capacity to provide health care and a possible need to make the decision early to allow impacted fishermen and processors to apply for federal aid. In Cordova, home to the state’s first large-scale salmon fishery each year in mid-May at the mouth of the nearby Copper River, residents have started a KEEP CORDOVA SAFE website, containing numerous open letters to local and state officials demanding further travel restrictions for fisheries workers and suggesting only local fishermen be allowed to fish, among other measures. The leaders of 11 Bristol Bay processing companies followed up with an April 7 letter to regional leaders outlining their strategies for safe operations this summer in what has been a $300 million fishery in recent years. Vincent-Lang said the department is ready for the Copper River chinook and sockeye season and the first opener will be around May 14 with normal adjustments for weather and water conditions. “We’re expecting a fairly high participation rate in that fishery,” he said. Cordova Mayor Clay Koplin said in a prior interview with the Journal that processor companies have submitted detailed plans to the city for managing their crews this summer and some include bringing additional medical personnel to Cordova. As for Bristol Bay, where fishing starts in June and typically peaks in early July, Vincent-Lang said he has seen several plans from processors there as well. Processors are protecting public health by also making quarantines mandatory for their workers upon arrival on top of state and local government mandates as well as keeping them “on campus” throughout the season to limit interaction with local residents. “What I’m doing is telling local community leaders to be is patient; this is working its way through,” Vincent-Lang said. “We’re learning things as we conduct fisheries right now and it’s premature to make a decision to close those fisheries at this point. As we gear up we’ll be sharing our plans with you to understand what we’re doing to protect public health in those areas.” Bristol Bay Borough Mayor Dan O’Hara said he and other officials from area fishing groups and local governments have participated in teleconferences with Seattle-area processors and state officials in recent days to more closely coordinate operations this summer. O’Hara said the Bristol Bay Borough, which covers the communities of Naknek and King Salmon and receives more than $4.5 million in fish landing taxes each year, is not interested in closing down the salmon fishery this year. He also said it is too soon to take such a big step. Instead, “there’s nobody coming off the water to the mainland” at Naknek’s docks, O’Hara said as long as current state work, travel and distancing mandates persist. He said the borough assembly passed a resolution in April restricting travel into its communities beyond the governor’s health mandates but borough leaders were later informed by the governor’s office they did not have the authority to do so. Exactly what authorities local governments have to restrict travel and other specific activities during the ongoing public health emergency is also being worked out statewide. “We don’t need to be stepping around him,” O’Hara said of Dunleavy’s orders. As of April 14, Bristol Bay Borough administrators had received seven plans from processors, according to O’Hara. “They plan on either chartering in (workers) and being tested before they get here and just getting on the bus and going straight down to the processing plant, shutting the campus completely down and they’ll not come out of there until the fishing season’s over, and I think that’s a good plan,” he said. “As mayor I’d prefer that nobody comes here prior to May 15 but we already have 400-500 people here and they’re of course following the quarantine.” The Bristol Bay Borough will maintain the restrictions it can at least until public health officials have a better handle on the virus, according to O’Hara. If the situation improves, mandates could be lifted. Managers also must consider what not having a fishery could mean for future runs. Nearly 50 million sockeye are expected to return to Bristol Bay rivers this summer and not catching the vast majority of them would make for salmon escapements that would far exceed the goals for each river. Commercial fishermen usually harvest approximately 75 percent of the sockeye that return to Bristol Bay rivers. At a high level, managers typically try to allow sufficient numbers of fish to escape and spawn to generate the highest return based on historic data and scientific modeling. Allowing additional salmon to escape harvest and spawn can increase competition for food among juvenile salmon rearing in freshwater and reduce the productivity of future runs. “We don’t want to damage the long-term health of those ecosystems in terms of fish reproduction, but second of all it provides a significant economic boost to that local community in terms of income to fishermen and income to the local community,” Vincent-Lang said, while also stressing that accounting for those considerations will not come at the expense of public health. “We’re not going to just harvest fish and put the local health at risk.” Elwood Brehmer can be reached at [email protected]

Giessel, von Imhof ask Mnuchin about restrictions on CARES Act spending

Two Alaska Senate Republican leaders have asked Treasury Secretary Steven Mnuchin what states can’t spend COVID-19 relief funds on after Gov. Mike Dunleavy said several of the items he vetoed from the state budget will be covered with the federal aid. Senate President Cathy Giessel and Finance Committee co-chair Sen. Natasha von Imhof sent a letter to Mnuchin April 9 seeking clarifications as to what Dunleavy is not allowed to spend the more than $1.25 billion the State of Alaska is set to receive in COVID-19 relief funding from the $2.2 trillion Coronavirus Aid, Relief, and Economic Security, or CARES, Act passed by Congress in late March. On April 7 Dunleavy announced more than $210 million worth of line-item vetoes to general fund spending across a suite of programs in the fiscal year 2021 state operating budget as collapsed oil prices again worsen the state’s structural annual deficit. He said in a press briefing, however, that federal CARES Act funds would be used to backfill the vast majority of the vetoed state money, including funds for programs Dunleavy has previously battled over with legislative leaders. Officials in the governor’s office said the letter misrepresents what the administration is attempting to do with the CARES money, contending money that would flow directly to large cities elsewhere in the country will have to be distributed to local governments by the State of Alaska because no communities in the state are large enough to meet certain provisions in the massive federal aid package for cities of more than 500,000 people. Dunleavy’s spokesman Jeff Turner wrote in an emailed statement that the letter “contains some inaccuracies about the CARES Act.” “There are several sections within the CARES Act that contain federal funds for specific state programs like K-12 public/university education, transportation and local governments. Those sections are outside of the $1.25 billion the state will receive later this year. “Gov. Dunleavy, like other governors around the country, are waiting for additional guidance from the Treasury Department on how the administration can distribute federal CARES Act funds,” Turner wrote. Giessel and von Imhof wrote in a joint emailed statement: “While we share the governor’s hope that these programs can be made whole with federal funds, we also understood it to be our responsibility as the appropriating body to do our due diligence and receive formal clarification.” The letter to Mnuchin was copied to the members of the federal delegation but not the governor’s office. According to documents prepared by the Office of Management and Budget, the administration plans to use CARES money to cover nearly $208 million worth of vetoed items, most of which pertain to community assistance funding, K-12 education and the share of school bond debt reimbursed by the state each year. Dunleavy said the $100.1 million in school bond debt payments he vetoed would be covered under the CARES Act because local governments across Alaska are going to lose tax revenue due to the statewide economic shutdown enacted to slow the spread of the virus. The governor also vetoed a $30 million K-12 education appropriation made by the Legislature outside of the state’s typical education funding formula and another $30 million in community assistance grants approved in the supplemental budget for the current 2020 fiscal year that ends June 30. Linking the vetoes to the CARES Act drew a sharp response from House Speaker Bryce Edgmon, I-Dillingham, who called the approach “incredibly troubling” and claimed the governor is using the pandemic to justify vetoing budget items he never supported in a formal statement. The senators’ letter to Mnuchin describes eligible expenditures for CARES Act funds as those directly related to the COVID-19 emergency; those not accounted for in the most recently approved budget and expenses incurred from the beginning of March through the end of December. “Legitimate COVID-19 related funding concerns, subject to the provisions of the CARES Act, are expected. For example: Items that are directly COVID-19 related that were not considered in FY20 (either through the operating budget or its supplementals) are anticipated. But can the Governor claim to veto items in the FY21 budget, even if the funding is not directly related to COVID-19 health crisis (like school bond debt reimbursement or covering operational costs for the Alaska Marine Highway System)?” the letter asks. Giessel and von Imhof also noted a $12.5 million veto to the University of Alaska budget in the letter to Mnuchin. Dunleavy said April 7 that veto was to return the spending to the amount agreed to last year with the board of regents in a three-year compact. Last June, Dunleavy vetoed more than $440 million from the 2020 budget — which included reducing the school debt and community assistance payments — following a contentious and prolonged budget process. Those vetoes helped spur an ongoing effort to recall him from office. According to Office of Management and Budget estimates, Alaska will receive $38.4 million in K-12 funding, $10.5 million in higher education funds and $6.6 million in governor’s emergency education relief funds. Further, it’s the administration’s position is that the school bond debt payments are discretionary and transferring money to local governments is a state expenditure that should be covered, in part because the fall in oil prices over recent weeks has reduced the state’s 2021 forecasted revenue by more than $800 million, or about 17 percent of the overall budget. According to the governor’s office, Dunleavy likely would have made the same vetoes had the state’s fiscal picture similarly deteriorated without the pandemic. Oil prices started falling in late February from a fairly steady plateau in the mid-$60s per barrel as global oil demand fell off after China implemented widespread travel restrictions. Prices went into a tailspin — hitting close to $20 per barrel — starting in early March when Saudi Arabia and Russia started a price war that was just settled April 12 in a broad deal to cut global production by nearly 10 percent. The state has traditionally paid the majority of the debt service incurred by local governments for school construction under a statutory program that the Legislature suspended in 2015. Lawmakers have continued to fund debt service for bonds sold when the program was active, but the final assistance is subject to the annual budget process. Last year, Dunleavy halved the state’s school bond debt reimbursement payment to $49 million and vetoed another attempt to restore the funding. The administration also doesn’t intend to use CARES money to supplement state ferry operations, which have been minimized as travel has been curtailed, officials in the governor’s office said, adding that Dunleavy has spoken with Mnuchin twice about the federal aid. Elwood Brehmer can be reached at [email protected]

New data, old well add up to major North Slope find

With one unique North Slope oil discovery already in hand, a small group of explorers claims to have found another prospect on par with one of the state’s largest oil fields that is worth developing even at near rock-bottom prices. Leaders of London-based Pantheon Resources said in an interview with the Journal that a modern evaluation of an old exploration well along with information gleaned from recent nearby drilling gives them the confidence to say they have a roughly 1.8 billion-barrel discovery south of Prudhoe Bay along the Dalton Highway and Trans-Alaska Pipeline System corridor. Pantheon CEO Jay Cheatham said the prospect, dubbed Talitha, could ultimately produce approximately 500 million barrels of oil with peak production nearing 90,000 barrels per day, which would make it comparable to ConocoPhillips’ large Alpine field to the northwest. If the resource estimates prove out, Talitha would be the latest in a series of big North Slope oil discoveries over roughly the past five years, which has led many within the industry to conclude there is a “renaissance” occurring in what was once the country’s premier oil basin. However, while the economics of large North Slope prospects are routinely challenged by remote locations and a lack of infrastructure, Talitha and Pantheon’s nearby Greater Alkaid project avoid those multibillion-dollar hurdles, according to Cheatham. ConocoPhillips and Oil Search, two of the companies advancing major new North Slope oil projects, recently announced a collective $270 million pullback of previously forecasted investments. “We are so advantaged because of our location — being able to be right there along the Dalton Highway,” Cheatham said. The company has estimated the Greater Alkaid prospect, which is believed to hold 76 million barrels of recoverable oil, could produce up to 30,000 barrels per day. The Alkaid-1 well was drilled in 2015 by Anchorage-based Great Bear Petroleum, Pantheon’s predecessor firm on the project. It is just east of the Dalton and about 20 miles south of Prudhoe. Pantheon bought Great Bear and its roughly 200,000 acres of North Slope leases in January 2019. Results from the Pipeline State-1 exploration well drilled by Arco in 1988 also helped form the basis of geologic data that led Pantheon leaders to conclude they have a very large resource. The Pipeline State well is also just east of the haul road and about 6 miles south of the Alkaid prospect. Pantheon Technical Director Rob Rosenthal, a founding member of Great Bear, said the well data from Greater Alkaid was combined with the old Pipeline State well test results and data from a modern 3D seismic shoot of the whole area to give a better picture of what lies beneath. “It’s essentially in the same rocks, in the same stuff, in the same play,” as the Alkaid well, Rosenthal said of the Talitha prospect. He added that even though the 10,000-foot vertical Pipeline State-1 well has a roughly 2,200-foot oil-bearing column over four reservoirs, with the technology and oil prices of the late 1980s it did not add up to a viable prospect at the time. “There would have been no call back at $10 oil to go out and shoot 300-400 square miles of 3D (seismic), but today with the drilling technology, the completion technology, we can make this commercial,” Rosenthal said. Pantheon is so far focusing on the shallowest reservoir. Cheatham stressed the “dual advantage” that being adjacent to the haul road and TAPS provides the company. First, it allows Pantheon to avoid the massive up front costs of installing miles of remote gravel roads, drilling pads and pipelines and the corresponding multi-year environmental reviews that North Slope operators routinely face. It also makes it much easier for Pantheon to produce oil — and cash flow — early to help support full development of Talitha. “It’s not like you’ve got to put in your whole facility. We can get (the wells) online virtually as we drill them,” Cheatham said. Rosenthal added that the location also allows Pantheon to work year-round, while other companies are forced to limit appraisal drilling and early project development to the ice road season. It all adds up to projects that are viable at oil prices in the $30 per barrel range, according to Cheatham. The price for Alaska North Slope crude hovered near $30 per barrel in the second week of April as Saudis and Russian officials worked to end their production and price war that added downward pressure to oil markets already flooded with supply after the severe COVID-19-induced drop in demand started a month ago. Full development is currently envisioned as about 170 wells split roughly evenly between water injectors and producers, a high-level plan similar to what was used to develop Alpine, he said. Company leaders are hopeful development could begin in 2022 or 2023 if the global pandemic and subsequent economic shutdown do not persist for many months. Cheatham and Rosenthal told the Journal in January that they planned to drill one or two more wells this year around Alkaid-1 and initiate a long-term production test, but that work is on hold at least until travel restrictions ease. They acknowledged that Pantheon will need to find a partner to help finance large-scale development and that is challenged right now as well. However, when Pantheon begins in earnest its search for financing for its projects, Rosenthal said he does not believe the company will be hampered by the decisions numerous investment banks have made in recent months to stop funding Arctic oil developments because Greater Alkaid and Talitha aren’t in sensitive or otherwise controversial areas. “When they say ‘Arctic’ they mean offshore or ANWR or things like that,” Rosenthal said. “I don’t think there’s necessarily a blanket ‘we’re not going to fund anything in Alaska,’ but it’s up to us to send out a positive message about what we’re doing.” Cheatham said the project economics — and again, location along existing infrastructure — will be the ultimate deciding factor in whether or not Pantheon gets the money it needs for its work. “We are economic really at prices that are so low that if any large projects get new funding we believe that ours would be right at the top of the list,” Cheatham said. ^ Elwood Brehmer can be reached at [email protected]

88 Energy drilling program misses oil, hits condensates

A small Australian explorer is reporting mixed initial results from an exploration well drilled last month in an area south of the largest North Slope oil fields. Leaders of 88 Energy announced April 7 that the Charlie-1 well hit a large pool of natural gas condensates in the Torok sand formation but did not hit the concentrations of oil they were hoping for. The Charlie-1 well was drilled roughly 30 miles west of the Dalton Highway and about 35 miles south of Prudhoe Bay. It is a western step-out from 88 Energy’s Icewine oil project centered on a drilling pad near the Dalton. 88 Energy is the operator of nearly 480,000 acres of continuous leases that run east-west along the southern North Slope and are bisected by the haul road and Trans-Alaska Pipeline. The company works in Alaska under its wholly owned subsidiary Accumulate Energy Alaska. The Charlie-1 well targeted conventional oil prospects in the Brookian geologic sequence largely based off of data from the nearby Malguk-1 well drilled by BP in 1991. 88 Energy Managing Director David Wall said in a statement that samples of the gas condensates will be analyzed for commercial viability over the coming months. “On the one hand, we have confirmed the presence of mobile hydrocarbons in the primary targets of the well, but, at the same time, there are challenges that need to be more fully understood related to whether these can be commercialized on the North Slope,” Wall said. Condensate samples were taken from the Torok formation — a subset of the Brookian sequence — at approximately 10,500 feet and 10,650 feet, according to the April 7 statement. Wall added that shallower targets were found to hold water and not have proper sand accumulations. The total project was expected cost approximately $23 million, according to estimates made prior to drilling. 88 Energy is one of several small independent companies exploring areas south of Deadhorse primarily for Brookian oil targets. 88 Energy’s prior Icewine drilling was focused on shale zones along the Dalton highway. While 88 Energy is the primary operator over the broader Icewine acreage, Charlie-1 drilling was farmed out to London-based Premier Oil for a 60 percent stake in roughly 57,000 acres of leases. However, Premier intends to withdraw from the project because the results did not meet the company’s expectations, 88 Energy officials said in the April 7 project statement. The Charlie-1 well is going to be plugged and abandoned rather than suspended or tested further because additional work this late in the season could result in stranding the Nordic-Calista No. 3 rig used to drill the well at the site if ice road conditions deteriorate and returning to plug the well later if the project is not deemed viable would add further costs, according to 88 Energy. Company officials also noted that personnel needed to conduct future work could be unavailable in the coming months due to the COVID-19 pandemic. Elwood Brehmer can be reached at [email protected]

Gov vetoes $210M; revenue forecast heads south

Gov. Mike Dunleavy made significant vetoes to the state budget for the second straight year before signing it, but he said many of the cuts will be backfilled with federal coronavirus aid the state is expected to receive. In all, Dunleavy announced vetoes of $210 million in unrestricted general funds on April 7 for a final combined fiscal year 2021 operating and capital budget total of just more than $4.5 billion. The roughly $440 million Dunleavy vetoed from the budget last year following an exceptionally contentious and prolonged budget process with the Legislature helped spur an ongoing effort to recall him from office. He also continued to press the Legislature to reconvene as soon as possible to approve an additional Permanent Fund dividend payment that he says is needed to help Alaskans deal with the effects of the economic shutdowns ordered to limit the spread of the virus. He noted that Congress approved direct stimulus checks of up to $1,200 per person as part of the $2.2 trillion Coronavirus Aid, Relief and Economic Security, or CARES, Act legislation passed March 27. “All across the world, leaders and economists are looking to mimic the PFD. Yet here in Alaska, our leaders are doing the opposite. I will continue to call on the Legislature to follow the law, utilize the statutory calculation for the Permanent Fund dividend and get money into the hands of laid off workers throughout Alaska,” Dunleavy said. “Call it a PFD, call it a COVID-19 emergency relief payment; it does not matter. We must act now to help our fellow Alaskans.” The Legislature, which quickly passed the budget March 29 and recessed from the session, funded a single PFD payment of $1,000 per person. While the Senate originally approved $1,000 payments in spring and fall in light of the economic hardships being faced statewide, lawmakers ultimately decided to keep the $680 million needed for the additional payment in the Earnings Reserve Account of the Permanent Fund in light of the increasingly bleak fiscal picture the state as a whole is also facing. Lawmakers who supported the single, $1,000 PFD have since said they did not want to make additional, ad hoc draws on the Permanent Fund that would violate the 5.25 percent of market value, or POMV, annual draw limit on the fund, particularly at a time when financial markets are extremely volatile and the state’s projections for future revenue are also getting worse. The money will likely be needed in the future just to maintain some basic levels of state services, irrespective of PFDs, they stress. As to the vetoes, Dunleavy said the CARES Act funding would cover a “majority” of the individual cuts he enacted. Alaska is set to receive at least $1.25 billion of federal aid to address general economic and health issues that arise from the virus and the governor has broad authority to accept and distribute that money. “We looked over the CARES Act and had discussions with people in Washington (D.C.) so we believe we are going to be able to do what we say we’re going to do” with that money, Dunleavy said in a press briefing. House Speaker Bryce Edgmon said in a formal statement that lawmakers need to hear more details about the discussions the administration had with federal officials about uses for the CARES Act aid and noted the vetoed money the administration wants to replace largely comes from things the Dunleavy has previously battled over with legislative leaders. “From our initial understanding, federal funds can only be used for expenditures incurred due to COVID-19, not expenditures unrelated to the COVID-19 response,” Edgmon said. “There is no guarantee the federal government will pick up the tab. This approach is incredibly troubling to me.” According to a list provided by the Office of Management and Budget, here are the vetoes the administration expects to pay for with the federal aid:$31.2 million in community assistance payments • $66.7 million in combined K-12 education funding • $100 million in school bond debt reimbursement payments to local governments • A $2.7 million COVID-19 response grant to the Municipality of Anchorage • A $5 million homeless grant to the Alaska Housing Finance Corp. • $2.3 million in non-mandatory municipal debt reimbursement payments Dunleavy said the $100 million veto to school bond debt reimbursement, for example, will be eligible for repayment with CARES Act funds because local governments are collecting less in tax revenue as a result of the economic restrictions the pandemic pushed officials to order. However, the money he vetoed was the state’s share of those payments. Dunleavy also vetoed $31 million from a supplemental budget request the Department of Health and Social Services made to Medicaid funding shortfalls for the rest of the 2020 fiscal year as well as $15 million from the Alaska Marine Highway System allocation and a $1 billion transfer from the Earnings Reserve to the corpus of the Permanent Fund. DHSS Commissioner Adam Crum said the vetoed supplemental Medicaid funding will be made up through an increase to the federal match for Medicaid passed by Congress in response to the pandemic. Additionally, Dunleavy vetoed $12.5 million from the University of Alaska budget, money the Legislature approved that funded the system beyond the $75 million in cuts over three years the governor and regents agreed to last year. Revenue forecast goes south In the latest state revenue forecast released April 6, Department of Revenue officials project the collapse in oil prices and lost tax revenue from other sources will result in forgone revenue totaling nearly $530 million for the rest of the 2020 fiscal year, which ends June 30, and $815 million in 2021 versus the revenue forecast released last December. The final unrestricted revenue tally is now pegged at $4.5 billion for 2020 and $4.3 billion in 2021. Legislative Finance Director Pat Pitney has said the state could drain the Constitutional Budget Reserve and be forced to make ad hoc draws on the Permanent Fund by fiscal 2022 based on oil price and financial market projections. Oil prices have crashed since late February in part due to a sharp pullback in oil demand stemming from the travel and work restrictions put in place worldwide, but also because of a price war between Saudis and Russian officials that oil market analysts hope will be resolved soon. Revenue officials last fall forecasted an average Alaska North Slope crude price of $63 per barrel and the guess was largely looking correct until the COVID-19-induced economic upheaval. Now they are predicting an average price of $51 per barrel for the year, with prices averaging just $37 per barrel through 2021 and gradually climbing to $50 per barrel by 2027. Elwood Brehmer can be reached at [email protected]

Railroad netted $21M in ’19; uncertainty lies ahead in ‘20

The Alaska Railroad Corp. turned a solid profit of $21.6 million last year on improved freight business, but along with countless businesses and industries the railroad’s prospects for 2020 are uncertain at best given the global economic disruption brought on by the COVID-19 pandemic. The $21.6 million net income in 2019 was a 17 percent increase over $18 million in 2018 and marked the third consecutive year of annual profits for the state-owned railroad following an unexpected $4 million loss in 2016, which leaders attributed to a dispute with Municipality of Anchorage officials over splitting federal transit funds. The net return was generated on the back of $203.9 million in total revenue, amounting to 7.5 percent revenue growth over 2018, according to the annual report published April 1. Alaska Railroad operating revenue increased 8 percent to nearly $177.6 million and led to operating income of $4.7 million last year, compared to $1.5 million in 2018. The Alaska Railroad is a public corporation but it does not receive state funding to support its general operations. The railroad does receive federal formula grants largely tied to its passenger service, as is the case for many passenger railroads nationwide. The federal funding has totaled about $52 million to $57 million annually in recent years, according to the report. Aside from its traditional operations, the Alaska Railroad also owns title to about 37,000 acres across the state, roughly half of which are revenue-generating properties. Income from that real estate totaled just more than $14 million in 2019, which accounted for about 11 percent of the railroad’s total revenue and was $1 million more than 2018. Railroad officials noted in a statement accompanying the report that despite just 9 percent annual growth in the volume of freight hauled by Alaska trains in 2019, freight revenue grew by nearly $14 million, or 16 percent to $85.3 million. Gravel accounted for more than half of the nearly 3.5 million tons of freight moved last year but the jump in revenue is largely attributed to increased demand for the railroad’s rail-barge service between Seattle and Whittier from North Slope oil companies. The rail-barge link allows railcars loaded in the Lower 48 to be barged to Whittier where they are added to Alaska Railroad trains. In addition to normal oil production operations, companies are in the midst of developing several billion-dollar-plus new projects on the Slope following a burst of large oil discoveries in recent years. Alaska Railroad spokesman Tim Sullivan wrote via email that there hasn’t yet been a slowdown in demand for freight transit, but company officials are concerned about what current low oil prices may mean for the state and the railroad’s business. Oil Search Alaska, ConocoPhillips and BP have all announced work slowdowns this month with oil prices at the lowest levels seen in nearly two decades — a combination of failing global demand in response to the virus and a subsequent Saudis-Russian price war. In light of that situation, it’s unclear how the railroad’s main business lines will be impacted this year, which CEO Bill O’Leary acknowledged in a formal statement. “We recognize COVID-19 is weighing heavily on the global economy, and the railroad is responding with the ingenuity and durability that are our hallmarks. Whatever the outcome of COVID-19, one thing is certain: The Alaska Railroad is stronger for the gains, triumphs and investments made during 2019,” O’Leary said. “We remain realistic and optimistic that the railroad can bank on that strength, foster growth where it is plausible, and help fellow Alaskans weather the challenges ahead.” While freight service accounted for more than 40 percent of the railroad’s total revenue, passenger service provided nearly 20 percent of its 2019 revenue stream as well. The railroad carried 522,101 passengers last year, which was about 10,000 passengers less than 2018. However, railroad officials attribute the decline mostly to an odd combination of wildfires and flooding along tracks in Southcentral Alaska that both disrupted passenger service for several days in separate events. Prior to last year, passenger volumes had been on a steady annual increase driven primarily by a growing visitor industry in the state. A trip on the railroad is part of many tour packages marketed by cruise companies and other tour operators. Additionally, a focus on marketing winter excursions has also helped the railroad roughly double its “offseason” ridership over the past several years. However regular summer passenger service had been suspended until early July in response to the COVID-19 pandemic, according to information posted on the railroad’s website. Railroad officials also began initial planning work on a $60 million-plus overhaul to the Seward cruise dock and terminal, which the railroad owns, late last summer. Construction of the new facilities was originally planned to run through late 2023. Sullivan said the Seward project is still an “important and critical project” for the railroad, but its pace has been slowed given the uncertain future of the cruise industry. Railroad officials also expect to finally finish the drawn out and costly federally mandated safety program known as Positive Train Control, or PTC, this year to meet a Dec. 31, 2020, implementation deadline. According to Sullivan, the Alaska Railroad has spent $165 million to-date to develop a PTC system on its tracks. That total is likely to reach $182 million by the end of the year, Sullivan said. PTC is a safety system designed to eliminate human error accidents on passenger railroads. The PTC mandate came down from Congress in 2008 after several serious accidents involving passenger trains in the Lower 48. The PTC implementation deadline was first set for December 2015, but Congress extended it to December 2018 with provisions for some railroads to have the deadline pushed to 2020 when it became clear many rail operators across the country were not going to hit the 2015 target. Elwood Brehmer can be reached at [email protected]

Final Ambler road review out; AIDEA adds $35M for project

Bureau of Land Management officials maintained their support for the most direct proposed road route to Interior mining prospects in their final environmental review of the plan published March 27, the same day leaders of the state-owned development bank moved $35 million for future work on the project amid sharp public criticism. The 211-mile industrial road concept preferred by BLM Alaska officials to reach the Ambler mining district is what the Alaska Industrial Development and Export Authority proposed in early 2017 when officials there submitted federal permit applications for the project. AIDEA is advancing the long-sought link to the remote Ambler mining district in an attempt to spur development of a suite of metal prospects in the area. Estimated in 2017 to cost between $280 million and $380 million for basic gravel construction, the final environmental impact statement, or EIS, for the road now pegs the total construction cost at approximatley $520 million. BLM Alaska Director Chad Padgett said in a March 26 statement preceding the release of the final Ambler road EIS that the roughly 430-page document incorporates information gathered over three years of community and Tribal consultation meetings. “My staff traveled to more than 20 communities in the project area to solicit input and gather traditional knowledge,” Padgett said. “Those efforts contributed to this comprehensive analysis that will help pave the way for Alaska to responsibly develop its natural resources and create jobs.” BLM led the EIS because the agency is responsible for issuing road right-of-way permits to AIDEA if the project is ultimately approved. Agency officials cannot reach a record of decision on the project until at least 30 days after the final EIS is published and it’s unclear exactly when that will happen. The 211-mile industrial-use road would run west along the southern flank of the Brooks Range from the Dalton highway at milepost 161. It would pass near the villages of Bettles and Evansville near its eastern end and terminate among several mining prospects just north of the Kobuk River villages of Ambler, Shungnak and Kobuk. Agency officials dismissed an alternate route starting at mile 60 of the Dalton that would snake 332 miles northwest to the district because although it would avoid Gates of the Arctic National Park and Preserve; its added length would inherently mean more environmental impacts and costs compared to AIDEA’s proposal, the EIS states. Critics have pointed to the cost of the project, and the fact that there is no guaranteed repayment method, as reasons to scrap the plan. The Wilderness Society contends the current estimate for the road does not consider some of the costs inherent to building in remote northern Alaska, such as constructing a road over permafrost. The group suggests the road could end up costing $1 billion or more as a result. The proposed mines have also drawn scrutiny for potential impacts to salmon and whitefish runs in the Kobuk River drainage and many residents of the area villages are concerned about impacts to caribou in the region that are an important subsistence food source. Numerous village and Tribal governments in the area of the proposed road have issued formal statements of opposition to the project. AIDEA officials insist access to the road will be restricted to mining activity because it would ultimately be paid for through tolls under the plan; there would be no public access to currently isolated hunting areas, which has been another concern of area residents worried about increased activity. Currently, Vancouver-based Trilogy Metals Inc. is the only company with advanced prospects in the Ambler area. The company holds two main prospects, Arctic and Bornite, which contain high-grade copper along with cobalt, zinc, lead and precious metals. Trilogy leaders have said the Arctic prospect contains copper at grades up to 10 times greater than many other modern mines and the only thing holding back development is cost-effective access. Interim Trilogy CEO Jim Gowans said in a company statement that the final EIS marks a critical milestone for the road project that will “unlock the incredible mineral potential” of the region. “Trilogy, through its joint venture company, Ambler Metals LLC, is already discussing the next steps for the financing and development of the road with the Alaska Industrial Development and Export Authority,” Gowans said. AIDEA moves $35M for road Also on March 27 the AIDEA board of directors approved a transfer of $35 million from the authority’s Revolving Fund to its Arctic Infrastructure Development Fund to eventually support development of the Ambler road. The resolution directing the funding shift notes that further board action is required to spend the money, but a slew of public commenters made it known they were not happy that AIDEA officials took up the resolution at a short-notice emergency meeting that otherwise dealt with loan and regulatory issues related to the COVID-19 pandemic. Many commenters simply stated their strong overall objection to the road project and the mines it is intended to support, while others questioned whether the authority had violated open meetings laws with its second emergency meeting in as many days. Anchorage Democrat Rep. Andy Josephson testified that he shared in the concerns of others regarding the timing of the meetings and the funding transfer resolution. “I’m concerned that the optics of what you’re doing is so poor given what people are dealing with,” Josephson said to the AIDEA board members, adding that the Legislature’s decision to not capitalize the Arctic Infrastructure Development Fund exemplifies divisions among lawmakers over the Ambler road project. AIDEA’s Revolving Fund held approximately $1.3 billion at the end of the 2019 fiscal year last June 30, according to the authority’s annual financial report, but the vast majority of that money was committed to loans or other investments. The Revolving Fund held approximately $33.2 million in unrestricted cash at the time as well. Attorneys for the Anchorage-based environmental nonprofit law firm Trustees for Alaska also questioned the legality of the $35 million transfer in a memo sent to state lawmakers March 25. The memo asserts than an initial version of the resolution describes that the money would fund “expert engineering, attorney, advisor, and other professional fees to work on permitting, road and bridge design, acquisition of rights-of-way, public outreach, cultural resources evaluations, and other tasks necessary or convenient to reaching a decision point on whether to proceed with construction of the project.” Trustees attorney Bridget Psarianos said in an interview just prior to the March 27 meeting that much of the work outlined in the original resolution should have already been done so it could be included in the EIS for the road. That language was removed from a revised version of the resolution, which states that the authority has the ability to transfer the money so it can continue to advance Arctic infrastructure developments and “pursuing (the Ambler road) through the Arctic Infrastructure Development Fund is in furtherance of the authority’s mission to promote economic development and to create employment opportunities in Alaska.” Trustees argues the transfer is “directly contrary” to both the Alaska Constitution and the Executive Budget Act, which outline the appropriations process through the state Legislature and the governor. “The Ambler road project is a capital appropriation item, and AIDEA cannot increase funding for this project without approval, regardless of the source of that funding. Funds for the project are subject to appropriation by the Legislature, not AIDEA,” the Trustees memo states. “Because AIDEA has been unable to secure additional funding for the Ambler road through the Legislature and the capital budget process, it is now attempting to make an end-run around the authority of the Legislature by unilaterally appropriating money from its Revolving Fund to this project.” AIDEA spokesman Karsten Rodvik wrote via email that “When used for capital expense, money in AIDEA’s Revolving Fund is not subject to the Executive Budget Act. Also, the board has the authority to move money between funds.” The Legislature created the Arctic Infrastructure Fund in 2014 but it had not been capitalized until the $35 million was moved into it. Psarianos wrote in an email after the meeting that the firm has serious questions about the legality of the authority’s actions and “we are considering a variety of options to attempt to right this wrong.” Gov. Mike Dunleavy’s 2020 fiscal year budget plan originally proposed to transfer $84 million from the Revolving Fund to an oil and gas tax credit fund outside of the authority, but the move was not included in the Legislature’s final budget. (Editor's note: This story has been updated to reflect the latest available cost estimates for the road project.) Elwood Brehmer can be reached at [email protected]

Fishing community takes precautions as it readies for salmon season

As Alaska’s top doctor put it, “We know the fish are coming regardless of COVID-19 or not and we can’t ask them to stay home.” As a result, government officials and fishing stakeholders statewide are working to ensure Alaska can still have a strong summer salmon season even amidst a potentially prolonged COVID-19 winter. Alaska Chief Medical Officer Dr. Anne Zink made the comment during a March 30 press briefing, adding that the state has a specific fisheries work group trying to figure out ways small communities can handle an influx of fishermen and processing workers while also adhering to important health guidelines that run counter to the realities of a traditional fishing season. While Alaska’s diverse fisheries continue year-round, the famed Copper River sockeye and king fishery that unofficially kicks off the salmon harvest in mid-May each year will be one of the first testing grounds for trying to find that balance. United Fishermen of Alaska Executive Director Frances Leach said fishing groups across the state have been working for weeks to find ways to adjust normal fishing operations in light of the host of challenges the virus — and steps taken to fight it — raises. It started with crowdsourcing to simply identify who was doing what to make sure everyone is rowing in the same direction, Leach said. “Communicating is huge. Commercial fishermen are kind of infamous for not giving away their secret fishing spots so trying to shift gears and make sure we’re all communicating and sharing information during this time is really important,” she said. The goal is to standardize new health guidelines and corresponding procedures for each fishery as much as possible to make sure fishermen and support workers know what is expected of them. Leach said industry leaders are in the process of developing and submitting vessel action plans to the state that detail what steps they will take to prevent the spread of the virus while they are fishing and how they will respond if someone on their vessel develops symptoms during the season, among other considerations. The plans are not special to the fishing industry; each company working in an industry deemed critical by state officials must submit a similar COVID-19 Worker Mitigation Plan to the state Department of Commerce, Community and Economic Development if workers arriving prior to May 1 will not be quarantined for 14 days to monitor for symptoms of the virus. The plan requirement could also be extended beyond May 1 if the virus remains a significant threat to public health in the weeks and months to come as many health experts expect it will. “Just because we’re considered a critical workforce doesn’t mean that we can just run off and start fishing,” Leach said. She’s hopeful the state will adopt operating parameters for each segment of the industry in order to simplify the process because absent that, the state officials would literally have to review thousands of action plans for each individual fishing vessel, Leach said. “We have so many types of fishing vessels and fisheries in the state of Alaska that one plan cannot be applied to every single vessel in Alaska. We’re going through and catering plans to each type of vessel,” she said. At the epicenter of the rapidly approaching Copper River fishery in Cordova, Mayor Clay Koplin said city officials have been doing their best to prepare for the ranging impacts of the virus since late January even though the isolated Prince William Sound community has yet to report a confirmed case of COVID-19. The city’s protective provisions have mirrored the state’s fairly closely, Koplin said, noting the city put its own 14-day self-quarantine mandate on intrastate travelers ahead of health mandates issued by Gov. Mike Dunleavy. “We are acting as if the virus is already here on one hand, so we’re being proactive internally but we’re also acting as if the virus isn’t here and we have to keep it out,” Koplin said. Cordova is also requiring fishermen and processing companies to submit action plans similar to the state, Koplin added, though the state plans will be accepted at the city level. He acknowledged there is a “high state of fear” among Cordova residents about what the salmon fishery might bring. However, fishing also accounts for roughly 90 percent of the city’s economy, so still having a viable season is extremely important, he said. Cordova’s year-round population of approximately 2,300 is boosted by upwards of 860 fish processing workers at the peak of each summer season, according to state Labor Department figures. In addition, roughly two-thirds of the nearly 540 commercial fishing permits for the area are held by individuals from outside the community, Koplin said, and with each vessel comes several crew members. He said many stakeholders have quickly done what they can to ease residents’ concerns as much as possible and assist the city in the COVID-19 fight. Leaders of fish processing companies have been submitting their virus prevention and operating plans and some started doing so even before they were asked to do so, according to Koplin. “They filed very aggressive plans up to and including bringing in their own medical staff for the season and they have lots of bunkhouse space so they can essentially kind of quarantine their entire operation except for the fleet and that’s where a lot of our concerns are,” he said. The city also has Vessel Operator Mutual Agreement forms on its website for both large and small operators to sign that outline the local government’s expectations and requirements for working in the fishing industry amid the ongoing pandemic. Koplin said the situation largely requires more pre-planning by fishermen who typically buy fishing gear, boat parts, groceries and other supplies in Cordova prior to the Copper River fishery. “We would prefer that they do exactly what residents are doing. Don’t engage in any kind of interaction that you don’t absolutely have to,” Koplin said of arriving fishermen. He added that a lot of what fishermen will need to do when, and before, they get to Cordova will depend on where they came from. “If they come up on a seiner and they stop in Ketchikan (where 13 COVID-19 cases had been reported as of this writing) for three weeks and then come to Cordova we’re going to be extremely concerned,” Koplin described. “But if they leave Seattle and they’re in route for two weeks and they don’t really have any human contact then they’ve effectively quarantined before they got here.” With fishermen coming from all over, it can be difficult to communicate with the entire salmon fleet, so city officials are utilizing the state Commercial Fisheries Entry Commission as a conduit to communicate their expectations to fishermen, he said. If a fishermen or processing worker gets sick, Koplin stressed that they should call health facilities instead of going to them to limit their exposure to others if they indeed have contracted the virus. Department of Fish and Game Cordova Area Management Biologist Jeremy Botz said he doesn’t think the measures being taken to limit the spread of the virus will significantly impact management of the Copper River sockeye and king fishery. “Every season is pretty dynamic as far as the fishery goes. Until the fish start returning we really don’t have a clear sense as for what to expect,” Botz said. At this point, he expects managers will have their normal means to assess run strength but if they are put in a position where they don’t have those tools they can turn to their best available historical data to manage the run. Botz said he is planning for a fairly normal season in terms of fishing effort. “It’s hard to imagine a scenario where we wouldn’t be able to go out and have a commercial fishery,” he said. Market uncertainty While everyone in Cordova is working to make the fish catching go off as smooth as possible, the market end of the equation could pose another challenge. The Copper River sockeye and kings are prized as the first fresh salmon of Alaska’s season and some years consumers at high-end restaurants and markets in Seattle pay upwards of $60 per pound for the most sought-after king fillets. This year, however, that market is missing. Alaska Seafood Marketing Institute Executive Director Jeremy Woodrow said ex-vessel prices for early season fresh halibut — traditionally purchased by restaurants — have been depressed and a somewhat similar scenario is expected for Copper River salmon. However, Woodrow said processors should still be able to sell their product if they adapt to the new market conditions. Frozen salmon portions are selling well and canned salmon “is flying off the shelf” these days, he added. “I think Americans are more in-tune about supporting the American economy right now,” Woodrow said, and that sentiment could hopefully translate into buying more Alaska salmon for their own dinner tables this year. “If this challenge continues there’s likely going to be some lessons that can be learned from the Copper River fishery,” he said. Koplin noted that Cordova resembles a ghost town during fishing openers and said ideally the town will look that way as long as the COVID-19 threat lasts, whether folks are out fishing or not. “I guess my preference would be that every day of the week looks like that ghost town — that people are on their boats or they’re going out and doing some sport fishing in between commercial openers; anchoring up in their favorite cove and just not spending the time in town for their own health and that of the community,” Koplin said. ^ Elwood Brehmer can be reached at [email protected]

Oil price collapse foreshadows huge deficits before PFD payments

What little financial wiggle room Alaska had to start the year has been squeezed out of the state’s fiscal picture and then some, according to the Legislature’s top budget analyst. Legislative Finance Division Director Pat Pitney told members of the public policy group Commonwealth North during a March 27 videoconference that the State of Alaska is now facing significant annual deficits even before Permanent Fund dividends are paid for the foreseeable future. Pitney summed up the impact of ongoing volatility in energy and financial markets as “declining lines” in the state’s revenue outlook. Lawmakers will likely have to reconcile an additional $300 million added to the fiscal year 2020 deficit and could similarly be faced with yearly pre-PFD deficits of $300 million and growing down the road based on the current scenario, she said. While many state officials and leaders of Alaska’s core industries are focused on the immediate health and economic impacts of the COVID-19 pandemic, the latest budget crunch is due to another reset of global oil markets that is only marginally linked to the worldwide health crisis. Saudis and Russian officials were unable to strike a deal in early March to curb oil production in response to the sudden curtailment in demand stemming from suspended economic activity worldwide due to the response to the COVID-19 outbreak. The situation quickly devolved into a price war as Saudis leaders ordered more production on the premise their country can outlast Russia and other large producers dependent on oil revenue for a major share of their budgets. The end result has been an approximate halving of oil prices over the past month. The Department of Revenue’s official fall 2019 forecast pegged Alaska oil at $59 per barrel for the 2021 fiscal year, which starts July 1, with prices gradually rising with inflation in the out years. Pitney told lawmakers earlier this month that Legislative Finance was basing its state revenue projections on a roughly $40 per barrel oil average for the next year-plus based on similarly priced Brent benchmark futures trades. The additional $300 million shortfall this year is similarly based on $40 per barrel oil for the rest of the year, she noted. Based on those fundamentals, the final 2020 deficit is expected to be about $730 million, according to Legislative Finance officials. The Energy Information Administration forecasted in mid-March that Brent benchmark crude — which Alaska oil follows closely — will average $43 per barrel in 2020 and return to $55 per barrel in 2021, but those projections could change along with the global response to COVID-19. However, as of March 25 Alaska North Slope crude was selling for $26.73 per barrel, according to Department of Revenue figures. CME Group, a Chicago-based firm comprised of four commodity exchanges, published Brent oil futures on March 30 of $22 per barrel for May, gradually rising to $37 by December. The Department of Revenue typically publishes an update to their annual fall forecast in late March or early April to give lawmakers deliberating budgets more timely information on the state’s finances, but department officials have said they are holding off on publishing new numbers for now given the market volatility. Many legislators who favor smaller dividend payments to help stabilize the state’s finances in-lieu of drastic budget cuts or new taxes have noted that the current budget had a surplus of more than $400 million based on oil in the low $60s per barrel and before paying PFDs. That quickly evaporated with a cumulative $1.1 billion PFD appropriation and a $360 million supplemental budget to mainly pay for shortfalls in Medicaid and wildfire funding. The oil price collapse just takes more away from the revenue side of the ledger. Under a longer-term projections by Legislative Finance, a slower oil market recovery to about $35 per barrel would cut annual state revenue by $700 million to $800 million per year. The combination of very low oil prices and lower return projections for the Permanent Fund stemming from COVID-19 induced stock market declines the whole situation could end up costing the state up to $11 billion of lost revenue potential over the next decade, according to Pitney. “Under a scenario with annual revenue going from $5.5 billion to $4.5 billion, irrespective of dividends we’d have high annual deficits,” she said. Lawmakers recessed from the current legislative session shortly after the House approved a combined operating and capital budget bill shortly after midnight March 29. The Senate had previously approved the budget that had been negotiated in a conference committee. The fiscal 2021 budget calls for spending approximately $4.7 billion in unrestricted general funds and is largely in line with the current budget on most agency items. However, it adds $30 million for K-12 education, $12.5 million for the University of Alaska, and $88 million in health system and disaster assistance funding for the state’s response to the COVID-19 pandemic. The Legislature also approved nearly $17 million more for Alaska Marine Highway System operations than Gov. Mike Dunleavy requested in his budget and $19 million from the Vessel Replacement Fund to repair the currently laid up ferry Aurora that typically serves Prince William Sound communities. The budget includes $680 million to pay dividends of $1,000 per person this fall, but a Senate proposal to pay a $1,000 PFD that would’ve provided a cash infusion to the state’s beleaguered economy was pulled out of the final budget that’s headed for Dunleavy’s desk. The budget relies on a roughly $1.1 billion draw from the Constitutional Budget Reserve, the state’s last remaining savings account. Dunleavy thanked legislators for quickly passing the budget in a statement from his office but said the missed an opportunity to help Alaskans by not approving a significantly larger PFD appropriation. The governor had previously called on lawmakers to approve a supplemental spring PFD of $1,306 per Alaskan to make up for the difference between the $1,606 residents received last fall and the more than $2,900 dividends called for under the statutory dividend formula. “The vast majority of economists worldwide, as well as the president of the United States, and almost every member of Congress understand how a quick injection of cash into the hands of workers will do more to stabilize the economy than any other approach at this time,” Dunleavy said in reference to the checks of up to $1,200 many Americans are set to receive from the federal stimulus package. “My administration will continue to work closely with Alaska’s congressional delegation and the White House on how to maximize the benefit of the federal emergency relief package here in Alaska.” House Speaker Rep. Bryce Edgmon, I-Dillingham, wrote in a lengthy Facebook post March 30 that the sudden drop in oil prices and a roughly 10 percent decline in the value of the Permanent Fund in recent weeks forced the Legislature to make choices that will hopefully mitigate the long-term damage do the state’s finances — namely, approving a single, $1,000 PFD payment this fall. “If the Legislature is able to return to session this year, I predict that the first order of business would be to take a second look at helping Alaskans who could be suffering even more than they are today,” Edgmon wrote, adding that while the choices were difficult this year, “next session will be worse” if oil prices don’t make a drastic recovery. “When the Legislature convened this January, a budget surplus existed. But today it’s a faint memory, and in its place is a nearly $600 million hole. Next year could easily feature all at the same time: major budget cuts, attempts to impose new revenue measures and a zero PFD,” he wrote. Pitney said Legislative Finance analysts expect the CBR to finish fiscal 2020 on June 30 with about $1.5 billion after starting the year with more than $2.1 billion. (The final deficit projections do not match the CBR draw due to mandated CBR deposits from court and tax settlements and modest investment returns during the year.) Pitney, a former budget director for Gov. Bill Walker, said state officials need a minimum of approximately $600 million in the CBR to continue using it as a day-to-day cash management account. A CBR balance of less than $600 million would require Revenue officials to turn to the Permanent Fund’s Earnings Reserve Account to manage the state’s cash flow. A rough calculation of current projections indicates the CBR could be down to approximately $500 million by the end of fiscal 2021. As early as 2022 lawmakers would be faced with making a $350 million ad-hoc draw from the Permanent Fund to pay for state operations even before accounting for a PFD appropriation, according to Legislative Finance models. Elwood Brehmer can be reached at [email protected]

Financial institutions aim to aid battered customers

Alaska’s financial institutions are doing what they can to help businesses and individuals through the economic consequences of the response to COVID-19 and they’re largely doing it from a position of strength. “We’ve got plenty of funds to lend,” Northrim Bank Chief Lending Officer Michael Huston said March 24. The state’s largest banks were all growing and nearly all of them had significant net income increases and strong loan portfolio performance based on third quarter results. Northrim, for example, had a 45 percent year-over-year increase at $7.8 million in net income. Anchorage Economic Development Corp. CEO Bill Popp said the state’s banks and credit unions are “in the best possible situation we could’ve hoped for” given the dire economic situation facing thousands of Alaskans and people worldwide brought on by government-mandated business closures and event cancellations aimed at limiting the spread of the virus. “There’s great leadership in our financial institutions and they have the resources to stay solvent,” he said. Popp is also a co-chair of the Economic Resiliency Task Force formed by Anchorage Mayor Ethan Berkowitz to help city leaders navigate the unprecedented situation and minimize its impact on Anchorage’s economy. It’s unclear exactly how many workers will ultimately be impacted by attempting to pause the state and national economies, but what is certain is the numbers will be painfully large. State Labor Department officials reported roughly a six-fold increase in unemployment claims in the days after the state and local governments began restricting public gatherings and closing bars and restaurants in mid-March. Popp said he’s heard numerous lenders are aggressively working to modify business loans, refinance mortgages and defer payments and interest for businesses that have had to close and individuals who have had their income cut off so quickly. He stressed a need for an immediate cash infusion into the economy. Popp said the explosion of the pandemic and the quick nature of the subsequent government responses left many business owners without time to react. “Businesses have been caught without sufficient cash resources to ride this out,” he said. Based on information the task force is receiving, Popp said the group expects the virus and resulting movement restrictions to be in place for months, not weeks. A survey published by the National Federation of Independent Business indicated that as of March 24, more than three-quarters of Alaska small businesses were being negatively impacted by the response to the virus. Approximately 5 percent of mall businesses have been positively impacted. At the time, 68 percent of small business owners said they were very concerned about the potential impact to their business, according to the survey. Gov. Mike Dunleavy said on March 20 his administration had reached an “understanding” with members of the state’s banking community to partner on a program to offer state-backed bridge loans to small businesses. Bank executives said they are generally supportive of the concept but they are waiting to hear more details about it. A spokesman for Dunleavy did not respond to questions about the loan program in time for this story. In a March 23 statement, officials with the Alaska Industrial Development and Export Authority encouraged its borrowers in need of assistance to contact the private lender that participated in the loan with AIDEA. “The authority can then work with the lender to help achieve a positive solution for the client,” the AIDEA statement reads. The state-owned development bank regularly participates in private commercial loans at up to 90 percent of the loan, many of which are in the tourism and hospitality sectors. Some of the lending Northrim is doing is in the form of short-term loans to businesses that are trying to pay their employees through the work stoppage, Huston said. Northrim is providing 90-day payment deferrals and 120 days of interest-only payments on business loans, according to Huston. The statewide bank has different options for individuals with loans or mortgages, he said. “We have significant resources to assist any borrower that is having difficulty as a result of this pandemic,” Huston said. James Wileman, president of Anchorage-based Credit Union 1, said his institution is offering loan extensions, reduced monthly payments, 60-day deferrals and giving borrowers 1 percent back on new loans. Credit Union 1 workers search the cooperative’s records when local companies announce layoffs, Wileman said, in an attempt to determine if any members have been impacted and reach out to them for assistance if need be. “We’re just looking for ways to help,” he said, noting the juxtaposition of needing to help fuel the economy in any way we can while also severely restricting nearly all activity. Popp additionally noted that waiving late fees and other payment-related penalties during extraordinary times can prevent compounding an already difficult situation. Aside from more traditional means of assistance, on March 24 CU1 began encouraging members to support certain local restaurants with takeout and delivery orders, and each time someone posts a photo of their food on social media with the #cu1foodie hashtag, the credit union will donate $50 to that restaurant. Steve Lundgren, president of Denali State Bank, said his institution is handling each borrower independently. The Fairbanks-based bank first began hearing from Aurora-centric and winter tourism operations impacted by initial international travel restrictions before many other businesses were hit by state and local government mandates. “We’ve made a lot of concessions in terms of payment modifications with those borrowers,” Lundgren said. He implored state officials in a March 24 interview to issue a strict “stay at home” mandate across Alaska in an attempt to blunt the impact of the pandemic as quickly as possible. Lundgren said he believes sharp immediate measures will prevent the COVID-19 pandemic from lingering any longer than it needs to. “The quicker we can get this issue resolved the quicker we can help our economy recover,” Lundgren said. Elwood Brehmer can be reached at [email protected]

NEPA revisions continue with senators’ support

They’re undeniably complex, dry, arcane and seemingly always published in painfully hard-to-read print, but the Council on Environmental Quality’s proposed changes to the implementing regulations for the National Environmental Policy Act are likely to have an outsized impact on Alaska. That’s because, from the smallest commercial fishing boat to the most remote eco-tourism trek to the largest oil project, Alaska’s economy is inextricably linked to its natural resources and federal jurisdiction on nearly every level. On Jan. 10 the Council on Environmental Quality, or CEQ, published 47 pages of changes to National Environmental Policy Act regulations in the Federal Register, an action that officially opened the proposed regulations for public comment. It officially marks the only major change to NEPA regulations since the council first approved them in 1978. A public comment period closed March 10. The CEQ is an arm of the White House tasked with implementing NEPA requirements. The sweeping regulatory changes precipitate from Executive Order 13807, which President Donald Trump signed in August 2017, directing agencies to complete reviews for major infrastructure projects within two years, among other things. NEPA, the landmark federal environmental policy signed into law by President Richard Nixon in 1970, was so transformative it is often referred to as the “Magna Carta” of environmental law. In conjunction with the Clean Water and Air acts, it forms the national basis for environmental protection, pollution control and land conservation. At the highest level, the regulatory reforms are aimed at shortening the length of environmental reviews in terms of both time and page count of the final documents. Proponents of the changes, which include Alaska’s congressional delegation, insist the current process for conducting environmental impact statements, or EIS — the most thorough reviews under NEPA — results in unnecessary permitting delays that routinely hamper economic and infrastructure development nationwide. Skeptics worry the proposed regulatory overhaul is a backdoor attempt by a very pro-development presidential administration to weaken fundamental environmental protections nationwide. Brian Litmans, a senior attorney for the Anchorage-based environmental nonprofit firm Trustees for Alaska, said he believes NEPA is important for all Americans simply because it requires federal regulators to examine all aspects of a proposed project or action holistically so they can make informed decisions when issuing major development permits or making long-term land-use decisions. “NEPA doesn’t require a particular outcome and that’s one of the great things about it,” Litmans said. “It simply tries to get all of the relevant information on the table so the agency can understand what’s at stake and make a decision and I think because of that NEPA has been a success and projects can be better because of it.” The basic EIS structure involves an agency issuing a notice of intent to start evaluating a project or plan deemed to a “major federal action,” followed by a public scoping period to solicit input as to what aspects of that action stakeholders feel should be studied in the EIS. A draft EIS is published following the scoping period, after which a final EIS is published and then a record of decision, or ROD, is issued. Public comment periods of varying lengths must also follow the publication of each version of the EIS. Few direct stakeholders dispute the value of its core goals, but a largely Republican group of lawmakers at the state and federal levels largely in Western states where federal land ownership is extensive has grown increasingly frustrated at the persistent growth of NEPA reviews, particularly environmental impact statements. Part of that is because the NEPA framework is so commonplace in federal agencies. The simple process is used to adjudicate mines and oil developments, public land-use plans and road construction projects. Legal hurdles Sen. Dan Sullivan, for one, said the rulings in NEPA-related lawsuits that have piled up over the decades have led to an unrealistic burden on EIS drafters, or NEPA practitioners, as they are often known. They must account for so much case law, often from seemingly unrelated issues or projects, that writing an EIS has become a practice in writing a “legally defensible” document as much as it is conducting a thorough environmental review, according to Sullivan and others. “This is something my Democrat colleagues agree is a problem; my Republican colleagues certainly agree it’s a problem: this big issue that under our federal permitting system and to some degree state and local, but a lot of it’s federal — that you have this super-long lead time that’s required for any major infrastructure project,” Sullivan said in an interview. “Of course, it costs money and it costs time. Money and time are usually enhanced by litigation and it makes it very difficult for us to build stuff.” Eric Fjelstad, an Anchorage-based partner with the national business law firm Perkins Coie, has spent roughly 20 years working on NEPA issues. He believes the current system benefits no one — except maybe attorneys. That’s because there is nearly always a contingent that opposes a large project or major federal planning decision for a myriad of reasons. Those groups then regularly sue the decision-making agencies to overturn a record of decision or delay the process based on perceived legal flaws in a given EIS. “It’s devolved into somewhat of, I’ll call it a ‘gotcha’ review process where the process is a series of hurdles with people playing different roles and ultimately the courts at the end exacting a gotcha sanction,” Fjelstad. “Is there any realistic world where it should take four, five, six years to study something at this level? And this isn’t the only study that occurs on big projects,” he added, referring to an EIS. According to CEQ figures, approximately half of the 1,161 EIS reviews conducted from 2010-17 took longer than three years and seven months to complete. Roughly one-quarter took more than six years and the average time from a notice of intent to a record of decision was 4.5 years. About one-quarter of those analyzed took less than two years and two months to complete. Ted Boling, an associate NEPA director for the CEQ, said during a February presentation at the Alaska Forum on the Environment conference that the council primarily wants to modernize the regulations to help produce more timely and effective NEPA reviews. The council also seeks to codify years of court rulings in the proposed regulations to clarify exactly what is required under the law, according to Boling. “Much of that guidance and case law is reflected in modern agency NEPA practice but it’s not reflected in the regulations,” he said. In addition, the proposed regulations meet the president’s orders by directing agencies to complete an EIS within two years and a less rigorous environmental assessment within one year. New guidelines The CEQ is also seeking to harden current guidelines for the length of an EIS. Current NEPA regulations recommend the text of a final EIS be less than 150 pages. An EIS of “unusual scope or complexity” should be limited to 300 pages, according to the regulations. It’s 75 pages for an environmental assessment. The new regulations would make those recommendations mandatory in most cases. However, the 2010-17 EIS review found that the average length of a final EIS from the time period was 669 pages, with about one-quarter each less than 300 pages or more than 730. Boling emphasized that the harder timeline and length directives are “not just a get out of jail free card” for agency officials looking to do less work. The proposed regulations allow for senior agency officials to exempt certain complex or highly scrutinized reviews from the limitations. “Ideally, the senior agency official says, ‘Yes, this is an important project so I will read more pages than usual,” Boling said. The new language also defines reasonable alternatives, which are a required part of an EIS, as alternatives that are “technically and economically reasonable” to be in line with longstanding Supreme Court decisions, according to Boling. He further added that the council is proposing to clarify that a project’s effects should not be considered significant — and therefore not be studied — “if they are remote in time, geographically remote or they result in a lengthy causal chain.” That also codifies a Supreme Court ruling, Boling said. He acknowledged that it’s a “great point of debate” as to whether or not the new regulations will ultimately change what projects necessitate an environmental assessment or EIS. “It really gets into the question of how will the case law work?” he said. Many of the high level reforms to the parameters of an EIS were in part pulled from Sullivan’s Red Tape and Rebuild America Now bills, according to the senator. He said one of the first conversations he had with President Trump was about the need for NEPA reform. While he would prefer to make the changes in statute, Sullivan said regulatory reform via an executive order “is really good.” “We have been kind of ground zero for this” in Alaska, Sullivan said, noting it took nearly 20 years to reach a record of decision on the Kensington gold mine near Juneau and other projects. That project only began after a Supreme Court decision. He dismissed concerns that the changes will weaken environmental protections. “We don’t want to cut corners in Alaska,” he said. “It’s about timely permitting — certainty in the permitting process — so people can make investment decisions to move forward on infrastructure projects.” ‘Morphed into its own entity’ Sen. Lisa Murkowski similarly said the EIS process has become overly burdensome over the years. “It has morphed into its own entity, the NEPA process, far beyond what the act initially required,” Murkowski said in an interview. The legislation itself is a relatively brief seven-page bill that outlines Congress’ desire for a national environmental policy, establishes the CEQ and describes very generally how that policy should be implemented. “The Congress recognizes that each person should enjoy a healthy environment and that each person has a responsibility to contribute to the preservation and enhancement of the environment,” NEPA states. Sullivan and Murkowski said the status quo of EIS timelines and particularly lengthy documents discourages public involvement, contrary to NEPA’s intent. “The whole point of NEPA was to bring the public into the permitting process. You do that by having an EIS that’s 100, 200 pages; something that the average citizen can sit down and read. That was the point. Public involvement, public engagement, public input,” Sullivan said. Boling went a step further and said the council wants to make an EIS more readable for the senior agency officials tasked with making major permitting decisions based on them. The page limits are designed to help get to the core detailed statement of an EIS, Boling said, adding that appendices to the main document are “free space” that do not count towards the limit. “We’d be concerned if people were trying to take really complicated projects and just reduce it all to 150 pages but we’re also equally concerned that decision-makers need to actually be able to use those documents,” he said. “Ultimately, it’s not a paperwork exercise; it’s designed to be something that decision-makers can actually read, digest and respond to.” Litmans, of Trustees for Alaska, said the EIS timeline and length statistics can be skewed by a few exceptional cases. He noted that a very small number of projects reviewed by federal agencies are actually subject to an EIS. The vast majority are given a finding of no significant impact, or FONSI. Litmans referred to a 2014 Government Accountability Office report that found less than 1 percent of projects subject to a NEPA analysis resulted in an EIS and less than 5 percent required an environmental assessment. The rest receive a categorical exclusion, meaning a formal environmental review isn’t needed. He said Boling is “far off the mark” in saying the CEQ is simply codifying case law in the regulations. “This rule completely guts or removes from the regulations the concepts of cumulative effects and indirect impacts. These are aspects of a project that have to be considered under NEPA,” Litmans said. A section of the regulations attempting to define “effects” and “impacts” states that a “but for” causal relationship does not constitute a particular effect under NEPA. “Analysis of cumulative effects is not required,” the regulations state further. Fjelstad said he believes an EIS should be narrowly focused on roughly five to 10 areas of study that are particularly germane to a project. “It’s the old maxim, pick a few things and bring real rigor to the table and do it right rather than trying to solve everyone’s issues,” he said. Litmans said there is a large body of case law defining the requirements of a cumulative effects analysis and simply cutting it out lends to a whole new round of lawsuits. “This rule just removes key aspects of what’s required in an agency review and adds new terms that will have to be defined by the courts,” he said. Litmans also said that permit applicants are regularly the cause of delays in the process because they were not armed with the requisite information an agency needs for an EIS when they start it. Such is the case with the Pebble mine EIS, he said. “You have a project that’s sorting things out as it goes along and as a result the reviews are going to take longer,” Litmans said of Pebble. “The shouldn’t, in the middle of the process, while the draft EIS is being written and completed say, ‘Well, we’re going to go get some more field data this summer,’ which is what they did.” Murkowski joined a series of state and federal resource agencies in roundly criticizing the U.S. Army Corps of Engineers’ draft EIS for Pebble published in February 2019, contending it lacks detailed information and minimizes the project’s potential impacts to the region’s salmon and other resources despite being approximately 1,400 pages. In response to a question about how she reconciles support for the regulatory reforms with the Pebble EIS Murkowski said, “When you say a project needs a review that’s fair and thorough, that fairness and thoroughness is not necessarily measured by pounds of paper or the length of time within a process.” Pebble spokesman Mike Heatwole wrote via email that the company has not had an unusual number of information requests from the Army Corps of Engineers for a project of its size. More people than normal are interested in Pebble and therefore the intricacies of the process have been made more transparent than normal by the Corps, according to Heatwole. He added that midstream changes to the project did not fundamentally change the layout of the project or the company’s approach to mining the resource. “The modifications were improvements upon the environmental impacts of the project and in many cases reduced the footprint of the project,” Heatwole wrote. Boling said agencies can better meet the new, firmer review timelines by making sure applicants have all of the information needed at the ready and Fjesltad acknowledged that “a lot of people start when they’re not ready.” The CEQ received 598,989 comments on the proposed regulations, according to the Federal Register. CEQ spokesman Dan Schneider wrote March 17 that modernizing the environmental review process for infrastructure projects is a priority for the administration and the council is currently reviewing the comments. ^ Elwood Brehmer can be reached at [email protected]

Dunleavy pushes for PFD check, lays out $1B plan for virus response

Gov. Mike Dunleavy pressed legislators in a Friday noontime address to quickly approve funding to pay Alaskans the $1,306 he says they are owed to fulfill last year’s Permanent Fund dividend payments as the central piece to his administration’s COVID-19 economic stabilization plan. The governor said he has also ordered $1 billion to be transferred from existing state accounts and put into a disaster relief fund to cover a surge in unemployment payments and demand on other assistance programs indirectly caused by the virus. The state released more details on the plan later, which calls for paying the statutory PFD in two installments for 2020 — June and October — in addition to to the supplemental request for 2019. “Immediate and far-reaching economic relief is needed right now, not tomorrow, not two weeks from now, but right now,” Dunleavy said during a roughly 10-minute address that was streamed from his state Facebook account. He pointed to the fact that Congress is working on an economic relief plan that includes direct payments to Americans — up to $1,200 to many and $500 per child — that largely mirror the PFD in urging legislators to approve the payment and said the state checks could be issued as soon as next month. Most lawmakers have opposed full, statutory PFD payments for several years as the state has grappled with billion-dollar-plus annual deficits. “Never in the last 40 years has the payment of the PFD been more critical,” Dunleavy said. The state is partnering with Alaska banks to provide bridge loans for small businesses that have been hurt by government-mandated closures or in other ways as health officials try to slow the spread of the virus. The bridge loans will be made at interest rates offered by the Small Business Administration, according to Dunleavy. “The state will 100 percent guarantee these loans to ensure our lenders aren’t at risk,” he said. Spokespersons for the governor’s office and several local banks could not immediately provide additional details on the small business bridge loans. While it’s unclear exactly how many Alaskans have been put out of work as a result of mandated and voluntary business restrictions intended to reduce social contact, the impact is undoubtedly widespread and is expected to have a huge impact on the coming tourist season. Division of Employment and Training Services Director Patsy Westcott wrote in an email that the state can’t yet release its most recent unemployment data due to federal reporting requirements, but wrote generally that, “our claims workload has increased significantly this week and is expected to do so in the coming weeks.” The leisure and hospitality industry employed more than 44,000 people during its summer peak last year, according to the state Labor Department. Senate Republican leaders sent out an open letter to Alaskans shortly after the governor’s address ensuring them that the Legislature is exploring all the ways it can assist impacted individuals and mitigate the long-term economic damage caused by the response to the virus. The letter does not address policy specifics, but states clearly that “No Alaskan in need will be left behind.” “This virus has wreaked havoc on the price of oil, the stock market is in retreat, and now countless workers will go without paychecks as business owners are forced to close-up shop. The uncertainty of the next weeks and months will only compound the harm to the private sector of our economy. Without a swift response, this virus could cause long-term damage beyond the health impacts,” the letter states. Senate President Cathy Giessel and Finance Committee co-chairs Sens. Bert Stedman of Sitka and Natasha von Imhof, of Anchorage signed the letter. Dunleavy further said he signed an emergency order protecting the approximately 13,000 Alaskans that receive rental assistance from the state-owned Alaska Housing Finance Corp. He also ordered AHFC to stop rental evictions for at least 60 days and loan servicers have been authorized to grant forbearances to homeowners who have had their finances affected by the response to the virus. On Monday, Anchorage Mayor Ethan Berkowitz ordered all bars, restaurants and entertainment facilities to close, except for drive-through, take-out and delivery services. Dunleavy ordered them closed statewide Wednesday evening through April 1. Additionally, $75 million has been authorized to underwrite emergency health care facilities and provide health care workers with personal protective equipment. Dunleavy said another $100 million will be made available to address the added demand on state programs and workers, particularly state health workers. “We need our state workers protected and safe and we need them to continue the functions of state government,” he said. Resources will also be set aside to help local governments deal with unexpected costs and lost sales revenue. Dunleavy told Alaskans to expect additional economic assistance measures as well as further health mandates to attempt to slow the spread of COVID-19. State health officials reported 12 cases in Alaska when the governor made his announcement. A 13th case was confirmed shortly afterwards. Elwood Brehmer can be reached at [email protected]

ConocoPhillips, Oil Search cutting Alaska spending by $270M

ConocoPhillips and Oil Search announced early Wednesday that they will be scaling back their North Slope operations in response to the collapsed global oil market. For ConocoPhillips, which has the largest share of overall oil production in the state, the belt-tightening will result in a roughly $200 million reduction to the company’s capital spending plan in Alaska for the year through “laying down a couple of (drilling) rigs” at the Alpine and Kuparuk fields, Chief Operating Officer Matt Fox said in a conference call with investors. According to Fox, the Houston-based company expects to see a production impact of about 2,000 barrels per day on the Slope from less development drilling the remainder of the year. ConocoPhillips produced nearly 130,000 barrels per day from Kuparuk and 56,000 barrels per day from Alpine in February, according to state Revenue Department figures. Alaska North Slope crude sold for $27.73 per barrel on March 17, according to the Revenue Department. According to aggregated figures provided by Revenue, Alaska companies currently spend nearly $39 per barrel, on average, to produce oil and ship it to West Coast refineries. Papua New Guinea-based Oil Search, a relative newcomer to the Slope, announced in a lengthy statement from its Sydney office Wednesday that it would be slowing work on its large Pikka Unit oil development until more favorable market conditions return. The slowdown amounts to a roughly $70 million pullback in Alaska for the rest of the year. Oil Search had previously expected to spend about $230 million in the state for the remainder of 2020; that’s now been revised to the $160 million range, according to the statement. ConocoPhillips Alaska spokeswoman Natalie Lowman wrote in an email that she couldn’t provide any further details to what was discussed in the conference call at this point. The Alaska reduction is part of a $700 million pullback to the company’s global 2020 capital program, CEO Ryan Lance said, which amounts to a 10 percent curb in spending overall. The company spent approximately $1.5 billion on North Slope capital investments last year, according to its 2019 earnings report. ConocoPhillips executives also said they will be cutting the company’s share repurchase program from $750 million to $250 million per quarter starting April 1. It all amounts to $2.2 billion less in spending for the rest of 2020. Lance said the moves to limit spending immediately are meant to stabilize cash flow, while stressing ConocoPhillips is much better prepared to weather this price downturn than it was in 2015-16. ConocoPhillips leaders have said they restructured their operations in response to the 2015-16 price collapse — which bottomed out at $26 per barrel for Alaska crude — to be profitable at prevailing prices of $40 per barrel. “Today, we believe we are in a strong position to take this methodical approach because ConocoPhillips is in a relatively advantaged position compared to the rest of the industry,” he said. The company ended 2019 with roughly $14 billion in liquid reserves, according to Lance. He also didn’t rule out making acquisitions while oil prices are low, but acknowledged that the combination of a pandemic-induced demand drop for oil and a surge in supply from the price war between Russia and Saudi Arabia is an unprecedented situation. “We know in our minds that it will pass but it doesn’t bring much comfort at the moment,” he said. Oil prices began falling in early February from a long run in the mid-$60s per barrel as traders reacted to lower demand forecasts from China due to the country’s reaction to COVID-19. That price decline accelerated earlier this month when Saudi and Russian officials could not agree on curbing production rates to stabilize oil markets in the face of less demand due to the virus curtailing economic activity worldwide. That disagreement quickly turned into a price war, with officials from each side refusing to cut production on the premise they can outlast the other in a time of painfully low prices for each oil-dependent government. The Energy Information Administration earlier this month forecasted that Brent benchmark crude — which Alaska oil follows closely — will average $43 per barrel in 2020 and return to $55 per barrel in 2021, but those projections could change along with the global response to COVID-19. Fox said ConocoPhillips is checking the temperatures of its North Slope employees and asking them to fill out a health questionnaire before they begin their work rotations. The company is also reducing staffing levels at its remote operations — which include parts of Norway and China in addition to Alaska — to provide space for quarantining workers that might contract COVID-19, but so far no cases of the virus have been indentified amongst employees in those locations. Lance added that the global response to the virus has not impacted oil or gas production so far. BP Alaska spokeswoman Meg Baldino wrote via email that the company is focused on "safe, reliable and compliant operations" until the pending $5.6 billion sale of its Alaska assets to Hilcorp Energy, which includes the large Prudhoe Bay oil field, is complete. A spokesman for Hilcorp Alaska did not immediatley respond to a request for comment. Oil Search According to its statement, Oil Search will continue early development activities at Pikka, such as laying gravel roads, to meet its state and federal permitting requirements but work on production facilities and other aspects of the complex project “will be placed on hold.” The statement also says that some engineering work towards full field development at Pikka will continue so the company is ready to make a final investment decision on the project when market conditions improve. Oil Search will also complete testing of the two exploration wells it drilled this winter, which both encountered oil, the company noted. Oil Search has significant producing operations in Papua New Guinea, but the Pikka development is its first foray into the United States. “While Oil Search is fortunate to have world-class assets, these unprecedented times require us to take immediate and decisive steps to position us for a potentially extended period of lower oil prices and business uncertainty,” Managing Director Keiran Wulff said. Spokeswoman Amy Burnett said she could not offer any further details at this time. Oil Search completed an $850 million buyout of Armstrong Energy and a silent owner in Pikka in 2018 to take a 51 percent operating stake in the unit. Spanish major Repsol holds a 49 percent interest in the Pikka Unit and its Nanushuk oil project. As recently as October the company was working to move up its initial production target on the nearly $5 billion project roughly a year from late 2023 to 2022. Oil Search received its record of decision on the Nanushuk project from the U.S. Army Corps of Engineers last spring. Once fully developed, its expected the Pikka Unit will produce upwards of 120,000 barrels of oil per day at its peak. Look for updates to this story in an upcoming issue of the Journal. Elwood Brehmer can be reached at [email protected]


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