Elizabeth Earl

AK LNG pre-FEED work continues onshore and offshore

KENAI — More geophysical and technical work will take place in Nikiski this summer as preparation for the Alaska LNG Project. The partners on the liquefied natural gas pipeline project — ConocoPhillips, BP, ExxonMobil and the state through the Alaska Gasline Development Corp. — are moving forward with fieldwork for the 2016 season. The fieldwork will be on a smaller scale than it was last year, but the partners want to finish the preliminary front-end engineering and design work, or pre-FEED, said Josselyn O’Connor, the Community Stakeholder Advisor for the project. “The project partners are committed to completing the pre-FEED work,” O’Connor said. “This work that we’re doing is going to inform and help shape future decisions.” Although the ultimate fate of the project is still undecided, the project partners approved a budget of approximately $230 million for field work for the 2016 season. The 2016 season’s geophysical work will include some onshore work near the proposed site of the LNG production facility in Nikiski and offshore work in the Cook Inlet from three vessels, all up to 240 feet in length. The vessels will collect data about the bottom surface and subsurface of Cook Inlet, evaluate seabed features and identify soil conditions. Offshore, surveyors will be doing bathymetry — submarine topography — to gather information to determine the best route for the proposed pipeline. O’Connor said the work would begin as soon as April or May. She also said project managers are still working on the resource reports for the Federal Energy Regulatory Commission. “That’s a big milestone for 2016,” O’Connor said. “The second round of the resource reports will be coming out later this spring or summer.” Throughout the process, Alaska LNG Project managers will coordinate with the other marine operations in Cook Inlet to ensure there are no issues, O’Connor said. She also said the marine communications team will also work closely with fishermen, both the drift fleet and the setnetters, to apprise them of what is going on. “That’s very important to us,” O’Connor said. “We recognize the fishermen as an important stakeholder and are committed to communicating with them on a very regular basis.” Throughout the winter, project coordinators have hosted “Coffee with AK LNG” community meetings to update locals with information about the project. The meetings have been well-attended, O’Connor said. Another is scheduled for April 14, where the hosts will present more information about the upcoming field season. “The format of these coffee meetings has been absolutely wonderful,” O’Connor said. “It has allowed for this back-and-forth, two-way communication. It has allowed us to present bits and pieces as the project goes along.” The next Coffee with Alaska LNG meeting is scheduled for 6:30 p.m. April 14 at the Kenai Visitors and Cultural Center in Kenai.   Reach Elizabeth Earl at [email protected]    

Larger expected king run loosens restrictions on setnets, drifters

Commercial fishermen in Upper Cook Inlet will be somewhat freer to fish at the outset of the 2016 season thanks to a larger projected king salmon run. For the past few years, Alaska Department of Fish & Game commercial fisheries managers have had to work around restrictions on their fisheries because of low king salmon runs to the stream systems across Upper Cook Inlet. However, with a projected late-run return of 30,000 king salmon to the Kenai River and improved runs to the Deshka and Little Susitna rivers, managers will be able to operate under normal restrictions, according to the 2016 Upper Cook Inlet commercial salmon fisheries outlook. “This will be the first year we’ve had the luxury of operating those fisheries without the restrictions,” said Pat Shields, the area management biologists for the Commercial Fisheries Division in Soldotna. For the first time in three years, setnetters in the Upper Subdistrict will be managed by the Kenai River Late-Run Sockeye Salmon Management Plan, restricted only by inseason assessments of sockeye salmon runs and the escapements of late-run kings to the Kenai. In the past, they have been constricted by the low projected run of king salmon to the Kenai River, limiting the number of hours they can fish. This year, they will be able to operate with an additional 84 hours of fishing each week, with a mandatory 36-hour closure each week beginning between 7 p.m. Thursdays and 7 a.m. Fridays, Shields said. The season is set to open June 27 unless opened earlier by emergency order, based on an inriver estimate of 50,000 Kasilof River sockeye salmon before the opener. The earliest it could open would be June 20, according to the outlook. As the season progresses, managers will be carefully watching both the number of sockeye salmon and king salmon in the rivers. “What we’ll do is watch the king salmon numbers as they come in each day in July, and we’ll plan our strategy for how to fish based on the combination of those two sets of numbers,” Shields said. Additionally, commercial setnetters in the Northern District of Cook Inlet will be able to target king salmon again at the season opening. King salmon escapements in the Northern District, which includes all of Cook Inlet north of Boulder Point, have improved in the last few years. More king salmon have been returning to the to the Deshka and Little Susitna rivers as well, and Fish & Game is willing to open up the fishery as well. Shields said it is a relatively limited fishery targeting kings specifically early in the season, with limited fishing periods and fewer nets allowed. The commercial setnet fishery in the Northern District will open with four fishing periods in the 2016 season: May 30, June 3, June 13 and June 20, according to the outlook. After June 27, there will be two 12-hour fishing periods per week with a full complement of gear with at least 600 feet between nets. However, the area from the wood chip dock to the Susitna River will remain closed, reducing the king salmon harvest by approximately half, and the Deshka River will be watched closely. Any closures will come from inseason counts, according to the outlook. The drift gillnet fishery will open by the third Monday in June or June 19, whichever is later. There will be an additional 12-hour fishing period in the Expanded Kenai and Expanded Kasilof sections and Drift Gillnet Area 1 because the Kenai River sockeye run is projected to be greater than 2.3 million fish, according to the outlook. Between July 16 and July 31, there will be an additional 12-hour fishing period each week in the Expanded Kenai, Expanded Kasilof and Anchor Point sections, and no additional restrictions on the remaining regular 12-hour fishing period. One of the challenges of managing this season will be balancing the king run, which is projected to be above the 22,500 target set in the Kenai River Late-Run King Salmon Management Plan, with the sockeye salmon run. A larger than average sockeye return is projected for this year — 7.1 million total, with a 4.1 million commercial fishery harvest, 1.2 million more than the 10-year average annual harvest. Shields said the department has a number of tools for managing the sockeye overescapement if the fisheries are restricted by emergency order again. “It’ll be an interesting year to watch,” Shields said. “Everybody will be watching those two numbers really closely. Our strategy and challenge here will be how many of those extra (setnet) hours will we need to use to keep the sockeye salmon escapement in check.” Last year, both the Kenai and Kasilof rivers saw large overescapements of sockeye salmon, partially due to the closures of the setnet fishery. Managers tried to control the escapement by opening up the drift gillnet fleet for more fishing, which worked “moderately well,” Shields said. “It’s going to put the department in a difficult position — how far do you let the sockeye salmon run go above your escapement objective while you still maintain all the provisions in the (management) plan?” Shields said. One option the managers have is to discuss going outside the Upper Cook Inlet Salmon Management Plan to control escapement, which has been done before. It is a serious decision and requires input from the upper echelons of Fish & Game, but it was done as recently as last year, Shields said. A proviso in the management plan allows Fish & Game to deviate from the management plan to make their escapement goals, he said. However, that doesn’t mean the decisions are always clear. Shields said the decisions to go outside the management plans often generate disagreements within the department and commentary from the public. “When you start exceeding (escapement goals) by quite a bit on the upper end, you see a likelihood for smaller returns,” Shields said. “I wished it was a square decision with nice straight 90-degree corners, but sometimes the lines get a little fuzzy.” Reach Elizabeth Earl at [email protected]

State reaches royalty oil deal with Tesoro

KENAI — The state is considering selling an additional 20,000 to 25,000 barrels per day of its royalty-in-kind oil to Tesoro Refining & Marketing Co. per day as a way to prop up its finances. The state negotiates sales of the oil it collects from North Slope producers instead of taxes to the in-state refineries. Tesoro’s Nikiski refinery is one of three that produce commercial products in Alaska at present. The Alaska Department of Natural Resources has negotiated a five-year contract with the company to sell some of the state’s North Slope royalty oil to be refined at the company’s facility in Nikiski. The five-year contract is shorter than in the past, giving the state more flexibility to respond to the changing market for North Slope oil. The Nikiski refinery is currently producing less than its nameplate capacity of 72,000 barrels per day, or approximately 65,000 barrels per day during the peak season in the summer, according to the state’s Best Interest Finding, issued March 17. “Under the proposed contract, the sale of royalty-in-kind oil will maximize the revenue the State receives for its royalty oil,” the Best Interest Finding states. “In light of the State’s current and projected fiscal condition, the State has a heightened interest in maximizing revenue.” The contract would at least double the current amount of royalty oil sold to Tesoro, which was approximately 15,000 barrels per day, according to the 2014 Best Interest Finding for the sale of royalty oil to Tesoro. The state estimates that the sale of the additional oil under the contract will bring in an estimated $45–$56 million in revenue in addition to what would have been obtained in value, according to the Best Interest Finding. The finding emphasized multiple times how the state is focused on maximizing revenue through royalty oil and that the sale would help the administration to do so. Tesoro will have a choice in how much royalty oil it purchases from the state each month. If the company chooses to purchase the maximum amount from the state, between 45 and 68 percent of the total forecast North Slope royalty oil will go to the company, according to the Best Interest Finding. The state originally asked the state’s five refiners — BP, ConocoPhillips, Petro Star, Tesoro and FHR — whether they would be interested in purchasing more royalty oil in January 2015. Because of the state statute requiring that royalty oil be sold and used for the benefit of Alaskans, BP and ConocoPhillips were not able to meet the standards because they ship their product out of state. Petro Star and Tesoro are the only two commercial refineries that met the requirements and responded with interest, according to the Best Interest Finding. Of the two, Tesoro offered to accept a higher differential in price. “…In light of the very small number of interested parties and the low probability that competitive bidding would maximize total State value, the Commissioner determined that seeking a non-competitive, negotiated agreement was in the State’s best interest, and therefore, waived competitive bidding,” the Best Interest Finding states. Under the proposed contract, the oil will be sold to Tesoro for the monthly average of the daily high and low prices for Alaska North Slope crude. However, the state reserves the right to negotiate a price directly with Tesoro if either party feels the true market value of the crude is not being reflected in the averages. The state has the right to limit how much oil it sells so that the total amount of royalty oil sold does not exceed 95 percent of the total forecast production, according to the Best Interest Finding. There is also a built-in failsafe for both parties: if Tesoro fails to purchase oil for three months in a row, the contract automatically terminates. The Nikiski refinery currently employs 210 Alaskans and between 20 and 30 contractors, not counting the employment at its gas stations throughout the state. Though Petro Star’s refineries also produce commercial fuel, they focus on jet fuel. Tesoro is the only refinery that produces consumer gasoline in Alaska. Tesoro is also in negotiations to purchase two oil-importing terminals previously owned by Flint Hills Resources, which shuttered its refinery operations in North Pole in 2014. The company does not plan to acquire the refinery and storage components, taking aim only at the two terminals in Anchorage and Fairbanks. Tesoro Kenai Refinery Vice President Cameron Hunt said at a speech to the Kenai Chamber of Commerce in February that the company plans to use them to expand its market in the state. “What we see there is an opportunity to provide fuel to the Interior at a low cost,” Hunt said at the meeting. The contract will require the Legislature’s approval. Gov. Bill Walker’s administration introduced a pair of bills to the Legislature, SB 205 and HB 373, requesting approval for the sale on March 23. The Senate Resources Committee will discuss the bill on Wednesday, and the House Finance Committee will discuss it March 31. Reach Elizabeth Earl at [email protected]

Cook Inlet seismic, exploration work underway

KENAI — Despite pessimistic oil and gas outlooks, two companies are conducting seismic data-gathering activities on the Kenai Peninsula this spring and another is planning more exploration work. Hilcorp Alaska is planning to gather more seismic data on the oil and gas beneath the southern Kenai Peninsula, and SAExploration, a Houston, Texas-based oilfield services company, is gathering 2D and 3D seismic data on an area of the northern Kenai Peninsula near Nikiski. After April 1, Furie Operating Alaska plans to use a jack-up rig to drill new wells in its Kitchen Lights Unit. Hilcorp, which is also based in Houston, contracted with Global Geophysical Services Inc. to do a seismic survey of the area east of Anchor Point. The exploration is planned to through roughly May 31, and will cover a scattering of different lands on the southern peninsula. The Alaska Division of Oil and Gas is working to respond to public comments and approve the application. The areas included will be near the North Fork of Deep Creek, an area south of Ninilchik on the Stariski Creek, the whole vicinity of Anchor Point, a patch of land north Homer on the South Beaver Creek and an area near the end of East End Road. Global Geophysical Services plans to primarily use shotholes as an exploration method, though vibroseis — using heavy trucks pressing plates to the ground to shake the earth and measuring the reaction on ground-based sensors — is still a possibility. The company plans to drill 800 shotholes, three inches wide and 35 feet deep, approximately 330 feet apart in the exploration areas. Shothole drilling will be supported by helicopters, and if necessary, the company will clear an 8- to 10-foot diameter space around each hole to allow access, according to the application. All the equipment and personnel will come from Deadhorse and Anchorage, setting up a base of operations on private property between Ninilchik and Anchor Point. However, the company may look to hire support personal and utilize services locally, such as housing and waste disposal, according to the application. “Efforts will be made to hire community members and utilize local resources for select support positions,” the application states. Some have raised concerns about the environmental impact of Hilcorp’s seismic work, though. Bob Shavelson, executive director of Homer-based conservation organization Cook Inletkeeper, wrote in a public comment on Hilcorp’s application that the company “does not have a realistic grasp of the complex and sensitive habitats in which it seeks to operate.” Shavelson called for more detailed information from Hilcorp about the fish habitat in the proposed exploration areas, saying the application did not include detailed enough information about stream crossings. He also noted that while the company treated shotline trajectory as confidential, it released that information at a community meeting in Anchor Point and to the private landowners. “While Inletkeeper is disappointed in the cursory information provided by the applicant to make important decisions around our invaluable salmon habitat, its intent is to help (Department of Natural Resources) and other state and federal agencies improve the process for assessing the impacts — and mitigating the impacts — from projects such as the South Kenai 2D program,” Shavelson wrote. SAExploration’s project is in a more limited space north of Nikiski and being conducted entirely from helicopters, according to the application, which was approved Jan. 8. The area includes 85 square miles in portions of the northern Kenai National Wildlife Refuge and adjacent to the Captain Cook State Recreation Area. The work was originally expected to run through April 15, but it may be done by the end of March, said Rick Trupp, the general manager for SAExploration’s Alaska operations. The company was contracted by Cook Inlet Region Inc., the Southcentral Alaska Native regional corporation, to do the exploration work, Trupp said. “We have a staging site that’s fairly close to the coast, and we’re supporting operations from on the refuge,” Trupp said. CIRI’s goal in the project is to gain more specific information about the resources that it is fairly confident are there, said Jason Moore, the senior director of corporate communications. It is a fairly small-scale operation compared to other seismic work, Moore said. “We’re confident there’s gas resources where we’re looking,” Moore said. “We’re trying to get some very specific data.” In addition to the Hilcorp and SAExploration projects, Furie has applied to conduct further exploration projects in its Kitchen Lights Unit near the west side of Cook Inlet. Furie plans to drill nine more wells over the course of the next five years, or roughly two wells per year, according to its permit application. The exploration will drill through the Tyonek and Hemlock formations into the Jurassic formation. To conduct the exploration, the company has brought a new jack-up rig to the Kenai Peninsula, the Randolph Yost. The rig is currently docked in Homer for mechanical modifications and will be deployed to the Kitchen Lights Unit when the drilling season opens on April 1, according to Furie Senior Vice President Bruce Webb. Webb said the company is ready to drill, but the rate at which the wells will be drilled will depend on what the Legislature decides about the oil and gas tax credit program. Furie is a relatively small company and has invested a fair amount in the Cook Inlet area and is just beginning to see the first money come back from its investments, he said. “We’re told ‘when is the first day we can be out there?’” Webb said. “A lot hinges on what the state does with the (oil and gas) tax credits.” Reach Elizabeth Earl at [email protected]

Apache to shutter Alaska operations

Apache Corporation, which has been exploring oil and gas resources in the Cook Inlet area, announced Thursday that it will exit the state. The Houston, Texas-based corporation has been exploring north of Nikiski since approximately 2010. Apache’s Alaska general manager, John Hendrix, informed the Legislature of the company’s decision. “Low oil prices are certainly affecting the way companies do business not just here in Alaska but across the nation,” said Walker in a release. “My team and I are committed to working with the federal government and producers to increase oil production into the Trans Alaska Pipeline System and achieving a balanced and sustainable state budget.” The company had not yet released a public notice of its decision, but the news was publicly announced during the Alaska House of Representatives morning press conference Thursday. Low oil prices informed most of the decision, said Speaker of the Alaska House of Representatives Mike Chenault, R-Nikiski. Chenault said he spoke to the company Wednesday about its decision. “With oil prices the way they are, they don’t really have much choice,” Chenault said. “They can’t keep investing money without a short term investment.” He said the local economy will likely feel the company’s departure. “It could be just about anyone, all the way down to the restaurant down the street that’s providing food (to the workers),” Chenault said. “Each time one of these smaller companies goes away, it affects everyone.” The company had been engaged in stop-and-start exploration and seismic data gathering, marked by multiple delays and consideration of other potential projects, such as extending the North Road. In its annual report to the Securities and Exchanges Commission, the company called 2015 “a transitional year for Apache.” Most of its adaptation to low oil prices was to reduce activity and cut overhead and operating costs, according to the report. “We are prepared for a potentially ‘lower for longer’ commodity price cycle, while retaining our ability to dynamically manage our activity levels as commodity price and service costs dictate,” the company wrote in its annual report. Sen. Cathy Giessel, R-Anchorage, the chair of the Senate Resources Committee, said in a statement that she was disappointed that low oil prices forced the company to exit. “My hope is that we, as a state, can set the right environment and conditions for our private economy to weather the economic downturn,” Giessel said. “We owe it to Alaska’s economy, Alaska’s communities and Alaska’s families to be measured in how state government moves forward.”   Reach Elizabeth Earl at [email protected]

Report: More imported gasoline drives up in-state price

The market for Alaska’s refineries is becoming even tougher with reduced demand and increased pressure to compete with imported fuels. Though the state’s refineries are closer to markets in Alaska, reducing transportation costs, competitive pricing from refiners in Asia and the U.S. West Coast may challenge their businesses, according to a December 2015 report prepared for the Alaska Department of Natural Resources. California-based Econ One Research, Inc., completed the report in response to a request from the Alaska Senate Finance Committee. The state is down to three commercial refineries after Flint Hills’ North Pole refinery ceased operations in 2014: Petro Star’s refineries in Fairbanks and Valdez and Tesoro’s refinery in Nikiski. Petro Star mostly produces jet fuel while the Tesoro refinery mostly produces gasoline and exports the remaining heavy oil to other markets. Alaska’s refineries are smaller and simpler than other operations, and in Tesoro’s case, the distance from other markets that insulates it from competition may also make it difficult to export other products. Tesoro exports about 30 percent of each barrel in the form of fuel oil, for which there is no market in Alaska, because the facility in Nikiski is limited by its technology and cannot convert it to lighter fuel oils. The refineries on the West Coast can convert up to 90 percent of a barrel, making it harder for Tesoro to compete, according to the report. About 70 percent to 80 percent of total demand for petroleum products comes from in-state refineries, while the rest comes from the Pacific Northwest or Asia. In-state refiners supply most of the demand in Southcentral and Interior Alaska, according to the report. Exports from Alaska have been gradually decreasing. Before 2008, Alaska was a net exporter of refined petroleum product; after 2009, the state became a net importer. Imports represented 22 percent of Alaska’s supply in 2013, according to the report. “Alaska’s refineries supply the majority of demand for refined product in the State, though their contribution has declined over the past decade as imports have claimed an increasingly larger percentage of Alaska’s product demand,” the report states. Diane Hunt, the special projects and external relations coordinator for the Alaska Division of Oil & Gas, said the report was requested by Sen. Anna MacKinnon, R-Eagle River, in the wake of the Flint Hills refinery closure and had been sent to the senate roughly the same time as the Department of Natural Resources. The report also shed a little more light on refined petroleum product prices in Alaska. Prices are generally higher than they are in the rest of the U.S., although it is not consistent across products — the biggest difference is seen in gasoline and diesel, while the least difference is seen in jet fuel. Tesoro is now the only gasoline and diesel producer in Alaska, and concerned about a monopoly, some have called for an investigation into the company’s practices because Alaska’s gas prices are consistently much higher than other states’. The Alaska Department of Law has looked into the higher cost of gas in Alaska several times over the past few decades. The latest was in 2008, when an investigation concluded that there was no evidence of collusion between the state’s refiners. Price gouging itself is not illegal, but collusion between companies to raise prices is illegal, according to the investigation. The renewed call came from Sen. Bill Wielechowski, D-Anchorage, who sought to block Tesoro Alaska’s proposed purchase of several Flint Hills assets to expand distribution in the Interior region. “The already delicately balanced retail gas market in Alaska will be dominated by the company should this sale be approved, keeping further competition from the state and hiking prices for customers,” Wielechowski wrote in a January letter to Alaska Attorney General Craig Richards. The report puts forth an alternative explanation for higher gas prices in the state. Essentially, the authors suggested large buyers of gasoline secured purchases at prices similar to what the cost of importing would be, called “import parity.” “While gasoline is generally not imported into the Southcentral or Interior of the State, imports are a potential alternative to local supply,” the report states. “Large buyers of gasoline and diesel, including the State, have been able to purchase gasoline and diesel at prices that generally reflect the cost of importing product … from the Pacific Northwest.” Reach Elizabeth Earl at [email protected]

Nonresidents pass residents in individual guide permits

KENAI — The number of guides and guiding businesses in Alaska is staying stable but the percentage of nonresidents is still climbing. Since the state saw a drop in guide participation in 2009, the numbers have stabilized, according to the 2014 license and logbook data published by the Alaska Department of Fish and Game. In 2014, there were 1,805 licensed guides in Alaska and 132 licensed businesses, with 983 holding a combined license. The majority of licenses are in the Southcentral region. Nonresident individual licensed guides overtook resident individual licensed guides for the first time in 2014. Between 2010 and 2014, the number of licensed resident guides fell from 1,009 to 892, while the number of nonresident guides climbed from 702 to 913, according to the report. However, there are still significantly more residents who hold either combination or guiding businesses licenses than nonresidents. Of the 983 total combination licenses in 2014, 868 went to residents. Of 132 licensed businesses, 105 went to residents, according to the report. Overall, 63 percent of licensed guides were residents, while 37 percent were not. The percentage of nonresidents has been slowly increasing by about 3 percent every year, climbing from 33 percent in 2012 to 35 percent in 2013. In Southcentral Alaska, freshwater guiding remains dominant over saltwater guiding. The Southcentral region dominates the freshwater guiding market statewide; 81 percent of freshwater participation occurred in the region in 2014, according to the report. Sockeye, coho and king salmon were the most common species harvested, comprising 45 percent, 44 percent and 6 percent of the statewide harvest respectively. Out of a total of 95,003 freshwater guided angler-days in Southcentral, 8,123 were spent by residents, and 84,396 were spent by nonresidents. The remainder were compensated, crew or unknown, according to the report. The demographics of target species for freshwater guided trips are changing, too. With tightened king restrictions for the past several years, guides have had to change tactics to other species. Sockeye and coho are taking an increasingly larger role as target species for all guided trips, while kings are on the decline, according to the harvest data for 2012–2014. On the Kenai River specifically, the statistics are fairly similar to those statewide: of the 336 total registered guides in 2014, 32 percent were nonresident. That number has also steadily increased over the years, climbing from a 25 percent in 2010 to 33 percent in 2015. The total number of guides continues to fall, though — 2015 saw the fewest guides of any year since 1994, according to the registration records. The large number of guides on the Kenai River, especially of nonresident guides, has been a concern for some time for Kenai Peninsula locals. The Kenai River Special Management Area advisory board, composed of citizens and state agency representatives, has been discussing for some time whether to limit the number of guides on the river and how it could be done. At an open house for peninsula guides in November, some complained about the behavior of nonresident guides and asked if the state could charge nonresidents more in the guide registration process. However, others were more settled with nonresident guides. Courtesy on the river has improved since the implementation of the Kenai River Guide Academy, a mandatory class for guides on the river, said Mike Fenton, a guide with Fenton Bros. Guided Sportfishing Alaska in Soldotna. “I don’t see a lot of disparity in the quality of the nonresident guides,” Fenton said. “From a courtesy standpoint, I think all the guides that have gone through the course understand courtesy on the river.” Nonresident guides do have to pay steeper fees. They should be able to guide in Alaska if they want to, the same way Alaskan guides should be able to guide elsewhere if they choose, said Rod Berg, co-owner of Rod N’ Real Charters in Soldotna. “I know some of the public thinks it should be all resident guides, but if I want to go down to Washington or Oregon and guide, that’s my right,” Berg said. “I don’t care about nonresident guides. We have far more pressing issues.” Reach Elizabeth Earl at [email protected]  

BlueCrest: Credits an investment, not a cost

KENAI — BlueCrest Energy President and CEO Benjamin Johnson urged the public to contact the Legislature and ask them not to make any changes to the oil and gas tax credit program until 2017. The company is less than three months away from its first oil production at the Cosmopolitan field off the coast of Anchor Point. Production will be relatively limited at first — neighbors can expect to see one to two trucks a day on the Sterling Highway, taking crude oil north to the Tesoro refinery in Nikiski. As more wells are drilled, that number could be as many as 20 per day, Johnson said. While the oil production is on schedule, the other aspect of the development remains in limbo. A gas pocket that sits above the oil reservoir will be postponed if the state makes significant cuts to the oil and gas tax credit program, Johnson said at the annual Industry Outlook Forum in Kenai’s Old Carr’s Mall on Jan. 28. “It doesn’t work without the tax credits or some type of incentive,” Johnson said. “But we know that we have large amounts of resources. … These resources need to be developed. The tax credits are really critical to make sure that that’s done.” The position of the gas requires offshore drilling, while the oil development will be done with directional drilling from a facility onshore. Placing offshore platforms is significantly more expensive, and if the tax credit program is modified too much, it will postpone the gas development, Johnson said. There is a deadline for the gas development as well. A jack-up rig, the Spartan 151, is currently harbored in Seward and would be used to develop the gas wells if the development moves forward, Johnson said. However, unless the development goes through in 2016, the rig will leave Alaska and, “I’m not sure when we’ll be able to get another rig to drill offshore,” Johnson said. “To know if we’ll drill in 2016, we have to have the funding commitments and everything put together in 2016,” Johnson said. “Everything’s ready to go, we could be drilling April 15 if we knew the tax credits were going to be in place. ” The oil and gas tax credit program is one of the most scrutinized area of Alaska’s state budget as the Legislature looks to plug an approximately $3.5 billion gap in the unrestricted general fund this year. Gov. Bill Walker has called the incentives “unsustainable” and has proposed changes that would significantly cut payments, limiting the annual repurchases to $25 million. While Johnson said he could see the reason for some changes to the program, he said the Legislature should keep the same program for at least the next year. The company has already signed contracts based on the expectation that those tax credits will be carried through, he said. BlueCrest has accrued $45 million in tax credits to date, and the building this year would total about another $100 million in tax credit payments, Johnson said. He asked the attendees at the forum to “let the governor know” the impacts of changing the oil and gas tax credits. “This is the time that … it’s important that the Legislature and the governor understand that the gas development in the Cook Inlet is very important,” Johnson said. “Properly designed tax credits are … a very good investment for Alaskans. It’s an investment, not a cost.” Even if the gas production has to be delayed, the company plans to begin drilling soon, with first oil expected by April from the first well. Two additional wells will be drilled later this year, all of which will be hydraulic fracture wells, Johnson said. All three wills will be directionally drilled from an onshore rig that was designed specially for the BlueCrest project, designed to run on both diesel and natural gas, Johnson said. Johnson said 100 percent of the employees hired to work on the facility are Alaskans, and the company just hired several graduates from Kenai Peninsula College. Jayce Robertson is one of those new employees. A December 2015 Kenai Peninsula College graduate, Robertson obtained his degree in process technology and was immediately offered a job working at BlueCrest, which he said he will start Feb. 1. “I am extremely grateful for the opportunity that BlueCrest has offered me,” Robertson said when he spoke at the forum. “This is also a success story for Kenai Peninsula College and BlueCrest Energy.” Johnson said Robertson was one of a group of students who attended the forum last year who stood up during Johnson’s speech and asked to be hired for the development of Cosmopolitan. “We’re really excited about the folks that we just hired out of Kenai Peninsula College,” Johnson said. “I was thankful when they stood up last year and said, ‘Hey, hire me!’ And we did.” Reach Elizabeth Earl at [email protected]

Hilcorp still ready to buy assets as it looks to cost control

KENAI — As other oil and gas companies seek to trim expenses with layoffs and stalling development, Hilcorp Alaska has no plans to stop acquisitions. The company will continue to buy properties in Alaska, said Chad Helgeson, the Kenai area operations manager, in an update to the public at the annual Industry Outlook Forum in Kenai on Jan. 28. “Hilcorp is a growth company, acquisition-based,” Helgeson said. “That’s been our model.” The company’s workforce has also steadily increased. Of the approximately 520 employees statewide, 240 live on the Kenai Peninsula, Helgeson said. Aggressive purchases have left Hilcorp as the largest producer in Cook Inlet and with holdings on the North Slope. The company has no plans to downsize, either, and will take advantage of properties coming up for sale as other companies hit the rocks, Helgeson said. “Right now, pretty exciting times — a lot of properties are probably going to be available for sale,” Helgeson said. “What are we going to buy next? I have no idea.” At the same time, the company is feeling the impacts of sliding oil prices, though it continues to purchase and spend. Between 2014 and 2015, Hilcorp’s spending in Alaska decreased from $443 million to $281 million, a direct reflection of the decline in oil prices, Helgeson said. This year, the company expects to spend about $220 million, he said. The allocations of investment changed as well. In 2014, most of the money went to capital projects and drilling; in 2015, that changed to be majority maintenance and operations. As oil prices continue to decrease, the company will continue to monitor it and adjust its operations accordingly, Helgeson said. “As the price of oil continues to drop down, our goal is to be responsible and sustainable,” Helgeson said. “Our goal is to be here for the long-term. Our oil and gas contracts are going eight years out … we’ve got to be responsible.” The focus for the Kenai area this year is to control costs, Helgeson said. One of the questions is how the company can look at its Cook Inlet assets and continue to make them profitable, he said. The company applied earlier this year to drill two new wells in its Happy Valley pad southeast of Ninilchik and is in the process of applying to expand the boundaries of its lease in the Deep Creek Unit. The current pool boundaries, defined by the Alaska Oil and Gas Conservation Commission in 2004 when Marathon Oil leased the property, do not adequately include the majority of the gas in the formation, according to the application. This is still in process but is something the Kenai area team will work on this year, Helgeson said. If the commission approves the motion, Hilcorp’s rights under the lease would expand by about 400 acres, according to the application. Helgeson said the company is also exploring a project on the southern Kenai Peninsula and is planning to do seismic work on it later this year. However, the permitting process takes time, so it may be 2017 before any work actually begins, he said. He said there would be public meetings on any exploration the company does but did not give a more exact location of the exploration. “(We’re asking) ‘What can we do to extend the life of our fields?’” Helgeson said. “We’re planning to do some exploration type of activity. … What we’re finding is that it takes somewhere between 12 and 18 months to fully permit a project.” Reach Elizabeth Earl at [email protected]

Miller, SEC settle for $5M fine; assets overvalued by $400M

KENAI — The U.S. Securities and Exchanges Commission has reached a $5 million settlement with Miller Energy Resources after the company inflated the value of its Alaska assets. The settlement, reached Jan. 12, concluded the SEC’s investigation into the oil and gas company, the parent company of Cook Inlet Energy. The SEC charged the company, two former executives, and one of its former accountants with fraudulently inflating the values of the company’s Alaska oil and gas properties by more than $400 million. The inflated reports began in January 2010, shortly after Miller Energy acquired a series of Alaska properties from another company, according to the settlement document. Between 2010 and the announcement of the charges in August 2015, the company’s stocks skyrocketed — from about 60 cents per share to almost $9 per share. The company’s then-CFO, Paul W. Boyd, double-counted fixed assets, and then-CEO of Alaska operations David M. Hall knowingly understated expenses, according to the SEC’s cease-and-desist order from August 2015. An accountant from now-defunct accounting firm Sherb & Co audited the company’s reports in the year after the acquisition and failed to thoroughly investigate the financial statements, according to the cease-and-desist order. The company bought its Alaska properties for $2.25 million in 2009 and later valued at $480 million. “When computing their estimate of fair value, Miller Energy and the CFO failed to consider the existence of numerous, readily apparent data points strongly indicating that the assets were worth substantially less than the $480 million value Miller Energy recorded,” according to the settlement. Boyd and Hall requested a reserves report with faulty numbers and then presented it as the total fair value of the oil and gas reserves, increasing the total value of the company on paper by $368 million, according to the settlement. They also “refashioned” an insurance study that misrepresented the value of the company’s assets, according to the settlement. “As a result of the foregoing, Miller Energy overvalued the Alaska assets by more than $400 million,” according to the settlement. Miller Energy has agreed to unregister all its stocks and fully cooperate with the SEC to produce documents and provide employees to testify about the violations, according to the settlement. Miller Energy is also in the midst of a Chapter 11 bankruptcy and restructuring itself. The company announced the bankruptcy in October, blaming plummeting oil prices, a drilling plan that did not produce to expectations and the withdrawal of a private lender. The company owes more than $180 million, as reported by the Clarion on Oct. 1, 2015. Should the bankruptcy court accept the company’s plan for restructuring, the $5 million will become a “general unsecured claim,” essentially an IOU. The fine would then be paid “consistently with the payments made to Miller Energy’s other general unsecured creditors,” according to the SEC decision. The federal bankruptcy court has until June 30, 2016 to decide whether to accept the bankruptcy plan, according to the settlement. If the court does not accept the bankruptcy plan, Miller Energy will have to pay the SEC in installments, completing payment by no later than 2019. Reach Elizabeth Earl at [email protected]

Miller Energy, SEC settle for $5M

KENAI — The U.S. Securities and Exchanges Commission has reached a settlement with Miller Energy Resources after the company inflated the value of its assets for a $5 million payment. The settlement, reached Jan. 12, will conclude the SEC’s investigation into the oil and gas company, the parent company of Cook Inlet Energy. The SEC charged the company, two former executives, and one of its former accountants with fraudulently inflating the values of the company’s Alaska oil and gas properties by more than $400 million. The inflated reports began in January 2010, shortly after Miller Energy acquired a series of Alaska properties from another company, according to the settlement document. Between 2010 and the announcement of the charges in August 2015, the company’s stocks skyrocketed — from about 60 cents per share to almost $9 per share. The company’s then-CFO, Paul W. Boyd, double-counted fixed assets, and then-CEO of Alaska operations David M. Hall knowingly understated expenses, according to the SEC’s cease-and-desist order from August 2015. An accountant from now-defunct accounting firm Sherb & Co audited the company’s reports in the year after the acquisition and failed to thoroughly investigate the financial statements, according to the cease-and-desist order. The company bought its Alaska properties for $2.25 million in 2009 and later valued at $480 million. “When computing their estimate of fair value, Miller Energy and the CFO failed to consider the existence of numerous, readily apparent data points strongly indicating that the assets were worth substantially less than the $480 million value Miller Energy recorded,” according to the settlement. Boyd and Hall requested a reserves report with faulty numbers and then presented it as the total fair value of the oil and gas reserves, increasing the total value of the company on paper by $368 million, according to the settlement. They also “refashioned” an insurance study that misrepresented the value of the company’s assets, according to the settlement. “As a result of the foregoing, Miller Energy overvalued the Alaska assets by more than $400 million,” according to the settlement. Miller Energy has agreed to unregister all its stocks and fully cooperate with the SEC to produce documents and provide employees to testify about the violations, according to the settlement. Miller Energy is also in the midst of a Chapter 11 bankruptcy and restructuring itself. The company announced the bankruptcy in October, blaming plummeting oil prices, a drilling plan that did not produce to expectations and the withdrawal of a private lender. The company owes more than $180 million, as reported by the Clarion on Oct. 1, 2015. Should the bankruptcy court accept the company’s plan for restructuring, the $5 million will become a “general unsecured claim,” essentially an IOU. The fine would then be paid “consistently with the payments made to Miller Energy’s other general unsecured creditors,” according to the SEC decision. The federal bankruptcy court has until June 30, 2016 to decide whether to accept the bankruptcy plan, according to the settlement. If the court does not accept the bankruptcy plan, Miller Energy will have to pay the SEC in installments, completing payment by no later than 2019. Reach Elizabeth Earl at [email protected]

ADFG reports show sportfishing may damage Kenai River

KENAI — The increasing numbers of bank anglers and powerboats on the Kenai River may be damaging the river habitat. The Alaska Department of Fish & Game released two long-delayed reports in October addressing the effect of bank angling and powerboat use on bank erosion in the Kenai River. The reports, covering the years 2000 and 2001, found that as more anglers fished the river, the more banks crumbled and vegetation disappeared. The reports are the final two installments of a series commissioned by the Board of Fisheries in 1996 to study the effects of increased sport fishing participation on the Kenai River after the board increased the sockeye salmon escapement goal. Sport fishing participation more than tripled on the Kenai River between 1977 and 1995. The Board of Fisheries requested that the ADF&G monitor angler use and impacts to the habitats on the river, which was done from 1997 to 2001. Although the reports from 1997, 1998 and 1999 were published within two or three years, the reports from 2000 and 2001 never appeared. At first, the research team encountered some snarls with methodology, said Mary King, a former fisheries biologist who served as the principal investigator for the study. When they began in 1997, there was no definitive methodology for studying bank change over time. By 1998, they had determined how to approach the measurements and were getting observable results by 1999. “The reports that were published in ‘97 and ‘98, we were stumbling around trying to find a method that the Board of Fisheries asked us to do,” King said. “Once we found a method and were getting results, they never got published.” The researchers focused on the herbaceous lands and shrublands to study angler effect because they would be more sensitive to foot traffic, said Patricia Hansen, King’s co-author on the study. They also tried to select an even number of sites on both sides of the river, she said. “For each macrohabitat type, sites were selected as randomly as possible allowing for various levels of angler use,” Hansen wrote in an email. “We also checked to be sure both bank and meander were represented within each habitat type.” The plant habitat on the banks was significantly impacted because of trampling by anglers, according to the 2001 report. As vegetation was trampled, bare ground and water cover increased. Invasive species moved into the damaged soil — dandelions, grass and horsetails. Low angler effort areas had a small increase and areas with many anglers saw less grass but more horsetails and dandelions. About half the sites showed bank gain while the other half showed bank loss. Bank gain largely occurs when the bank has broken but not separated yet in a process called calving. The average bank loss came out to about .28 meters, slightly more than 10 inches, King said. Some of the accelerated erosion underneath the edge of the bank can be attributed to the wake from powerboats and some is due to the increased presence of sport anglers, she said. “What the conclusions indicated was that there are measurable changes in habitat that can be attributed to the presence of sport fishing on the Kenai River,” King said. “If you compound (powerboats) with whatever shore angling is going on, we saw changes in vegetation that were damaging to the natural habitat.” Stuck in draft That significant changes were detected over only three seasons was “cause for concern,” the researchers wrote in the conclusion. They recommended the fisheries managers reevaluate how sport fisheries are prosecuted on the Kenai River to minimize damage to the riparian habitats. Though the results were presented to the Board of Fisheries in 2002, the studies were never published. King said she did not want to speculate as to why they were not published, but said the results had been filed on time and presented as requested. In her presentation to the board in 2002, King made three recommendations: to continue assessment of shore angler use and bank position change until better methods are developed, to finish the aerial photogrammetry feasibility study and make recommendations for future application river-wide and to develop better programs to educate anglers on how to preserve the environment. The second two were carried through, but the shore angler and bank change assessments were abandoned. Jim Hasbrouck, the chief fisheries scientist for the Fish & Game in Anchorage, said the reports were delayed because of staffing changes. The reports were classified as “draft” for that time period. “The information was presented to the Board of Fisheries, but several staffing changes happened at the time, people moving around into different positions,” Hasbrouck said. During the 14 years it took to release the reports, several people called for their release at Board of Fisheries meetings, but the logs held at the Alaska Department of Fish and Game commissioner’s Office have no record of anyone ever submitting a public records request for the reports, said Lisa Evans, assistant director of Fish and Game’s Division of Sport Fish. There are also no records of correspondence about the reports between 2000 and the present between staff at the Soldotna Fish & Game office and the Commissioner’s office, Evans wrote in an email. In a public comment submitted at the 2008 meeting, Gary Hollier of the Kenai Peninsula Fisherman’s Association cited King’s presentation in 2002 on the damage to the riverbanks and asked why there were no updated habitat reports in the years since. Two other members of the public also asked why there had been no updates on the habitat reports in 2008. In 2014, Lisa Gabriel, also of the Kenai Peninsula Fisherman’s Association, submitted a public comment to the Board of Fisheries detailing that she knew the reports existed and asking why they hadn’t been published. Gabriel said she never submitted a formal records request for the 2000 and 2001 reports because she was able to find the draft versions on the Internet. When she requested a copy of the most current habitat report, she was given another Kenai River habitat assessment from 2010 from a team of researchers from Inter-fluve, a river restoration research firm, and Cramer Fish Sciences, a fisheries research firm. The report had been presented to Fish & Game and to the Kenai River Sportfishing Association. It primarily focused on restoration efforts, but in the section addressing bank erosion said some reports had indicated that increased angler traffic caused bank loss. The report concluded that there is insufficient information about the scale of habitat changes and what causes them. “There was nothing on biological habitat information,” Gabriel said. “(The report said) we’re repairing walkways, that sort of thing. All of the reports we were seeing at the Board of Fish level, none of them were official reports.”  ‘Appropriate modification’ King, who retired from Fish & Game in 2010, said she did not change offices for some time after the reports were filed and did not know why the reports had not been published. In a presentation she gave to the Kenai River Special Management Area board in February 2015, she said she requested the status of the reports when she retired in 2010 and was told they had never been peer-reviewed. The project ended in 2001 and has not been revived, she said. There are no ongoing habitat research projects on the Kenai River through Fish & Game, according to Habitat Division director Ginny Litchfield. Fish & Game is required by statute in the late-run salmon management plan to conduct habitat studies “to the extent practicable” for the Board of Fisheries meetings on the Upper Cook Inlet. It also requires the board to make “appropriate modification” if the studies show a net loss of riparian habitat, according to the management plan. To be published, Fish & Game’s research reports must first be compiled, sent through the peer review process, edited, reviewed again and then sent to Research and Technical Services in Anchorage to be published. Sometimes this process takes years, with backup through the system. However, King and Hansen’s report remained in publishing purgatory for an exceptionally long time compared to other reports published by Fish & Game. Other reports are published within five or six years; some are published in less time. The first reports they wrote were published in fewer than three years. Jeff Fox, the former Director of Commercial Fisheries based in Soldotna, said people repeatedly came in asking for those reports and that they were demanded at various meetings. The department is required to perform yearly assessments on the habitat quality of the river but has not done so in years, he said. At this point, King’s reports are so old as to be irrelevant, he said. “That’s the interesting thing,” Fox said. “If you hang onto something long enough, it doesn’t matter what the conclusions are.” Under the Alaska open records laws, oral requests are usually considered valid requests for public records. If the oral request is denied, the requester is supposed to follow up with a written request. The department can ask that the request be submitted in writing, but it is still a valid request. Fish & Game has been investigated for noncompliance with the open records laws before. In 2009, an incident at the Anchorage office over the disclosure of a public document led to the Alaska Ombudsman’s Office investigating Fish & Game and recommending that the department release the record, train its staff how to comply with records requests and consult with the Assistant Attorney General on how to better fulfill requests in the future. The department did release the record requested, but the investigation was closed as “partially rectified” because the agency did not fully implement the ombudsman’s recommendations, according to the investigation archives. No further reports have been funded by Fish & Game on the habitat of the Kenai River. King said the studies were cut off, but they would have likely continued to show damage. “Had the project continued, we probably would have found further correlations with the sport fishery,” King said. “But the hard part of it is the teasing out of what the natural process was. The correlations were to look at whether or not something was significant accelerating the erosion.” Reach Elizabeth Earl at [email protected]

AK LNG Project may bring more Kenai River traffic

KENAI — Managers are concerned that pressure on the Kenai River could increase if the Alaska LNG P roject goes through. The project is still tentative and will not receive a final ruling until 2018 at the earliest, but if it does go through, the borough could see an influx of as many as 5,000 workers for the five years it takes to construct the 900-acre plant in Nikiski. Unless the camp is closed, many of them will likely recreate on the Kenai River. The Kenai River Special Management Area board raised concerns about access to the river at its meeting Nov. 12. The Kenai River is already seeing impacts from too many people wanting to fish and boat, and the addition of a potential 5,000 more LNG employees — and potentially their families — to the peninsula. Larry Persily, borough mayor Mike Navarre’s special assistant for oil and gas, addressed the board with an update about the particulars of the project. Much is still up for debate, including whether the project will even happen, he said. “It’s going to be three years at best before we know whether this project is going to go through,” Persily said. “But during those three years, there will be a lot of work to do and a lot of community input.” The board has been debating ways to limit access to the river for some time. During the board’s October meeting, the members asked Alaska Department of Parks and Outdoor Recreation representative Jack Blackwell to request a white paper from the Department of Law about ways to limit use of the river. Blackwell said he requested the paper, but it was not ready for the November meeting. However, he said it would be ready for the December meeting. The overuse of the river could be affecting habitat and water quality as well. Jeanne Swartz, a board member and an environmental program manager with the Alaska Department of Environmental Conservation, said a water quality survey from the Kenai Watershed Forum showed a relative improvement in water quality but elevated levels of certain metals, including copper and zinc. “We’re not sure what could be causing that,” Swartz said. “We looked at the things that we were sure weren’t a problem and took them out of the program, and everything else is going to be looked at closely. Then we’ll be able to make a more sophisticated or more in-depth analysis.” Elevated levels of copper can disturb young salmon, according to the National Oceanic and Atmospheric Administration. When the agency conducted a survey of 811 sites around the country in 2007, they found that elevated levels of copper may have come from road runoff in the surrounding areas and interfered with the salmon’s senses. Swartz said the Department of Environmental Conservation is not sure what is causing the elevated levels of metals in the river but may request data from the Alaska Department of Transportation about road traffic as well as other information about potential sources of toxins in the environment. If the LNG does come to Nikiski, there will likely be significant increases in traffic on roads close to the Kenai River, which could cause impacts in the water quality if road runoff damages salmon. Persily suggested that the board list all its items of concern and submit them to the Federal Energy Regulatory Commission, which will be conducting the Environmental Impact Statement for the LNG project. That statement will take approximately three years and will play a significant role in the project’s fate, he said. “FERC and the regulators know that this is going to have to look at salmon habitats, road traffic and air quality standards,” Persily said. “If there’s a concern that what are the company’s plans to deal with 5,000 workers roughly who on their days off will want to go to limited recreational opportunities on Kenai, that should be proposed in the EIS.” Reach Elizabeth Earl at [email protected]

Peninsula providers sue Xerox over Medicaid payment snafus

KENAI — Three Kenai Peninsula health care providers filed a lawsuit against Xerox State Healthcare for failing to provide contracted services. South Peninsula Hospital in Homer, the Kenai Vision Center and the Alaska Speech and Language Clinic, both in Kenai, filed the lawsuit in federal court, requesting that it be designated a class-action lawsuit. Xerox State Healthcare, a Georgia-based subsidiary of Xerox Corporation, provides Medicaid claim technology to state health care organizations. Alaska implemented one of Xerox State Healthcare’s Medicaid Management Information Systems in October 2013, intending to use it to manage reimbursement. However, the system was unable to accept new, legitimate claims that day. Claims were rejected, leading to a loss in reimbursement for the approximately 22,000 health care providers enrolled, costing “hundreds of millions of dollars,” according to the complaint. “The providers were deprived of regular reimbursement for many months, and had to fund operations from other sources or go out of business,” the complaint states. “The need to resubmit improperly rejected claims required health care providers to incur labor costs of clerical time. Some larger providers hired additional staff, while others paid overtime to existing employees, to the detriment of other parts of their medical businesses.” The plaintiffs also claim that Xerox knew the system was faulty. The state engaged a company called ACS State Healthcare to build an MMIS in 2007. Although the company said it would have a system ready to launch by October 2010, it was not ready to go live until three years later. Xerox acquired ACS in 2010. The Alaska Department of Health and Social Services tested the system in September 2013, just before it went live, and found 44 errors that it requested Xerox correct. The company replied with reassurances that the system was ready to go live, which the DHSS believed, according to the complaint. In addition to supplying a system that failed, Xerox also allegedly refused to fix the problem for months, according to the complaint. A DHSS investigation in 2014 revealed that “hundreds of thousands” of unprocessed paper claims from smaller providers were sitting in stacks in the Xerox facility. A large number of electronic claims were also “suspended,” with no action for extended periods of times, according to the complaint. Providers immediately noticed the problem when few claims were accepted, and those that were received no reimbursement. South Peninsula Hospital bills approximately $16 million to Medicaid every year, about 28 percent of its income; Kenai Vision Center bills approximately $150,000 annually, and the Alaska Speech and Language Clinic billed $14,160 between October 2013 and early 2014. “The effect on providers was the same as with the unprocessed paper claims: reimbursements were not received, causing financial hardship,” the complaint states. To bail out the health care providers, the DHSS lent out approximately $160 million, to be repaid when the claims were processed. All the providers had to resubmit all their claims between four and seven times over the next two years to receive payment, according to the complaint. “In many situations, resubmitted claims were rejected as well,” the complaint states. “One dental practice has written off over $500,000 in claims that it was unable to submit within one year of the dates of service because of the MMIS failure.” The Alaska Speech and Language Clinic was forced to cut back its services. Kenai Vision Center’s office manager spent more than 200 hours troubleshooting and still has not been reimbursed $3,000 for Medicaid claims. South Peninsula Hospital employees put in 971 hours of overtime as well as extra time during the day, which delayed billing to other insurance companies, according to the complaint. Derotha Ferraro, the director of public relations and marketing for South Peninsula Hospital, said the state had multiple conversations with the hospital during the time the system was not working properly. Winning the lawsuit would be a positive outcome for the providers, but it is essentially compensation for what they have already spent to overcome the system’s failures, she said. “We had hard costs, things like overtime, extra staffing trying to make heads or tails of things and resubmit claims and research claims and everything, just trying to survive that Medicaid confusion,” Ferraro said. “But then there’s also lost opportunity. We really had all of our staff, which isn’t very many, focused on this and we were missing other opportunities.” The plaintiffs are asking for three times their damages plus punitive damages. Arthur Stock, an attorney from Philadelphia-based firm Berger & Montague who is coordinating the case with Kenai-based attorney Peter Ehrhardt, said it will be some time before any action is taken. Although the complaint lists a general punitive amount, he said he could not disclose a more exact figure. A representative from Xerox did not reply to a request for comment. This is not the first lawsuit over the failed MMIS system. Alaska DHSS sued Xerox in September 2014 over the failed system, demanding that the company fix the problems. The company responded and all major problems were corrected by March 2015, according to Gov. Bill Walker’s office. Elizabeth Earl can be reached at [email protected]

Hilcorp applies for two exploration wells near Ninilchik

KENAI — Hilcorp Alaska’s plans to drill two additional oil and natural gas exploration wells southeast of Ninilchik are moving forward into the permitting phase. If approved, the company plans to begin clearing vegetation in late September, construct a gravel pad and begin drilling two wells to be completed by May 2016. Hilcorp has been exploring in the Deep Creek unit, near Happy Valley, since 2013. The plans for the Happy Valley Middle Pad have been in the works since March 2004 under then-operator Unocal. The company is currently working in four other pads in the Deep Creek Unit and has proposed another pad to the northwest of the Happy Valley Middle Pad. The company says it presented the initial idea to the public in Ninilchik in October 2014. “Hilcorp employees are actively engaged with regulators and stakeholders on all activities within the state,” the company said in the application. “Hilcorp community outreach to date has included presentations to the Kenai Chamber of Commerce, the Alaska Support Industry Alliance, the Anchorage Chamber of Commerce, and the Cook Inlet Regional Citizens Advisory Council. Hilcorp has also participated in Ninilchik Natives Association, Inc. board meetings to present project updates.” The proposed gravel pad will be approximately 300 feet by 400 feet and will include an approximately 2 mile access road. Because the proposed road will cross the Happy Creek, the company will construct a bridge and install a 12-foot culvert, according to the application. The road will connect to an existing logging road, an extension of Tim Avenue, which branches off the Sterling Highway at milepost 142.8. To support the culvert and additional access, approximately 175 feet of Tim Avenue will be widened. The contractors will attempt to use existing road material to widen the road and propose to fill in approximately 0.02 acres of wetland to prevent future erosion of the road, according to the application. If granted, the permit does not allow the company to set up a permanent operation — if the exploration is successful, the company will have to file another application for permission to continue. A Hilcorp spokesperson did not return a request for comment regarding a construction start date or potential hires within the area. The company said in its application that 88 percent of its workforce is made up of Alaska residents. If the project is successful, the company will establish permanent drilling facilities and build a buried pipeline that would stretch 5.6 miles to reach an existing Enstar pipeline, according to the application. Hilcorp, a privately held company based in Houston, Texas, has rapidly expanded its holdings in Alaska in the last decade. After it won a regulatory approval for its purchase of Marathon Oil’s Alaska assets in 2012, Hilcorp took control of approximately 70 percent of the natural gas production in the Cook Inlet. In July, the company cut a deal with Exxon Mobil subsidiary XTO Energy to purchase its Cook Inlet holdings for approximately $550 million. Elizabeth Earl can be reached at [email protected]

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