Elwood Brehmer

Rare cargo options offered at Stevens Airport

Oh, the possibilities. Thanks to a little two-paragraph amendment by the late Sen. Ted Stevens to the 2004 Century of Aviation Reauthorization Act, the airport now named after the senator is open to more business opportunities than virtually any other hub on Earth. What can be done at Ted Stevens Anchorage International Airport would be cabotage other places — a federal crime. Airport leadership prefers to describe it differently. “What we’re doing is trying to find ways to contribute to the efficiency of the overall global supply, specifically the supply chain that connects Asia and North America,” Anchorage Airport Manager John Parrott said. A U.S. Department of Transportation exemption for Alaska in the Federal Aviation Administration authorization passed in 2004 allows cargo landed in the state on its way to and from the Lower 48 to be shuffled among planes and carriers at that time without being subject to federal regulations. It is still considered to be on its international journey. “Nowhere else in the world, in a significant country, is a foreign carrier allowed to pick up cargo within a country, take it to another place in that country and offload it,” he said. While the exemption must be renewed every two years, it’s understood that it won’t be vacated for the foreseeable future. “The U.S. Department of Transportation recognizes that Alaska is part of the United States, but it is so different geographically that it can in some cases be treated as a separate country,” Parrott said. The options are also available at Fairbanks International Airport. However, being the much larger of the two, Anchorage attracts the cargo flights. Ask Parrott to describe the cargo transfer options only if time is abundant. A simple question can spur an hour-long onslaught of information that is a history, economics and logistics lesson wrapped in one. A white board is helpful. He is eager to market his airport and its potential. Parrott begins his lesson in the early 1970s, when international passenger traffic was king in Anchorage. Before the Soviet Union opened its airspace, planes flying between Europe and Asia made a technical stop in Anchorage to refuel while on the circumpolar route. “I skipped the part where the earth cooled and dinosaurs roamed,” he quipped. As Boeing’s 747 became the de facto choice for trans-ocean travel later in the decade, it was believed the stop in Anchorage would become obsolete, Parrott said, but that didn’t happen. Rather, the passenger business in Anchorage collapsed with the Berlin Wall and the opening of Russia’s skies.  Fortuitously, Asia’s manufacturing industry and FedEx were growing rapidly at about the same time and Anchorage International Airport quickly transitioned from a passenger stop to one of the world’s busiest cargo hubs — a title it retains today. Anchorage was the fifth-busiest cargo airport in the world over the last year, according to the Airports Council International, with nearly 2.5 million metric tons of freight landing at the airport. Domestically, it was second behind Memphis International, FedEx’s homeport. Cargo vs. fuel The cargo business is a result of basic economics. Even with most major cargo airlines flying the latest and long range capable 747-8s, it makes economic sense for the jumbo jets to carry more cargo and less fuel — thus making a technical stop in Anchorage — on their way from Asia to North America, rather than sacrifice carrying capacity to fly direct. Parrott said the latest 747s can make a trans-Pacific flight if about 100,000 pounds of cargo capacity is sacrificed. “At a dollar a pound, that’s $100,000 for stopping here” per flight, he said. Extrapolated out to multiple flights per day it can man hundreds of millions of dollars per year for some of the major carriers. While the stop isn’t free, the roughly $10,000 in landing fees and extra crew costs still easily pencil out, according to Parrott. If they didn’t, one wouldn’t see a mix of Cathay Pacific, Eva Air, Korean Air, China Airlines, FedEx and UPS cargo planes among others in Anchorage at any given time. It’s here where the cargo transfer possibilities begin to take off. Almost all of the dedicated cargo traffic headed to the Lower 48 through Anchorage is destined for another major cargo hub, likely Chicago, New York City or Los Angeles. From there, the goods are sent out by land in a web of distribution networks. As Parrott put it: “Wouldn’t it be cool if we could have (goods) land somewhere near their final destination to start with rather than going to Chicago, then getting on a train or truck and then getting on a smaller vehicle? The fewer steps you have, the less handling you have, the less chance for breakage, pilferage, shrinkage and time, if you’re paying for air cargo time, is probably a part of that equation.” The U.S. Department of Transportation first expanded cargo transfer rights at then-Anchorage International Airport to on line transfers between flights by domestic and foreign carriers in 1996. It also permitted commingling of domestic-bound cargo with that ultimately bound for elsewhere on a single flight. Last, it allowed for change of gauge, or starburst, movement — the transfer of cargo from one plane to another with the same flight number. The Stevens Amendment liberalized those allowances even further. Now, domestic freight forwarders can purchase space on flights and act as the domestic carrier because they “own” the cargo. It can all be done without prior approval at any time. “The ultimate in cargo transfer we talk to folks is: ‘What if you fly, even on a small basis, you fly a 747 to Alaska and you have three (Boeing) 767s and you load up your 767s with the cargo and you fly one to Chicago, one to Atlanta and one to New York?’” Parrott said. “The 767s could be foreign flagged and never go back to their home country. They could spend their entire lives here until they were worn out doing nothing but connecting for a foreign air carrier in the Lower 48.” Such a starburst operation would likely require the carrier to have an office in Anchorage and foreign aircraft certification, he said, but little more. On its face, the logistical freedoms should encourage shippers to take advantage of the efficiencies that can be gained when they stop in Alaska and encourage those who aren’t stopping here to try to do so. Rarely is something that simple, and this case is not an exception. Making the sale Parrott said when the airport’s marketing team — himself and operations manager Trudy Wassel — explain to carriers what can be done in Alaska, they are met with consistent skepticism about the legality of the opportunities. “One of our challenges is the uniqueness of this and the lack of any approval required is such a strange business concept that it’s difficult for the carriers to believe at first,” he said. “They look at you like you have a third eyeball.” Carriers have come close to starburst operations, but no one has taken the leap. The key is building up a corporate memory about the cargo transfer options by continuing to drive home the message, Parrott believes. Other challenges include a lack of trust between competitors. Getting two carriers to agree to meet in Anchorage to swap cargo is inherently difficult. “Both airlines when you talk to them will tell you the idea’s great but ‘Those guys are never on time. We’re always on time, but those other guys are never on time,’” Parrott said. In the past, Northwest Airlines partnered with Korea Air when the latter could not fly in China to transfer cargo in Anchorage. The pair would swap cargo and send planes off to Chicago and Atlanta several days per week, he said. When Delta Air Lines absorbed Northwest, that went away. Japan Airlines also mingled cargo in Anchorage on flights coming from different cities inside its home country until it got out of the cargo business, so it has been done. Going forward, airport officials are partnering with the Anchorage Economic Development Corp. on ways to attract business to Alaska that could benefit from the Foreign Trade Zone at the international airports. AEDC President and CEO Bill Popp said his group managed a study that determined four industries — aerospace-aviation, electronics, auto parts and pharmaceuticals — could find Alaska’s opportunities advantageous. A business in one of these industries could fly its product to Alaska from the Lower 48 or elsewhere, conduct simple value-added manufacturing at a facility at the airport and then fly it directly to its destination, thereby cutting out a transportation leg. Popp said AEDC and the airport team are planning a three- to four-year effort to “mitigate the unknown” for prospective businesses. “Right now, we face what seems to be a first mover disadvantage; nobody wants to be the first to try this,” UAA Logistics Professor Darren Prokop said. If the numbers pencil out for someone, Popp said even one new business could be a big deal to a small market like Anchorage. “Twenty to 30 jobs relating to this could be a big deal. If that’s what the number is those are good paying jobs,” he said. “They have the economic multiplier that we seek in the job attractor work that we do.” Elwood Brehmer can be reached at [email protected]

AIDEA sells interest in jack-up rig for $25.6 million

The Alaska Industrial Development and Export Authority sold its stake in Kenai Offshore Ventures for $25.6 million and the Endeavour jack-up rig is on its way out of Cook Inlet, the authority announced Nov. 14. Ezion Holdings Ltd. and its subsidiary Teras Investments approached AIDEA to purchase its share of Kenai Offshore Ventures after the joint-venture company was unable to secure long-term work for the Endeavour in the Inlet. “The Endeavour helped spur a renaissance of exploration in Cook Inlet, and was key in the discovery of a major oil and gas find in the Cosmopolitan unit. The rig’s presence in Alaska promoted significant job creation and economic activity in Cook Inlet,” AIDEA Executive Director Ted Leonard said in a release. The sale price includes the original investment and a remaining dividend due to the authority, according to spokesman Karsten Rodvik. With just more than $4 million of dividends in 2013 and 2014, AIDEA will clear about $5 million when the sale closes on Jan. 31, 2015, Rodvik wrote in an email. AIDEA bought into Kenai Offshore Ventures as a preferred investor for $23.6 million in 2011. The state development authority is a self-supporting enterprise that pays an annual dividend to the State of Alaska. The Endeavour will head to South Africa on a heavy lift vessel pending final AIDEA approval, the release states. AIDEA Director of Asset Management Jim Hemsath said the partnership in the Endeavour helped spur another joint financing of a North Slope oil and gas processing facility at the developing Mustang Field, along with being a part of the recent Cook Inlet rejuvenation. He also noted that AIDEA is in discussions about the potential of new oil and gas facilities and bringing a new drill rig to the Inlet. “We remain bullish on Cook Inlet,” Hemsath said. Originally, now-bankrupt Buccaneer Energy Ltd. partnered with AIDEA and Ezion to bring the jack-up rig to Alaska. Buccaneer sold its 50 percent share in Kenai Offshore Ventures to Ezion for $23.9 million in January. At the time Buccaneer said the proceeds form the sale would be used to finance capital expenses and repay debt. Elwood Brehmer can be reached at [email protected]

Port Mac rail extension needs $120M more from state

The state will need to pony up nearly $120 million to finish the Port MacKenzie rail extension to keep business opportunities alive, according to Matanuska-Susitna Borough leaders. The borough will officially request a $119.5 million capital appropriation from the Legislature during the upcoming session. Overall, the 32-mile rail spur from Houston to Port MacKenzie will end up costing $303.5 million, or $31 million more than the $272.5 million price tag once affixed to the project. Borough Manager John Moosey said the cost increase — just more than 11 percent — is due primarily to earlier funding delays. Last legislative session, the Mat-Su Borough got $13 million for the project after asking for $60 million. He noted that the estimate near $300 million is in line with the project’s earliest cost forecasts. Those were paired down to the $272.5 million projection in 2008, a figure borough officials used as late as this past summer. If the project would have been fully funded from the beginning it would have been done in 2013, Moosey said. “When the funding started rolling in we thought the rail would already be completed and traffic would already be on it,” he said in an interview. The funding delays continue to slow the project. Recent estimates of a late 2016 completion have been pushed back a year or more. If the borough gets its ask in the next two sessions the project could be complete by the end of 2017, according to Moosey. Borough spokeswoman Patty Sullivan wrote in an email that a 2.5 percent inflation increase needs to be added to the overall cost every year the project is delayed. The rail line is currently about two-thirds done. The bed needs to be completed on two sections and then the track can be laid, Moosey said. Work also came to a halt in 2012 when a court-ordered stoppage was in place while environmental groups challenged the project. Borough assembly members discussed the importance of collaborating on legislative requests at a joint meeting Nov. 14 with Municipality of Anchorage assembly members. Anchorage leaders are preparing to go on the hunt for at least $300 million once again to improve their port. Members of both groups agreed their respective ports are complimentary to each other in terms of what interests they serve, meaning everyone benefits if each project is funded. “We have to fix what we have first rather than try to put something we don’t have at the head of the game. We’re going to be in for some lean times for state funding,” Anchorage Assemblyman Paul Honeman said. Honeman’s comments largely echoed what Governor-elect Bill Walker said throughout his campaign; that he would focus on completing infrastructure projects rather than starting new work. At the same time, funding for ongoing work will also be at a premium. Walker has talked of aggressively cutting the state budget to reduce projected annual deficits, which could get worse if oil prices continue to decline. Getting the rail done on the borough’s timeline would fit nearly perfectly with a proposal to develop a liquefied natural gas facility at the port. WesPac Midstream LLC, an Irvine, Calif.-based energy infrastructure company, is in negotiations with the borough to develop a $600 million LNG plant at Port MacKenzie. WesPac Senior Vice President Brad Barnds has said the fuel would be sold to in-state markets and it would not initially be used as an export facility. Phase 1 of the LNG project would process about 7.5 billion cubic feet of gas per year, about the same amount Fairbanks-area utilities are expected to demand once distribution infrastructure is built out. The rail extension would allow gas to be put on an Alaska Railroad train — the most efficient overland transportation going — and sent north. If Fairbanks LNG demand is met from the North Slope through the state-sponsored Interior Energy Project, WesPac will continue to develop its plant and sell to other, rural communities, according to the company. The second phase of WesPac’s proposal is for a dedicated LNG export dock once state markets are supplied and the processing facility is expanded after several years, according to Barnds. At a presentation to the Alaska Industrial Development and Export Authority, Barnds said WesPac would be open to helping the Mat-Su Borough finance the rail extension to ensure its completion. Moosey said the borough is focused on state money. “We’ve been saying all along this is not just a Mat-Su Borough project; it benefits the state. If the rail is done and WesPac occurs — what we’re doing is driving down the cost of fuel and energy in Interior Alaska, for our friends in Fairbanks. We’re putting important cargo on the Alaska Railroad and increasing their revenue,” Moosey said. Additionally, he said other opportunities to support resource development in the state, whether it is through exporting ore and coal or importing building materials, require the industrial Port MacKenzie to be open to more than just energy exports. The port would need a second dock if WesPac’s Phase 2 comes to fruition. “The port is not going to be a one trick pony with LNG. We have many other opportunities,” he said. Aside from other business opportunities, Moosey said state and federal money went into the port development and those investments need to be honored by keeping Port MacKenzie open to all possibilities. Elwood Brehmer can be reached at [email protected]

ConocoPhillips contracts with Nabors for new drill rig

ConocoPhillips is adding another drill rig to the North Slope. Alaska President Trond-Erik Johansen said the producer signed a contract with Nabors Alaska Drilling Inc. on Nov. 17 to construct a coiled tubing drilling rig that will be used at the Kuparuk River Field. The Nabors CDR3 rig should be ready to drill in late 2016, according to ConocoPhillips. Coiled tubing drilling is a more effective way to work over old wells and boost production, Johansen said. Spools of tubing are sent down the well and then disperse horizontally in a “spider web,” he said; it’s a way to pull thin layers of oil out of an existing reservoir that would be unreachable with traditional techniques. Johansen made his comments at the Resource Development Council of Alaska annual conference on Nov. 19 in Anchorage. “Doubling our Kuparuk (coiled tubing drilling) capacity will allow us to access more challenged oil and help stem North Slope production decline,” he said in a formal statement. The agreement with Nabors is ConocoPhillips’ second commitment to a new drill rig for the Slope this year. In July, it contracted with Doyon Drilling Inc. to build a rig that is scheduled to begin drilling in early 2016. Each rig requires about 100 direct and indirect workers to support it during operation. Johansen also said the company’s Alaska capital expenditures will total about $1.6 billion in 2014, which continues a general yearly increase since it spent $680 million on projects in 2010. He, and BP Alaska President Janet Weiss attributed increased investment on the Slope to the passage oil tax reform, which was upheld by voters during a statewide August referendum. “I think we are now finally at a place where we are moving forward,” he said. Elwood Brehmer can be reached at [email protected]

ConocoPhillips contracts with Nabors for new rig

ConocoPhillips is adding another drill rig to the North Slope. Alaska President Trond-Erik Johansen said the producer signed a contract with Nabors Alaska Drilling Inc. on Nov. 17 to construct a coiled tubing drilling rig that will be used at the Kuparuk River Field. The Nabors CDR3 rig should be ready to drill in late 2016, according to ConocoPhillips. Coiled tubing drilling is a more effective way to work over old wells and boost production, Johansen said. Spools of tubing are sent down the well and then disperse horizontally in a “spider web,” he said; it’s a way to pull thin layers of oil out of an existing reservoir that would be unreachable with traditional techniques. Johansen made his comments at the Resource Development Council of Alaska annual conference on Nov. 19 in Anchorage. “Doubling our Kuparuk (coiled tubing drilling) capacity will allow us to access more challenged oil and help stem North Slope production decline,” he said in a formal statement. The agreement with Nabors is ConocoPhillips’ second commitment to a new drill rig for the Slope this year. In July, it contracted with Doyon Drilling Inc. to build a rig that is scheduled to begin drilling in early 2016. Each rig requires about 100 direct and indirect workers to support it during operation. Johansen also said the company’s Alaska capital expenditures will total about $1.6 billion in 2014, which continues a general yearly increase since it spent $680 million on projects in 2010. He, and BP Alaska President Janet Weiss attributed increased investment on the Slope to the passage oil tax reform, which was upheld by voters during a statewide August referendum. “I think we are now finally at a place where we are moving forward,” he said. Elwood Brehmer can be reached at [email protected]

AIDEA sells interest in jack-up rig for $25.6 million

The Alaska Industrial Development and Export Authority sold its stake in Kenai Offshore Ventures for $25.6 million and the Endeavour jack-up rig is on its way out of Cook Inlet, the authority announced Nov. 14. Ezion Holdings Ltd. and its subsidiary Teras Investments approached AIDEA to purchase its share of Kenai Offshore Ventures after the joint-venture company was unable to secure long-term work for the Endeavour in the Inlet. “The Endeavour helped spur a renaissance of exploration in Cook Inlet, and was key in the discovery of a major oil and gas find in the Cosmopolitan unit. The rig’s presence in Alaska promoted significant job creation and economic activity in Cook Inlet,” AIDEA Executive Director Ted Leonard said in a release. The sale price includes the original investment and a remaining dividend due to the authority, according to spokesman Karsten Rodvik. With just more than $4 million of dividends in 2013 and 2014, AIDEA will clear about $5 million when the sale closes on Jan. 31, 2015, Rodvik wrote in an email. AIDEA bought into Kenai Offshore Ventures as a preferred investor for $23.6 million in 2011. The state development authority is a self-supporting enterprise that pays an annual dividend to the State of Alaska. The Endeavour will head to South Africa on a heavy lift vessel pending final AIDEA approval, the release states. AIDEA Director of Asset Management Jim Hemsath said the partnership in the Endeavour helped spur another joint financing of a North Slope oil and gas processing facility at the developing Mustang Field, along with being a part of the recent Cook Inlet rejuvenation. He also noted that AIDEA is in discussions about the potential of new oil and gas facilities and bringing a new drill rig to the Inlet. “We remain bullish on Cook Inlet,” Hemsath said. Originally, now-bankrupt Buccaneer Energy Ltd. partnered with AIDEA and Ezion to bring the jack-up rig to Alaska. Buccaneer sold its 50 percent share in Kenai Offshore Ventures to Ezion for $23.9 million in January. At the time Buccaneer said the proceeds form the sale would be used to finance capital expenses and repay debt. Elwood Brehmer can be reached at [email protected]

IEP gas contract, plant cost still uncertain

Crucial elements of the state’s plan to relieve Interior residents of burdensome energy costs are up in the air less than six weeks before everything is supposed to come together. Alaska Industrial Development and Export Authority staff and their Interior Energy Project partners from MWH Global Inc. said at the Nov. 6 AIDEA board meeting that a gas supply contract should be in place by early December. Their goal is to financially close on the project at the Dec. 16 board meeting. “The gas supply agreement is the foundation” of the Interior Energy Project, MWH Chief Corporate Officer Jim Kuiken said. A wholesale contract with BP for North Slope gas offered up by Golden Valley Electric Association, which at one time had hopes of leading the project, will likely be used to supply the Interior Energy Project, or IEP. The term of the contract needs to be extended from 20 years to 30 years to align with the operating agreement for the gas liquefaction plant, Kuiken said. Permission to connect to BP’s supply line also needs to be secured. Several team leaders said the terms have been agreed to in principle but a mid-October meeting with BP to draft the contract amendments was postponed by the producer. Within the last month, AIDEA has shifted from originally seeking its own gas contract to using Golden Valley’s. The gas price remains confidential, but AIDEA has assumed a price of $3.30 per thousand cubic feet, or mcf, in its presentations. Authority board member and former Fairbanks state senator Gary Wilken expressed frustration that the supply agreement hasn’t been nailed down when talks of resolving the issue began in spring. “Here we sit six months later with the same thing. ‘It’s not quite done but it’s going to get done next week; it’s going to get done next week,’” Wilken said. He noted that he did not seek to blame anyone specifically, but that the lack of progress worries him. “From one board member this doesn’t give me any confidence at all in the rest of the project,” he said. “These are the things that keep me up at night.” Wilken has been the most vocal board member when the Interior Energy Project is discussed at the meetings and has regularly expressed his concern over the complex project’s inherent challenges. AIDEA Deputy Director Mark Davis said the state will continue to push for the best possible gas contract. “We haven’t given up our right later on to seek a different term if that’s beneficial to the consumers of this state,” Davis said. The Interior Energy Project is the state-financed plan to cut heating costs in the Fairbanks area by up to 50 percent through trucking LNG from the North Slope. It is thought that if gas can be delivered to homes at a low enough price it will encourage residents and businesses to convert their heating systems from fuel oil to gas and further drive down the price of gas. Since late October, Golden Valley CEO Cory Borgeson and Interior Gas Utility chair Bob Shefchik have predicted the initial gas price will be significantly higher than AIDEA’s goal, at $20 per mcf or higher. AIDEA and MWH have disputed those predictions and said the target of $15 to $18 per mcf is still within reach. One of the major variables to the final cost of gas is the price of the North Slope plant. MWH’s Kuiken said the 6 billion cubic feet per year plant being modeled should come in at less than $235 million, but he doesn’t know by how much. The drivers to the plant cost fall into three categories: risk, engineering and margin, he said. “They’re all interrelated,” he said. “We’ve got to resolve who shares what risk; we’ve got to resolve what level of design is appropriate and then we can talk about what margin goes on that.” When AIDEA awarded it the consulting work, MWH’s original term sheet projected a 9-bcf plant to cost between $165 million and $200 million. The concession agreement between AIDEA and MWH has the latter operating the LNG plant under Northern Lights Energy LLC, a joint venture between MWH and AIDEA. It also allows for a maximum return to Northleaf Capital Partners, the plant’s private investor, of up to 12.5 percent. The cost of trucking the LNG from the Slope has been projected at $5 to $6 per mcf throughout the project. MWH Alaska Regional Manager Chris Brown said current models put trucking costs lower — less than $5 per mcf — based on a couple assumptions. The single biggest assumption is that larger trailers will be used. “If they can transport LNG in 13,500-gallon trailers down the Dalton Highway that has a material impact on cost; it brings it down significantly compared to, say, a 10,000-gallon trailer,” Brown said. Fairbanks Natural Gas President and CEO Dan Britton said the savings could be 20 percent or more simply because of the added volume on each trip. “Your maintenance costs go up a little but you have significant savings,” he said. Fairbanks Natural Gas currently trucks LNG from Point MacKenzie to Fairbanks to feed its small but growing service area in the heart of Fairbanks. AIDEA and Fairbanks Natural Gas are working on a pilot project to determine the feasibility of the larger trailers, which would require added axles and a new design, Brown said. Elwood Brehmer can be reached at [email protected]

DOT hones social media strategy to keep public informed

The art of social media is becoming a science. Engaging with the public through Facebook, Twitter, YouTube and smaller but growing platforms is a daily practice at the Alaska Department of Transportation and Public Facilities. Jeremy Woodrow, a communications officer for department said social media allows DOT to respond to what would otherwise be said or wrote without the department’s knowledge. “It’s important to be on there so we can listen to the conversation,” he said. Woodrow and DOT Public Information Officer Meadow Bailey shared the department’s social media strategy and discussed the intricacies of the realm at the Associated General Contractors of Alaska conference Nov. 12. Harnessing the instant response power of social media can be beneficial in an industry that impacts large segments of the public, such as construction and transportation, as Bailey noted. She said DOT first learned of a recent incident problem on the Glenn Highway via social media posts from affected drivers. Incorrect lane closures near Eagle River caused significant traffic delays during the peak of rush hour. “If we hadn’t seen that it would have been a few more hours before we would have been able to respond,” Bailey said. The department’s communications team typically tries to use social media — Facebook is the most popular in Alaska — to prevent problems by forecasting potential issues to the public. In order to do that successfully, a devoted following must already be in place, Woodrow said. “Part of our strategy is building a followership so when an emergency does happen we already have an audience,” he said. A YouTube video posted by the department of the Keystone Canyon avalanche that closed the Richardson Highway for about a week near Valdez last year has more than 31,000 views now. Woodrow said that video, which can be linked to through Facebook and Twitter, was likely seen 29,000 times in the first week it was up. Facebook is an effective way to keep rural Alaskans updated on department work as well, particularly in areas that are outside of daily or even weekly media coverage, he noted. DOT began using social media four years ago and led development of the state’s social media policy, Bailey said. The Department of Law required a policy be drafted before the state entered the interactive Worldwide Web. The principles in the State of Alaska’s policy could be applied to most any business, she said. Bailey suggested a few things to consider when drafting a social media policy or guidelines: Who will be administrators allowed to post to the site? During what hours will content be posted? How fast will comments be responded to, if at all? Will employees be allowed to access social media at work? How will “what-if” scenarios, such as inappropriate content posted to a site, be handled? At DOT, content is generally discussed among communications officials to eliminate redundant or conflicting information, she said. When wrong information relating to the department is noticed, Bailey said choosing to respond carefully takes advantage of the social media “conversation.” However, site administrators need to always keep in mind the organization they are representing. “We post about the things we know,” as an agency, she said. State employees are required to get a waiver to access social media on their work computers, Woodrow said, but also noted nearly everyone has access via their smart phones, something to consider when implementing a strict policy. DOT does not have a policy regarding employees commenting on department pages, he said, because one hasn’t been necessary yet. “We don’t want to create policies just to create policies,” Woodrow said. Encouraging employees to be active on the sites in some ways allows them to share their insight as subject matter experts. Bailey described many young employees as “digital natives” who have grown up with social media and know how to use it effectively. It also helps keep them engaged with their employer. To that end, Bailey said DOT profiles employees and highlights their work on social media, ways to recognize often difficult and important work in remote locations across Alaska. Woodrow added that things people in a specific job or industry find commonplace might be intriguing and unique to the public and help drive traffic to your site. Dealing with inappropriate or negative content is not something DOT has dealt with often, the pair said, but contacting an individual directly regarding an incident and or blocking them per company policy can resolve problems quickly. Facebook includes software that alerts administrators before a post containing inappropriate language is made public. Advertising on social media provides ways to target a specific audience that other mediums don’t have, Bailey said, for a relatively small cost. Age, gender, special interests, political affiliation and location are just a few of the ways Facebook can narrow a demographic a business wants to reach. Bailey said the most common viewers of DOT’s page are females age 35 to 55. “I’m always amazed and maybe a little frightened about what Facebook claims it can deliver,” Bailey said. Taking advantage of companies and software that analyzes who a message is reaching can keep social media content and effort effective and efficient, Woodrow said. “For us, the analytics help us sell the importance of social media to upper management,” he said. Elwood Brehmer can be reached at [email protected]

Alaska and British Columbia cooperate quietly on transboundary issues

Alaskans concerned with mining in transboundary watersheds often aren’t aware of the cooperation between the state and provincial governments, according to a British Columbia resource official. “I’m not sure if there’s any elected person in the state of Alaska that really knows the extent to which we engage Alaska on northwest (British Columbia) mining projects and that’s on us. We need to do a better job,” British Columbia Minister of Energy and Mines Bill Bennett said. Specifically to the proposed Kerr Sulphurets Mitchell, or KSM, porphyry copper-gold mine near the headwaters of the Unuk River drainage in British Columbia, Bennett said the province has held “dozens and dozens” of meetings with representatives from the Alaska and U.S. governments since 2008. The Unuk River empties into the Pacific between Wrangell and Ketchikan. Kyle Moselle, a large project coordinator for the Alaska Department of Natural Resources said the Large Mine Permitting Team, or LMPT, system used by the state to coordinate the permitting process between agencies for in-state mines provides a “plug and play” model in discussions with Canadian officials about British Columbia mines that could affect transboundary fisheries. Enacting the LMPT system is done by the mine proponent, he said, which also pays for the resources dedicated to the process. A DNR official is devoted to the project as a coordinator between the departments of Environmental Conservation, Fish and Game, Natural Resources and any others that need to be involved. Moselle said the coordinator works to assure processes are followed but not unnecessarily duplicated among departments. “Issues or areas of concern are usually ID’d earlier in the review process and communicated among the agencies and back to the project proponent more effectively,” Moselle said. He made his comments during a presentation at the Alaska Miners Association conference Nov. 6 in Anchorage. Federal and provincial Canadian agencies easily fit in to the system when their environmental assessment process is at hand, he said. Agency representatives form a technical working group that allows the state to address any concerns as the environmental assessment plays out. The DNR coordinator then acts as a liaison to consolidate formal comments from the state working group to British Columbia officials, according to Moselle. It all leads to a “strong working relationship” between the neighboring governments, he said. The Aug. 4 tailings dam failure at the Mount Polley copper mine in British Columbia’s Fraser River drainage has caused the public to make incorrect assumptions about the province’s environmental requirements, Bennett said. “The conclusion, for example, that I’ve read in Alaska media that Canada and (British Columbia) have weak environmental standards and poor processes, and we’re under-resourced in our ministries and so forth, that’s just not right; that’s just not correct,” he said. Such conclusions are the easy answer, according to Bennett. It’s still unclear as to why the earthen dam failed and poured tailings slurry into nearby waters, he said. Bennett suspects there was an engineering mistake in the initial design or construction, or in the subsequent additions to the dam. An independent investigative team has been formed to get to the bottom of the issue. “Mount Polley didn’t happen because we have poor processes in my view,” Bennett said. “This will be determined; if I’m wrong the independent panel will point that out.” British Columbia relies on engineering reports — like all jurisdictions do — to determine if a major infrastructure design like a tailings dam is sound, he said. Ultimately, Bennett said he wants Alaskans to know that the salmon returning to transboundary rivers are as important to British Columbia as they are to the state. “The Alaskan fisherman catch those salmon but they spawn in our rivers,” he said. “Our First Nations, what you call Tribes, depend on those salmon. The last thing in the world we would ever do is put at risk the salmon that swim in (British Columbia) rivers.” KSM Seabridge Gold Inc. Vice President for Environmental Affairs Brent Murphy said the Kerr Sulphurets Mitchell, or KSM, project his company is proposing would be a combined surface-underground mine typical of other porphyry mines in the region. KSM would have an initial mine life of 52 years. While the mine site is 22 miles upstream of the Canada-Alaska border near the Unuk River, the tailings management facility would be 18 miles away in the Bell Irving River drainage. The Bell Irving River feeds the Nass River, which flows south of Alaska and is not a transboundary watershed. Ore from the mine would be sent to the tailings facility via a conveyor and tunnel system and processed there, Murphy said. “All water that comes in contact with the proposed mining operations will be retained by a proposed water storage dam,” he said. After going through a treatment plant the mine water would also go through the 18-mile tunnel to the tailings pond. Murphy said mine dams are being “rightly” scrutinized after the Mount Polley incident and that KSM’s designs have been reviewed by experts from British Columbia, the Canadian government, the State of Alaska and First Nations. “Following the Mount Polley situation, Seabridge, on its own initiative, also committed to establish an independent third-party review panel to actively participate in the future design, construction, operation and maintenance of the dams throughout the life of the KSM project,” Murphy said. Elwood Brehmer can be reached at [email protected]

Hawaii company buys Horizon Alaska operations for $456M

Matson Inc. announced Nov. 11 it has agreed to purchase Horizon Lines Inc. Alaska operations for $456.1 million. Horizon uses three vessels to provide twice-weekly containership service to Anchorage and Kodiak and once-per-week service to Dutch Harbor from Tacoma, Wash. “The acquisition of Horizon’s Alaska operations is a rare opportunity to substantially grow our Jones Act (domestic) business,” Matson President and CEO Matt Cox said in a release. “Horizon’s Alaska business represents a natural geographic extension of our platform as a leader serving our customers in the Pacific.” The Jones Act is a federal law protecting the domestic marine shipping market that requires vessels traveling between U.S. ports to be built in America and crewed by Americans. Matson Chief Financial Officer Joel Wine said in a call with investors that the shipping company is very encouraged by the long-term opportunity of the Alaska business and that 80 percent of the business overlaps with customers Matson has through its customers in Hawaii. “We view this to be a leading Jones Act franchise in an attractive market,” Wine said. Matson executives said to investors they are aware of increased investment in North Slope oil and gas activity resulting from oil tax reform, which ultimately could help their shipping business. “Just like tourism is a long-term (business) driver to always watch in Hawaii, energy investing is a long-term driver to watch in Alaska,” Wine said. The transaction is contingent on Horizon’s sale of its Hawaii operations to The Pasha Group for $141.5 million, according to a joint release. After Horizon’s outstanding debt is paid, the cash acquisition of its outstanding shares is for $69.2 million, or $0.72 per diluted share. Headquartered in Honolulu, Matson is an international shipping and logistics company that also has domestic rail, freight forwarding and warehousing operations. The company had $1.6 billion in revenue in 2013, and its shares rose $2.28 in after hours trading to $31.51. The sale is expected to close sometime in 2015, according to Matson. “This transaction provides value for our shareholders while upholding our financial commitments,” Horizon President and CEO Steve Rubin said in a formal statement. “We wish the Matson team continued success in their new Alaska trade and we look forward to working with them to close the transaction and provide a seamless transition for our customers.” Wine called Horizon’s operations in Alaska “bolt on business” to Matson’s current Pacific business. Late next year Matson will add main engine scrubbers to the three vessels used in Alaska to comply with tightening Emission Control Area standards at a total cost of $18 million to $24 million, Wine said. A reserve steam ship will be deployed to fill in service gaps while the other ships are outfitted with the scrubbers. The work is expected to take about a year. The sale was unanimously approved by both companies’ boards of directors and will require majority approval from Horizon shareholders. Shareholders representing 55 percent of Horizon’s equity have agreed to the sale, according to the joint release. Horizon also announced it will shut down its Puerto Rico operations by the end of the year regardless of whether the sale of its Alaska business is closed. Elwood Brehmer can be reached at [email protected]

Sullivan poised to knock off Begich

A replacement for Alaska’s junior senator seat appears imminent, but neither side was willing to admit it as of the morning following the general election. “I don’t want to jinx it,” Republican candidate Dan Sullivan said as the calendar changed from Nov. 4 to Nov. 5. Sullivan held a remarkably steady lead over incumbent Democrat Sen. Mark Begich all election night. When the first round of precincts reported in shortly after 9 p.m. he had 49.4 percent of the vote to Begich’s 44.4 percent. By the time all precincts were in early Nov. 5, little had changed. Sullivan’s lead had diminished but only slightly, he had 48.7 percent of the votes to 45.1 percent for Begich. Begich was confident at 10 p.m. during a speech to supporters at his election night party at Flattop Pizza in Downtown Anchorage, but there was a tangible uneasiness among the crowd prior to his arrival. “It’s going to be a long night. It might be a long week,” Begich said at the time. “We have seen this play before. I’d just like to win on election night for once,” he said, referencing 2008 when absentee and early votes helped him eek out a victory over the late Republican Sen. Ted Stevens. In that race, Begich trailed by about 3,000 votes on election night and ended up winning by 4,000. Early in the night Begich said that none of the votes from rural Alaska were yet tallied. “Those are our people,” he told his supporters. For Begich to have a shot at a very late comeback he will need immense support from rural Alaskans. He needs to make up an 8,149-vote difference with an estimated 20,000-plus absentee and early ballots left to be counted as of Nov. 5. The state Division of Elections will accept ballots mailed from within the country through Nov. 14 and those coming from outside the U.S. until Nov. 19, meaning the future of the Senate seat could be up in the air for another couple weeks. “Inspired by stories of village elders being lifted onto four wheelers to go vote and Alaskans traveling up and down river to cast their ballots, Alaskans for Begich is anxious for a final count of all of Alaskans’ ballots and respects the procedures, process and timetable of the Alaska Division of Elections,” Begich’s Campaign Manager Susanne Fleek-Green said in an email disbursed the morning of Nov. 5. The division’s target date for certifying the election results is Nov. 28. Outside money poured into the race on both sides and pushed total spending to an Alaska record of nearly $50 million for the Senate seat. Sen. Lisa Murkowski was all smiles at Sullivan’s election party at the Hotel Captain Cook. She talked to his supporters as though he had officially won, despite the fact that Sullivan himself wouldn’t. “Tonight I’m just so pleased that I’m moving forward and I’ve got a friend and a partner like Dan,” Murkowski said. In an interview with the Journal she said attacks on Sullivan during the race, which focused heavily on his Alaska residency, backfired. “(Alaskans) want to know the positives. They can see through the lies and the misperceptions, the deceptions, and they don’t like it,” Murkowski said. “Alaskans are pretty straight-up. If you treat them straight-up, they’re going to be respectful back to you. I think what we saw in this campaign, unfortunately, was a lot of disrespect.” If Sullivan’s lead holds, and even if it doesn’t, the U.S. Senate will have a new, red look when it convenes in January. Republican wins in Colorado, Montana, South Dakota, Iowa, Arkansas, West Virginia and North Carolina give the GOP 52 seats, with Senate races in Louisiana and Virginia still up in the air along with Alaska. Sullivan said that the Republican surge after eight years of a Democrat stronghold on the Senate will allow Congress to make big decisions on the country’s energy future, a topic he campaigned heavily on. He used the phrase “energy superpower” several times in a brief interview with the Journal. Votes to approve the cross-country Keystone XL oil pipeline and open the Arctic National Wildlife Refuge for drilling, topics Senate Majority Leader Harry Reid has avoided, will be top priorities, he said. Being a world leader in energy production is a way to influence foreign policy, according to Sullivan. “The best way to thwart (Russia President Vladimir) Putin and the long game he plays is to become the world’s energy superpower again,” he said. Elwood Brehmer can be reached at [email protected]

Buccaneer assets sold; claims state owes $20M in credits

Bankrupt Buccaneer Energy Ltd. is demanding more than $20 million from the State of Alaska, days after appearing to sell its remaining assets. The Australia-based independent filed a motion Oct. 30 in U.S. Bankruptcy Court for the Southern District of Texas to compel the state to pay tax credits it claims it is owed under the Alaska’s Clear and Equitable Share, or ACES, oil and gas tax system. Buccaneer’s domestic subsidiary, Buccaneer Resources LLC is based in Houston. On Oct. 27 AIX Energy LLC, an energy-finance company that in April purchased much of Buccaneer’s debt, won an auction for Buccaneer’s assets with a $44 million bid. Miller Energy Resources Inc., which owns Cook Inlet Energy, was the only other participant with a $35 million bid. The sale agreement is tentative pending final approval. Buccaneer filed for Chapter 11 bankruptcy May 31 after Cook Inlet gas exploration came up empty and financing deals fell through. Its claim that it is owed more than $20 million in ACES tax credits came about 40 days after the company paid $380,000 to the state and the Kenai Peninsula Borough in property taxes and associated fees related to the small Kenai Loop gas field, according to the filing. The gas field in the City of Kenai is Buccaneer’s only producing asset. The state has paid $37.9 million in ACES credits to Buccaneer to date, according to the company. Prior tax credit payments were made between two and six days after approval notifications were received from the state, Buccaneer claims, and the notifications for the three applications in question were dated Oct. 8, more than three weeks before the motion requesting the court order the state to pay was filed. “The state’s current treatment deviates significantly from historical practice,” Buccaneer’s attorneys wrote. Department of Revenue spokeswoman Lacy Wilcox said agency officials could not comment on the issue because it is pending litigation. A hearing on the outstanding tax credits is scheduled for Nov. 12 in the Houston court. Southcentral Alaska Native regional corporation Cook Inlet Region Inc. has objected to the auction and sale proceedings multiple times, claiming the expedited timing has not given affected parties enough time to review critical documents. The latest such objection was filed Nov. 4 regarding a proposed hearing about Buccaneer’s bankruptcy plan. CIRI owns land adjacent to the Kenai Loop pad and is involved with Buccaneer and the State of Alaska in an ongoing Alaska Oil and Gas Conservation Commission hearing over how much it is owed for gas Buccaneer produced from the Kenai Loop field. Buccaneer has acknowledged in the hearing that it produced gas attributable to CIRI. “It’s a question of how much. There’s no question that we’re due production from that field. I don’t want to beat around the bush on that,” CIRI Vice President Ethan Schutt said. The funds in an escrow account that Buccaneer has been feeding with its production revenue should be enough to cover royalty payments to both the state and CIRI, according to Schutt. Buccaneer was ordered to set up the account by the AOGCC as a way to segregate funds it may need to disburse later. According to a Nov. 3 court filing, about $8 million had been transferred to the account as of Oct. 31, and Buccaneer had $10.9 million in unrestricted cash, nearly all of which came from an ACES credit payment. When the company filed for bankruptcy it claimed to have assets of less than $500,000 and liabilities between $50 million and $100 million. To the degree that CIRI is asking for more than royalty payments “it gets a little dicier” as to where that money would come from, Schutt said. Buccaneer also owes the Alaska Department of Natural Resources more than $605,000 for lease and royalty payments. The state was listed as the company’s ninth-largest unsecured creditor for the amount in a June court filing. Schutt said that CIRI has had several conversations with AIX representatives presuming it takes over Buccaneer’s assets, which also includes standing in a state Superior Court case that largely parallel’s the AOGCC docket. “We have some terms to work out with (AIX) one way or another,” he said. Elwood Brehmer can be reached at [email protected]

Mat-Su Borough officials hope to trim $12.3M ferry bill

The Matanuska-Susitna Borough will likely avoid paying back all of the $12.3 million it owes the federal government, manager John Moosey said of a bill that stems from a failed attempt to start Knik Arm ferry service. Moosey said borough leadership is putting a plan together that will hopefully convince the Federal Transit Administration to change its view on how the grant money should be handled. That plan should be sent to Washington, D.C., for consideration by late November, he said, as part of a revised schedule agreed to by the agency and the local government. “(A resolution) is probably going to take a couple months to hammer through, but I’m pretty sure we’re going to be successful,” Moosey said. “By successful I do not mean the whole thing goes away, but certainly not as onerous as the whole $12.3 million.” He added that the borough has worked extensively with the FTA Region 10 office in Seattle and that the feds understand how exhaustive the search for a resolution has been. Borough officials have hinted that some sort of payment plan on a lesser amount could be a probable outcome. In August, acting FTA Administrator Therese McMillan wrote a letter to Moosey ordering the borough to repay the $12.3 million spent of $21.2 million in federal grants allocated to developing ferry service between Port MacKenzie and Anchorage. The agency is open to working with the borough to resolve the issue, McMillan wrote, a sentiment that seems to have held true. At the time the borough had 30 days to repay the debt before it became delinquent and began accruing interest, a statutory requirement that has been withdrawn, according to Moosey. The $21.2 million was awarded in three chunks from 2002 to 2009. Of the money the borough spent on the project, $3.6 million was on a passenger terminal at Port MacKenzie and other funds were used to help pay for construction and outfitting of the 195-foot M/V Susitna, which was turned over to the borough shortly after construction. The U.S. Navy footed most of the $78 million bill for the Susitna, a prototype catamaran-style landing craft built in Ketchikan. The whole plan fell apart when the borough was unable to get the remaining $40 million needed to complete the ferry landings. For more than a year the borough has tried to sell and even give away the Susitna with no luck. If another government would take the Susitna, the borough would likely be off the hook for at least some of the grant money. The vessel’s one-of-a-kind design provides it unparalleled capabilities but also makes finding it a new home difficult, Moosey said. It docks differently than traditional ferries and has a limited payload that does not meet most industry needs. The Susitna can carry 110 people, cargo and land on a beach in as little as four feet of water. When describing the vessel, Moosey said, “The only thing I can equate it to —Grandma’s at home and she’s got to go to church and to go buy groceries and the only thing she’s got is a Ferrari and she can hardly afford the insurance and the cost to operate it.” It is currently docked at Ward Cove outside of Ketchikan at a cost of about $30,000 per month when insurance, maintenance and other fees are added up, he said. Moosey noted that everyone involved has “gone out of their way” to help the borough minimize costs associated with the Susitna. In the end, the FTA understands the borough’s situation but must follow through on its requirements, Moosey said. “They just want it resolved in a timely manner and so do we,” he said. “My assembly wants this resolved and they’ve been saying that for six months.” Elwood Brehmer can be reached at el[email protected]

Anchorage on pace for bed tax record

All they major indicators show Alaska’s tourism industry has fully recovered from the depths of the “Great Recession.” That is particularly evident in Anchorage, where bed tax revenue outpaced 2013 — a record year for the key industry metric — over the first half of the year. Visit Anchorage President and CEO Julie Saupe said the second act of the year should continue the trend when the numbers are final. “Our fall season is going to be fantastic,” Saupe said. If her prediction holds true, bed tax revenue in the Municipality of Anchorage could approach $24 million, which would be a record for the third consecutive year and be nearly a 25 percent increase from 2009. Reliant on discretionary spending, the industry took a major blow when economies worldwide recoiled in 2009-10. Some studies estimate Alaska lost close to 5,000 tourism and hospitality-related jobs during the worst period of the recession. Anchorage has been helped in recent years by a healthy convention industry. The addition of the Dena’ina Civic and Convention Center to the city’s downtown allows multiple gatherings to be held at once, Saupe said. In October the Alaska Federation of Natives Convention returned to Anchorage and brought with it the National Indian Education Association Convention. “(NIEA) chose Anchorage based on the fact that AFN was going to be here in October and they wanted to do their conventions back-to-back,” she said. Next year about 1,400 members of the International Economic Development Council will convene in Anchorage and headline a busy convention schedule for the city, according to Saupe. While the large meetings often bring upwards of 1,000 people to the city, she emphasized that smaller, regular state meetings are vital to Anchorage as well. “The ability to maintain our state business, serve that 350-person convention, and at the same time have something like the IEDC in town has been important,” Saupe said. The industry rebound can also be seen in Southcentral cruise ship activity. More visitors come to Alaska via cruise ship than any other mode of transportation. According to the Cruise Lines International Association Alaska, cruise companies are adding nearly 8 percent capacity to the region for 2015, with ships expected to carry 330,000 passengers across the Gulf of Alaska to Seward, Whittier and Anchorage next year. Saupe and her team at the Anchorage tourism marketing group consider Seward and Whittier port calls as good or better for their city than calls directly to Anchorage. Nearly all of the passengers disembarking from ships in the smaller towns travel to Anchorage by rail and they often spend more time in the city than those on ships making day stops. Holland America Line’s Statendam will call on Anchorage nine times from May to September of next year, up from five stops the company’s Amsterdam made in 2014. Juneau The larger ships making gross-Gulf voyages also make multiple stops in Southeast, benefiting the communities there. As the region’s hub, nearly all of the ships stop in Juneau. Smaller vessels deployed to Alaska this past summer led to what will likely be a slight dip in cruise visitors. Juneau Convention and Visitors Bureau President and CEO Nancy Woizeschke said she expects the final tally to be about 950,000 cruisers through the capitol city for 2014, off less than 5 percent from last year. Alaska flirted with the magical 1 million-cruiser mark in 2013. “We don’t think we’re going to hit the 1 million cruise ship visitor mark this year but we certainly saw a lot of independent travelers coming this year outside of cruise ships so we’re always excited to see that,” Woizeschke said. Independent travelers often use Juneau as a trailhead of sorts for trips to other parts of Southeast. She said a 3 percent increase in cruisers is expected for next year based on larger ships being sent to Alaska again. Several of the ships traversing the Inside Passage in 2015 will have the ability carry more than 2,000 passengers, and Princess Cruise Line’s Ruby Princess will lead the way with more than 3,000 berths, Woizeschke said. Elwood Brehmer can be reached at [email protected]

Senate candidates spar over resources, federal overreach

Alaska’s major Senate candidates stuck with what’s got them where they are while debating resource development issues as Election Day closes in. Former state Attorney General and Natural Resources Commissioner Dan Sullivan took as many shots at Democratic Senate Majority Leader Harry Reid and President Barack Obama as he did at Sen. Mark Begich. He continually attempted to link the three and pressed Begich on a voting record he claims is in-step with the administration’s positions, a record Begich continually denied. At the Oct. 23 Anchorage debate sponsored by the Resource Development Council for Alaska, Begich attempted to highlight instances in which he has opposed federal agencies and pushed for development, particularly North Slope oil and gas work. Sullivan’s campaign has largely focused on improving the resource development climate in Alaska. Along with current senior Alaska U.S. Sen. Lisa Murkowski, Sullivan said, “We will shift the policies — move forward on pro development policies and roll back the Obama administration’s anti-resource development policies which by and large my opponent has supported.” His history of fighting “federal overreach” and the Environmental Protection Agency while leading the Department of Law and DNR in Gov. Sean Parnell’s administration is evidence of the principles he would take to the Senate, Sullivan said. He instituted a policy that had the State of Alaska intervene in federal lawsuits attempting to halt development projects and proposals as attorney general, he said, “so we’d have a seat at the table.” The Alaska Senate race will play a large role in determining which party controls the Senate. If Republicans take control, Murkowski, now the ranking Republican on the Senate Energy and Natural Resources Committee, would take the chair of the committee that oversees the Interior Department budget. The two agreed that states should have automatic standing in such lawsuits so their interests are properly represented. They also agreed that the Endangered Species Act is “broken” and states should be a part of the listing decision. Sullivan took the issue a step further and said threatened and endangered listings under the act that are based on habitat and climate change projections “are used to shut down resource development.” The Pebble mine proposal, one of Alaska’s most controversial development projects for years, is a topic that separates Begich and Sullivan. Begich reiterated his position that Pebble — which would likely be one of the world’s largest surface primarily copper mines in the most productive sockeye salmon-rearing watershed — is “the wrong mine in the wrong place.” He is the only member of Alaska’s congressional delegation to officially oppose the project. The EPA’s pending action to ban a large mine based on its authority under the Clean Water Act wetlands section before the Pebble Limited Partnership formally releases a plan has become a focal point for conservatives demanding restrictions to executive power. Begich treaded lightly on the Pebble question, saying his position is based on the specifics in this instance and that he would do what he can to prevent the broadening of the agency’s power that some have feared could result. He added that Bristol Bay-area residents were pushed to request the EPA’s help in halting mine development because “they did not feel the state was responding to their desires or their questions.” Sullivan said the EPA has not made it clear where it derives its authority to ban a proposal prior to wetlands permits being applied for. “This is not up to the community,” he said. “This is the law; what is in the law — what is in the Clean Water Act.” While Section 404(c) of the Clean Water Act gives the EPA administrator authority to deny wetlands permits for projects that the agency determines will have an “unacceptable adverse effect” on drinking water or fish and wildlife habitat, it does not specify at what point in a project’s progression that authority kicks in. If the 404(c) process is completed to prohibit Pebble, it will be the first time the EPA has used the provision to stop a development proposal before a plan is released. Sullivan said that while Begich says the use of the power is very specific, it sets a “very dangerous” precedent. Similar action could be taken anywhere in the state, he said. “My record is one of fighting the EPA,” Sullivan said. “As senator, I would make it clear in legislation what we already think is clear in legislation,” that the EPA doesn’t have the authority to block development as it is trying to do in the Pebble case. When asked why he thought federal agencies are actively opposing development under the Obama administration, Sullivan left little room for doubt. “Harry Reid and Barack Obama, some of their biggest supporters are also some of the biggest anti resource development — in many ways radical environmentalists — in the country,” Sullivan said. Begich said the problem with Sullivan attempting to link him to the president is that President Obama is halfway through his second term. “I know he wants to run against Obama but he’s gone in two years and this is about a six-year Senate seat and Alaska’s interests,” he said. Begich touted projects in the National Petroleum Reserve-Alaska — ConocoPhillips’ CD-5 and Greater Moose’s Tooth-1 oil projects — as proof of work he has done to help Alaska development. Both projects have been slowed by the demanding federal regulatory process, but are moving forward. “We’ve been successful in cutting through the red tape to get CD-5 moving,” Begich said. Combined, the projects are expected to produce 46,000 barrels per day. Sullivan said opening the Arctic National Wildlife Refuge for development is imperative to increasing Trans-Alaska Pipeline System, or TAPS, throughput, something he said is critical for the nation, not just Alaska. He criticized Begich for not getting legislation to open ANWR through the Senate despite Democrats holding the majority. “I think the most important thing we can do is retire Harry Reid as Senate majority leader,” Sullivan said. “He has said repeatedly he will never open ANWR. He will never compromise on ANWR.” On the state side, Begich refused to answer how he voted on the Aug. 19 Ballot Measure 1, Alaska’s oil tax referendum. He said the voters resolved the issue and now policymakers need to make sure the current tax structure works for the state. When pressed by the moderator, Begich said: “Here’s the problem on that bill that went to the voters. Two sides went into their corners and the Legislature couldn’t resolve it. I will bet you right now come this session or next this issue will be back on the table.” Sullivan noted his work as DNR commissioner to help draft Senate Bill 21, the oil tax reform bill. However, he said the failure of House Bill 77, a controversial piece of water rights legislation that he championed while in the Parnell administration, was simply the political process at work. He said more bills like HB 77 are needed at the federal level. “It was meant to streamline and make more efficient, timely and certain our permitting system (and) prevent outside groups from holding up water reservations and it didn’t limit the public process, and it didn’t get through the Legislature; that’s democracy,” Sullivan said. Elwood Brehmer can be reached at [email protected]

Alaska Air Group turns a record quarterly profit — again

The cliché that “records are made to be broken” is taken to heart at Alaska Air Group Inc., where yet another record quarterly profit of $200 million was announced Oct. 23. The third quarter adjusted net earnings result is the ninth record in the last 10 quarters for the company that owns both Alaska Airlines and Horizon Air. It is also the 22nd consecutive profitable quarter for the company. The record profit was a 27 percent increase versus the third quarter of 2013, also a record at the time, and equated to $1.47 per diluted share. Alaska Airlines split its stock in June. A share was worth $51.82 at the end of trading Oct. 27. Air Group CEO Brad Tilden said during a conference call with investors that the positive returns were driven primarily by four factors: “Strong revenues, very strong non-fuel cost performance, lower fuel prices and increasingly by the benefit of much more fuel-efficient aircraft, which are coming online. This is shaping up to be a year of record profitability despite increased competition.” The increased competition is largely from Delta Air Lines out of Seattle, Alaska Airlines’ home hub. Delta began flights between Juneau and Ketchikan and Seattle this year; those routes were flown exclusively by Alaska Airlines for years. Air Group’s net pretax income was $320 million for a 21.8 percent margin and a 27.5 percent improvement over third quarter 2013 pretax figures. Year-to-date adjusted pretax income was $716 million, a 45.5 percent increase over the first nine months of 2013. Total operating revenue was $1.46 billion for the quarter, up 7.3 percent year-over-year. As Tilden noted, average fuel costs, one of the largest expenses for airlines, fell for the quarter and year. Alaska Air Group spent an average of $3.15 per gallon for fuel in the third quarter, a 2.8 percent decline. For the year per gallon fuel costs were down 3.3 percent. When combined with a 2.8 percent increase in fuel efficiency — based on average seat miles per gallon — fuel expenses improved significantly, he said. Much of the fuel savings can be attributed to newer mainline aircraft. Alaska Airlines has 23 Boeing 737-900ER aircraft, which have 37 more seats than the 737-400s they are replacing in Alaska’s configuration, and use about the same amount of fuel as the older, smaller 737, Air Group Chief Financial Officer Brandon Pedersen said. Alaska Airlines has firm orders for 37 more 737-900ERs over the next three years. “With fuel representing about a third of total airline operating costs, fuel efficiency gains add to our competitive cost structure advantage,” Pedersen said. Several industry watch groups consistently rate Alaska Airlines as the most fuel-efficient domestic mainline carrier. Other major domestic carriers including American Air Lines, Southwest Airlines and United Airlines reported strong third quarter financials based largely on fuel savings, according to the Associated Press. Air Group productivity, calculated as the number of revenue passengers per full-time equivalent employee, also increased 2.2 percent in the quarter. Reducing debt and associated expenses has been a priorityAir Group leaders have said and has played a large role in the company’s recent financial success. Its debt-to-capital ratio at the end of the third quarter was 31 percent, down from 47 percent a year prior. Pedersen said during the call that Alaska Air Group would like to keep its debt-to-capital ratio less than 40 percent, based on research of other large industrial companies within the S&P 500. Air Group’s 12-month return on invested capital, or ROIC, improved to 17.2 percent. It was 13 percent for the year ending Sept. 30, 2013. Nonfuel unit costs decreased 3.6 percent year-over-year on an 8.1 percent increase in capacity. Pedersen said nonfuel expenses are expected to fall 2.5 percent in the fourth quarter as well, on what should be a 10 percent capacity increase. With its numbers driven by Alaska Airlines, the Alaska Air Group capacity as a whole has increased 6 percent for the year. Its load factor, the percentage of available seat miles sold, is down 0.3 percent to 85.7 percent year-to-date. Tilden reported that Alaska Airlines agreed in principle to a contract with its flight attendants Oct. 9. The flight attendants are the only large employee group currently without an updated contract, he said. “I want to thank our flight attendants for continuing to provide great service throughout the negotiations,” Tilden said. “We believe that it’s a fair agreement that recognizes the great work that our 3,300 flight attendants do every day.” The union rejected a tentative agreement in February and has worked without a new contract since May 2012. Elwood Brehmer can be reached at [email protected]

Eagle River 'brake light hill' getting a winter makeover

The moniker “brake light hill” should begin fading from the vernacular of Glenn Highway travelers in about a year. That’s the goal of the Alaska Department of Transportation and Public Facilities’ Eagle River bridge project. DOT began work in late September to add a third lane to the northbound Glenn Highway between the Hiland Road and Artillery Road exits. As part of that work, a new, northbound bridge will be constructed. The northbound grade will subsequently be reduced from 6 percent to 4 percent, which should improve traffic flow over the bridge, according to DOT. Department engineer Tal Maxwell said the new three-lane bridge will be about 20 feet higher than the current one, and that will help cut the hill. The bridge will span Eagle River in what is now a large median between the northbound and southbound corridors. Building a new bridge structure will actually allow DOT and Kiewit Corp., the project’s private construction firm, to work outside of the traditional road construction season, Maxwell said. DOT spokeswoman Shannon McCarthy said the plan is ideal for construction in a high-traffic area because it adds lanes with minimal traffic congestion. “We’ll be working all winter on building the foundation for the bridge. That should not impact traffic,” Maxwell said. The section of the Glenn Highway between Anchorage and Eagle River sees more than 50,000 vehicles on an average day. The northbound work — Phase 1 of the Glenn Highway Hiland to Artillery Road improvements — is a $42.5 million, state-funded project. A $35 million general obligation bond passed during the November 2012 statewide election supplied a majority of the funding with the rest coming from state appropriations. Staying away from Federal Highway Administration dollars, which constitute a majority of major road project funding, allowed DOT to move from conception to contract bidding within 13 months, much quicker than the typical federal procurement process, McCarthy said. Additionally, the project is being done on a design-build contract, not the design-bid-build process usually used for road projects. In the coming days, the left lanes of both the north and southbound lanes will be closed from 9:30 p.m. to 4:30 a.m., according to an Oct. 21 department release. Crews will also be working on the east side of VFW Road. Right now the construction team is building crane pads and clearing space for other requisite equipment. That will continue until the ground is too frozen to get more grade work done, according to Maxwell. The northbound bridge and new road segment is scheduled for completion in December 2015. “We have a lot of work to get done and as soon as we can in spring we’re going to hit the ground running,” Maxwell said. Tying the new bridge into the existing traffic pattern will require lane closures next year, he said. The closures will be done around rush hours so a traffic back up that occurred Oct. 15 is not repeated, McCarthy said. “What we have established is that we don’t do lane closures during peak travel times,” she said. The Oct. 15 delays that lasted up to 90 minutes stemmed from miscommunication within the department as to when lane closures are permitted on the project, according to McCarthy. DOT will work to keep all future lane closures limited to that 9:30 p.m. to 4:30 a.m. window, she said. Additionally, the department will do what it can with notices to alert the public about traffic pattern changes so travelers are not caught unaware in delays. “If we get to the point where we have to have a lane closure (during peak traffic) the whole concept is to make sure the public knows about it two to three weeks in advance so they’re prepared,” McCarthy said. When the work is done the existing bridge and highway sections will be converted to a frontage road between the interchanges. Phase 2, a new southbound bridge and lane expansion, will commence when funding becomes available, according to Maxwell. He said Kiewit has the design ready for that half of the highway to keep continuity throughout all the work. McCarthy said it is still too early to tell whether Phase 2 will be primarily state or federally funded. The scope of the Eagle River bridge work can be viewed further at the dedicated project website, www.eagleriverbridgenb.com. Traffic pattern updates are available at www.alaskanavigator.org or 511.alaska.gov. Elwood Brehmer can be reached at [email protected]

Forward-thinking on LNG paying off for Talkeetna Lodge

Could the Talkeetna Alaskan Lodge be a model for other businesses in other areas of the state without coveted natural gas infrastructure? The liquefied natural gas supplier to CIRI Alaska Tourism’s expansive luxury resort thinks so. “When you have a location that has enough energy usage that you can justify the capital expense and results in a savings compared to the alternative then there’s a potential for that to take place,” Fairbanks Natural Gas President and CEO Dan Britton said. The Cook Inlet Region Inc. subsidiary built the 212-room lodge in 1999 and installed LNG heating infrastructure at a time when fuel oil was relatively inexpensive. Today, the common heating fuel outside of the urban areas of Southcentral often costs $4 per gallon on the road system and more across the rest of Alaska. CIRI Alaska Tourism Chief Operating Officer Gideon Garcia said LNG figured to be a more efficient, safer and risk-averse long-term business proposition when compared to fuel oil. “The rationale (for using LNG) was a real careful review of all the options out there and obviously running electrical for a hotel that size would’ve been just prohibitive in terms of cost and with the reliability of things, if the heat goes out you can’t have your entire property go down because of a single point of failure,” Garcia said. The forward thinking paid off. In 2013, the Talkeetna Alaskan Lodge used 9,550 thousand cubic feet, or mcf, of natural gas. At FNG’s advertised price of about $23 per mcf, the tourism company spent about $228,000 to heat the lodge, which it keeps warm while business is closed during winter. Burning fuel oil while customers are absent would be “ferociously expensive,” Garcia said. At $4 per gallon, the energy equivalent for fuel oil is roughly $30 per mcf, meaning the lodge operators saved more than 23 percent on their heating bill, when $4 per gallon fuel oil would have cost them $286,000. Garcia said the original plan for the lodge was to be ready to hook up to even lower-cost natural gas. “The long-term hope of course was thinking that there might be a pipeline coming down the Parks Highway so we were pre-deployed and ready to tap into that if need be,” he said. The lodge’s location just outside of Talkeetna gives it the opportunity to purchase gas from Fairbanks Natural Gas, which operates a small gas liquefaction facility near Point MacKenzie with its sister company Titan Alaska LNG. Most of FNG’s LNG goes farther north by truck to heat customers in the core of Fairbanks, but running a shipment up the Talkeetna Road every couple weeks is not an issue, Britton said. Similar offshoot LNG operations could become more common across Alaska if the Interior Energy Project — the state-subsidized plan to develop a North Slope LNG supply chain down the Dalton Highway to Fairbanks — comes to fruition. Likewise if a commercial or state gas pipeline from the Slope to Southcentral is built, LNG could be trucked to communities outside a pipeline corridor already struggling to survive because of exorbitant energy costs. Alaska Industrial Development and Export Authority officials leading the Interior Energy Project have said they’ve been approached by prospective mine developers about LNG for remote mine power if excess gas becomes available. Elwood Brehmer can be reached at [email protected]

Walker against Pebble and EPA, suggests 5% agency cuts

Independent gubernatorial hopeful Bill Walker said he is skeptical of Pebble and that he would deal with the state’s shaky fiscal situation by suggesting 5 percent cuts in agency budgets as well as prioritizing the state’s growing laundry list of major infrastructure projects. “Based on what I know at this point I’m not in favor of Pebble,” Walker said during an Oct. 10 sit-down with Journal editorial staff. Despite years of exploration and study and more than half a billion dollars of investment, little is known about how the controversial copper-gold mine would ultimately look, he said. Walker noted, as many on both sides of the fight have, that Pebble Limited Partnership has not released a formal plan for how it would safely develop one of the world’s largest porphyry copper and gold deposits at the headwaters of the Bristol Bay watershed. When discussing Pebble, Walker used it as a way to distinguish his leadership style from that of Republican Gov. Sean Parnell. Concerns about the proposed mine voiced by Alaska Native and commercial fishing groups earlier in the exploration process fell on deaf ears in the Parnell administration, Walker claimed, forcing the groups to turn to the Environmental Protection Agency. Since 2011 the EPA has been involved in an information-gathering process on Pebble that has led it to propose a ban on surface mining of the Pebble deposits northwest of Iliamna. The Parnell administration joined the Pebble Partnership in a since-dismissed lawsuit against the EPA earlier this year, alleging the federal agency’s action would violate the state’s right to develop its land. Pebble is challenging the dismissal in federal appeals court. With his background in local government as a former mayor of Valdez and president of the Prince William Sound Regional Citizens Advisory Council, Walker said he would be more attuned to what Alaskans say about what’s happening in their backyards. “I think we’re seeing the results of withdrawing input from local regions, local people impacted by development,” he said. “We’re a resource state and the best decisions come when we have the best input and I don’t think we have that now.” Despite being against Pebble, Walker also said he is not pleased with the active role the EPA has taken in the controversy. By using its Clean Water Act power to preemptively block projects based on their purported impact on wetlands, he said the agency could expand beyond Pebble. “I’m concerned about the EPA’s role in Alaska; I’ll put it that way,” Walker said. On the budget Regarding the state budget and deficits, Walker accused Parnell of not taking the fiscal situation seriously. “This administration has not admitted there is a problem,” Walker said of the state budget. He emphasized that Parnell’s fiscal year 2015 long-term budget plan calls for continued deficit spending — approaching $3 billion in the red by 2022, the same year the state reserves would be drained if oil averages $100 per barrel. Walker said he is sometimes criticized for not specifying how he would solve the current budget crunch or the worse one on the horizon, while at the same time Parnell has not offered a solution. To start curbing the state’s exploding operating budget, Walker suggested department commissioners trim their expenses by 5 percent immediately. “I will sit down with each department or have my commissioners (do it) and say, ‘Find 5 percent in your budget.’ My goodness, if you can’t find 5 percent. Lee Iacocca said in his book every department has 5 percent just laying around, so that can be found.” Overall, the state needs a combination of spending cuts and revenue growth, he said, “but we can control spending a whole lot more than we can control revenue,” given that upwards of 90 percent of state income is tied to the oil industry. Walker said the leadership in his administration that he would ask to cut spending could include individuals in Parnell’s camp — if they have the right skill set. Without naming names, he said he is aware of some folks in the Parnell administration that have not been allowed to reach their full potential because of what he called a “lack of leadership.” “There may be some people that are campaigning for Parnell — in fact there are — that I would like to have in my administration,” Walker said. “It’s about putting together the best team there is, not the best political makeup.” Project priorities Whether it’s the proposed Juneau access road, the Knik Arm Crossing or one of the numerous other capital projects the state is investigating, they all need to be put to an economic benefit test, according to Walker. He said Parnell recently criticized him for not taking a stand on the Juneau road, which the governor has championed. The $574 million, 48-mile pavement extension north of the capitol city would shorten trip time from Haines-Skagway and increase vehicle capacity to Juneau, but would still require ferry service. Walker called it a “road to reelection,” and said it is fiscally irresponsible to take a position on such a project without evaluating it against other infrastructure projects in need of dwindling state dollars. “To me, capital project have to have some sort of tie to the economy cause that’s what it’s all about; we’ve got to make our economy work,” he said. “We will have to prioritize some things and some things that we’ve studied forever — there comes a point when you say, ‘It’s not going to happen.’ We need to stop studying things that are not going to happen.” The Interior Energy Project could be one of those projects. Walker said the state has “put blinders on” when alternatives have been presented to the state-subsidized effort to provide the Fairbanks-North Pole area with lower-cost natural gas for heat and power generation. “My highest goal is to get energy costs down in Alaska,” as quickly as possible, he said. To accomplish that bold decision will be required, according to the gubernatorial candidate. Senate Bill 23, the legislation passed in 2013 that gave the Alaska Industrial Development and Export Authority a $330 million-plus public financing package to advance Interior Energy work, specifies the money must go towards a project that trucks North Slope gas south. He said a presentation the Alaska Railroad Corp. gave to AIDEA in December 2013 about the prospect of transporting Cook Inlet gas north by rail was “summarily dismissed.” “I’m still convinced you could probably (get gas to Fairbanks) cheaper coming out of Cook Inlet and going up the railroad,” Walker said. As the Interior Energy Project has progressed over two years the prospect of a Cook Inlet natural gas supply for the Interior has gone from suspect to substantial. One company, WesPac Midstream LLC, recently announced it is working on a Port MacKenzie-located gas liquefaction facility for in-state sales regardless of whether the Interior Energy Project moves forward. WesPac estimates it could provide privately financed Cook Inlet LNG to Fairbanks by rail for roughly the same price the Interior Energy Project team projects it can get it from the Slope, which is about half the energy equivalent price of fuel oil. Walker noted that the unveiling of the Interior Energy Project’s final gas cost has been pushed back to Nov. 5, a day after the gubernatorial election. “Need I say more?” he said. At the same time, Walker said he wants to be the governor that finishes the projects that are worthy of funding. He highlighted the rail spur from Houston to Port MacKenzie, a $303 million project that still needs $119 million for completion, and a key component to WesPac’s LNG-by-rail proposal. Deciding which projects take precedent will take unpopular decisions, Walker said, but will be necessary given the state’s increasingly limited fiscal resources. Elwood Brehmer can be reached at [email protected]

CIRI files opposition to Buccaneer sale proposal

Cook Inlet Region Inc. objected on multiple levels to Buccaneer Energy’s proposed bid and sale terms for the bankrupt oil and gas independent’s assets. The Southcentral Alaska Native regional corporation’s Oct. 13 filing in U.S. Bankruptcy Court for the Southern District of Texas claims that Buccaneer’s Oct. 7 motion, which requests its assets be sold together under one bid with a “naked” auction, will not draw fair market value. Buccaneer’s only producing asset is the small Kenai Loop natural gas field it operates in the City of Kenai. CIRI owns land adjacent to the Kenai Loop pad parcel and is seeking substantial royalties from Kenai Loop production, which it says has drained gas from CIRI’s portion of the reservoir. That fight is ongoing in the Alaska Oil and Gas Conservation Commission. Australia-based Buccaneer filed for Chapter 11 bankruptcy in the Houston court May 31 after failed investor deals and empty Cook Inlet exploration work left the company and its subsidiaries with less than $50,000 in cash and between $50 million and $100 million in liabilities. According to a list of unsecured creditors, the State of Alaska and nine Alaska-based companies were owed a total of more than $2.1 million when Buccaneer filed for bankruptcy. CIRI also objected to the suggested handling of what Buccaneer referred to as “suspended proceeds.” The bid and sale proposal would hand off responsibility to the winning bidder of an escrow account to hold Kenai Loop production funds while the royalty dispute is pending. First ordered by the AOGCC in May, Buccaneer finally set up the account Oct. 2. If Buccaneer’s sale proposal is granted by Judge David Jones, potential bidders would have to deliver their bids by noon Alaska time on Oct. 24 to a trustee of the court and the impacted parties. Bids would have to be for “substantially all” of Buccaneer’s assets, unless other terms were agreed to by Buccaneer, the company’s updated Oct. 15 motion states. Buccaneer filed for a 30-day extension to file their bankruptcy plan Sept. 26, pushing the deadline out to Oct. 28. Bidders would be additionally required to submit a “good faith deposit” of $3 million and a letter agreeing that Buccaneer could keep the winning bidder’s deposit if a deal fell through after the auction, which would be held Oct. 27 at the Houston office of the law firm Fulbright and Jaworski LLP beginning at 6 a.m. Alaska time. Tennessee-based Miller Energy Resources Inc., the parent to Cook Inlet Energy, has expressed its intent to bid on Buccaneer’s assets, as has the finance group AIX Energy LLC, which purchased debt from a major Buccaneer creditor earlier this year. Based on statements from Miller and AIX, bids could be in the $50 million range. Parties objecting to a winning bid would have until late Oct. 29 to file a protest to the bid, a period CIRI argues should be at least a week given the complexity of the case. Elwood Brehmer can be reached at [email protected]

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