Elwood Brehmer

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

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

Army Corps of Engineers denies Pebble permit

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

Federal agency moves to revise OCS drilling rules

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

Oil Search refines Pikka development schedule

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

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

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

ConocoPhillips to resume drilling in December

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

Oil tax increase defeated, but revenue issue remains

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

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

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

BLM advances coastal plain lease sale plans

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

Converging forces make for worst Upper Cook Inlet season in decades

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

Walker, Meyer announce new effort on Alaska LNG Project

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

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

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

Alaska Communications to go private in $300M deal

Alaska Communications Systems Group Inc. reported solid third quarter results Nov. 5 on the heels of announcing a $300 million deal to go private under new investment house ownership. The Anchorage-based telecom netted $2.3 million during the quarter on, coincidentally, 2.3 percent year-over-year total revenue growth. Total revenue for the quarter was $60.5 million and it is up 2.8 percent for the year at $178.2 million, according to the earnings report. “Despite the pandemic we continue to grow our business while keeping our people and customers safe,” Alaska Communications CEO Bill Bishop said during the Nov. 5 earnings call. Bishop said the cash deal purchase by an affiliate of the global investment firms Macquarie Capital and GCM Grosvenor, valued at approximately $300 million, is a continuation of the company’s efforts to maximize shareholder value. Macquarie and GCM have the desire to invest in Alaska Communications’ networks and better serve its customers, he said. The deal announced Nov. 3 received unanimous support from the Alaska Communications board of directors, according to Bishop, and represents a nearly 51 percent premium on the 30-day weighted average price of Alaska Communications stock as of Nov. 2. Under the deal the Macquarie and GCM affiliate will acquire all outstanding shares of Alaska Communications common stock at $3 per share. There were approximately 54.1 million outstanding shares of Alaska Communications stock in the third quarter, according to the earnings report, which jumped from a Nov. 2 closing price of $1.91 per share to close at $3.04 per share following the sale announcement. The company reported total assets of $567 million and total liabilities of $401.4 million through the third quarter. It held $141.5 million of net debt at the end of the quarter, down from $153.8 million to start the year. Board chair David Karp said in a prepared statement that the Alaska Communications board is confident the deal is in the best interest of the company and its shareholders. “Macquarie Capital has a proven track record of delivering large and complex transactions globally on accelerated timelines, and GCM’s Labor Impact Fund pro ides strategy-driven capital that we expect will generate real value for our customers and the Alaska Communications workforce,” Karp said. The company currently employs more than 600 workers, mostly in Alaska. Alaska Communications will hold a special stockholder meeting to vet and vote on the agreement as soon as practicable, according to a company statement. Per the agreement, the telecom can also solicit better deals from outside parties through Dec. 3. Bishop said the company leaders expect to close the deal in the second half of 2021 presuming the requisite shareholder and regulatory hurdles are cleared. A spokesman for GCM Grosvenor wrote in response to questions that the firm can’t comment on the transaction beyond what was disclosed Nov. 3. The pending Alaska Communications sale would mark the second major Alaska telecom to be sold to Outside investors in recent years. Anchorage-based General Communication Inc. was sold to Colorado-based Liberty Interactive Corp. in 2017 for just more than $1.2 billion. Alaska Communications sold its wireless phone business to GCI in early 2015 in a $300 million cash deal that transferred roughly 109,000 customers between the competitors. Alaska Communications business now focuses on internet service and business phone systems. Operationally, Alaska Communications completed subsea fiber upgrades to increase the capacity of its Northstar fiber system by five-fold and add redundancy to its two subsea fiber connections between Alaska and the Lower 48, Bishop said. “We continue to actively deploy fiber for our 5G wireless backhaul build-out and have completed the work on our prefunded fiber projects in Alaska,” he said, adding the company hopes to expand its “fiber to home” offerings, particularly to multi-family units. Chief Financial Officer Laurie Butcher said year-to-date capital spending was up just more than $1 million at $32.9 million to end the third quarter but COVID-19 restrictions will likely result in a 2020 total capital spend of between $37 million and $39 million, down slightly from prior expectations. Butcher attributed the company’s revenue growth primarily to its broadband business, which accounted for more than 90 percent of the increased revenue. Elwood Brehmer can be reached at [email protected]

Former Gov. Walker, AGDC head lead new gasline venture

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

GOP dominates early count with thousands to tally

As many predicted, the only thing clear after election night was the sky over Southcentral. Democrats and independents trailed Republicans significantly in every statewide race and democrat candidates led just two state legislative races in which they had a Republican challenger as of this writing early Nov. 4. Republican incumbents President Donald Trump, Sen. Dan Sullivan and Rep. Don Young led their main challengers, former Democrat Vice President Joe Biden and independents Al Gross and Alyse Galvin, respectively, by at least 27 points with 81 percent of state precincts having reported results. On the state level, well-established, incumbent Democrat legislators from several traditionally liberal districts in Anchorage and Fairbanks also trailed their Republican challengers as well. Anchorage Democrat Sen. Bill Wielechowski, a lead supporter of the oil tax increase proposed in Ballot Measure 1, trailed Republican challenger Madeleine Gaiser by 207 votes with all of the precincts having reported results Nov. 4. Incumbent Republican and current House Minority Leader Rep. Lance Pruitt led returning Democrat challenger Liz Snyder by 1,092 votes, or nearly 23 points, the morning after election day despite beating her by less than 200 votes in 2018. Fairbanks Democrat Reps. Adam Wool and Grier Hopkins also trailed Republicans Kevin McKinley and Keith Kurber by seven and nine points. The early results could signal a sudden return to Republican dominance in the already red state; however, more than 122,000 absentee ballots and early votes will not be counted until a week or more after election day, according to Division of Elections. Division procedure calls for early votes cast within five days of Election Day to be counted seven days after the election and absentee ballots can be counted up to 15 days after Nov. 3. With approximately 173,000 votes counted out of more than 595,000 registered voters, the large absentee and early vote tally likely means more than one-third of all votes — a pool presumed to be cast by a larger share of Democrats — still remain to be counted. If the immediate results generally hold, a strong Republican majority in the state House and Senate would go a long way towards helping Gov. Mike Dunleavy achieve his fiscal agenda. While Republicans currently hold majorities in both chambers, several Republican incumbents who helped form a bipartisan majority coalition in the house or otherwise pushed back against Dunleavy’s attempts to make unprecedented cuts to the state budget either lost in primary races or won narrowly against candidates more aligned with the governor’s budget philosophies. That means even if there is a similar number of Republicans in the Legislature the makeup in 2021 is likely to be more conservative. If Dunleavy and his supporters in the Legislature have the votes to advance their agenda — larger Permanent Fund dividends, no new personal taxes and a balanced budget — they will have to find numerous other ways to cut into and cover over a fiscal year 2022 budget deficit currently expected to be more than $2 billion without the historical backstop of significant state savings. Ballot measures Ballot Measure 1, known as the Fair Share Act by its supporters, had received just 59,164 votes out of 168,261 votes counted through early Nov. 4, or about 35 percent of the vote. The citizen-driven initiative to significantly raise oil taxes on the largest North Slope fields was touted as a way for the state to start recouping revenue forgone since the Legislature passed the current oil production tax system known as Senate Bill 21 in 2013. SB 21 then survived a repeal referendum in the 2014 primary election by a margin of 52.7 percent to 47.3 percent, or about 10,000 votes. OneAlaska, the industry-led campaign coalition formed to defeat Ballot Measure 1, spent approximately $25 million on the campaign, compared to $1.3 million by Vote Yes for Alaska’s Fair Share. Ballot Measure 1 opponents stressed the higher gross and net taxes would further damage a primary industry in the state that was already reeling from collapsed oil prices — that briefly went negative in April — during a global pandemic that shows no signs of slowing. ConocoPhillips Alaska leaders have said they are withholding decisions on future drilling plans until Ballot Measure 1 is decided. Supporters insisted the measure would help the state recoup tax revenue more in line with its historical share and over time would likely contribute an average of approximately $1 billion of additional revenue to state coffers. Ballot Measure 2, the elections reform initiative intended to tighten state campaign finance laws, combine state primary elections and move Alaska to ranked-choice voting, had received 43 percent of the vote as of early Nov. 4. Known as the Better Elections initiative, the campaign and voting reforms were staunchly opposed by the Alaska Republican Party leaders and while the state Democrat Party did not formally endorse or oppose the measure, many longtime Alaska Democrats opposed it. Elwood Brehmer can be reached at [email protected]

What comes after the Roadless Rule repeal?

The Roadless Rule survived nearly 20 years of legal challenges in Alaska but not the Trump administration. U.S. Department of Agriculture officials published a new regulatory framework for Southeast Alaska’s Tongass National Forest in the Federal Register Oct. 29 that exempts the massive forest from the national rule established during the final days of the Clinton administration in early 2001. The Roadless Area Conservation Rule, which originally prohibited new roads across roughly 58 million acres of forestland nationwide, largely put a stop to new infrastructure across approximately 9.4 million acres of the Tongass. At about 17 million acres, the Tongass is by far the largest national forest in the country. The basic conservation versus development debate surrounding the oft-contentious Roadless Rule is as old as public lands, but what really happens next? According to many proponents of the repeal, actually very little. That’s because lifting the development impediments imposed by the Roadless Rule is about far more than restoring Southeast’s now niche timber industry to its glory years, they say. Sen. Lisa Murkowski, who chairs the Senate Energy and Natural Resources Committee until the new Congress convenes in January said in a joint statement from the Alaska delegation that the repeal of the Roadless Rule improves the ability to develop lower cost energy sources and public infrastructure for the region’s 35 mostly isolated communities. “A full exemption from the Roadless Rule means access to more affordable and renewable energy to power homes and schools, access to technology at a time when more Americans are logging online for health care and education, and access for transportation and recreation jobs and economic activity in the region — all while ensuring continued good stewardship of our lands and waters,” Murkowski said. Robert Venables, executive director of the Southeast Conference, a regional development group that has supported revising the Roadless Rule also wrote via email that energy projects — which often means hydropower in the Tongass — stand a better chance of being developed in the future and mineral exploration could continue to increase with easier access under the new Forest Service rules, but he stressed there is no money in the agency’s budget to suddenly start building roads. “There is no master plan or pent-up project list ready to explode its way through the old-growth forest,” Venables wrote. However, he also stressed a belief that the primary reason for the lack of ready community development projects is the inability of regional leaders to set long-term plans while the legal battles over the Roadless Rule have played out. “The uncertainty with the Roadless Rule has been a debilitating factor for the last 20 years and I do not see that ending unless the courts put a stop to it — the political revolving door will keep it in play as long as there are elections,” Venables wrote. The Alaska exemption from the Roadless Rule is specific to the Tongass, meaning the rule remains in place over the 5.5 million-acre Chugach National Forest in Southcentral where historical timber harvests have been minor. The State of Alaska first secured an exemption from the Roadless Rule for the Tongass as part of a 2003 court settlement to a lawsuit over the rule’s applicability in the state with the Bush administration but that exemption was overturned by a Federal District Court of Alaska judge in 2011. Subsequent appeals and other attempts by the state and resource development groups to have the Roadless Rule invalidated proved fruitless. Timber industry advocates also contend that even the complete exemption will not enable the widespread clear-cutting of old-growth stands that many Roadless backers fear in part because the forest-level land-use plan doesn’t call for it. The Tongass Land and Resource Management Plan finalized in 2016 by the Forest Service allows for roughly 188,000 acres of timber to be harvested across the Tongass without the Roadless Rule, according to the record of decision. A 2019 Alaska Forest Association analysis of the impact of repealing the rule on the available timber supply commissioned by the State of Alaska determined about 165,000 of those newly harvestable acres would consist of old-growth stands. “No matter the (exemption) alternative selected in the record of decision for the ‘Rulemaking for Alaska Roadless Areas’ at least 82 out of every 100 acres of suitable old-growth forest within the Tongass National Forest will not be available to maintain the existing timber industry through transition (to completely young-growth harvests),” the AFA analysis states. As a result, AFA leaders have pressed the Forest Service to also start the lengthy public process to again revise the Tongass Management Plan. Southeast Alaska Conservation Coalition Tongass Program Manager Dan Cannon said in an interview that the group expects the Forest Service to start planning timber sales in previously roadless areas soon, particularly if President Donald Trump wins reelection, and the commercial fishing, eco-tourism and other industries that benefit from intact forestlands will have to adapt. “The true economy (of Southeast) is really going to have to pay attention and navigate the potential impacts” of additional logging and development, Cannon said. Roadless Rule supporters regularly note that tourism and fishing have provided about one-quarter of the region’s jobs in recent years, while the timber industry — more than 4,000 workers strong at its peak — now accounts for less than 1 percent of current Southeast jobs, according to Southeast Conference data. Cannon also dismissed the notion that doing away with the Roadless Rule is necessary to facilitate public infrastructure projects that would otherwise be noncontroversial, pointing to Forest Service exemption decision documents that state the agency approved nearly 60 projects in Roadless-designated areas over the years. “There’s a lot of talk about it being a problem and that’s not the reality,” he said. “The Roadless Rule was well-designed and you can see that by the exceptions that have been made.” Timber harvesters and project developers emphasize that while the rule did not explicitly prohibit activity in roadless areas, it ostensibly did by requiring more complex logistics, transportation and added time to project construction. According to Cannon, compromises were made in the 2016 Tongass Management Plan approved under the Obama administration after stakeholder input. The plan calls for a faster transition to young-growth timber harvests than industry leaders say is practical. The Southeast Alaska Conservation Coalition is among the groups contemplating litigation to reverse the Tongass-specific repeal of the Roadless Rule, Cannon said. “We will do whatever we need to reinstate the protections of the Roadless Rule,” he said. According to Venables, the sudden swings of full repeal or fully Roadless make it difficult to reach a consensus that everyone could plan around. He was also part of a working group formed by former Gov. Bill Walker’s administration to draft recommendations for crafting an Alaska-specific Roadless Rule, though the USDA indicated early in the process it intended to move forward with a full repeal. Forest Service headquarters spokeswoman Babete Anderson wrote in response to questions that the decision-making process for local forest managers reviewing project applications will “change very little” without the Roadless Rule. “The Tongass Forest Plan, along with other conservation measures, will continue to guide management decisions, allowing roadless area values to play a role on the Tongass while offering additional flexibility to achieve other multiple-use benefits,” Anderson wrote in an email. She added that the agency currently has no plans to revise the Tongass Land Management Plan. ^ Elwood Brehmer can be reached at [email protected]

ConocoPhillips reports Q3 losses of $450M, $16M in Alaska

ConocoPhillips lost $450 million in the third quarter, with $16 million of that coming from the company’s Alaska operations, according to a quarterly earnings report published Oct. 29. The losses come as Alaska’s largest oil producer, and the state’s industry in general, awaits the fate of a citizens’ initiative in the Nov. 3 election, known as Ballot Measure 1, that would significantly raise production taxes on the three largest North Slope fields. Results from Nov. 3 showed the measure trailing with 65 percent against and 35 percent for with just more than 168,000 votes counted. ConocoPhillips Alaska President Joe Marushack said in a statement provided by the company that there are no active drilling rigs as a result of the pandemic-induced price collapse at the large Alpine, Kuparuk and Prudhoe Bay North Slope fields for the first time since each was developed. ConocoPhillips Alaska leaders have said they will make decisions regarding future drilling activity after Ballot Measure 1 is settled; the company instructed its drilling contractor, Doyon Drilling, in early April to lay down its North Slope drilling rig fleet indefinitely. According to the company, ConocoPhillips paid taxes and royalties of approximately $136 million to the state in the quarter. For the year, the company has incurred a net loss of $76 million from its North Slope operations, paid taxes and royalties estimated at $442 million, and spent $882 million on capital projects. In mid-March the company announced the first of multiple spending cuts to its 2020 Alaska spending plan that ultimately totaled approximately $400 million. ConocoPhillips lost $141 million in the state during the second quarter when Alaska North Slope crude prices briefly went negative early in the pandemic but netted $81 million in the first quarter. The $450 million companywide loss left ConocoPhillips with a $1.9 billion year-to-date net loss and translated to a loss of 42 cents per share, according to the earnings report. ConocoPhillips netted $3.1 billion a year ago. ConocoPhillips stock traded for $28.82 per share near the end of trading Oct. 29, in line with it’s pre-earnings closing price. The Houston-based oil major with an upstream exploration and production focus has generated total quarterly revenues in the $4 billion to $5 billion range in 2020 after producing between $8 billion and $10 billion in revenue in each quarter of 2019. CEO Ryan Lance said in a call with analysts that the third quarter results were largely what the company expected and ConocoPhillips “remains cautious on the timing and pace of recovery” for global energy prices as oil has hovered around $40 per barrel for months. Lance also noted the company ended its production curtailments over the summer and completed all of its seasonal turnaround work. “We remain very well-positioned financially and operationally thanks to our strong balance sheet and exceptional performance,” he said in a prepared statement. “Now that we’re back to more normal business, we’re focused on continued strong execution of our programs and progressing our announced transaction with Concho Resources.” ConocoPhillips announced Oct. 19 that it has acquired Texas-based independent producer Concho Resources Inc. in a $9.7 billion all-stock sale that grows the company’s Lower 48 shale oil portfolio. In May, ConocoPhillips began implementing oil production cuts on the North Slope that were originally planned to peak at about 100,000 barrels per day as part of a broader strategy to curtail up to 460,000 barrels per day companywide. The North Slope cuts were reversed to start July as oil prices pushed back above $40 per barrel. Early indications are the company’s 2021 capital program will be in line with this year, Lance said, but firmer plans are forthcoming. ConocoPhillips has spent $3.6 billion on capital projects worldwide so far this year — with the aforementioned $882 million in Alaska — compared with more than $6.6 billion in the first nine months of 2019. The company is entering the second of two major winter construction seasons for its Greater Mooses Tooth-2 oil project in the National Petroleum Reserve-Alaska, which is scheduled to start production in late 2021. The Bureau of Land Management on Tuesday issued a record of decision authorizing construction of ConocoPhillips roughly $5 billion Willow oil project in the NPA-A as well. While first oil from the large remote prospect is likely at least five years away, Willow is expected to produce nearly 160,000 barrels of oil per day at its peak, according to the company. Elwood Brehmer can be reached at [email protected]

Supreme Court hears case in dispute over fisheries landings tax

Millions of dollars of fish landing taxes are at stake in a lawsuit now being deliberated by the Alaska Supreme Court and the decision could hang on when the court decides processed fish are “in-transit.” The court heard oral arguments Oct. 21 in a lawsuit brought against the State of Alaska by Seattle-based Fishermen’s Finest Inc. in which the company argues Alaska’s fishery resource landing tax violates a prohibition on taxes or fees levied against goods on the way to export in the U.S. Constitution. Jim Torgerson, an attorney for Fishermen’s Finest, argued that the fish harvested and processed in federal waters by the company’s catcher-processor vessels have started their journey to foreign markets when it arrives at Alaska ports but before being shipped worldwide. Torgerson stressed that the fish are caught and preserved in the federal Exclusive Economic Zone, or EEZ, that starts three miles offshore and therefore the fish products are in-transit when they cross the three-mile boundary and enter state waters from the EEZ or, at the latest, when they are transferred elsewhere at the port. He said in response to questions from the justices about what constitutes a “significant movement” that crossing the three-mile boundary into state waters after all of the work on the actual fish has been completed is a key legal trigger. “The last thing for (the company) to do was to transfer the fish to the foreign markets and that transport process started when the vessels left the EEZ and spent a day or two traveling to Alaska into the ports, trans-loaded into the foreign vessels or into the refrigerated containers, so it was that actual movement, that actual transportation, that was commencement of that in-transit process,” Torgerson told the court. Fishermen’s Finest filed the lawsuit — technically an appeal of an administrative ruling in favor of the state — in May 2018. Superior Court Judge Dani Crosby sided with Fishermen’s Finest in a November 2019 ruling in which she concluded it violates the import-export clause because the fish are “in continuous export transit” when the tax is applied. The fishery resource landing tax generated nearly $12.5 million for the state and local governments in 2019, according to Tax Division records. It is levied based on 3 percent of the catch’s unprocessed value in established fisheries and 1 percent of the value in developing fisheries, as determined by the Alaska Department of Fish and Game. Unprocessed fish is not subject to the resource landing tax but could fall under the broader fisheries business tax. Leaders of coastal communities across the state said the fish tax revenues, which the state shares with local governments, are crucial for developing and maintaining the shore-side infrastructure used by the industry in those communities when Gov. Mike Dunleavy in 2019 proposed the state keep the local share of fish tax revenue to help close the state’s longstanding budget deficits. The Legislature ultimately rejected the governor’s plan for the state to retain all of the fish tax revenue. While the fish taxes are generally split 50-50 between the state and the local governments in which they are collected, qualifying statutory language can lessen a local government’s share below 50 percent. As a result, the local share of the fishery landing tax has been in the $5 million range shared by between eight and 14 mostly Western Alaska communities in recent years, according to Tax Division records. Fishermen’s Finest operates three catcher-processor vessels primarily out of Dutch Harbor and Kodiak. Assistant Attorney General Laura Fox countered that the fishery resource landing tax, which targets catcher-processors, is not the kind of levy the constitutional framers envisioned because it doesn’t burden other states or harm any federal interests. “Catcher-processor operators take advantage of Alaska to further their business and Alaska’s landing tax merely requires them to pay their fair share for doing business in Alaska like other businesses do,” Fox told the justices in her opening remarks. She said the tax is applied when the processed fish lands at an Alaska dock and could still be sold domestically, while the export process starts when the fish “actually leaves Alaska.” According to Fox, applying legal tests to parse out exactly when the processed fish is “in-transit” in attempting to determine the constitutionality of the tax would simply lead to fishing companies altering their business models or the state restructuring how it is applied to “get around the technical line-drawing that’s trying to be done.” Torgerson acknowledged in response to questioning that the tax would not violate the import-export clause if the fish products stayed stateside, but emphasized the products in question in the case were sold in foreign markets. Elwood Brehmer can be reached at [email protected]

Assessment shows 300M-barrel Slope play, drilling to follow

A small U.K. explorer is sitting on more than 300 million barrels of recoverable oil alongside the Trans-Alaska Pipeline, according to an independent assessment of the prospect. London-based Pantheon Resources’ Talitha project is being built off of new analyses of a well drilled in 1988 and modern data from a modern 3D seismic shoot of the broader area roughly 20 miles south of Prudhoe Bay. The Pipeline State-1 well was drilled by ARCO just east of the Dalton Highway-TAPS corridor and though the 10,000-foot vertical Pipeline State-1 well has a roughly 2,200-foot oil-bearing column over four reservoirs, the technology and oil prices of the late 1980s it did not add up to a viable prospect at the time, according to Pantheon leaders. Pantheon bought Anchorage-based Great Bear Petroleum and the roughly 200,000 acres of North Slope leases the company held in January 2019. Pantheon is focusing its work first on the shallowest of the four reservoirs intersected by the Pipeline State well, the Shelf Margin Deltaic, which holds 302 million barrels of recoverable oil and 1.1 billion barrels in place based on a resource assessment by the Oklahoma-based consultancy Lee Keeling &Associates. Pantheon expects to drill the Talitha-A well into the prospect itself starting early next year, and company leaders have stressed the work is appraising what is already known about the Pipeline State well and the surrounding area; it’s not greenfield exploration. In addition to the potential Shelf Margin Deltaic resource, Pantheon estimates internally that the prolific Kuparuk formation also holds upwards of 340 million recoverable barrels. Pantheon stands out because it is one of few companies working aggressively to delineate and develop an oil prospect on the North Slope or elsewhere in Alaska while the coronavirus pandemic continues to constrain oil demand and prices worldwide. Company leaders have stressed the project’s location — adjacent to the Dalton Highway and pipeline — as a driver of its economics. Pantheon estimates its projects have a break-even price of roughly $30 per barrel primarily because of their locations. The company also holds the 76 million-barrel Greater Alkaid prospect just to the north and bisected by the transportation corridor. “Our modeling shows Talitha is economic at very low oil prices because of the size, reservoir qualities and proximity to the Dalton Highway and Trans-Alaska Pipeline,” CEO Jay Cheatham said. “This is important for a company like Pantheon as we can reduce upfront capital by utilizing modular production units instead of large central processing facilities to expedite development and reduce risk.” Pantheon wholly owns the Greater Alkaid prospect and holds an 89 percent stake in Talitha. While the company is likely to start with a phased development and a gradual ramp-up of production, the assessment envisions full build-out of Talitha as an 85,000 to 90,000 barrels per day project at peak production from 91 producing wells. Pantheon filed an application with the state Division of Oil and Gas to establish the 44,000-acre Talitha Unit Sept. 4. The prospective Talitha Unit operator is listed as Great Bear Pantheon LLC.

Deficits continue to limit ferry system reform options

A work group tasked with making recommendations to Gov. Mike Dunleavy for improving the financial viability of the Alaska Marine Highway System identified the issues raised by other analyses but concluded a potential long-term fix popular among ferry advocates isn’t worth trying now. The Alaska Marine Highway Reshaping Work Group advised against restructuring the governance of the ferry system to a public corporation model and instead suggested the governor appoint a nine-member “operations” board of individuals with maritime business expertise and labor and stakeholder representatives. The group’s Oct. 22 report to Dunleavy, subtitled “Red Sky at Morning,” states that while lessening the political influence over the AMHS and particularly its budget through a new governance model is desirable, the change is not likely to accomplish that goal as long as the state is running large budget deficits. That’s because — as has been concluded before — the system will almost certainly always require an annual state subsidy on some level. Work group chair Adm. Tom Barrett, a former U.S. Coast Guard officer, deputy Transportation secretary and Alyeska Pipeline Service Co. CEO, said in an interview that the connection between ferry service and budget levels pulls the system into the political process. Leaving the system as an agency of the Department of Transportation and Public Facilities also should help state officials more efficiently plan and manage the state’s intermodal transportation network, he said. Barrett also said the system’s issues go beyond just funding problems. “Throwing more money at it is not going to solve the problem,” he said. A ferry system reform study conducted by the Alaska research firm McDowell Group in collaboration with the Southeast Conference and DOT under former Gov. Bill Walker acknowledged the continued budget challenges the system is likely to face but concluded transitioning to a public corporation was the best long-term structure because it would allow system leaders to plan with more certainty rather than being subject to frequent changes of political leadership and vision. However, Barrett said the work group, which included Southeast Republican Sen. Bert Stedman and Republican Rep. Louise Stutes of Kodiak, did not want to recommend changes that would require years of work on significant legislation and that is why the group settled on the governor-appointed operations board. Work group member, Marine Transportation Advisory Board chair and Southeast Conference Executive Director Robert Venables also said the group looked to prioritize actions that could be taken quickly to improve the reliability and cost effectiveness of the ferry system with longstanding revenue problems. He noted that the report does not discount the possibility of moving to a public corporation if the state’s broader financial situation can be improved. Barrett said the operations board could fold in the Marine Transportation Advisory Board, which largely provides regional and community-level input to the system but is not an expert group, to maintain public involvement in system management. While a lack of long-term planning and subsequent struggles to adapt to evolving markets are partly to blame for fare box recovery — the amount of revenue generated to cover operations — falling from historical averages of about 50 percent to less than 40 percent in recent years, an aging fleet and budget cuts compounded reliability issues last winter. Dunleavy initially proposed cutting the previously $85 to $90 million annual AMHS operating subsidy down to about $22 million, a level that would have officially shut the system down over the 2019-20 winter as the administration worked on a plan to restart with a more cost-efficient system. Dunleavy and the Legislature eventually settled on a roughly 50 percent cut that drastically reduced service but maintained a level of fall and winter service. A series of ill-timed mechanical issues and shipyard delays combined with a thin sailing schedule from significant budget cuts meant many isolated communities throughout the system went months without ferry service before sailing frequencies increased in late spring. Dunleavy’s spokesman Jeff Turner wrote via email that the administration is still reviewing the report it released Oct. 22. The report includes a prospective implementation timeline that would have the administration move quickly — starting yet this year — to revamp the system by assessing union contracts for cost savings and improved operational flexibility as well as refining the duties of the operations board and drafting its charter. The board would begin meeting by February and start reviewing and recommending changes to the fare structure for the summer schedule nearly immediately, under the work group’ timeline. The board could work to develop a longer-term operating strategy and vessel replacement plan by early to mid-2022, according to the report. Venables said he is looking forward to seeing an implementation plan from the administration over the coming months. Elwood Brehmer can be reached at [email protected]

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