Elwood Brehmer

Year in Review: Long-sought ANWR sale tops 2020 in oil and gas

Trump administration officials nearly waited until the last minute to make it happen, but opening bids for an Arctic National Wildlife Refuge coastal plain lease sale will be one of the first things Bureau of Land Management Alaska officials do in 2021. BLM Alaska leaders announced Dec. 3 that the hotly contested lease sale will be held Jan. 6. Barring a last-minute court injunction from one of the several lawsuits filed against BLM for its environmental evaluation of the lease sale, it will be held before the Biden administration could do anything to stop the bidding. At least two lease sales are required under the 2017 Tax Cuts and Jobs Act. Interior Secretary David Bernhardt signed the record of decision approving BLM’s plan to lease all of the available acreage in the 1.5 million-acre coastal plain Aug. 17, allowing the agency to move ahead with the final administrative procedures to hold the sale. Several Alaska Native and conservation organizations sued the Interior Department earlier this year on the grounds that the environmental impact statement and subsequent agency decision approving the leasing plan was rushed and ignored numerous environmental considerations. Those lawsuits are pending. Earlier this month BLM leaders announced they plan to offer nearly all of the 1.5 million acres parsed into 32 tracts ranging from approximately 34,000-60,000 acres each. The acreage will come with a 10-year lease term and minimum bids must be for at least $25 per acre. Industry advocates and Alaska’s congressional delegation continue to stress the anticipated economic boon coastal plain oil development could be for the state. They insist that despite current prices the potential large oil pools some geologists believe are likely under ANWR could attract significant long-term investment in the North Slope. 2. Ballot Measure 1 rejected Alaska’s oil industry notched another win at the ballot box Nov. 3 when voters rejected a citizen-led initiative to significantly raise oil taxes by a 15 percent margin. Known as the Fair Share Act, or Ballot Measure 1, the initiative would have raised both the gross minimum and net profits tax rates on the largest oil fields on the North Slope: currently Alpine, Kuparuk and Prudhoe Bay. The nearly 55,000-vote margin against the oil tax initiative was in sharp contrast to the 2014 referendum to repeal Senate Bill 21, the tax system Ballot Measure 1 sought to replace. The Republican-backed oil tax survived 2014 primary election vote by approximately 10,000 votes and a 5 percent margin. Public opposition to the ballot measure reached beyond the oil industry, partly because the pandemic took the bottom out of oil markets just as a proposal to significantly raise state taxes was making its way to the ballot. Typically non-political business groups such as the Alaska Economic Development Corp. formally opposed Ballot Measure 1 and the OneAlaska campaign against it raised nearly $25 million, while Vote Yes for Alaska’s Fair Share generated approximately $1.3 million to promote the initiative. The election result does not mean the issue of oil taxes is settled in the Legislature, however, as even some traditional industry backers have said some change to oil taxes will likely have to be a part of a broader fiscal plan. It remains to be seen how strict Gov. Mike Dunleavy would be in adhering to his strong opposition to any new taxes should that situation arise. 3. Prudhoe Bay transition In typical Hilcorp fashion the biggest move the company has ever made was finalized quietly when it took over operations at Prudhoe Bay July 1. The transition from BP to Houston-based Hilcorp Energy was the practical end to BP’s decades-long run in Alaska. Hilcorp has since increased production in November approximately 15,000 barrels per day compared to last year, with daily production averaging 305,000 barrels last month. In December the Regulatory Commission of Alaska approved the sale of BP’s 49 percent stake in the Trans-Alaska Pipeline System to Hilcorp, nearly a year-and-a-half after the $5.6 billion deal was announced in August 2019. As part of the deal, BP retains the financial responsibility to dismantle TAPS and restore the disturbed area commensurate to its prior ownership stake in the pipeline. 4. Willow gains approval One of the largest North Slope oil prospects in decades received clearance from the federal government for development Oct. 26 when Interior Secretary David Bernhardt signed a record of decision approving ConocoPhillips’ $6 billion Willow project master development plan. The remote oil prospect in the National Petroleum Reserve-Alaska west of the established North Slope fields was discovered in 2016 and ConocoPhillips now believes it can produce up to 160,000 barrels of oil per day. BLM approved construction of three drill sites, a processing facility and ancillary infrastructure and said plans for two more drill pads and subsequent roads and pipelines could be reviewed later. Interior leaders have since been sued by conservation groups over the veracity of the agency’s environmental impact statement for Willow, but ConocoPhillips Alaska representatives have said early construction could begin next year if other regulatory approvals are granted. 5. NPR-A plan gets overhaul As the Bureau of Land Management worked to approve one oil development in the National Petroleum Reserve-Alaska, agency officials also generated plans to open more of the 23 million-acre reserve to industry over the year. ConocoPhillips’ Willow project gained federal approval in August, and in late June BLM Alaska leaders announced their intent to make 18.7 million acres of the NPR-A available for oil and gas leasing under the agency’s preferred alternative in the final environmental impact statement for the NPR-A Integrated Activity Plan. The new plan would add 6.9 million acres to the area open for leasing, or about 100,000 acres more than was evaluated under the most liberal leasing option discussed in the draft NPR-A land-use EIS released last November. Currently, about 11.8 million acres, or a little more than half of the reserve, is available for leasing by industry under the NPR-A plan finalized by the Obama administration in 2013. The plan would open the entire Teshekpuk Lake Special Area in the northeast portion of the reserve — an area of particular importance to both industry for its oil potential and conservation and subsistence interests for its waterfowl and caribou-rearing habitat — to leasing. It would also eliminate the Colville River Special Area, which provides habitat protections over 2.4 million acres adjacent to the river as well. The Colville River makes up much of the eastern boundary of the NPR-A.

Revenue Dept. expects lowest oil revenue since 1979

The State of Alaska’s traditional revenue sources are expected to fall to the lowest level in more than 40 years when the current fiscal year ends and the situation is only expected to get worse before it gets better. Department of Revenue leaders released the Fall 2020 Revenue Sources Book Dec. 11, which projects the state will collect just more than $1.22 billion in unrestricted revenue from sources other than the Permanent Fund in the 2021 fiscal year that ends June 30. Revenue officials expect the state will collect $1.18 billion from the oil and gas industry and business taxes and fees in fiscal year 2022. While the state has been mired in annual budget deficits since 2013, it has been 41 years since the last time Alaska’s longstanding revenue picture — primarily from oil and gas — was this bleak. Production on the North Slope was just ramping up in 1979 when the state collected $1.13 billion, according to the Legislative Finance Division. These days, however, total unrestricted state revenue also includes nearly $3.1 billion per year via a 5 percent of market value, or POMV, annual draw from the Permanent Fund. Earnings from the Permanent Fund will continue to comprise approximately two-thirds of all unrestricted state funds for at least the next decade, according to the revenue forecast. The fund has rebounded from early-year market disruptions that nearly pushed its balance down to $60 billion to now hold an unaudited value of more than $72 billion as of Dec. 11. The pandemic is largely to blame for the revenue declines in the form of lower oil prices and, indirectly, less North Slope oil production in the coming year. The price for a barrel of Alaska North Slope crude is expected to average $45.32 in the 2021 fiscal year and $48 per barrel in fiscal 2022 that starts July 1. Still, those prices are a significant improvement from the projections made at the start of the pandemic in the Spring 2020 Revenue Forecast, which forecasted $37 per barrel Alaska oil in 2021. At the time, oil markets worldwide were flooded and prices were in the $20 per barrel range. The price of Alaska North Slope crude averaged $42.60 per barrel as of Dec. 11 in fiscal 2021 but it is currently trading at approximately $50 per barrel. Oil markets have been buoyed in recent weeks on the prospect of COVID-19 vaccines and other treatments soon easing the global economic toll of the virus. Revenue officials noted in a formal statement accompanying the forecast that North Slope oilfield operators sharply curtailed drilling and other investment plans earlier this year when Alaska North Slope oil prices fell to sub-$10 per barrel. Those decisions are likely to be felt in 2022 when an average of 439,000 barrels of oil per day are expected to flow through the Trans-Alaska Pipeline System. Production in 2021 was averaging 483,750 barrels per day as of Dec. 11, but is expected to end the fiscal year at 477,300 barrels per day after averaging 472,200 barrels daily in 2020. North Slope production is expected to gradually begin growing again and reach nearly 482,000 barrels per day by 2030. ConocoPhillips, the largest producer in the state, curtailed production in May and June and suspended its entire North Slope drilling program during the oil price trough in April. Company leaders have since said they are working to slowly resume drilling by the end of the year. The production cut equated to 45,000 barrels per day less production year-over-year from ConocoPhillips operated fields from in the second quarter of 2020, according to the company. Oil Search also revised development plans and pushed the production schedule back slightly for its large Pikka prospect on the central North Slope in response to the challenging conditions presented by 2020. Last year the company planned to produce its first oil at Pikka in late 2022 and eventually reach 120,000 barrels per day after several more years of development work. The company now expects to pump the first commercial oil from the project in 2025 with daily production reaching 80,000 barrels per day in the first phase of the redesigned project. ^ Elwood Brehmer can be reached at [email protected]

2020 Year in Review: Pandemic upends Alaskan economy

There is only one top story for 2020, but the tentacles of the COVID-19 virus have proven so far-reaching that it cannot be summed up with a single headline, despite the countless internet memes attempting to do so. The 2020 Year in Review looks back at the top 10 stories as the pandemic touched every reach of Alaska. 1. Job losses, shutdowns return Alaska to recession COVID-19 made its presence felt across Alaska’s economy even well before it actually reached the many corners of the state. The state economy started the year as it ended 2019; with incremental growth it appeared to be on a long, slow journey to recovery following three-plus years of recession. According to state Labor Department figures, Alaska had job growth of 0.4 percent and 0.3 percent in January and February, respectively, compared to 2019. However, the script flipped in March when — coinciding with “hunker down” orders first by the Municipality of Anchorage and then the State of Alaska — the state lost approximately 1,000 jobs, or about 0.3 percent of its workforce. Congress passed the $2.2 trillion CARES Act in late March, which sent most Americans checks of up to $1,200, boosted unemployment payments by up to $600 per week and directed roughly $1.5 billion to Alaska in anticipation of the challenges ahead. The lawmakers guessed right. The losses accelerated rapidly in April as business and travel restrictions persisted, cruise sailings were canceled, oil prices fell to near zero and it became clear the pandemic would not simply be a weeks-long inconvenience. At the typical time Alaska starts adding thousands of seasonal fishing and tourism industry jobs, the state instead lost nearly 40,000 jobs compared to March and approximately 44,000 jobs year-over-year. As of October, Alaska was still down nearly 29,000 jobs year-over-year, according to the Labor Department, with the most severe impacts to the oil and gas and hospitality sectors — some of the largest and most impactful industries in the state. The oil and gas industry directly employed about 6,800 workers in October, which was down more than 30 percent from a year prior. The hospitality sector was down 9,600 jobs, or about 27 percent of its workforce in October. Acting Anchorage Mayor Austin Quinn-Davidson ordered dine-in service and restaurants and bars closed in December along with other restrictions on gatherings in an attempt to respond to increasing COVID-19 case counts and limited hospital capacity, so it remains to be seen exactly what added impact the latest surge in cases will have on Anchorage and the state economy as a whole. — Elwood Brehmer No. 2 Health care system responds The pandemic has put the spotlight on Alaska’s health care industry, for better or for worse, as the state tries to control outbreaks. With its small population, Alaska has a tightly limited number of available hospital beds and staff for in-patients care, particularly those in intensive care units. That’s especially true when some of those ICU patients are highly contagious and staff has to be extra careful going in and out of care wards for COVID-19 patients. Though the disease was slow to come to Alaska, it has made up for lost time, surging in the summer and again in the late fall, with cases topping 40,000 in December with 175 resident deaths and nearly 900 hospitalizations. Local officials responded quickly, with Gov. Mike Dunleavy’s emergency declaration limiting elective surgeries and closing down hospitals to most of the public. That put a financial strain on hospitals, which make most of their cash flow from elective and outpatient surgeries, but freed up more staff and beds for COVID-19 patients. Later, when hospitals reopened for those procedures, they required negative tests for all patients. The University of Alaska Anchorage graduated some nursing students a little ahead of schedule in April, allowing them to move directly into the workforce to help during the pandemic response. The students were largely only a few hours away from receiving their diplomas and licenses, and with approval from the Board of Nursing, they were able to get temporary licensure and jump immediately into the workforce. But even with those relatively lower case counts and few extra workers, the strain on health care staff has been difficult since March. Health care workers have reported some burnout from wearing PPE for long shifts, extra time to take pandemic precautions, and the high level of stress. As community spread has increased, too, the number of infected health care workers has increased, putting strain on their healthy coworkers, who have to fill in those shifts because there’s no one else to fill the gap. — Elizabeth Earl 3. Oil industry rides rollercoaster Not likely a coincidence, the price of Alaska North Slope crude started the year similarly to the Alaska economy, on a very gradual increase. But the price for the state’s oil began falling sooner as the consequences from Chinese economic restrictions and a subsequent price war between Saudi Arabia and Russia were first reflected in February, when the average price for Alaska oil fell $11 per barrel from January. The decline accelerated in March when the price averaged $33 per barrel, or just about half of what it was in January. ConocoPhillips, Alaska’s largest producer, responded by announcing a cut of about $200 million from its budget for North Slope projects in mid-March. Oil Search, which is developing the large Pikka Unit prospect, similarly decided to cut its 2020 Alaska spending by about $70 million. Oil Search later announced it would push back the timeline for first oil from the Pikka Unit from late 2022 to 2025 as part of a revised design for the several billion-dollar development. The situation turned unprecedented in late April when the markets for domestic oil briefly went negative at the height of pandemic-induced restrictions. ConocoPhillips told its North Slope drilling contractor, Doyon Drilling, to turn off all of the rigs working in ConocoPhillips’ fields even before oil prices hit rock bottom and responded to their primary product being “worthless” for a time by curtailing North Slope production by approximately 100,000 barrels per day in late May and June. The company resumed normal operations — sans drilling — on the Slope in July after oil prices returned to and stabilized in the $40 per barrel range. Prices have since risen to about $50 in recent weeks on the hopes that COVID-19 vaccines will help push global demand significantly higher once again. ConocoPhillips also announced it would gradually restart its drilling program in late December. North Slope production bottomed out in June with an average daily throughput in the Trans-Alaska Pipeline System of about 393,000 barrels, but jumped to average 477,000 barrels per day in August — the most in years for that month. Industry experts said the brief production boost, which has since subsided, was likely due to a slight buildup in reservoir pressure from ConocoPhillips’ curtailment as well as the deferment of numerous small mechanical field projects that historically reduce summer oil production on the Slope. — Elwood Brehmer 4. Tourism bust 2020 was the year that wasn’t for what had been the second largest private employment sector in the state after roughly a decade of growth. More than 1.3 million visitors who were scheduled to visit Alaska via cruise ship this year didn’t as all but a couple small vessel voyages to the state were canceled. And while tallies on visitors using other modes of travel are harder to quickly collate, it is clear that the prohibition of general border crossings into and out of Canada and a broad reticence to air travel resulted in a fraction of the roughly 2.3 million travelers expected in Alaska this year actually showing up. Leisure and hospitality employment peaked at more than 44,000 jobs in July 2019 after years of increasing visitor numbers but this year the industry’s employment peaked in February and was at just 28,000 jobs in July, according to the state Labor Department. The situation has been worse in Southeast, where the lack of cruise ships cut the industry’s workforce nearly in half. Leisure and hospitality businesses in the region employed approximately 2,400 workers in October, compared to about 4,100 a year ago. — Elwood Brehmer No. 5: Markets and mitigation take bite out of seafood When the pandemic first made headlines across the country in February, commercial fishermen didn’t imagine that they’d be digging into one of the strangest seasons in recent memory. Processors across the state rushed to make plans to get their thousands of workers, often foreign, to tightly packed plants in rural communities. Vessel owners and captains wrung their hands about how to get crewmen into the state or on board, who should pay for quarantine and how to safely deliver fish to dock every period. Prior to the season in Bristol Bay, some communities and members of the fleet called for a closure of the season to prevent COVID-19 from reaching the remote communities around the bay and their limited health care system capacities. However, the fleet and processors rushed to put together mitigation plans. As the season progressed, it seemed to work; outbreaks at processing plants were identified and contained, and though cases were reported across the region during the season, the health care system was never overrun. And then, after they’d gone through the headache and expense of how to operate safely in a pandemic, fishermen were left with uncertain international markets. Seafood prices tumbled, and the estimated value for the statewide salmon harvest came in at $295.2 million, 56 percent less than the 2019 value and the lowest annual value since 2006 after adjusting for inflation. Heading into the 2021 season, industry leaders see reduced inventory as an encouraging sign for prices. Demand for Alaska seafood at grocery stores has remained high, as buyers have still been looking for seafood but aren’t buying it from restaurants in 2020. — Elizabeth Earl No. 6: Schools go virtual with mixed results One of the most widespread effects of the pandemic this year has been for K-12 education. When many students and teachers said farewell before spring break in March, they had no idea they wouldn’t see each other again until at least August. Dunleavy declared a state of emergency in mid-March, closing K-12 schools across the state as a precaution and forcing many students and teachers into full remote classes for the first time. From the beginning, the decision has been controversial. For one, it caught many parents on a back foot, with no access to affordable child care and no way to work without someone to watch their children. At the same time, virtual learning — especially for very young students, like those in kindergarten through fifth grade — was not very common before this spring. Many parents, including those in Alaska, are not happy with results as they juggle work, monitoring their children’s schooling, and other responsibilities. School districts in Anchorage, Fairbanks, the Mat-Su Valley, and the Kenai Peninsula all made plans to go back to school in person this fall, depending on the rates of virus transmission in various communities, including sports. Almost immediately, schools began having to quarantine, with some connected to youth sports and others due to community spread. Anchorage pushed back its timeline for bringing all students back in person several times, keeping all students online, while the Kenai Peninsula divided its schools into regions and closed or opened them based on regional community spread. Mat-Su closed and opened some individual schools as cases warranted, but the result was similar: parents were unhappy and felt students weren’t keeping up with the education they would get in person. With the holidays possibly leading to case increases as people gather, school districts are cautious about bringing students back in person, even as parents push harder for it as students approach a full year without regular in-person schooling in many regions of the state. — Elizabeth Earl 7. Airlines grounded The travel restrictions imposed by the state and local governments in spring quickly led to the — ultimately temporary — demise of Ravn Alaska, the largest passenger airline in the state. State officials sharply restricted in-state travel in late March and by April 5 Ravn leaders had suspended operations and filed for Chapter 11 bankruptcy protection. Ravn executives said the airline lost 90 percent of its revenue nearly immediately after travel was disrupted by the pandemic. The decision to ground Ravn’s 72-plane fleet also meant its approximately 1,300 employees were immediately out of work as well. The year was better at Alaska’s namesake airline at least for the fact that they kept flying, but Alaska Airlines was forced to cut its workforce significantly to match the drop in air travel. Despite the fact that the pandemic did not tangibly take hold in much of the U.S. until mid-March, Alaska reported a $232 million loss in the first quarter and a cash burn rate of up to $400 million per month in the second quarter as the ostensive suspension of air travel continued. Alaska attempted to backfill some of the void left by the sudden grounding of Ravn by starting its seasonal service to Southwest Alaska in mid-May, roughly a month ahead of normal. Alaska also began year-round jet service to Dillingham and King salmon in October with smaller planes from regional sister carrier Horizon Air before. While it added some service in Alaska, as of September the airline had cut its workforce through voluntary leave and retirement packages and direct layoffs by more than 6,100 employees, or nearly 30 percent. A new Ravn ownership group has since restarted scaled-back service to the Aleutians and several Southcentral communities. As of mid-November the airline had hired back more than 300 employees, according to a statement from Ravn. Ravn Alaska was sold for $9.5 million in August following a bankruptcy auction to a new management team led by former commercial pilots and backed by California investor and entrepreneur Josh Jones. — Elwood Brehmer 8. CARES Act funds distributed, but not without difficulty The State of Alaska received about $1.5 billion in federal aid to mitigate the impact of the pandemic after Congress quickly passed the $2.2 trillion CARES Act in late March, but getting the money allocated and dispersed via multiple levels of government proved to be a slower process. State lawmakers who’d adjourned from the spring session because of the pandemic had the Legislative Budget and Audit Committee largely approve Dunleavy’s plan for the CARES Act money in their stead during a mid-May meeting. The Budget and Audit approval sparked a lawsuit from former University of Alaska regent and public interest advocate Eric Forrer, in which he and attorney Joe Geldhof argued the full Legislature needed to convene and appropriate the money. Legislators ultimately gathered in Juneau and approved the administration’s plan May 19, just six days after the suit was filed in state court. Rollout of AK CARES, the state’s primary small business aid program, was slower than anticipated as hang-ups in the application and review process delayed disbursements. State Commerce Department officials initially selected Anchorage-based Credit Union 1 in May to administer $290 million in grants of up to $100,000 each for small businesses in the state. However, the small community lender was soon overwhelmed with grant applications and when the state revised the program to simplify requirements for the grants in early August, CU1 had approved 511 applications totaling about $20 million from more than 2,500 applications with requests totaling $114 million. Commerce Department officials at the time also opened a new AK CARES application website and recruited additional administrative support from organizations statewide. — Elwood Brehmer 9. Legislature adjourns early The then-young pandemic gave lawmakers sufficient reason to pass a largely status quo budget and suspend the session March 29 without addressing any of the state’s structural budget imbalances. Many legislators started the session with relative optimism that some long-sought compromises could be reached on major budget issues, taxes and the Permanent Fund dividend with the prospect of running out of savings being a tangible threat and no longer an existential worry. That changed quickly in March when it became clear large gatherings were a hindrance to good public health. The Legislature formally adjourned May 20 following the harried approval of Gov. Mike Dunleavy’s plan to spend the state’s CARES Act money. Dunleavy vetoed $210 million from the budget in April but lawmakers did not attempt to override his vetoes when they briefly met in May. The early exit from Juneau meant the big issues remained unresolved and nearly $1 billion more is needed from the Constitutional Budget Reserve to fill the 2021 fiscal year deficit. The CBR is expected to hold $586 million at the start of fiscal year 2022, when the state is projected to have a deficit of more than $2 billion, according to the Legislative Finance Division. When legislative leaders declined to make a second round of PFD payments despite Dunleavy’s urging, the governor instead opted to start dispersing the $992 checks on July 1, the start of the state fiscal year and the first day the administration could access the money. The Legislature also did not vote on any of the board and commissions appointments Dunleavy made earlier this year, most notably the appointments of Abe Williams and McKenzie Mitchell to the Board of Fisheries. Dunleavy announced the new Board of Fisheries selections, along John Jensen’s reappointment April 1, after lawmakers had left Juneau. Williams is a Bristol Bay commercial fishermen and also the regional affairs director for the Pebble Partnership and as such his appointment has drawn intense scrutiny. Kodiak Rep. Louise Stutes, a vocal opponent of the Williams pick, has said that if the appointments are not confirmed by the time the next Legislature meets in mid-January — a near certainty at this point — the process starts over. — Elwood Brehmer 10. Light at the end of the tunnel One of the bumpiest trips around the sun in recent history seemed to be smoothing Dec. 15 as the first doses of COVID-19 vaccines were distributed to healthcare workers in the state. The preventative treatments came many months ahead of even the most optimistic projections made at the start of the pandemic and arrived as the state was in the middle of its most severe rise in cases of the virus. News of the impending vaccinations boosted energy and financial markets in the weeks prior. Alaska oil hit $50 per barrel Dec. 10 for the first time since February and the Permanent Fund had recovered from first-half turmoil to exceed $72 billion in value for the first time by early December. In mid-November ConocoPhillips Alaska leaders announced the company would resume North Slope drilling operations by the end of the year after laying down all of its rigs in April in response to health concerns for workers at remote camps and collapsed oil prices. — Elwood Brehmer

Dunleavy offers $350M in project bonds, $3.2B in PFDs to revive economy

Gov. Mike Dunleavy is pitching large Permanent Fund dividend payments and a $350 million infrastructure bond package as the primary elements of his fiscal year 2022 budget plan to pull the Alaska economy out of the pandemic-induced slide. The governor’s overall 2022 state budget proposal is another stark departure from his initial plan in 2019 to cut roughly $1.2 billion in spending and balance the budget without new revenue, which was roundly rejected by a majority of the Legislature.  The 2022 operating budget plan contains $295 million in spending cuts Dunleavy said in an interview prior to the budget release.  “It’s been an unprecedented, extraordinary time in history and it’s with that backdrop that we developed this budget,” the governor said, adding that the drastic spending cuts needed to balance the budget would do more harm than good at this point. “The focus is on the economy; saving it, salvaging it and putting it on a trajectory that will get it growing again.” Administration officials have not yet finalized a list of projects for the bond package but Dunleavy said he would like it to focus on “roads to resources,” renewable energy projects and deferred maintenance. The final package will be negotiated with the Legislature. “This is not the time to politicize and become partisan,” he said. State officials have said for years there is a roughly $2 billion and growing list of deferred maintenance projects at state facilities. The nonpartisan Legislative Finance Division estimates the State of Alaska would have a roughly $2.4 billion budget deficit in the 2022 fiscal year, which starts July 1, 2021, if agency spending remains flat and full, statutorily calculated PFDs are paid.  The governor’s proposed cuts would drop the deficit to about $2.1 billion. Alaska has run annual budget deficits ranging from several hundred million dollars to more than $3 billion since 2013. Collectively, the governor’s budget would spend $4.3 billion of unrestricted general fund money in addition to PFD payments. “It doesn’t make any sense today to throw hundreds or thousands of people out of work only for us to have to pay for them,” Dunleavy said of the consequences of severe budget cuts. As of October, Alaska had about 30,000 fewer jobs than a year prior, according to state Labor Department figures. Most lawmakers, including numerous Republicans, cited fears of significantly damaging the state’s fragile economy when opposing Dunleavy’s plan in early 2019. The capital budget — aside from the bond proposal — would spend $58 million of unrestricted state funds to capture approximately $1 billion in federal airport and road maintenance funding. The governor maintained his position on new taxes, however, calling them a “nonstarter” and said he wants to work with legislators to address the primary cost drivers in the state budget. Broadly, those are education, the Department of Health and Social Services and the PFD. “There’s no economy to tax,” Dunleavy said. PFD plan As for the PFD, Dunleavy again unveiled a plan to pay statutory PFDs in the range of $3,000 per individual for a cumulative 2022 PFD appropriation of just more than $2 billion. He asked lawmakers to appropriate another roughly $1.2 billion from the Permanent Fund Earnings Reserve Account to fulfill the statutory 2020 payment.  “The ERA has had a tremendous run the last several months; we’re over $70 billion,” he said, referencing the $72.3 billion value of the Permanent Fund in early December. “I don’t say that rubbing my hands together.” The cumulative $1.2 billion payout would send each Alaskan another roughly $1,900. The Earnings Reserve Account, or ERA, currently holds about $6 billion of realized fund earnings available for appropriation. The annual 5 percent of market value draw, or POMV, is forecasted to be about $3 billion in 2022 as well. “We see this as a one-time necessity to help drag us out of this disaster economically,” Dunleavy said. It would add up to a total Permanent Fund draw of more than $6.2 billion over the next 12 months, according to documents posted on the Office of Management and Budget website. Many current and former lawmakers and Alaska Permanent Fund Corp. leaders have said spending from the Permanent Fund beyond the annual 5 percent draw would hurt the long-term growth of the fund and could deplete the spendable money in the ERA, creating additional near-term challenges. Dunleavy also floated the idea of settling the omnipresent issue of the PFD by making it 50 percent of any appropriation out of the Permanent Fund. Such a change would cut near-term PFDs by about 25 percent from the longstanding formula and would deviate from the push for “full PFDs” that Dunleavy campaigned on.  In a press conference following the release of the budget he noted that the PFD has not been linked to the statute for years and amending it now — and putting it in the Alaska Constitution — would restore its standing. “We want to give the people of the state of Alaska an opportunity to decide what they want to do with the PFD,” he said. “We have to work on making the Permanent Fund and the Permanent Fund dividend permanent.” Dunleavy said he did not discuss his proposals with legislators ahead of time but his plan for the PFD is largely in-line with prior efforts by his administration. While legislators are still hashing out who will lead both chambers in the coming session, current House Speaker Bryce Edgmon, I-Dillingham, said he is encouraged by the bond proposal but noted the governor’s plan calls for pulling roughly $3 billion more from the Permanent Fund Earnings Reserve Account than fund managers believe is sustainable to maintain the fund’s long-term real value.  Edgmon also said Dunleavy failed to propose long-term budget solutions in a prepared statement. “We hear loud and clear that parents expect the State of Alaska to operate schools at pre-pandemic levels as soon as it is safe, not make it more difficult to re-open because of budget cuts. We are also committed to making the most of our limited resources to help those who need it the most, and we will continue to promote accessible healthcare and preserve critical infrastructure. Finally, we flatly reject the idea of spending down Alaska’s investment fund to avoid tough decisions” Edgmon said. “These are our long-standing values and will be reflected in our effort to create a budget that helps rebuild Alaska.” Dunleavy’s 2022 fiscal year budget would cut unrestricted education spending by $27 million, or just more than 2 percent from current-year levels. Legislators initially agreed to increase education funding by $16 million this fiscal year over 2020; however, Dunleavy vetoed it down to $11 million less than 2020.  The 2022 budget proposal would also cut $139 million, or about 12 percent from the Department of Health and Social Services. The Dunleavy administration has repeatedly attempted to significantly cut state Medicaid spending through regulatory and administrative changes with mixed results. An advisory vote on the PFD could be part of a spring special election including constitutional amendments and the general obligation bond package, which must also be approved by voters, according to Dunleavy. Elwood Brehmer can be reached at [email protected]

9th Circuit rules against federal permit for Liberty project

The federal 9th Circuit Court of Appeals invalidated the Interior Department’s environmental review of Hilcorp Energy’s offshore North Slope Liberty oil project in a ruling issued Dec. 7. A three-judge panel of the western court concluded the Bureau of Ocean Energy Management failed to forecast the emissions resulting from overseas consumption of the oil produced at Liberty; or in the alternative explain why it couldn’t. The judges also found the U.S. Fish and Wildlife service violated the Endangered Species Act by agreeing to vague impact mitigation measures to reach its “no-adverse-effect” biological opinion as well as failing to study the “nonlethal take” of polar bears as a result of the project. As a result, Hilcorp Energy has been stripped of the federal record of decision to construct the project, at least temporarily. Jeremy Lieb, an attorney for Earthjustice, the environmental firm that fought the case for five national organizations, said in a prepared statement that the agencies’ environmental impact statement, or EIS, was “inaccurate and misleading” in its analysis of the climate impacts the project would have. The case went directly to the appeals court based on jurisdiction determined in the Outer Continental Shelf Lands Act. The proposed Liberty project owned by Houston-based Hilcorp Energy is a roughly $1.5 billion manmade island development planned for the near shore federal waters of the Beaufort Sea. Hilcorp officials estimate it could produce 60,000 to 70,000 barrels of oil per day at peak. A Hilcorp spokesman declined to comment on the ruling. BOEM Alaska spokesman John Callahan wrote via email that the agency is aware of the ruling and evaluating its next steps. Hilcorp purchased Liberty from BP in 2014 after the London-based major held the long-known oil pool for years without developing it. BOEM approved Liberty in 2018 and the groups sued the agency shortly thereafter. Hilcorp had not publicly disclosed plans to begin construction. The court noted in its 47-page opinion that the project is planned for an area known as “the Boulder Patch,” a unique area of substrate on the ocean floor that supports the only high Arctic kelp forest in Alaska waters and is home to several threatened and endangered species, including polar bears, seals and six species of whales. BOEM officials estimated development of the oil under all of the scenarios contemplated in the Liberty EIS would produce about 64.5 million metric tons of carbon dioxide. Not developing the oil would result in 89.9 million metric tons of carbon dioxide emissions, “somewhat perplexingly,” Judge Richard A. Paez wrote in the court’s opinion. The EIS states that oil produced elsewhere in the world to fill in for what Liberty would have produced would result in more emissions because of weaker regulations and less efficient transportation. “Understanding why foreign oil consumption is critical to BOEM’s alternatives analysis requires some basic economics principles. If oil is produced from Liberty, the total supply of oil in the world will rise. Increasing global supply will reduce prices,” Paez wrote. “Once prices drop, foreign consumers will buy and consume more oil. The model used by BOEM assumes that foreign oil consumption will remain static, whether or not oil is produced at Liberty.” The agency acknowledges that not developing Liberty would reduce foreign oil consumption to decline by one, four or six billion barrels of oil depending on the market price. BOEM argued it didn’t have sufficient information to analyze the impacts on greenhouse gas emissions based on the expected reductions in oil consumption, but the conservation courts and the judges agreed they did. The ruling states that emissions resulting from oil produced at a proposed development project are “reasonably foreseeable” impacts and various reports from global environmental research groups offer ways to calculate the quantity of the emissions. Still, the agency’s conclusion that not producing the oil would lead to greater emissions “is counterintuitive,” according to Paez. “Without further explanation, we cannot ascribe the implausibility of the result to BOEM’s expertise or rational decision-making. We will uphold a decision ‘of less than ideal clarity if they agency’s path may be reasonably discerned,’” the ruling states, citing previous cases. “But we cannot ‘supply a reasoned basis for the agency’s action that the agency itself has not given.’” The degree to which federal agencies are to analyze the impacts of greenhouse gas emissions in the reviews of major projects was scaled back in the Trump administration’s overhaul of National Environmental Policy Act regulations finalized last summer. However, the Liberty review was done prior to those changes. Elwood Brehmer can be reached at [email protected]

Permanent Fund passes $70B as stock markets rally

Alaska’s Permanent Fund has rebounded strong from a tumultuous first half of 2020 to cross the $70 billion threshold for the first time. The fund had an unaudited value of more than $72.3 billion on Dec. 7, according to the Alaska Permanent Fund Corp., despite falling to a balance of about $60 billion in late March during the most uncertain early days of pandemic. The Permanent Fund started calendar 2020 with a balance of nearly $67 billion and ended the state fiscal year on June 30 with a value of $64.7 billion. The gains have particularly accelerated over the last six weeks. APFC CEO Angela Rodell said that while the country is in the midst of a very challenging spike in COVID-19 cases, reports of initial doses of vaccines being dispersed in the coming weeks have buoyed markets domestically and abroad. “There is a sense of a light at the end of the tunnel but it’s still a long tunnel to go. The idea that there is a solution out there I think has created a lot of optimism,” Rodell said in a Dec. 8 interview. The Dow Jones Industrial Average closed trading Dec. 8 at 30,173 points, up 104 points on the day and was up nearly 14 percent since the end of October when the market was hovering around 26,500 points. Public equities, or stocks, generally make up 35 to 40 percent of the fund’s overall investment portfolio. The fund’s stock portfolio generated a 6.72 percent return through the first four months of the 2021 state fiscal year, which started July 1, according to the October APFC performance report. However, the equities were still down 2.12 percent for calendar 2020. While tourism and other consumer-centric industries have been hammered by travel restrictions and a general reticence towards public gatherings, Rodell said the global response to the virus has generated interesting opportunities in the logistics, telecom and biotechnology industries, to name a few. “The pandemic has highlighted the need for technology, the need for broadband access services in ways that we knew, but we didn’t really know in March,” she said. “It’s things like that have helped spur growth in the markets both at home and abroad.” The fund was positioned to benefit from the market improvements because APFC managers kept their cool while markets panicked from the litany of uncertainties everyone faced in spring, according to Rodell, a former state Revenue commissioner. Managers largely maintained previously prescribed asset allocations during the spring downturn in markets but sold some bonds, which were performing well at the time given their inherent stability, to free up cash that was deployed into then-depressed stocks, she said. They were then able to capture the subsequent rise in value of those stocks. “If you still have conviction on strategy or the asset itself it was an opportunity to invest in the sector,” Rodell added. As for real estate — another uncertain sector given some competing forces of the pandemic — Rodell said APFC leaders continue to look for investment opportunities while acknowledging their current portfolio is slightly over-weighted towards retail properties that have been among the hardest hit. “The pandemic has heightened a trend that has been happening, which is the movement towards online retail,” she said. However, she also called APFC’s properties “gems of the retail world,” in that they are premier assets in destination locations better equipped to weather disruptions in consumer habits. “We have very few, if any, for example, strip malls in small-market communities,” Rodell said. Industrial and multi-family housing properties have helped offset challenges in the retail space, she said. For the year, the fund’s $4.7 billion real estate portfolio had lost 0.57 percent of its market value through October, versus a five-year average annual return of 3.68 percent, according to the monthly APFC performance report. Private equity investments have been particularly important for the fund of late, she added, as the $10.6 billion invested in private equity and special opportunities have netted an 11 percent return so far in 2020. And while Alaska’s giant nest egg is back growing again after scares early in the year, the same cannot be said for much of Alaska’s economy hit by collapsed oil prices; poor salmon returns and low seafood prices; and the absence of more than 1.3 million tourists that were supposed to cruise to the state. The economic situation, combined with ongoing battles within the Legislature and governor’s office over the proper Permanent Fund dividend amount, has led some newly-elected and sitting lawmakers to push even harder for “full,” statutory PFDs. On the flip-side, lawmakers hesitant to spend upwards of $2 billion of the roughly $3 billion annual percent of market value, or POMV, draw from the fund on dividends highlight the Permanent Fund’s earnings now accounts for the lion’s share of annual state revenue and is needed for essential services more than ever. While APFC leaders do not wade into the specific policy calls on how appropriations from the Permanent Fund Earnings Reserve Account should be spent, Rodell emphasized that the recent growth in the fund does not necessarily mean more money is available for dividends or education or other services and stressed the need to stay within the annual 5 percent draw limit. “I do worry about the mindset of ‘we have money, let’s spend it’ because there is this desire to help out. We all have friends and neighbors, family members that are truly hurting with what’s going on,” she said. “I think there is an inclination to want to use more than the POMV draw to help the state at this time but it comes at a cost and one of my jobs is to remind people of the costs — that it doesn’t come for free. “The cost is the impact on the future generations of Alaskans; and it’s not some imaginary group 20 years from now that are going to feel the cost. It’s much more near-term, more like FY ’23, ’24 ’25.” According to the Legislative Finance Division figures, the state is back to facing a $2.4 billion deficit next year at current agency spending levels and with a statutorily calculated dividend payment appropriation of just more than $2 billion. The increase in the PFD appropriation — from $680 million this year — would add more than $1.3 billion to the deficit. The Earnings Reserve Account currently holds approximately $6.7 billion in realized earnings available for spending with another $3 billion committed to fund state services this year. Rodell also noted that the $72 billion value of the fund would not factor into the POMV calculation for another two years. “I think we have to be really concerned about not just how we take care of people this year but how we take are of people next year and the year after,” she said. “I promise you we will still need money next year and we will still have a need for services.” Elwood Brehmer can be reached at [email protected]

Low rates fuel financing activity for banks in 3Q

The Federal Reserve’s strategy of keeping interest rates ultra-low to support the challenged economy seems to be working for banks in Alaska. State bank leaders reported strong profits in the third quarter primarily because of near-unprecedented mortgage lending. Northrim Bank Chief Financial Officer Jed Ballard said the activity first came in the form of mortgage refinances this year but has shifted to actual home purchases. “We made $12 million and not too many years ago that would’ve been our net income for the year,” Ballard said of the third quarter. Northrim workers also celebrated the bank’s 30th birthday on Dec. 4, Ballard said. The bank opened in late 1990 in a trailer in the parking lot of its current Midtown Anchorage headquarters and 21 original employees; current CEO Joe Schierhorn among them, according to Ballard. “We started the bank with $8 million of capital and now we’re dividing like $9 million per year — so pretty impressive growth,” he said. Specifically, Northrim netted $11.8 million in the third quarter following a $12.7 million quarter in the spring. The second largest Alaska-based bank grew its total assets by $80 million to nearly $2.1 billion and its loan portfolio by 3.5 percent to more than $1.6 billion over the period. The Alaska Housing Finance Corp. advertised 15-year mortgage rates as low as 2.25 percent in late November, with 30-year loans starting at 2.5 percent. Denali State Bank CEO Steve Lundgren also predicted a record mortgage year at the Fairbanks-based community bank. He said about half of the business has been from refinances. “We’re seeing more activity in home sales than I would’ve expected,” Lundgren said. Denali State Bank grew 3.2 percent to hold $388 million in assets at the end of the quarter and netted $826,000 with nearly 5 percent growth in its loan portfolio. Leaders of First National Bank Alaska — the largest Alaska-based bank — did not get back to the Journal in time for this story but they may have taken the day off to celebrate a $15.5 million quarterly profit, which was a 6.7 percent improvement over the second quarter. FNBA also surpassed $4.7 billion in assets and saw its past due loan total drop by 75 percent to $3.8 million of a $2.3 billion portfolio. FNBA’s loans in nonaccrual bumped up 1.6 percent to $12.9 million. Non-accruing loan amounts stayed mostly flat across Alaska’s banks, as did loan loss amounts. The exceptions were First Bank in Southeast, which saw its loans in nonaccrual jump, but from just $196,000 to $796,000. Past due loan totals also dropped at several institutions except Northrim. However, Northrim’s loans up to 89 days past due increased from virtually nothing at $861,000 in the second quarter to $2.3 million in the third. “We have record profits but there’s still a lot of uncertainty out there,” Ballard said. He said Northrim has made its share of accommodations to large customers, particularly commercial property owners with tenants impacted by the pandemic economy. Ballard said the CARES Act support businesses received helped immensely in the first months of the pandemic and owners have been resourceful as well but he believes more help will be needed to get through the winter, noting that in spite of expected COVID-19 vaccines, the economy, and tourism in particular, is likely going to take years to recover — back to being stable. Lundgren said the consumer activity goes beyond home buying to other large purchases such as cars, boats, and home renovations. “If you’re not in the tourist industry you’re probably doing pretty good in Fairbanks,” he said. Still, he agreed with Ballard that some sort of additional business relief is needed, “maybe not for everybody, but certainly for some people,” Lundgren said. “I have customers that are surviving, but they’re struggling.” ^ Elwood Brehmer can be reached at [email protected]

ANWR lease sale set for Jan. 6

It’s now official that part of the Arctic National Wildlife Refuge will be auctioned off to the oil industry 41 years after Congress opened the door to the unprecedented plan. Bureau of Land Management leaders announced in a statement issued Dec. 3 that the agency will hold a lease sale for the ANWR coastal plain Jan. 6 via a video live stream. The lease sale will follow a notice of sale published in the Federal Register Dec. 7. BLM Alaska State Director Chad Padgett noted the first ANWR lease sale is required by Congress to be held by December 2021 in a formal statement issued ahead of the sale notice. A second lease sale must also be held by December 2027, in accordance with the tax overhaul pushed through Congress by Republicans and signed by President Donald Trump in late 2017. “Oil and gas from the coastal plain is an important resource for meeting our nation’s long-term energy demands and will help create jobs and economic opportunities,” Padgett said. “The law makes oil and gas development one of the purposes of the refuge, clearly directing the (Interior) secretary, acting through the Bureau of Land Management, to carry out an aggressive, competitive exploration and development program for the potentially energy-rich coastal plain.” The 2017 Tax Cut and Jobs Act directs the agency to offer at least 400,000 acres of the roughly 1.5 million-acre coastal plain — the northern portion of the refuge to the Beaufort Sea. ANWR is approximately 19.2 million acres overall. According to documents accompanying the sale notice, BLM plans to offer ostensibly all of the available land federal acreage within the coastal plain boundaries in the sale in 32 tracts ranging from approximately 34,000 acres to nearly 60,000 acres each. The leases will come with a 10-year term and minimum bids will start at $25 per acre. The Alaska National Interest Lands Conservation Act, or ANILCA, passed by Congress in 1980 established or grew many of the federal conservation areas in the state, but also included a provision that allowed the coastal plain to be developed for oil and gas if a plan was approved by a future Congress. Many Alaska politicians have been fighting for that approval over the decades since. The coastal plain is often dubbed the “1002 area” in reference to Section 1002 of ANILCA that spells out the development exception for the area. The members of Alaska’s all-Republican congressional delegation, who led the push to open the coastal plain to industry, have noted that the tax bill also limits total surface development to 2,000 acres from the leases sold in the two sales as an effort to limit the environmental impact to an area opponents argue is a crucial breeding ground for the Porcupine caribou herd and in-turn critical for nearby subsistence-reliant communities. The delegation said in a joint statement that the notice of sale is another big step towards long-term economic growth in the state. “This is a tremendous opportunity for Alaska’s resources to continue benefiting our nation and providing American families with well-paying jobs,” said Sen. Lisa Murkowski, who chairs the Senate Energy and Natural Resources Committee. “Alaskans have proven, over and over again, that we can responsibly develop our resources while being good stewards of our lands and waters.” Industry advocates argue that advanced, long-reach drilling technologies will allow oil companies to explore and develop the coastal plain with minimal impact to the caribou herd and the broader, sensitive Arctic ecosystem. They regularly point to the wildlife that lives among the decades-old North Slope oil development on state land to the east as proof it can also be done successfully in the coastal plain. Leaders of the Village of Kaktovik, which lies on the northern edge of the coastal plain, have largely supported the leasing plans on the prospect that development could bring with it improved regional infrastructure. If it is published Dec. 7 the notice of sale would overlap with an ongoing 30-day call for nominations published by BLM Nov. 17. BLM officials indicated when the call for nominations and comments on the proposed lease sale was initially issued that the sale notice would follow the nomination period and be issued after the comments were reviewed. The comments received for less contentious lease sales are often used to help agency officials determine what areas potential bidders are most interested in. Lease sales for the National Petroleum Reserve-Alaska on the western North Slope, for instance, regularly do not offer tracts that receive little attention during the nominations period even though they could technically be leased; presumably to reduce the administrative burden on agency staff. The tax bill also states the coastal plain leasing program should mirror leasing in the NPR-A. Opponents of the plan argue the parallel track is proof Trump administration officials are moving ahead with a predetermined outcome to hold the sale ahead of the Jan. 20 hand-off of the keys to the White House. President-elect Joe Biden opposes oil and gas exploration in the coastal plain. “Cutting off public input by announcing a lease sale in the middle of an open comment period is politically motivated and legally questionable,” Brook Brisson, an attorney with the Anchorage-based environmental law firm Trustees for Alaska wrote in an emailed response to questions. “They are making a mockery of the public process and trying to bend the law to get what they want. This action demonstrates again that this administration has no intention of ensuring the health of the Arctic.” Questions emailed to the BLM headquarters press office were not answered in time for this story. Delegation policy staffers said that while they cannot speak for the agency they do not see the overlapping procedural steps as an issue that could derail the lease sale. Several Alaska Native and conservation organizations sued the Interior Department earlier this year on the grounds that the environmental impact statement and subsequent agency decision approving the leasing plan was rushed and ignored numerous environmental considerations. Those lawsuits are pending. Alaska Wilderness League Executive Director Adam Kolton highlighted that the Dec. 7 sale notice came one day after the 60th anniversary of the formation of the refuge by Republican President Dwight Eisenhower in a prepared statement. “Arctic Refuge drilling makes zero sense in today’s reality of high oil market volatility and with every major U.S. bank and many international banks unwilling to invest in risky, expensive Arctic oil projects. The administration is simply rushing to sell off one of the wildest places left on Earth for pennies on the dollar before President-elect Biden takes office in January,” Kolton said. The U.S. Geological Survey estimates there could be more than 10 billion barrels of technically recoverable underneath the coastal plain, but just how much of that is economically viable and how much interest companies will ultimately have in the area remains to be seen. Alaska oil industry leaders have consistently said they do not know how many bids a coastal plain sale would generate as leasing plans are some of the most tightly held secrets in the highly competitive industry. However, also note that oil and gas production would almost certainly be more than a decade out from an initial sale, so today’s sub-$50 per barrel oil markets should not be a significant factor. Elwood Brehmer can be reached at [email protected]

Bristol Bay could boom again; SE pinks, chinook still down

For better or worse, recent trends in some of Alaska’s primary salmon fisheries are likely to continue in 2021, according to early predictions from state biologists. On the positive side of the ledger, Bristol Bay is expected to see yet another strong return of sockeye salmon next year; the Alaska Department of Fish and Game is forecasting a total run of just more than 51 million sockeye attempting to reach the bay’s nine large river systems. Such a return should translate into a commercial harvest of nearly 37.8 million sockeye and an area-wide escapement of about 13.7 million fish, according to the 2021 Bristol Bay Sockeye Salmon Forecast. A total run of 51 million fish would be approximately 45 percent greater than the long-term average run of 35.1 million sockeye to the bay based on harvest and escapement estimates going back to 1963 but “just” about 6 percent greater than the 10-year average return of 48.1 million sockeye as the fishery has continued to build on itself of late. Similarly, a harvest of 37 million sockeye would be 40 percent greater than the long-term average harvest of nearly 22 million fish and 13 percent greater than the average harvest of 32.2 million sockeye since 2011, according to the forecast. The Bristol Bay fishery is typically the largest commercial sockeye fishery in the world and the most lucrative salmon fishery in the state in terms of the total value of the fish harvested. ADFG Bristol Bay Area Research Biologist Greg Buck said the latest strong sockeye forecast is largely based on the expected continuation of “massive” returns of 1.2-age sockeye — those that spend one year rearing in freshwater and two in the ocean — to the bay’s western rivers in recent years, primarily the Nushagak and Wood near Dillingham. Biologists thought those Westside returns could be an indicator for large 1.3-age fish in 2020 and they were mostly right, Buck said, particularly for the Naknek River on the bay’s Eastside. “The Naknek just blew the doors off the numbers last year,” he said in an interview. “Now the question is: How long is this going to play out?” More than 14 million sockeye were harvested in the Naknek-Kvichak district last summer, which was 66 percent greater than the 20-year average harvest for the area. Even still, approximately 4.1 million sockeye escaped into the Naknek River, according to ADFG, more than double the river's upper-end escapement goal of 2 million sockeye. Buck also noted that the forecasts for Bristol Bay sockeye have borne out to be lower than actual returns in recent years. The forecast for this past summer pegged the 2020 run at 46.6 million sockeye before more than 58 million fish showed up for the sixth consecutive year of a 50 million-plus fish run. The 2018 run of 62.3 million fish was the largest on record going back to 1893, according to ADFG, and was 21 percent greater than the preseason forecast. “If we have had any trend over the past 10 years or so we’ve been kind of conservative with the forecast so I kind of took the governor off this year and said ‘go for it,’” Buck said. By district, the 2021 Bristol Bay sockeye run forecast breaks down as follows: 17.3 million fish to the Naknek-Kvichak district; 15 million to the Nushagak district; 11.2 million to the Egegik district; 6.6 million to the Ugashik district; and just more than 800,000 to the Togiak district. Buck added that the official state prediction is right in line with a forecast for a 2021 Bristol Bay sockeye run of 50.9 million fish from University of Washington experts, who conduct extensive research on the Alaska fishery. As for why the Bristol Bay sockeye fishery has performed exceptionally well in recent years when many other salmon stocks across Alaska and down the West Coast are struggling, he said the possibility that a warmer Bering Sea is more productive continues to be a popular theory but acknowledged that is little more than an educated guess at this point as well. “There’s obviously something deep-ocean about this,” he said. “Unfortunately, that’s part of the life cycle we don’t know much about.” There also is no apparent correlation between the strong 1.2 and 1.3-age classes and poorer returns of older sockeye. And while a larger harvestable surplus of salmon is generally a good thing, most of the sockeye that have returned to Bristol Bay of late have been small. Those salmon harvested this year averaged 5.1 pounds, which is nearly a pound smaller than the long-term average size, according to ADFG. “It’s pretty straightforward; they’re growing like gangbusters out there at sea for some reason so they’re maturing early. Whatever’s going on out there is putting their hormones in overdrive,” Buck said of the smaller sockeye. Smaller than average returning salmon have become a trend statewide. Bristol Bay Regional Seafood Development Association Executive Director Andy Wink wrote via email that the forecast for next year “looks really good” even if there is a trend towards smaller and younger sockeye. Wink wrote that although most Bristol Bay sockeye are frozen after being headed and gutted and smaller “H&G” sockeye often fetch lower per pound wholesale prices, poor runs elsewhere helped limit the global sockeye supply this year. As a result, prices for four- to six-pound sizes are currently quite high, according to Wink, so he wouldn’t be surprised to see what price gap there is start to close. A lot of it has to do with the fact that sockeye come from wild fisheries “so we get what we get, and so does the market,” he wrote. “We have seen those in the supply chain successfully adjusting to smaller fish sizes, and that will likely continue so long as we see runs that skew younger and smaller,” Wink continued. “Even though smaller sockeye produce a slightly lower fillet yield and can sell for a dollar/pound less in wholesale markets, there doesn’t appear to be a drastic difference when it comes to retail prices or consumer demand.” And though it’s impossible to predict exactly what will happen with millions of salmon facing seemingly just as many variables impacting their survival, but Buck added that “right now it looks like (the strong runs) will play out for a few more years.” Southeast pinks, chinook The immediate outlooks for two of Southeast’s biggest salmon fisheries aren’t nearly as bright. The joint NOAA Fisheries-Alaska Department of Fish and Game 2021 Southeast Pink Salmon Harvest Forecast state’s the regional harvest of the smallest and most prolific Pacific salmon is expected to be “average” at approximately 28 million pinks, but ADFG Southeast Pink and Chum Salmon Project Leader Andy Piston said in an interview that there is a caveat to that. Southeast pinks runs — particularly those to inside waters in the northern part of the region — have become increasingly odd-year dominant, he said, meaning more fish tend to return in odd-numbered years. That’s because pinks have a two-year life cycle that is much more strict than other species of salmon that often have several age classes of fish return in a given year. Pinks do not. “You have all your eggs in one basket, so it takes time for odd and even years to bounce back,” Piston said. To that end, a harvest of 28 million pinks is classified as average for all years but is actually “quite a bit below the average” for odd years in Southeast, he said. The 10-year average Southeast pink harvest is 34 million fish and the 28 million-fish forecast is just more than half of the odd-year harvest since 2001, according to ADFG figures. Additionally, next year’s Southeast pinks were spawned from the 2019 return that yielded a “really poor” harvest of about 21 million fish, Piston said. He attributed the smaller returns to poor early marine survival, which many biologists have linked to warmer-than-normal Gulf of Alaska water temperatures in recent years. “The overall trend has been downward since the early 2000s and the pattern is similar for sockeye salmon, coho salmon and chinook,” Piston said. “It’s pretty clear that there’s large-scale environmental conditions that are driving all of this.” However, he said there is hope in the fact that water temperatures in the northern Southeast waters of Icy and Chatham straits were again close to normal this summer and surface temperatures in the Gulf have also moderated. “Now (temperatures) are pretty close to near average in the northern Gulf of Alaska. Hopefully we’ll see some better survival for these fish,” he said, adding that short-lived pinks will likely offer the first clue as to whether or not gulf-raised salmon in general could start an upswing. However, managers do not think Stikine or Taku River chinook salmon will start their rebounds in 2021. According to the forecast for the large Southeast rivers published Nov. 30, just 9,900 large chinook are expected to return to the Stikine River near Wrangell next summer, which is well below the escapement goal of 14,000-28,000 fish. The Stikine had a chinook escapement of just 10,670 fish from a terminal run of 11,750 large fish this year, according to ADFG figures. Similarly, the terminal run forecast for the Taku near Juneau is for 10,300 large chinook next year, which would also be well below the escapement goal range of 19,000 to 36,000 fish. The Taku saw a chinook escapement of 15,590 fish this year. Chinook stocks have severely struggled across Southeast for several years and the small run forecasts are likely to again translate to broad chinook fishing closures across Southeast inside waters in spring and early summer, according to ADFG. ^ Elwood Brehmer can be reached at [email protected]

Army Corps of Engineers denies Pebble permit

In the end, Pebble Limited Partnership will not be getting a key permit for its mine from the Trump administration. The Army Corps of Engineers Alaska District issued a record of decision Nov. 25 denying Pebble’s Clean Water Act wetlands fill permit application, which, barring an unlikely reversal on appeal, kills the current iteration of the Pebble mine plan.  The company’s late 2017 application for the key development permit spurred the multi-year environmental impact statement, or EIS, review that has since been the focal point of the fight over the massive and contentious mine plan. The Army Corps’ record of decision, or ROD, summarily states that the mine plan impacting more than 3,300 acres of wetlands and 185 miles of streams does not comply with Clean Water Act guidelines and “is contrary to the public interest.” Corps of Engineers Alaska District Commander Col. Damon Delarosa wrote at the end of the 29-page decision document that the Pebble mine plan is being denied because the project would result in “significant degradation of the aquatic ecosystem.” “I have concluded that the benefits of the proposed elimination and alteration of wetlands, streams and other waters within the (Army Corps) jurisdiction do not outweigh the detriments that would be caused by such eliminations and alterations, based upon the information contained in the FEIS, the extensive public comments received, and the analysis of the public interest review factors,” Delarosa wrote. “As those eliminations and alterations would be necessary to realize any benefits from the proposed project, I have found that the project is contrary to the public interest.” Delarosa took over as commander of the Alaska District this past August. Opponents of the mine naturally celebrated the Corps’ decision, generally stressing that the permit denial ultimately follows years of scientific conclusions about likely environmental impacts of the project and what a majority of Alaskans want in regards to Pebble. Bristol Bay Native Corp. CEO Jason Metrokin called the decision “a triumph for the people of Bristol Bay” in a formal statement. “While we are still reviewing the details of the decision, it is clear that Pebble is not in the best interests of Bristol Bay and those whose livelihoods depend on its incredible fishery,” Metrokin said. “We thank the Corps for acknowledging this reality in its decision. BBNC looks forward to working with stakeholders, both in-region and across Alaska, our congressional delegation and the federal government to ensure that wild salmon continue to thrive in Bristol Bay waters, bringing with them the immense cultural, subsistence and economic benefits that we all have enjoyed for so long.” Pebble’s opponents have routinely cited that the region’s large commercial sockeye fishery — currently one of the state’s few thriving commercial salmon fisheries —supports more than 14,000 jobs and generates more than $1.5 billion in economic activity. Sens. Dan Sullivan and Lisa Murkowski, both of whom formally opposed the project in late August when the Corps issued strict mitigation requirements for Pebble, said Corps officials came to the right conclusion on Pebble, despite their general support for Alaska’s mining industry. “This is the right decision, reached in the right way,” Murkowski said. “It should validate our trust and faith in the well-established permitting process used to advance resource development projects throughout Alaska. It will help ensure the continued protection of an irreplaceable resource — Bristol Bay’s world-class salmon fishery — and I hope it also marks the start of a more collaborative effort within the state to develop a sustainable vision for the region.” Murkowski previously said her preference was that the Corps deny the permit rather than the Environmental Protection Agency issuing a subsequent permit “veto” because of concerns she has about an EPA development prohibition stymieing other resource projects in the state. Murkowski has instead floated the concept of changing the status of the land Pebble wants to mine, which is state land designated for its mineral potential, but a spokeswoman for Murkowksi could not provide additional details on the senator’s ideas in time for this story. Sullivan said he will continue to advocate for other resource development projects in the state because of the jobs and economic opportunities they can provide. “However, given the nature of the Bristol Bay watershed and the fisheries and subsistence resources downstream, Pebble had to meet a high bar so that we do not trade one resource for another. As I have been saying since August, Pebble did not meet that bar and, accordingly, the Corps rightly denied the permit,” Sullivan said. Rep. Don Young did not applaud or criticize the decision in a statement from his office, but said he is disappointed in the fact that the permitting process allows the federal government to effectively kill a project proposed on state land. “Now there must be a consideration of how the federal government will compensate the state for the loss of economic potential (from the mine),” Young said. Pebble CEO John Shively said company representatives are obviously dismayed with the decision, particularly since the final EIS published in July indicated the project could co-exist with the fishery. “One of the real tragedies of this decision is the loss of economic opportunities for people living in the area. The EIS clearly describes those benefits, and now a politically driven decision has taken away the hope that many had for a better life.” Shively said in a statement.  The company is now focused on the next steps for the project, including an appeal of the decision, according to Shively. The company has 60 days to appeal the decision. Pebble’s Vancouver-based parent company Northern Dynasty Minerals Ltd. issued a statement Wednesday that is sharper yet in its criticism of the Corps’ conclusions. “Based on the positive findings of the final EIS, conclusions by the (Army Corps) that development of the Pebble project is ‘not in the public interest’ are wholly unsupported,” Northern Dynasty’s statement reads. “For the United States to turn its back on an opportunity to develop these minerals here at home in a manner that U.S. regulators have agreed is environmentally safe and responsible, and to do so for purely political reasons, is not just short-sighted; it’s self-destructive,” Northern Dynasty CEO Ron Thiessen said. Northern Dynasty stock traded at 80 cents per share on Nov. 24 prior to the permit denial and has since fallen to 34 cents per share during early trading Dec. 2. The final Pebble EIS published in late July largely concluded that the large open-pit mine plan and its extensive support infrastructure would not materially impact salmon returns or the region’s water-plentiful ecosystem.  The final EIS backed the conclusions of the draft document published in 2019. Both of the documents were widely dismissed by Pebble opponents for lacking in-depth science and being rushed to fit permitting within the timeframe of the Trump administration. Army Corps Alaska District spokesman John Budnik wrote via email that the decision “is based on all the facts at-hand, which includes information provided by the permit applicant and the public, and is in compliance with existing laws and regulations.” An appeal would be adjudicated by the commander of the Army Corps Pacific Ocean Division headquartered in Honolulu, according to Budnik. That position is currently held by Col. Kirk E. Gibbs. Multiple conservation groups active in the fight against Pebble contend the proposed mine is the first large oil and gas or mining project in Alaska to be outright denied by the Corps. Budnik wrote that no major infrastructure projects have been denied a Clean Water Act permit by the agency since current Regulatory Chief Dave Hobbie took the position in 2015 but it’s unclear what happened before then. Brian Litmans, legal director for the Anchorage-based nonprofit environmental law firm that has fought Pebble said in an interview that the group thought both versions of the Pebble EIS could’ve been more thorough but noted Corps officials could also consider other information such as public comments and the EPA’s 2014 Bristol Bay Watershed Assessment — which concluded most any large mine would have substantial negative impacts on the region’s ecosystem. The watershed assessment was the basis for the EPA’s decision in 2014 to propose a “preemptive veto” of a large mine in the project area under authority granted it by Section 404(c) of the Clean Water Act. It was also the focal point of a subsequent lawsuit in federal court by Pebble against the agency, in which the company argued EPA staffers improperly coordinated with mine opponents and kept Pebble from contributing to the 1,000-plus page document.  That lawsuit ended in a May 2017 settlement that prohibited the agency from revisiting a veto for four years or until the Army Corps finished an EIS for Pebble; however, it did not invalidate the watershed assessment, meaning the Corps could still use it in its evaluation of the potential impacts of the project. “If anyone looked at this project, it’s impossible not to see significant degradation,” Litmans said. He also noted that the ROD states Pebble’s plan to mitigate the wetlands damage the project would cause was found to be insufficient. “Ultimately the science is clear on this one,” Litmans said. Mitigation plan The ROD states that Pebble “proposed to preserve a 112,445-acre area in the Koktuli River watershed, including 31,026 acres of aquatic resources” as the primary part of it's mitigatoin plan — actions to offset the damage the mine and associated infrastructure would have on wetlands, lakes and streams in the area. Under requirements published by the Corps in an August letter to Pebble but made apparent to the company earlier based on state documents obtained through a public records request by SalmonState, an Alaska-based opponent of the project, Pebble needed to find ways to mitigate its environmental damage within the Koktuli drainage where the mine site would be located. The stringent mitigation requirements laid out by the Corps are in sharp contrast to Pebble’s original mitigation plan as well as Alaska-specific guidelines issued by the Trump administration in 2018. Those joint Corps-EPA  guidelines encouraged regulators in the state to be flexible in approving mitigation measures for development projects because more than half of the state is considered wetlands — a fact development proponents often note. According to the documents shared by SalmonState, Corps officials told Alaska Department of Natural Resources officials in an August meeting that “If the impacts will be mitigated through preservation the ratio would need to be 10:1 to 20:1,” which puts Pebble’s proposal at the low-end of what the agency wanted, and Corps officials believed the threshold could be met within the Koktuli drainage.  Officials in Gov. Mike Dunleavy’s administration have regularly been accused of coordinating with Pebble to advance the mine despite the governor’s insistence his administration is neutral on the project. DNR spokesman Dan Saddler wrote in response to early November questions from the Journal that state agency officials had “no expectation” as to how many acres of state land Pebble would propose preserving. DNR officials simply answered questions from Pebble about state laws and regulations applicable to the project. The Koktuli watershed is almost exclusively state land and, with virtually no development beyond Pebble’s exploration work, holds little opportunity for wetlands restoration. Saddler wrote in response to questions after the release of the ROD that Pebble’s plan to deal with federal mitigation requirements “is fully up to them, and does not define DNR’s expectations. We don’t deal with expectations, but with actual applications submitted to us for consideration under state law and regulation.” Elwood Brehmer can be reached at [email protected] Editor's note: This story has been updated with additional statements and information since the original story was posted on Nov. 25. A prior version of this story incorrectly stated the Army Corps had not published Pebble's mitigation plan. The agency inititally withheld it from the public when Pebble announced it had been submitted prior to the record of decision, but it was released shortly after the decision document was published Nov. 25.

Federal agency moves to revise OCS drilling rules

In the final days of the Trump administration, federal environmental regulators are proposing to roll back some of the Arctic offshore drilling requirements mandated in 2016. The Bureau of Ocean Energy Management and Safety and Environmental Enforcement on Nov. 19 released the framework of proposed regulations for drilling in the Beaufort and Chukchi seas that agency leaders say will ease the burden of environmental protection on industry without increasing the risk of an oil spill in a sensitive environment through the use of new technologies. The prospective regulatory changes — which as of Nov. 24 hadn’t been posted to the Federal Register — follow the directives laid out in 2017 orders from President Donald Trump and then-Interior Secretary Ryan Zinke to review the 2016 rules and recommend changes that would encourage additional exploratory drilling off of Alaska’s Arctic coast. Documents outlining the proposed changes state the new regulations would make it easier for operators holding federal leases in the Beaufort or Chukchi to gradually explore their holdings and obtain a Suspension of Operations approval to prevent 10-year lease terms from expiring before work is completed due to the short seasonal operating window in Arctic waters. The revisions would also cut the authority of regional BSEE supervisors to require the capture of water-based drilling muds and cuttings in instances where subsistence resources could be impacted by discharges of the fluids. This change would alleviate uncertainty for industry caused by an apparent overlap of authority with Environmental Protection Agency requirements, according to a joint agency fact sheet on the proposal. The requirement of operators to file an integrated operation plan, or IOP, would be eliminated as well because much of the information in an IOP is also required in exploration plans filed with BOEM, according to the agencies. Changes to requirements for Arctic offshore drillers to have a drilling rig on standby to drill a relief well and well control equipment are also being advanced. “As countries like Russia increase their presence in the Arctic — including the use of U.S. technologies to develop their seabed resources, it is increasingly important to ensure that the United States has a strong presence in the Arctic OCS,” Deputy Interior Secretary Kate MacGregor said in a formal statement. “The Beaufort and Chukchi seas have a long legacy of oil and gas development — we believe these proposed revisions will better harness new technological innovation and best science to allow for responsible domestic energy development off the coast of Alaska.” A 60-day public comment period will start once the proposed regulations are published in the Federal Register, according to the agencies, meaning the changes would have to be finalized by the Biden administration. Alaska Wilderness League spokesman Corey Himrod wrote via email that while he can’t speculate on what the Biden administration will do, but noted it’s unlikely the incoming administration would finalize a move to quickly finalize regulations repealing what was put in place by the Obama administration. “Our view is certainly that the next administration should be strengthening safety regulations when it comes to oil spills, not limiting them,” Himrod wrote. Alaska Oil and Gas Association Regulatory and Legal Affairs Manager Patrick Bergt said he would be able to discuss the changes once they are officially posted. ^ Elwood Brehmer can be reached at [email protected]

Oil Search refines Pikka development schedule

Development of one of the largest North Slope oil prospects in decades will be more deliberate but eventually result in much more oil being produced at lower costs than originally planned, according to the company leading the work. Executives from Oil Search, the Papua New Guinea-based company developing the Pikka project on the central North Slope, said they now expect to reach initial commercial oil in 2025 with production quickly ramping up to 80,000 barrels per day in the first phase of development from pre-drilled wells. Oil Search officials submitted plans to state regulators just more than a year ago indicating the company wanted to push up its original first-oil timeline by about a year to late 2022 by utilizing modular production facilities to produce about 30,000 barrels per day before eventually ramping up to peak production of roughly 120,000 barrels per day. Now, company leaders expect production from the Pikka field and adjacent Mitquq prospect to top out at approximately 160,000 barrels per day late in the decade from a resource base that has nearly doubled since Oil Search moved to the state and took over the Pikka project in 2018, according to Oil Search Alaska President Bruce Dingeman. He and other Oil Search executives spoke Nov. 19 during a videoconference briefing for investors detailing the company’s revised operating and development strategies. Exploratory and appraisal drilling the last two winters has grown the 2C — likely technically recoverable, but not necessarily commercially viable barrels — oil resource over the area the company operates from about 500 million barrels to 968 million barrels currently, according to Dingeman. Managing Director Keiran Wulff, who preceded Dingeman in leading the company’s Alaska work, said during the investor update that 2020 has been a “humbling” year for Oil Search because the collapse of oil prices forced leaders to rethink all of their normal operations and capital plans. In April the company cut about $80 million from what was initially a nearly $400 million capital budget for its 2020 North Slope work shortly after oil markets worldwide bottomed out at less than $10 per barrel. “Aside from the oil prices we’ve had a very strong year,” Wulff said, noting the civil work requiring more than 800 workers was completed under budget on the North Slope last winter — 11 miles of new gravel road and three drill site and facility pads — allowed the company to redesign the Pikka project ostensibly on the fly. Oil Search also drilled the aforementioned Mitquq well and sidetrack just to the east of the Pikka area as well as the Stirrup exploration well about 20 miles to the southwest. Combined, the two represent about 200 million additional barrels of 2C oil resources, according to company leaders. Dingeman said oil from the Mitquq prospect would likely be processed through Pikka facilities in a third development phase, while the Stirrup prospect is likely large enough to be its own “development hub in the future.” Utilizing modular processing facilities to start production from one of three eventual Pikka drill sites should provide Oil Search about two-thirds of the initially planned production capacity for about half of the cost, Dingeman said. The first phase of development to reach 80,000 barrels per day is expected to cost approximately $2.9 billion with roughly $1.1 billion in drilling expenses and $1.8 billion in facilities. A final investment decision is expected in 2021. “The phased approach really opens the door with an initial high-return, low-cost development which will be followed by subsequent phases that will benefit from the learnings of the first phase as well as the cash flow it represents,” Dingeman said of the more gradual approach to Pikka. “It really represents a commercialization pathway that goes way beyond the volume we initially envisioned.” Oil Search previously planned to spend roughly $5 billion to develop the 120,000 barrels per day version of Pikka all at once with a cost of supply of about $45 per barrel. The changes have helped the company cut the cost of supply for Pikka to between $35 to $40 per barrel, which includes a 10 percent investor return, according to Dingeman, who noted long-term Brent oil futures are currently trading between $45 to $50. Oil Search reached a deal with Armstrong Energy in October 2017 to buy into Pikka and take over as the project operator for $400 million. This year the company exercised an additional $450 million option to completely buy out Armstrong and GMT Exploration Co., a silent working interest owner in Pikka, to take a 51 percent stake in the Unit. Spanish major Repsol holds a 49 percent interest in the Pikka Unit and project. Most of the oil would come from the shallow, conventional Nanushuk formation. It has been the source for smaller nearby discoveries by ConocoPhillips as well as Conoco’s Willow project in the National Petroleum Reserve-Alaska, which is similar in scale to Pikka and until recently had been on a slower development schedule. Elwood Brehmer can be reached at [email protected]

Murkowski touts relationships to keep Alaska ‘at the table’ for energy policy

Alaska’s resource extraction industries will be best served by working with, not against, the incoming Biden administration through an emphasis on how the industries can support Democrats’ broader goals for sweeping energy reform nationwide, according to Sen. Lisa Murkowski. Alaska’s senior senator told viewers of the online Resource Development Council for Alaska annual fall conference Nov. 19 that she has had good working relationships with both President-elect Joe Biden and Vice President-elect Kamala Harris in the Senate and that keeping Alaska “at the table rather than on the menu” when it comes to natural resource and climate policies will require proactive engagement from the state’s resource industry leaders. “We have a good story to tell and it should be told,” Murkowski said while stressing that Alaska’s traditional mineral and renewable energy resources will be crucial for the national energy transition Biden and Harris campaigned on. “If the new administration is going to achieve its goals it’s going to need to partner with Alaska rather than treating us as some kind of snow globe sitting up on a shelf or one big, giant national park or one big wildlife refuge,” she continued. “Let’s show them that our minerals need to be a part of the solution; that our oil and gas industry can lead in carbon management and we can harness the power of our renewables and that a stronger Alaska economy means a stronger national economy.” Alaska mining proponents have long pointed to the plethora of prospects across the state for numerous metals and minerals needed in new energy technologies. Murkowski specifically pointed to the Graphite Creek prospect near Nome, which would be the country’s only domestic source of graphite — a primary component of lithium-ion batteries used in electric vehicles and elsewhere — if it were developed. Development of Alaska’s deposits of rare Earth elements, or REEs, most notably the Bokan Mountain prospect on Prince of Wales Island, is also seen by many as essential in-part for national security reasons as REEs are often used in defense technologies in addition to cell phones and other devices. China currently supplies most of the world’s graphite and REEs. Mining advocates have similarly emphasized that development of the state’s widespread copper resources will also be necessary to grow renewable energy production nationwide as copper wire is a main component of electric generators. Some of the leading backers of a national carbon tax-and-dividend — the climate change policy favored by many conservatives — contend Alaska’s largely conventional oil and gas production is less carbon intensive than most oil and gas operations elsewhere in the country. To that end, Murkowski noted that flaring of unwanted natural gas produced with oil is prohibited in the state. Additionally, wells tapping the state’s conventional oil and gas reservoirs produce at greater volumes for longer than the shale-focused fracked wells being drilled across the Lower 48, generally meaning fewer wells requiring less fuel to power drilling operations are needed in Alaska to produce more of the target resource. However, Murkowski also said she expects the next administration to pursue much more aggressive policies aimed at cutting carbon emissions and limiting new oil and gas development if Democrats take control of the Senate with wins in the Jan. 5 runoff elections for Georgia’s Senate seats currently held by Republicans. Such a scenario would give Democrats slight majorities in both chambers of Congress in addition to holding the White House. Democrat wins in both Georgia Senate races would split the chamber 50-50 between the parties with Harris serving as the tiebreaking vote if need be. Such a thin margin in the Senate could give Democrats the ability to reverse the rider to the 2017 tax bill that authorized oil and gas leasing in the Arctic National Wildlife Refuge coastal plain as budget-related bills requires a simple majority to pass the Senate; but it’s unclear how other standalone climate or environmental legislation could be passed without some level of Republican support or changes to Senate rules that currently require 60 votes to pass general legislation. “I don’t think we should be afraid of (the climate change) conversation, but we should be ready for it. I think we need to thoughtfully engage on ways to reduce our emissions while fighting the policies that just take it too far,” Murkowski said. Still, she said there will be a major speed bump for any legislation attacking mining — particularly coal mining — regardless of which party controls the Senate. That’s because the chair of the Energy and Natural Resources Committee either Wyoming Republican Sen. John Barrasso or West Virginia Democrat Joe Manchin, who come from the top two coal producing states in the country. Murkowski currently chairs the committee but her turn as the top Energy and Natural Resources Republican will end with the new Congress in January per caucus rules. She will remain on the committee as the second-ranking Republican. More immediately Murkowski said she still has hopes of passing the American Energy Innovation Act championed by her and Manchin in the three weeks Congress will be back working between Thanksgiving and Christmas. The Energy Innovation Act prioritizes new technologies to limit or capture and store carbon emissions from traditional energy sources; advancements in energy efficiency; small-scale nuclear development; and domestic mineral security among other provisions. If passed, it would be the first major energy reform legislation from Congress in more than a decade, according to Murkowski’s office. A prior version of the omnibus energy bill passed both the House and Senate in 2016 with strong bipartisan support but died in a conference committee shortly before Christmas that year. “If you want to look to a good template to begin to reduce your emissions look at our energy bill,” she said to conference viewers. On Pebble Murkowski acknowledged some in the audience of resource development backers likely aren’t keen on the stance she’s taken since August against the Pebble mine plan, but also countered that it’s the only Alaska resource project she has opposed. “I have reached the same conclusion that Ted Stevens did many years ago — that this is the wrong mine in the wrong place,” Murkowski said, adding that she would prefer the Army Corps of Engineers deny Pebble Limited Partnership’s application for a Clean Water Act wetlands fill permit instead of the Environmental Protection Agency issuing a post-permit Clean Water Act Section 404(c) “veto,” which she says would set a bad precedent for other potential resource projects in the state. A simple permit denial would allow PLP or another developer to reapply for project permits under a new plan. Murkowski said the way Pebble executives portrayed the permitting process in the secretly recorded “Pebble Tapes” released in September — in which then-Pebble CEO Tom Collier and Northern Dynasty Minerals CEO Ron Thiessen touted expansion plans and their personal relationships with regulators and Gov. Mike Dunleavy to individuals posing as prospective investors — damages the credibility of Alaska’s broader resource industries. “What we all saw play out in those awful Pebble Tapes was something that none of us should feel good or comfortable about,” she said. “If you have those who are attempting to sell a project through I believe not only fabrications and truly a dishonest appraisal of their own project, I think we should all be concerned. I don’t think that gives anybody’s development project in the state any help at all.” Elwood Brehmer can be reached at [email protected]

ConocoPhillips to resume drilling in December

ConocoPhillips Alaska leaders announced Wednesday that they will soon get back to what largely makes an oil company an oil company: drilling for oil. Joe Marushack, president of ConocoPhillips Alaska said the company plans to resume drilling at its productive CD-5 North Slope drill site before the end of the year. It would mark the first development drilling for the largest oil producer in the state since April when ConocoPhillips suspended its entire North Slope drilling program in response to extremely low oil prices at the time. The price for Alaska North Slope crude averaged $16.55 per barrel in April, according to the state Revenue Department. Oil prices have rebounded since and are generally stable in the $40 per barrel range . Marushack, who spoke during a virtual edition of the Resource Development Council for Alaska’s annual fall conference, said oil prices still need to increase further and the company believes they will but the fact that Alaska voters rejected Ballot Measure 1, a citizen-led initiative to significantly increase oil production taxes on the Nov. 3 ballot was a prominent factor in the decision to resume paused work. ConocoPhillips Alaska representatives previously said the company wouldn’t decide its future drilling plans until the ballot measure was decided. “With the ballot measure defeated ConocoPhillips can get back to what we do best: putting oil in the pipeline and putting Alaskans back to work,” Marushack said. ConocoPhillips leaders have said since 2018 that the company has an internal breakeven price target of approximately $40 per barrel for all of its production. This year was once supposed to be the busiest drilling year ever on the North Slope for ConocoPhillips, according to Marushack, who said that while most of that work was shelved the company hopes to continue gradually ramping up activity. “In 2021 we plan to get drilling back and we need to keep our workforce healthy and COVID in check to achieve our plans,” he said. Suspending drilling was part of roughly $400 million in cuts ConocoPhillips made to its 2020 North Slope capital plan in response to the economic disruptions caused by the pandemic. In addition to restarting Doyon Drilling Rig 25 at the CD-5 drill site — a satellite to the large Alpine field — in the first half of next year ConocoPhillips expects to start development drilling at its $1.4 billion Greater Mooses Tooth-2 oil project in the National Petroleum Reserve-Alaska; and begin drilling the Fiord West prospect within Alpine with the new extra long-reach Doyon Rig 26 next summer, according to Marushack. According to Doyon, each rig requires about 100 workers, 54 of which are Doyon Drilling employees and the company has started filling those positions. "This is a significant bit of positive news for (Doyon Drilling) and our employees as we enter the holiday season," Doyon Ltd. CEO Aaron Schutt said in a statement to the Journal. "We are pleased that the defeat of Ballot Measure 1 will result in increased opportunities for our company and for our employees." According to Marushack, other coil tube drilling and workover rigs that will start back up in the Kuparuk field next year as well. The four rigs between the large fields are three more than would be scheduled for work if Ballot Measure 1 had passed, he claimed. The tax increases in Ballot Measure 1, dubbed the Fair Share Act by its supporters, were specific to the large North Slope fields of Alpine, Kuparuk and Prudhoe; ConocoPhillips holds more than a 90 percent operator interest in both Alpine and Kuparuk and a 36 percent stake in Prudhoe, where Hilcorp Energy is the operator. “While this is not the level of activity we anticipated at the start of 2020, it’s a good start,” Marushack said, also adding that he will be retiring from ConocoPhillips at the end of January. Marushack has led ConocoPhillips Alaska since 2015. He will be succeeded by Erec Isaacson, a vice president in ConocoPhillips’ Gulf Coast business unit with prior experience working in Alaska for the company. Finally, Marushack downplayed the likelihood ConocoPhillips will be a major player in the Arctic National Wildlife Refuge coastal plain lease sale the Bureau of Land Management is moving ahead with in the final days of the Trump administration. “We really like what we’re doing in NPR-A, so we’ll probably focus on what we’re doing there,” Marushack said in response to a question from an audience member. Elwood Brehmer can be reached at [email protected]

Oil tax increase defeated, but revenue issue remains

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

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

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

BLM advances coastal plain lease sale plans

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

Converging forces make for worst Upper Cook Inlet season in decades

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

Walker, Meyer announce new effort on Alaska LNG Project

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

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

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


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