Elwood Brehmer

Fund continues bull rush, nears $75B in value

Alaska’s Permanent Fund has continued its rapid growth into 2021 with a value quickly approaching $75 billion. The fund had a value of nearly $74.8 billion as of Feb. 22, according to unaudited figures from the Alaska Permanent Fund Corp., which equates to growth of 4.3 percent in just the first roughly seven weeks of the year. It ended a tumultuous first half of 2020 — that also marked the end of the 2020 state fiscal year — with a total balance of $65.3 billion for a net value increase of about $9.5 billion, or 14.5 percent, in less than eight months. The APFC board of trustees has an annual target return of 5 percent more than inflation; over the last 10 years the fund has averaged annual returns of 8.4 percent, according to corporation figures. Much of the growth is attributable to the fund’s $30 billion public equity, or stock, portfolio. The Dow Jones Industrial Average is similarly up more than 20 percent since June. The particularly strong stock returns have also led to a larger Earnings Reserve Account, the subaccount of the Permanent Fund that is spendable by the Legislature and provides the roughly $3 billion annual percent of market value draw to help fund state services each year, according to CEO Angela Rodell. The Earnings Reserve held $14.9 billion on Jan. 31, of which approximately $9 billion was uncommitted realized earnings immediately available for spending. Another nearly $3.1 billion is committed to the current 2021 fiscal year POMV draw while the remainder is accounted for as unrealized gains on invested assets, according to APFC financial statements. As recently as early September the Earnings Reserve held just less than $6 billion in uncommitted, realized gains and $10.5 billion overall. Rodell said in an interview that the recent ballooning of the earnings reserve is largely due APFC managers attempting to maintain discipline regarding the fund’s total asset allocations. The corporation has a target allocation for stocks to make up 37 percent of the fund’s total investments and when its stocks perform as well as they have in recent months they gradually become a larger portion of the overall fund, which pushes managers to sell a portion of those stocks — and generate income — to maintain a stock portfolio more in-line with the target allocation, according to Rodell. “All of the benefits of the growth fall to the Earnings Reserve,” she said. “The exact reverse is also highly possible and that’s what happened in March of 2020.” Public markets contracted sharply in the early days of the pandemic from the general uncertainty as to what the world was dealing with at the time. Then, managers pulled resources from other investment types such as bonds that were over-weighted at the time and put them into stocks. “While this is a really great thing that’s happening right now, it’s not something that happens continually or is forecasted to continue over the next 10 years,” Rodell added. Gov. Mike Dunleavy’s latest state budget proposal calls for drawing roughly $3.2 billion from the Earnings Reserve this year in addition to the annual POMV draw to pay for spring and fall Permanent Fund Dividend installments meant to inject cash into the state’s struggling economy. Rodell once again told lawmakers during a Feb. 23 House Finance Committee hearing that she fully understands the desire to provide Alaskans additional cash to help the state recover from the last unprecedented year but noted that it would have long-term consequences as well. “It reduces your market value draw every year hereafter,” she said of spending from the Earnings Reserve beyond the POMV. “You have to be thinking about how you’re going to replace this revenue or how you’re going to adjust spending as a result. She additionally noted that APFC’s advisory firm, Callan Associates, expects the fund’s real return — total minus inflation — to be in the 4.2 percent range over roughly the next decade. If that forecast is close to accurate it would likely mean the current 5 percent annual draw on the fund would be too large to maintain its real value. “It does imply that if this forecast is correct you would be taking out more than you are saving and the fund would contract; it would not grow,” Rodell said in response to questions from legislators. Some legislators who generally support the annual draw have said they are concerned a 5 percent draw is too large, though the APFC trustees for years have consistently endorsed a draw up to that level. As it stands, the POMV accounts for roughly 70 percent of unrestricted annual state revenue. Elwood Brehmer can be reached at [email protected]

ConocoPhillips requests July decision on Willow suit

ConocoPhillips is asking the federal judge overseeing both of the lawsuits seeking to stop one of the largest North Slope oil developments in decades to determine the near-term fate of the project by the summer. Attorneys for the Houston-based major that has grown its presence on the Slope in recent years proposed to U.S. District Court of Alaska Judge Sharon Gleason that she rule by July 1 on the merits of the nearly identical lawsuits challenging the federal permits for its Willow oil project. A midsummer decision would hopefully allow ConocoPhillips and Interior agencies time to remedy any issues ahead of the 2021-22 winter construction season, they wrote in motions filed Feb. 22. Separately, the Bureau of Land Management and the coalition of national conservation groups suing the agency over its approval of ConocoPhillips’ development plan for Willow jointly submitted a motion Feb. 22 in one of the suits laying out an agreed-upon schedule that would have the last briefs filed by June 1, ahead of a ruling by Gleason. The Sovereign Inupiat for a Living Arctic and conservation groups that filed the other suit against BLM had not filed a proposed schedule as of Feb. 23. ConocoPhillips was prohibited from starting work Feb. 6 on access roads to the $6 billion oil project the company expects to eventually produce upwards of 100,000 barrels per day after Gleason issued temporary injunctions in the suits until the 9th Circuit Court of Appeals could rule on an appeal of her Feb. 1 decision that initially rejected injunction requests. The company had planned to open a gravel mine and construct up to 2.8 miles of gravel road extending west from its smaller Greater Mooses Tooth-2 oil project, which is also under construction and is expected to start producing oil late this year. Significant work was set to start in mid-February before the order halted it. In explaining the temporary backpedal, Gleason wrote that there is likely to be irreparable environmental consequences once ConocoPhillips begins blasting for a gravel pit to supply its road construction and the 9th Circuit Court could have a different interpretation of statutes she believes time-bar the permit challenges. She had previously concluded that the early gravel work in the National Petroleum Reserve-Alaska was not likely to “irreparably injure” the population of south Beaufort Sea polar bears that are protected under the Endangered Species Act before she could rule on the broader merits of the lawsuits as the conservation and Alaska Native groups argued. A panel of 9th Circuit judges subsequently granted the injunction in an order filed Feb. 13 on the grounds that they could have a different view of the applicability of a 1980 statute that limits challenges of at least some NPR-A environmental impact statement reviews to within 60 days after a notice of the EIS is published. At the heart of the matter is whether the law applies to all EIS reviews relating to the NPR-A or just broader reviews for things such as oil and gas leasing programs. Then-Interior Secretary David Bernhardt signed the record of decision approving the Willow plan with some modifications to the company’s original plan Oct. 26, 2020. Bernhardt and BLM Alaska Director Chad Padgett also signed the record of decisions for a new land management plant meant to open more of the NPR-A to oil and gas leasing this past December. The lawsuits arguing BLM officials under the Trump administration failed to conduct a sufficiently rigorous review of the oil project’s environmental impacts were filed Nov. 16 and Dec. 21; the final EIS reviews for Willow and NPR-A land-use plans were published in Aug. 13 and June 25, respectively. ConocoPhillips attorneys wrote in their schedule motions that preparing for next winter’s construction season “requires ramping up to as many as 300 employees in the second half of 2021 to work on engineering and logistics, as well as entering into numerous contracts for the construction, fabrication and transportation of pipes, culverts, bridges and other equipment to the North Slope for use next winter.” ConocoPhillips Alaska spokeswoman Rebecca Boys wrote via email that the company is reviewing its options to determine if the delay this winter will impact the overall development timeline for Willow. The company previously hoped to start producing oil from the large project in 2026. Boys wrote that she could not put a dollar figure on the expenses the company is incurring due to the injunction but did note that it has impacted approximately 120 jobs this winter. The members of Alaska’s congressional delegation said in a joint statement that they are “deeply troubled” by the 9th Circuit ruling that stalled work on one of the few current bright spots in the state’s economy. In December, the 9th Circuit invalidated the EIS for Hilcorp Energy’s Liberty oil project offshore from the North Slope because Bureau of Ocean Energy Management officials failed to estimate the greenhouse gas emissions from the project’s oil that would likely be sold overseas. Sen. Dan Sullivan has long championed splitting the San Francisco-based Ninth Circuit into two courts on the hopes a new court for Alaska and other resource-dependant states could be more favorable to resource extraction projects. CP drilling Elsewhere on the Slope, ConocoPhillips currently has one drill rig actively working at its highly productive CD5 drill pad. The company suspended all drilling on the Slope for most of 2020 while oil prices remained low as a result of the pandemic. However, oil prices have rebounded quicker than many analysts expected and are back to pre-pandemic levels of more than $60 per barrel. Doyon Drilling Rig 25, which is currently at CD5, will move to GMT-2 in the second quarter in preparation for first oil from the mid-sized NPR-A project later this year, according to Boys. Doyon 26, dubbed “The Beast” for its extended reach drilling capabilities, will also start drilling in the Alpine field in the second quarter, Boys wrote. ConocoPhillips Alaska leaders previously said they plan to have four rigs working on the Slope by the end of the year. Elwood Brehmer can be reached at [email protected]

AIDEA to split $70M of Ambler access work with explorer

The leaders of Alaska’s development bank have a deal to finance remaining preconstruction work for the Ambler mining district access road with the company leading exploration in the region. The 50-50 cost-share agreement approved Feb. 10 by the Alaska Industrial Development and Export Authority board of directors and signed with Ambler Metals, a joint venture of Trilogy Metals, authorizes up to $70 million of spending on the Ambler road until state officials decide whether or not to build the remote 211-mile industrial road. It runs through 2024 if AIDEA officials don’t reach a final investment decision before then. The AIDEA board transferred the $35 million that it plans to use for the 50-50 cost-share agreement from the authority’s Revolving Fund in June to the formerly unfunded Arctic Infrastructure Fund established by the Legislature. The Bureau of Land Management approved the environmental impact statement for the road in July. The federal agency led the review because the road would require a special right-of-way across federal lands in the area, including through Gates of the Arctic National Park. BLM granted AIDEA the right-of-way in early January. Vancouver-based Trilogy Metals has been exploring two large multi-metal prospects — Arctic and Bornite — on the southern flank of the Brooks Range near the terminus of the proposed road. Leaders of the junior explorer have long said the road is needed to make the prospects economically viable despite their generally high grades of mineralization. “I would again like to commend the leadership of AIDEA and Ambler Metals for the incredibly hard work that they have invested in moving the Ambler Access Project forward. I am also extremely pleased at the commitment by the State of Alaska and AIDEA in their determined effort in making this road a reality. The completion of this agreement marks another step to the eventual construction of this road which will have a significant benefit to the people of Alaska,” Trilogy CEO Tony Giardini said in a statement from the company. The agreement also includes a clause that allows Ambler Metals to credit its future predevelopment contributions against the tolls and other fees the company would pay to use the road once it is developed. An AIDEA spokeswoman did not respond to questions about the specifics of the deal in time for this story. Officials in AIDEA and Gov. Mike Dunleavy’s administration have emphasized the road’s potential to access numerous other less-delineated mineral prospects in the region as well despite significant opposition from Tribal and village governments in the area, particularly those near where the road would connect with the Dalton Highway north of Fairbanks. “Projects like the Ambler Access Project help to create the tangible economic opportunities Alaskans need and deserve, especially for neighboring communities. No one does resource development better than Alaska,” AIDEA chairman Dana Pruhs said. Local opposition to the road stems from fears it will disrupt caribou migrations and attract additional sport hunters in a large area of the Interior used predominantly for subsistence purposes. AIDEA leaders insist use of the road will be actively monitored and restricted to mining traffic only with exceptions for local uses. However, the legal path to keeping the road private remains unclear given $26 million in state general funds has been spent on the road that is expected to cost upwards of $520 million, according to the authority. AIDEA’s early price estimates for initial construction of the road were in the $300 million range. Elwood Brehmer can be reached at [email protected]

City vs. MARAD port trial set to begin

A trial is set to commence nearly seven years after Anchorage sued the U.S. Maritime Administration for its role in the botched expansion of the city’s port but there is still a long way between now and a final ruling. The Federal Claims Court trial, being held via videoconference, began Feb. 16, at 6 a.m. Alaska time. Assistant Municipal Attorney Bob Owens said that the participants in the two- to three-week trial will be scattered across the country. Attorneys for the municipality will attempt to complete their arguments that the federal agency owes the city upwards of $320 million for its role in the port construction project that started way back in 2003 and was deemed a failure in 2012. Former Mayor Dan Sullivan’s administration sued MARAD in late February 2014 alleging agency officials did not provide the oversight of construction work they were responsible for under a memorandum of understanding, or MOU, signed with the city. According to Anchorage officials, that lack of oversight, which included rarely having someone on-site, led directly to the fundamental construction issues the project experienced. A Justice Department spokeswoman declined to comment on the case via email, but Justice attorneys representing MARAD argue the agency was employed by Congress to simply be a vehicle for getting federal funding to the work. They insist the MOU only clarified Anchorage officials’ decision-making authority for the project and it was the city’s responsibility to provide requirements and direction to MARAD for the project. Owens said that while he had no prior experience with the typical process of Federal Claims Court cases, Anchorage’s lawsuit was delayed about 18 months to two years as a 2013 lawsuit the city filed in Federal District Court against a handful of project contractors played out. That lawsuit netted $19.3 million for Anchorage through seven individual settlements made in early 2017. “This court is set up to handle contract disputes involving the federal government; that’s all it does,” Owens said in an interview. “It’s purely contract disputes so it’s sort of unique in that respect and it has national jurisdiction.” But the unique traits of the court don’t end there. For one, there is no jury for the trial; the presiding judge likely won’t issue a ruling until long after the trial is over. Following the trial, each side typically submits a series of post-trial briefs and replies. “Suddenly you’re at 100 days out before the judge even starts reading,” Owens said. “We might not have a decision this year.” State lawmakers and the members of Alaska’s congressional delegation have largely said the lawsuit against MARAD needs to be resolved before significant funding for future work to rebuild the critical facility’s aging and corroded docks can be considered. While the final parameters are still being evaluated, the current port modernization plan contains just more than $1 billion of unfunded rehabilitation and construction. MARAD did award the municipality two development grants in late 2019 and early 2020 totaling $45 million for current work to replace the port’s petroleum and cement terminal for the first phase of the second construction effort. Owens said city attorneys offered a settlement early in the case proceedings that was rejected and the sides subsequently engaged in mediation but “there’s been no overtures” for several years, adding the city would still be open to settling the case outside of court. If that doesn’t happen, Anchorage attorneys believe the history of the case weighs in their favor. “We don’t assume anything but we have successfully navigated their motions to dismiss the case and their motions for summary judgment. We’ve got a pretty good record in motion practice so we’re cautiously optimistic,” Owens said. Anchorage Assemblyman Christopher Constant leads the Assembly’s watch of the port as chair of the Utility and Enterprise Oversight Committee; it’s also in his district. He said that he is operating under the belief that the city will not get anything from MARAD. “They’re the federal government, you can’t make them pay,” Constant said in an interview. “I’m planning for the fact that we have to be responsible for the redevelopment of that port.” Regardless of the ultimate construction financing package, he said the port’s primary users — most notably TOTE Maritime and Matson Inc. — are deeply involved in ongoing discussions with city officials about the scope of the project after many months of debate over tariff increases to help pay for the new petroleum and cement terminal. “We are in a place where people are working together and there are great, detailed communications back and forth about what the priorities are. We’re working through who is going to have what and who’s paying for it,” Constant said. “It’s good that they’re involved.” He added that in spite of his skepticism about the prospect of MARAD paying out because of the litigation, he still supports it. “We’ve been wronged and we need to have a judgment that shows that,” Constant said. Elwood Brehmer can be reached at [email protected]

Blame Canada: Alaska contends with cruise ban

Travel industry and local government leaders across much of Alaska are attempting to devise a Plan B after a decision by Canadian government officials upended the state’s coming tourism season. That’s because Canada’s Feb. 4 move to again block cruise ships from calling on its ports in 2021 eliminates the only practical way for ships sailing to Alaska from West Coast ports to comply with the Passenger Vessel Services Act. The 19th Century law requires foreign-built vessels traveling between U.S. ports to stop in a foreign port along the way. Alaska’s congressional delegation and many state lawmakers have been critical of Canadian officials for the suddenness of the decision and the length of the extension; cruise vessels carrying more than 100 people are banned from Canadian waters through February 2022. The ban has been in place since last spring but had previously been extended in 60 or 90-day blocks. “Temporary prohibitions to cruise vessels and pleasure craft are essential to continue to protect the most vulnerable among our communities and avoid overwhelming our health care systems (with COVID-19 patients). This is the right and responsible thing to do,” Canada’s Transport Minister Omar Alghabra said in a prepared statement. Prior to the pandemic roughly 1.3 million travelers — nearly 60 percent of all visitors to the state — were expected to visit Alaska via cruise ship during the 2020 season, continuing roughly a decade-long run of strong tourism growth. Howard Sherman, an executive vice president with Norwegian Cruise Lines said he was surprised by the terms of the extension Canada announced as well during a Feb. 9 presentation hosted by the Southeast Conference. Sherman stressed the ultimate need is for a long-term fix to the Passenger Vessel Services Act requirement, but in the meantime the company will continue to advocate for a temporary waiver for Alaska cruises, both of which require congressional action. “Anytime you’re talking about a legislative solution, it’s complicated,” he said. Rep. Don Young said in a previous discussion with the Journal that his office was looking into logistical options around the required stop in Canada, such as rerouting cruise ships from the traditional Inside Passage — and sometimes on to Southcentral — voyages. However, there simply are no practical options for avoiding the foreign-port stop, according to Sherman. A spokesman for Young did not respond to questions about the prospect of a waiver in time for this story. Young and Sens. Dan Sullivan and Lisa Murkowski said they “expect more from our Canadian allies” after indicating they were not made aware of the situation prior to the announcement but said they are working on possible solutions in a joint statement. “Upon hearing the announcement, we immediately reached out to Canadian and American agencies to try to understand the rationale behind this decision — particularly the duration of the ban. We are exploring all avenues, including changing existing laws, to ensure the cruise industry resumes operations as soon as it is safe. We will fight for a path forward,” the delegation said. Sherman said Norwegian is not sailing anywhere yet because it still isn’t safe — Holland America and Princess also canceled early season Alaska sailings in January — but continued improving macro trends in COVID-19 case and vaccination counts could make late spring and summer cruises viable. Industry leaders will likely press Canadian officials to consider lifting the ban in favor of strict port entry requirements, such as negative COVID-19 test and possibly vaccine verifications, that would still allow the industry to adapt and operate, according to Sherman. “The ships are all over the world right now and many of them are prepositioned for an Alaska season right now,” he said, adding that crewing the mostly idle vessels takes 60 to 90 days before they can resume sailing. “If we’re sitting in the exact same position on May 1 I would expect there wouldn’t be a season; that would be my guess.” Sherman said. Alaska Travel Industry Association CEO Sarah Leonard said the group has been “brainstorming” with the delegation on alternatives solutions to get more visitors back to the state. ATIA is also shifting its marketing strategy to focus on air travel and options for independent travelers such as the Alaska Marine Highway System as long as large cruise sailings are tenuous, according to Leonard. Gov. Mike Dunleavy included $5 million for ATIA marketing efforts in his proposed 2022 fiscal year capital budget. “We know we can welcome visitors back safely and provide those wonderful and safe experiences in Alaska,” Leonard said. Local governments in many Southeast and Southcentral coastal communities also rely on cruise ship passengers for revenue, mostly through per passenger taxes paid each time a vessel calls on a given port town. The State of Alaska collects a $5 per-head commercial passenger vessel excise tax for local governments and distributes that money to them the following year. It must be used to either mitigate the community-level impacts of the large cruise ships and their passengers or to otherwise support the industry, per federal commerce laws. The near-term outlook is mixed among some of Southeast’s biggest cruise port towns with the increasingly uncertain prospect of visitor revenue this year after ostensibly nothing in 2020. Ketchikan Gateway Borough Manager Ruben Duran said in an interview that the local government is in fairly decent shape regarding its cruise ship “head tax” revenue largely because the borough has used the money to provide services it doesn’t need with out the cruise ships — shuttle busses and cleanup crews, for instance. “The costs went away and so did the revenue so it somewhat balanced out,” Duran said, noting that since the state distributes the money a year after it is collected the budget impacts of no cruise revenue last year hasn’t really been felt yet. The borough also started saving a portion of the $2.4 to $2.7 million in head tax revenue it has received in recent years, according to Duran, who said the roughly $2 million it has in reserve in combination with fewer costs should help the borough to the other side. “We started putting money away back in 2017 and it’s going to carry us pretty much through this,” he said. Juneau’s situation appears more challenging. In addition to the forgone state tax revenue, City and Borough of Juneau officials are trying to figure out how to deal with the loss of revenue from local passenger taxes as well. In total, the city collects $13 per cruise passenger, which has translated to upwards of $15 million of tax revenue in recent busy cruise seasons, according to CBJ Finance Director Jeff Rogers. About $2.1 million per year in tax revenue is committed to debt payments on two new city docks and approximately $6 million per year in total is needed to cover all of the “operational activities servicing the waterfront,” Roger said. Those activities include police, fire and other essential service expenses that aren’t always flexible, he added. “You don’t have a smaller fire department because you don’t happen to have ships one year,” Rogers said. Juneau’s remaining head tax revenue has typically been spent on capital improvements to infrastructure and services. City officials initially thought they could withstand a single year of lost revenue in part because Juneau operates on fiscal year that ends June 30, potentially allowing it to absorb the halves of one lost season over two fiscal years, Rogers said. However, the news out of Ottawa could mean Juneau and the rest of Alaska’s cruise ports have to cover two lost seasons. “If we really do have back-to-back seasons with no passengers we are going to have significant shortfalls with those expenditures,” Rogers said, noting that it would not only mean missing out on $30 million of excise taxes but also another $20 million in sales tax revenue visitors provide. The decision on how to cover the lost head tax revenue is ultimately for the Juneau Assembly. Rogers said officials could choose to employ a mechanism in the city code that allows them to borrow money from a solvent fund to cover a shortfall elsewhere. That money must eventually be paid back to the original fund. “We might have to effectively borrow from future revenues to pay those costs this year,” he said. “We just don’t really know what happens to tourism going forward — we don’t know if it stays soft or if it goes back to its previous strength.” Elwood Brehmer can be reached at [email protected]

Dunleavy releases package of bond spending projects

Gov. Mike Dunleavy submitted the final piece of his 2022 budget plan to the functional half of the Legislature Feb. 5 but where the $356 million construction bond package will end up is anyone’s guess. The general obligation, or GO, bond proposal in Senate Bill 74 would spend $356.4 million of state general funds to capture just more than $1 billion in matching federal transportation funding. Dunleavy has said he wants to hold a special election this year should the stimulus effort pass the Legislature in order to expedite the process that would traditionally have the vote in November 2022. The Alaska Constitution requires a statewide vote to approve most forms of new debt. “This statewide bond package is essential to stabilizing our economy and putting Alaskans back to work following the economic upheaval caused by the pandemic,” Dunleavy said in a statement from his office. “Not only will this proposal create jobs, it will improve critical infrastructure for all Alaskans. I look forward to working with the Legislature to take this to a vote of the people following the 2021 legislative session.” The governor announced his plans for a roughly $350 million state GO bond package this past December with his broader fiscal year 2022 budget plan as part of $5 billion in stimulus programs and spending — mostly for Permanent Fund dividends — to counter the economic toll the pandemic has taken on Alaska’s nascent recovery from a multi-year recession. In order to capture the most federal money, the projects are largely road and airport upgrades ranging from $29.9 million of state money for a new Sterling Highway roadbed around Cooper Landing to $540,000 for a mile of work on the Denali Highway. It would also add $25 million to the School Major Maintenance Grant Fund as well as $9 million to aid in replacing the Houston Middle School that was demolished following the November 2018 earthquake. Nearly $30 million would be allocated to the University of Alaska for general building maintenance and energy efficiency projects across its campuses along with $19.5 million for similar work at AVTEC, the state’s vocational training college in Seward. The governor is also proposing $8.5 million for the Alaska Industrial Development and Export Authority to continue early work on the West Susitna Access project that would provide roads to coal and mineral prospects on the remote side of the Susitna Valley as well as $2.1 million for the Arctic Strategic Transportation and Resources, or ASTAR, concept by the Department of Natural Resources to similarly develop a primitive North Slope road network to access oil, gas and minerals and connect otherwise isolated communities. According to the governor’s spokesman Corey Young, the administration felt the $356 million of state spending being proposed strikes an appropriate balance between the state’s ability to take on additional debt and the economic impacts the funded work would have across the state. Young wrote in an email that the West Susitna Access allocation would provide AIDEA the funds to prepare an environmental impact statement and get through the initial feasibility evaluations. While the West Susitna road is the revival of former Gov. Sean Parnell’s Roads to Resources initiative, the money for ASTAR would continue work started by Gov. Bill Walker’s administration in 2017 and subsequently carried by the Legislature and Dunleavy through additional rounds of funding. A panel of state senators discussed the GO bonds among several issues during a Feb. 9 videoconference hosted by the Southeast Conference, a regional community development group. Juneau Democrat Sen. Jesse Kiehl said he believes much of the work proposed for the area is “good, central infrastructure,” but questioned the regional allocation of it as well. Senate President Peter Micciche, R-Soldotna, said the bond package needs to fit into an overall fiscal plan for the state. “My interest this year is working towards a sustainable budget future. I know that feels like a tall order for many but I have faith in our Legislature,” Micciche said. Sitka Republican and Senate Finance co-chair Sen. Bert Stedman noted that much of the work is basic infrastructure that the state could use but also emphasized the bond process is slow, meaning the money is not likely to “hit the street” and produce an economic benefit for several years. “I recognize that interest rates are low and money is really cheap right now but that’s only part of the equation,” Stedman said. “If you want immediate relief you have to use cash, which is a pretty rare thing right now.” Elwood Brehmer can be reached at [email protected]

Latest gasline effort pitched by AGDC leadership

Leaders of the state’s gasline corporation on Feb. 4 provided details on a new, phased development plan for the $38 billion Alaska LNG Project that could get large volumes of lower cost natural gas to Fairbanks by 2025. Alaska Gasline Development Corp. President Frank Richards said during a board of directors meeting that AGDC management has been in discussions with several potential private participants in the megaproject. “This group of strategic parties has the financial and technical capability to bring a project the scale of Alaska LNG to fruition,” Richards told the board. One in particular has agreed in concept to make a significant investment towards constructing a $5.9 billion portion of large-diameter pipeline to Fairbanks. The catch to the first pipeline phase, however, is that it relies primarily on billions of dollars of yet-to-be-identified federal funding. Under the working concept, the pipeline firm would contribute 25 percent of the $5.9 billion, or about $1.5 billion, while the rest would come from federal infrastructure funds. AGDC officials have informed the members of Alaska’s congressional delegation of their desire to participate in a federal infrastructure and stimulus program and briefed President Joe Biden’s transition team on the potential benefits of the project, according to Richards. “Alaska LNG has the authorizations that truly make it a shovel-ready project,” he said, adding that it should be considered a “clean energy initiative” given gas from the project would displace coal and heating oil relied up today in Interior Alaska and Asian markets. While Biden has said repeatedly that he wants to rebuild the nation’s infrastructure and invest in clean energy projects, there is no legislation being considered yet. Infrastructure spending was also a priority of President Donald Trump’s but he could not get a bill through Congress. Richards described the undisclosed firm as a “world-class pipeline operator” in an interview and said AGDC is in commercial negotiations with them to identify what it would take for the company to lead the pipeline portion of the integrated North Slope gas-to-pipeline-to-LNG effort. Building the section of 42-inch diameter pipeline between the North Slope and Fairbanks first — as opposed to the full 807-mile line to Southcentral Alaska — would provide Interior residents and businesses with natural gas first while the rest of the complex project is sorted out. Richards noted gas would also be available to the region’s military installations, which could be large volume customers, as the Defense Department tries to transition away from the coal and oil-fired heat and power plants used currently. Phasing construction and accordingly having separate owners for the project’s North Slope gas treatment plant, pipeline and LNG plant at Nikiski would not only facilitate quicker delivery of gas to the Interior but it would also give AGDC the time to secure the rest of the commercial arrangements needed for complex endeavor. Richards said that while AGDC has identified “likely” lead parties for the gas plant and pipeline, corporation officials are still trying to get the attention of a firm to lead development of and own the LNG plant that accounts for roughly half of the overall $38 billion Alaska LNG price tag. It would also defer the expense of the large gas treatment plant by pulling gas only from ExxonMobil’s Point Thomson field. At full build-out, about three-quarters of the natural gas used in the project would come from Prudhoe Bay but its gas contains significant quantities of carbon dioxide that must be stripped out in the treatment plant and reinjected into the reservoir. Point Thomson gas is cleaner and therefore can bypass treatment. Richards said the pipelines would lead to and from the site of the gas plant to prepare for its eventual construction and because the project would use the same design approved last spring by the Federal Energy Regulatory Commission it would not need new permits; it’s the same work just in a different order. The progress of the phased development strategy was to be the topic of discussion at a Jan. 14 AGDC board meeting but that meeting was rescheduled to Thursday to allow Gov. Mike Dunleavy to unveil the new plan, which he did in an op-ed published Tuesday in the Anchorage Daily News. Richards and AGDC board chair Doug Smith emphasized that while there is a lot more work to do they do not want to be late to the game either. “As Alaskans, we all know this may sound like a long shot and there’s still a lot of hurdles left,” Smith said. “We felt we needed to have a large opportunity on the table should funds become available to support it. We’re not being unrealistic about this and what the hurdles are in front of us.” After the vote, former board member and construction union leader Joey Merrick questioned the action given no one to AGDC’s liking has shown interest in the LNG plant. Merrick is also a partner with former Gov. Bill Walker, former AGDC President Keith Meyer and others in Alaska Gasline and LNG LLC, a venture they formed last fall to take the project from the state. Merrick said AGDC officials originally told him that Alaska Gasline and LNG would be able to participate in an open request for proposal, or RFP, process but subsequent meeting requests have been declined. “We’re standing by ready to take the project from the gas treatment plant on the North Slope to the liquefaction plant at Nikiski,” Merrick said. “Our plan doesn’t require the $4 to $5 billion subsidy you’re talking about, “ he added. The Fairbanks-only project just doesn’t pencil out as I think you all know. The numbers just don’t work.” Those additional hurdles include again addressing “fiscal certainty” for the private investors and the project’s property tax obligations. Under the distant original Alaska LNG structure in which the North Slope producers were planning to be the primary investors in the project, fiscal certainty referred to amending the state constitution to allow for fixed, project-specific taxes and contracts with the state. A new payment in-lieu of tax, or PILT, structure would also likely be needed for the project’s property taxes, according to Richards, who said the project’s PILT of roughly $400 million per year sharply juxtaposes the tax breaks and incentives other LNG projects around the world are getting. The board ultimately approved a resolution allowing management to continue negotiations with the current interested parties to transition the project into private leadership and forgo a new formal solicitation period. AGDC officials hope to make that transition by the middle of the year. Elwood Brehmer can be reached at [email protected]

Biden climate orders make immediate impact in Alaska

Alaska didn’t have to wait long to feel the effects of the administration change in Washington, D.C., following President Joe Biden’s Jan. 27 directives pausing oil and gas leasing across millions of acres of federal lands and waters in the state. Conservation groups hailed the executive order, which is effective nationwide, as a significant first step towards addressing climate change while Alaska’s leaders largely criticized the president for ignoring the economic realities facing the state and nation. Interior Department officials stressed that the order does not impact previously issued leases, permits or approved activities. The nationwide order also followed a more expected executive order suspending all activity related to the Arctic National Wildlife Refuge issued on Biden’s first day in office. An additional Jan. 20 decree from Acting Interior Secretary Scott de la Vega suspended staff-level authority to issue drilling permits, among other things, for up to 60 days. The secretarial order slowed the issuance of a North Slope exploration drilling permit for Australian-based 88 Energy, which is prospecting the southeast corner of the National Petroleum Reserve-Alaska, for several days but the company announced Feb. 1 it had received the permit to drill the Merlin-1 well from Bureau of Land Management officials and mobilization is underway. 88 Energy Managing Director Dave Wall thanked the congressional delegation and BLM appointees for working to resolve the permit application submitted Jan. 12. “After a brief hiatus in activity, it is now back to full operations with ramp-up towards the spud of Merlin-1, which is expected in around four weeks,” he said. The single, remote well is expected to cost $12.6 million, according to the small explorer. Biden further ordered reviews of all major regulatory actions taken during the Trump administration, which in Alaska was many. In addition to conducting the first lease sale for the ANWR coastal plain — after a 40-year fight — Interior also overhauled the NPR-A land use plan to open more of the sought-after northeast corner of the reserve to leasing; it also happens to be an area of prime summer migratory bird and caribou habitat. The agency took other steps to designate much of the general purpose BLM holdings across the state as eligible for mineral exploration under President Donald Trump as well. While a sharp departure from Trump administration energy policies was expected, it’s not yet completely clear how far Biden is willing to go. Interior officials have said there is no timeframe for the leasing program pause and review, but a permanent moratorium — or at least four years — on federal leasing would sharply curtail development in the NPR-A, which has again become highly prospective with industry technological advancements and new formation discoveries. Alaska’s all-Republican congressional delegation collectively chastised Biden for putting Alaska’s oil-dependent economy at greater risk than it already is, among other things. “This sweeping, misguided policy will kill good paying middle-class jobs, make America more reliant on foreign sources of energy, empower global bad actors like Russia and Iran, and ultimately hurt the president’s climate change goals as more oil and gas is produced by nations with much lower environmental standards,” Sen. Dan Sullivan said in a prepared statement. At the state level, rural Alaska Native lawmakers have also been critical of the administration’s energy policies, arguing they impinge on the rights of North Slope residents to develop economic opportunities in the region and basic infrastructure that is often taken for granted elsewhere. “Over the years, we Inupiat of the north have exercised our right to self-governance over natural resources — both seal oil and crude oil,” Rep. Josiah Patkotak, I-Utqiagvik, said in a joint statement from the Legislature’s Bush Caucus. “We have struck the proper balance between our cultural and traditional lifestyle and the reality of a cash economy. This type of overreach hinders our ability to provide basic services like running water and reliable home heat in Kaktovik and the rest of the North Slope.” Longtime conservative Alaska political strategist and former Republican communications director for the Senate Energy and Natural Resources Committee Robert Dillon said in an interview that the new president is attempting to satisfy a broad group of constituents with his early actions and they do not mean that drilling for oil is over. “You can’t just turn off the taps — no pun intended — on U.S. oil production. It’s not going to be all or nothing; it’s just going to be less, harder. They’ll do things that will make production more expensive and harder,” Dillon said, adding that exploring ANWR is off the table for the foreseeable future but “maybe the NPR-A makes sense; Alaska’s got a good argument to make.” The Biden administration needs to focus on market-based climate solutions rather than top-down mandates if it wants to be successful legislatively with Republicans, which is the only way to make long-term changes, according to Dillon. “An EO is more of a club than an olive branch,” he said. Putting price an upstream tax on carbon is one national policy that producers can reliably account for — some already are — he highlighted, which is partly why it has garnered support from some of the largest oil producers in the country. ConocoPhillips CEO Ryan Lance reiterated that the company continues to advocate for a “well-designed price on carbon in the U.S. because we believe that’s the most economic, efficient and effective step that can be taken by the U.S. to set the world on a long-term sustainable path to (greenhouse gas) emissions reductions,” he said. Sullivan’s spokesman Nate Adams wrote in response to questions about the senator’s thoughts on climate policy that he believes the orders are the result of “lofty campaign promises, not a thought-out strategy designed to combat climate change.” According to Adams, Sullivan wants a national policy to come from debate and compromise in Congress, “not from the unilateral stroke of President Biden’s pen.” He also noted that U.S. greenhouse gas emissions have declined significantly since 2005 while the country also grew to become the largest oil producer in the world. He did not directly address Sullivan’s stance on a carbon tax, but instead wrote that, “solutions to climate change — from adaptation to mitigation — are broad and complex. They will require coming together at the federal level to incentivize renewable energy, maintain reliable and affordable energy, spur innovation for new technology and energy storage, and help communities adapt and address climate change on the front lines, like in Alaska. These are the issues that Sen. Sullivan has worked on throughout his time in Congress.” A spokeswoman for Sen. Lisa Murkowski did not respond to similar questions in time for this story, but Murkowski has touted her omnibus energy reform bill passed late last year as a major step towards energy efficiency and clean energy research and development. Elwood Brehmer can be reached at [email protected]

Private sector leads decline in construction forecast

A cautious private sector is likely to drive construction activity down in the coming year, according to an industry forecast released Jan. 28. The annual outlook commissioned by the Associated General Contractors of Alaska pegs statewide spending on construction projects at about $4.3 billion this year with a near even split between the public and private sector. If it holds, the $4.3 billion projection would be roughly one-third less than expectations for 2020, when roughly $6.7 billion worth of construction work was predicted. However, Katie Berry, an economist with McKinley Research Group, the Alaska-based firm that compiled the forecast, said in a video conference presentation that accurately comparing what is likely to happen this year to last year is a major challenge because of the plethora of complications brought on by the pandemic. Berry said researchers were able to identify roughly $100 million worth of canceled contracts and deferred spending but she believes that estimate is low. According to preliminary state Labor Department data, construction industry employment averaged 15,700 workers last year — not counting self-employed contractors — down about 4 percent from 2019. The $4.3 billion forecast is also about 40 percent less than 2019 when work stemming from the November 2018 Southcentral earthquake buoyed construction activity in the region. Public sector projects are likely to account for approximately $2.1 billion, or 48 percent, of all the construction work done in Alaska this year while they usually make up just about a third of it in any given year, according to Berry. “What’s really weighing on this (public-private sector) breakdown is COVID-19, oil prices; all of these factors that have really impacted the ability of private companies to move forward with investments and that’s what’s really rebalanced this mix in 2021,” she said. As a result, the education and utility sectors are the only areas where growth in construction spending is expected to occur. The state and school districts are expected to spend $290 million replacing several rural schools across the state and work will continue repairing and replacing quake-damaged schools in the Anchorage and Mat-Su districts, according to Berry. Utilities are pegged to spend about $300 million, with much of that going towards ongoing investment in 5G wireless networks by telecoms. Oil and gas industry spending is likely to be in the $1.1 billion range, less than half of what it has been in recent years. While oil prices have rebounded nearly to pre-pandemic levels, global markets remain fragile with oil demand lagging behind some industry projections. ConocoPhillips CEO Ryan Lance said during the company’s Feb. 2 earnings call that the major producer plans to spend enough money this year to maintain, but not increase, its energy production. However, Alaska was the one place Lance said the company would spend $400 million on development and appraisal work as the company has several advanced stage prospects on the North Slope. Berry said the forecast was completed prior to President Joe Biden’s executive orders pausing oil and gas permitting and leasing on federal lands so it’s unclear how those may impact North Slope capital spending in the coming years. Berry said Defense Department spending — a boon particularly for Interior contractors of late — is likely to be flat at approximately $525 million this year but she noted that some of the large projects in the region, such as the bed-down of the F-35 fighters at Eielson Air Force Base, are nearing completion. Residential construction should remain stable as well in the $350 million range, according to the forecast, as low interest rates and growth in the Fairbanks and Mat-Su areas spur home construction despite a continued decline in the statewide population. Elwood Brehmer can be reached at [email protected]

Pebble releases appeal to Corps permit denial

Pebble Limited Partnership leaders argue Army Corps of Engineers Alaska District officials ignored their own findings and set arbitrary wetlands protection requirements when they rejected the company’s hotly contested mine plan, according to Pebble’s appeal documents published Jan 27. Pebble’s parent company, Vancouver-based Northern Dynasty, released the 91-page appeal days after the State of Alaska filed its appeal, in which officials in Gov. Mike Dunleavy’s administration argued the Corps’ decision prevents the state from fulfilling its obligation to develop its mineral resources. Pebble previously announced it had filed its appeal with Army Corps of Engineers Pacific Division leadership but had not made the details of its arguments public. The company insists the Nov. 20, 2020, record of decision, or ROD, signed by Corps Alaska District Commander Damon A. Delarosa denying Pebble the wetlands fill permit for its project directly contradicts what the agency’s regulatory officials wrote in the final Pebble environmental impact statement, or EIS, published last July. The Army Corps of Engineers administers Clean Water Act Section 404 wetlands permits nationwide but the EPA has final say over whether a wetlands fill permit is issued. The appeal states that the ROD “speculates” that the project — primarily the mine site in the Koktuli River watershed, which would permanently lose 22 miles of stream habitat — would likely degrade stream productivity. It also cites excerpts from the final EIS that indicate the ecosystem could withstand the development. “This loss of habitat is not expected to have a measurable impact on fish populations downstream of the mine site because these narrow, steep, higher-gradient streams have lower habitat values and low fish densities compared to downstream reaches,” the final EIS states, according to the appeal. Pebble also highlighted references in the final EIS to the projects impacts on commercial fisheries in which Alaska District officials wrote that the mine and its extensive network of support infrastructure “would not be expected to have measurable effects on the number of adult salmon returning to the Nushagak and Kvichak district(s),” the two major watersheds that the project straddles. The final Pebble EIS largely maintained the conclusions reached in the draft version published in early 2019. However, officials from several state and federal resource agencies issued comments on the draft they believed were largely critical of the review for significant gaps in background data and what they viewed as overly broad and simplified conclusions made by Corps officials. According to Pebble, the denial decision was also based on an unprecedented standard that the mine would have a “more than trivial” impact on the Koktuli River drainage, which Corps officials relayed to the company in June, several months before the ROD was issued. Alaska District regulators determined the project would have some impact on 29 percent of the wetlands in the Koktuli watershed, the appeal states, adding that they concluded the project would cause “significant degradation” — a key finding in environmental reviews — based on a “preponderance” of significant impact findings for various factors. “The District recognized that its ‘significant degradation’ determination was unprecedented and acknowledged that it was not aware of any other similar findings for large projects in Alaska,” the appeal states. Pebble additionally alleges that the requirement for the company to mitigate its wetlands damage via actions within the Koktuli drainage also flies in the face of prior Corps precedent in Alaska. The appeal notes that several large North Slope oil and gas projects were approved with mitigation measures, such as improving local wastewater facilities, that Pebble initially proposed and Alaska District officials approved the similarly massive Donlin Gold mine project in the Kuskokwim region with a mitigation plan that included preserving large tracts wetlands outside the immediate watershed because of a lack of available options near the mine site. While Army Corps Pacific Division Commander Col. Kirk E. Gibbs will have the final say on the merits of the Pebble ROD appeals, some prominent opponents of the project claim the appeal submitted Jan. 22 by Gov. Mike Dunleavy’s administration is simply a political ploy because the state is not eligible to challenge the ROD. Agency regulations limit administrative appeals to “affected parties,” which includes permit applicants and landowners — Pebble is on state land — who also have “received an approved (jurisdictional determination), permit denial, or has declined a proffered individual permit,” Corps regulations state. While the state is an impacted landowner, the permit denial was specific to Pebble Limited Partnership’s proposed project. “The state’s efforts to appeal the Corps of Engineer’s Pebble permit lacks legal merit, runs against the best interests of Alaskans, and is an unnecessary distraction at a time when the State of Alaska has far more pressing demands on its budget and legal resources,” said Dan Cheyette, lands and resources vice president for Bristol Bay Native Corp., which has helped lead in-state opposition to the mine project, in a statement for the Journal. Pacific Division spokesman Luciano Vera wrote via email that division officials were reviewing the state’s appeal and no determinations have yet been made. A spokeswoman for the Department of Law referred questions about the state’s standing to the arguments made in the appeal document. The appeal, signed by then-Attorney General Ed Sniffen, contends that the state “is an ‘affected party’ given its substantial and identifiable legal interests in the property in question and in the precedent the permit denial sets for all future projects in Alaska requiring individual (Clean Water Act) Section 404 permits.” Corps officials typically have a goal of issuing appeal decisions within 90 days but there is no deadline by which a decision must be made. Elwood Brehmer can be reached at [email protected]

North Slope gas write-down drives $772M reported loss for C-P

Despite semi-recovered oil prices, ConocoPhillips reported a loss of $772 million in the fourth quarter of 2020 on Feb. 2 with much of that attributed to an asset downgrade in the company’s Alaska operations. According to a corporate statement, the Alaska segment loss stemmed from “non-cash impairments related to the Alaska North Slope gas asset.” A detailed breakdown of the company’s quarterly financials lists an $841 million impairment in its Alaska business, which subsequent to other adjustments led to a $643 million special item expense. Alaska spokeswoman Rebecca Boys wrote via email that the loss was “driven primarily by $648 million (after-tax) impairment of the Prudhoe Bay gas cap and related affiliate investments” recorded in the fourth quarter. ConocoPhillips, the largest oil producer in the state, reported adjusted earnings of $5 million in Alaska during the quarter. For the full year — one in which the industry was crushed first by a Saudi-Russian battle over market control and then the global pandemic — ConocoPhillips reported a loss of $2.7 billion in 2020, a wholesale reversal from the nearly $7.2 billion the company netted in 2019. The 2020 results translated to a loss of $2.51 per share. The $772 million quarterly loss was on the back of just more than $6 billion in revenue, the highest quarterly figure in the year but well short of the $7.7 billion the company generated to end 2019. Full-year revenue was off 42 percent at nearly $18.8 billion, according to the Feb. 2 report. CEO Ryan Lance said during a call with investors that ConocoPhillips will mostly hold its position in 2021 as oil markets continue a gradual recovery after wholly collapsing early in the pandemic last spring. “Demand recovery is taking longer, spare supply remains and (oil) inventories remain elevated. It makes no sense to grow into this market environment so we’re choosing to stay at a sustaining level for the year,” Lance said. Sustaining in 2021 means largely returning to 2019 operating levels after the company drastically curtailed production earlier this year only to bring much of it back when oil prices began to improve. The price of Alaska North Slope crude averaged $50.32 per barrel in December and $55.56 per barrel in January, each the highest price at the time since March. Lance said ConocoPhillips plans to spend roughly $5.5 billion on capital projects this year primarily aimed at sustaining production. He specifically mentioned about $400 million will be set aside for project development and appraisal work predominantly in Alaska. “We’re driving for free cash flow growth not production growth,” Lance said of the next 11 months. Last year ConocoPhillips generated $5.2 billion in cash from operations, which resulted in approximately $500 million in free cash flow after capital expenses. The company’s global production is expected to average about 1.5 million barrels per day, on-par with 2019. As for the executive actions taken by President Joe Biden in the first days of his administration to “pause” oil and gas leasing on federal territory, Lance said ConocoPhillips leaders were not entirely surprised by the moves, as they made good on promises he made during his campaign. He added that ConocoPhillips has sufficient “low-cost, low-GHG,” or greenhouse gas reserves, to withstand a longer-term moratorium on federal oil and activity without meaningfully changing its business. “Obviously we hope these temporary actions are resolved in a timely fashion and we are certainly watching this situation closely,” Lance said. He noted ConocoPhillips has set internal emissions targets in-line with Paris Climate Accord goals and is trying to reduce its methane emissions companywide. “At least for now we believe the highest value we can create for all our stakeholders is by being the best (exploration and production) company in the business,” Lance said. “The world needs clean, low-cost barrels that are safely delivered by disciplined, free cash flow and returns-focused companies like ConocoPhillips.” Judge allows Willow activity U.S. District Court of Alaska Judge Sharon Gleaon rejected an attempt by North Slope Alaska Native and conservation groups to delay ConocoPhillips’ work this winter at its large Willow oil prospect in a Feb. 1 ruling. Gleason ruled that early gravel work planned this winter and early spring for the up to $6 billion Willow project in the National Petroleum Reserve-Alaska is not likely to “irreparably injure” the population of south Beaufort Sea polar bears that are protected under the Endangered Species Act before she can rule on the broader merits of the combined lawsuits. ConocoPhillips plans to open a gravel mine and construct up to 2.8 miles of gravel road extending west from its smaller Greater Mooses Tooth-2 oil project, which is also under construction and is expected to start producing oil late this year. The Inupiat for a Living Arctic and other groups opposing the Willow plan filed a preliminary injunction motion in late December urging Gleason to stop the company’s work this winter as the lawsuits filed following the Interior Department’s October approval of the Willow Master DevelopmentPlan, which calls for ConocoPhillips eventually develop three drill sits in a prolonged, phased construction period. They argue Bureau of Land Management Alaska officials under the Trump administration failed to conduct a sufficiently rigorous review of the oil project’s environmental impacts. The Willow project is expected to produce upwards of 100,000 barrels of oil per day at its peak, with first oil currently scheduled for sometime in 2026, according to ConocoPhillips. Elwood Brehmer can be reached at [email protected]

Forecast: 2021 job gains won’t replace 2020 losses

Anchorage’s battered economy should rebound strong this year but it will likely take several years to recover what was lost to 2020. Anchorage Economic Development Corp. CEO Bill Popp said the business group expects the city will add approximately 4,000 jobs this year, which would be the greatest annual employment growth the city has seen in 20 years and equates to about 3 percent growth year-over-year. “There is no sector that is forecast to lose jobs in 2021,” Popp said during AEDC’s annual economic forecast presentation. However, he emphasized that realizing the positive outlook is contingent upon continued efforts to suppress COVID-19. “We are counting on the citizens of Anchorage to do their part by wearing masks and getting vaccinated until COVID-19 is a bad memory,” Popp said. (Read the Business Confidence Index Report) The forecasted strong job gains would still account for less than a third of the 12,400 jobs Alaska’s largest city lost last year alone. On top of that, when it started 2020 was supposed to be the first year of employment growth, albeit modest, following years of recession. The city’s unemployment rate averaged 8.1 percent last year — on par with the national average — after peaking at nearly 14 percent in April, according to preliminary Bureau of Labor Statistics data compiled in the forecast. Alaska as a whole finished 2020 with an average unemployment rate of 8.7 percent. For comparison, Anchorage averaged 5.1 percent unemployment in 2019, which was slightly below statewide levels. “To be sure, this will be a long journey to full recovery; we have both the five-year recession and the pandemic to recover from,” Popp noted. In total, Anchorage has lost roughly 18,500 jobs from a workforce that peaked at just more than 156,000 workers in 2015. Not surprisingly, the industries hit hardest by government restrictions and general consumer apprehension are expected to add the most jobs in the next 11-plus months — if COVID-19 case counts don’t spike again. Anchorage’s leisure and hospitality industry is pegged to add 1,700 jobs this year after losing more than 4,300 jobs, or about 25 percent of total 2019 employment in the sector. The retail, healthcare and transportation sectors are all expected to add approximately 400 jobs this year, which for retail would be the first growth in years but also follows the loss of about 1,300 jobs last year. The relative dearth of passenger traffic through Ted Stevens Anchorage International Airport last year — down 59 percent through October, according to AEDC — similarly led to the loss of about 1,300 jobs in transportation and logistics, while the volume of cargo passing through the Anchorage airport continue to grow; it was up 15 percent year-over-year through October. The airport, which AEDC estimates already supports roughly 10 percent of the jobs in Anchorage, should be a source of continued growth with more than $500 million of warehouse and logistics facilities in the works from multiple prospective investor groups. The many firms in the professional and business services sector, collectively Anchorage’s third-largest employment group, should add 300 jobs with somewhat stabilized oil markets after shedding roughly 800 last year. Popp called the forecast “good news with a lot of caution,” but added that Anchorage and Alaska still face significant long-term challenges that in some ways have been exacerbated by the pandemic. Anchorage’s population is expected to fall by about 2,000 people this year after the city lost more than 3,500 residents last year. The city’s population has declined every year since 2013. “Population declines are becoming a red flag for future opportunities for growth,” Popp said. As it stands, Anchorage has lost approximately 4 percent of its population since peaking at about 301,200 residents in 2013, according to state Labor Department figures. Additionally, Popp echoed a refrain common in his economic outlook presentations of recent years; that lawmakers need to reach a long-term solution to the state’s structural budget deficit this year. He said among Anchorage business leaders the sustainability of the state operating budget is equally as important to the city’s economy as ending the spread of COVID-19, according to AEDC’s annual business confidence survey. Elwood Brehmer can be reached at [email protected]

Alaska Air betting on summer vacation recovery after $1.3B loss in ‘20

The gradual recovery of Alaska Air Group’s business stalled last fall following the pre-holidays surge in COVID-19 cases nationwide but company leaders said during a Jan. 26 earnings call they remain confident that wider vaccine distribution and pent-up vacation demand will greatly help improve business by mid-year. Alaska Air Group Inc. reported a $430 million net loss in the fourth quarter, which was nearly identical to the company’s third quarter results and pushed its full-year losses to more than $1.3 billion. For comparison, a year ago the Seattle-based parent company to Alaska Airlines and regional carrier Horizon Air reported a $181 million profit in the fourth quarter of 2019 and annual income of $769 million. The recent losses translate to $3.47 per diluted share for the quarter and $10.59 per diluted share for the full year. Air Group stock ended Jan. 26 trading at $51.83 per share, down about 2 percent for the day. Still, Air Group executives stressed their company will be amongst the best positioned in the ravaged industry to capitalize on demand growth whenever the pandemic truly begins to wane. CEO Brad Tilden noted Air Group’s revenues fell by $5.9 billion, or 59 percent, last year while its net debt remained “essentially unchanged” at $1.7 billion throughout the year. “I’ve watched the industry and our company my entire (30-year) career and I can’t remember when two numbers stood out in such sharp contrast,” said Tilden, who is retiring. Current Alaska Airlines President Ben Minicucci is slated to take over for Tilden on April 1. Tilden attributed the static debt load to management’s ability to aggressively cut spending while also thanking the roughly 10,2000 employees — of 23,000 — that took some form of leave to help mitigate the financial damage to the company and preserve jobs for other employees. Air Group also received $753 million in federal payroll support grants from the CARES Act early in the year and is scheduled to get another $400 million early this year, according to Tilden. “Not burdening the company with a massive amount of new debt means that our balance sheet is unimpaired and strong, which means that we can all look forward to using it in the months and years ahead to find new opportunities for all of us,” he said. According to Chief Financial Officer Shane Tackett, Air Group cut $2.4 billion in expenses over the year, some from its capital program, but largely tried to execute structural savings that could be realized into the future. The company’s debt-to-capitalization ratio stands at 61 percent, Tackett said, and with a smaller capital investment program in the $150 million to $250 million range this year, Air Group should be able to withstand a lower cash balance and begin repaying its debt to get back to the goal of having a debt-to-cap of less than 50 percent. The company currently holds more $3.4 billion in cash, according to the fourth quarter report, and $5.2 billion in total liquidity with approved but unused financing options. Minicucci said bookings and enplanements declined in November as the third wave of the virus spread across the country following several months of demand growth. But bookings have increased about 20 percent in December and January, he added, with travel to warm weather destinations making up the bulk of the sales. Demand has fallen most for Alaska Airlines transcontinental flights Business travel is at about 15 percent of pre-pandemic levels and is likely to plateau at about 50 percent of historical averages in the long-term, according to Minicucci, who referenced surveys of the Air Group’s corporate customers. However, the company is planning to bring back its capacity levels to about 80 percent of 2019 levels by mid-summer if current expectations pan out. “We’ve been treading water recently and believe sustained, progressive improvement will begin when we have a widespread vaccine rollout and states are able to relax their restrictions,” he said. “We are confident leisure travel will lead the recovery and there’s a substantial pent-up demand for leisure travel.” Air Group expects to operate at about 70 percent of 2019 capacity levels in the first quarter with planes 40 to 45 percent full, according to Minicucci, who said much of the added-back capacity will be out of the company’s strongest Pacific Northwest and Alaska hubs. On the finance side, Tackett said Air Group leaders expect per-unit costs to be up about 20 percent in the first quarter of this year with cash flow flat or negative by up to $100 million. However, that could improve with quicker vaccine distribution, he added. In late December Alaska Airlines announced a new agreement with Boeing to take 68 new Boeing 737-900 aircraft through 2024. Alaska executives said the new planes will mostly replace the 51 Airbus A320s Alaska took when it purchased Virgin America in 2016. Prior to that Alaska Airlines for years had flown an exclusively Boeing fleet. While Boeing has moved its headquarters to Chicago nearly 20 years ago, the aerospace giant has kept its manufacturing facilities in the Seattle area. “The partnership between Alaska and Boeing is strong as ever,” Tackett said. “We have employees with spouses, parents, sons and daughters that are Boeing employees. The ties between our to companies are deep and we’re excited about our futures together.” On a personal level, other Air Group executives praised Tilden’s leadership and desire to build and maintain “a fortress level balance sheet” — a common refrain of his — during what would be his last earnings call with the company. “(Tilden) has laid the groundwork for the financial discipline we are proud to have today,” Minicucci said. “Brad’s focus was always long-term, sustainable growth and our company is stronger for it.” For his part, Tilden said Air Group employees have an uncommon loyalty to the company and are the primary reason for its success, particularly in recent years. Tilden, who has been with Alaska Air Group in various roles over 30 years, took over as CEO and chairman in 2012. “Serving this great company has been an honor and while I look forward to staying involved my primary job is going to be to step back and support Ben and this great team as they take Alaska to the next level,” Tilden said. Elwood Brehmer can be reached at [email protected]

DNR proposes changes to water reservation process

The Department of Natural Resources is pitching reforms to Alaska’s water reservation program via regulation that previously failed to make it through the Legislature. State Division of Mining Land and Water officials published new proposed water reservation regulations that, among numerous technical updates and phrasing changes, would add language stating that water reservation certificates currently issued to private parties would instead be held by the Department of Natural Resources, which adjudicates water use and reservation applications. Resource development advocates insist the change is needed so control of a public resource is kept within a public agency and to prevent opponents of a given project from attempting to impede development by chasing water rights. For their part, conservation groups insist the change would strip Alaskans of their rights to protect the fish — another public resource — in waters vulnerable to development. Alaska’s current system of water rights is generally viewed as one of the most open in the country; it allows anyone to apply for temporary water use authorizations as well as water reservation, or in-stream flow, rights to maintain sufficient stream flows for fish and other wildlife. Reviewing water reservation applications often takes DNR years in coordination with the departments of Fish and Game and Environmental Conservation. Alaska Miners Association Executive Director Deantha Skibinski said the policy of DNR holding water reservations is something that her group believes is “absolutely critical.” “I think we could all agree on having a state agency managing state water is the right thing to do,” Skibinski said. In-stream flow reservations have been used as a tool to stop projects such as North Slope oil exploration in the past, which “just provides a ton of instability and uncertainty in our process,” she said, adding that there are likely many individuals who would not want the Alaska Miners Association to hold water reservations in the state. “Ultimately I think the state having control over (water reservations) is one of the ways that gets us to a more fair system for both sides,” Skibinski said. Bob Shavelson, advocacy director for Homer-based Cook Inletkeeper stressed the change would give an agency that is “controlled” by resource companies further discretion in how to allocate the state’s water. “From our perspective it’s just a matter of fairness,” Shavelson said, noting that companies can and would continue to be able to remove water from streams with temporary use authorizations from DNR. “A big mining corporation, Pebble, Donlin, anybody, they can take water out of the stream but now Alaskans can’t keep water in the stream. To us, that’s unfair.” He contended the change could also raise constitutional issues regarding how the state would treat similarly situated parties. The proposed regulations are a continuation of an attempt by former Gov. Sean Parnell’s administration to overhaul the water reservation structure, according to Shavelson. House Bill 77, which drew strong public opposition and died in the Senate in early 2014, would have limited water reservations to public agencies among many other revisions to state resource policies. DNR officials said they could not comment in detail on the proposed regulations during the public comment period but Water Section Chief Tom Barrett said in an interview that the agency takes water reservations very seriously. “These flow reservations are pretty significant and they can have an impact on other water users or potential users,” Barrett said. He added that the state is not trying to withhold water rights for any one group, noting the DNR commissioner — who approves water reservations — currently has the discretion to discontinue them as well. Skibinski said the odds of DNR leaders ever invoking their authority to revoke a water right are very slim. However, former DNR Commissioner Andy Mack in 2017 reversed a 2015 decision to grant an in-stream flow reservation to the Chuitna Citizens Coalition, a group aimed at stopping the since-abandoned Chuitna coal project on the west side of Cook Inlet. Mack ruled that because PacRim Coal scrapped the project, the circumstances that led the agency to issue the reservation had changed and therefore it was no longer needed. Legislators contacted to discuss the proposed changes were not aware of them, but former House Resources co-chair Rep. Andy Josephson, D-Anchorage, said it initially sounds to him like another attempt to make the changes in HB 77 and they will likely be challenged on whether or not the changes can be made by regulation. Currently, the Department of Fish and Game holds the vast majority of flow reservations; Barrett estimated approximately 95 percent. Another handful is held by federal resource agencies such as the U.S. Fish and Wildlife Service. The Nature Conservancy is one of the few private entities to hold water reservations. It secured four flow reservations near the Pebble deposit in 2017. TNC Alaska representatives said they were reviewing the regulations and couldn’t yet comment on them. DNR’s public comment period closes Feb. 26. Elwood Brehmer can be reached at [email protected]

Pantheon spuds haul road prospect; 88 Energy buys Umiat

A small British explorer spudded an early winter appraisal well Jan. 13 in a haul road-adjacent prospect company leaders believe can be developed quickly even amidst tenuous market conditions. Pantheon Resources CEO Jay Cheatham said in an interview that drilling of the Talitha-A appraisal well into its namesake oil prospect began a couple weeks ahead of schedule on what was already an aggressive timeframe to put the work together. Getting the project started early gives Pantheon “much more leeway on the testing program” later in the winter, Cheatham said. The drilling, being done with Nordic Calista’s Rig 3, is expected to take 30 to 40 days and will intersect four zones that collectively have the potential to hold upwards of a billion barrels of recoverable oil, according to Pantheon leaders. The well is planned to reach the base of the Kuparuk sand formation at a depth of about 10,200 feet and will also cut through two Brookian zones and the shallower Shelf Margin Deltaic that is the primary target. “Each zone has the potential to change the trajectory of the company,” Technical Director Bob Rosenthal said. Pantheon funded the well with a $30 million capital raise in November. An independent resource assessment of the Talitha acreage conducted last year by the Oklahoma-based consultancy Lee Keeling &Associates estimated the Shelf Margin Deltaic holds 302 million barrels of recoverable oil and 1.1 billion barrels in place. London-based Pantheon Resources’ Talitha project is being built off of new analyses of a well drilled in 1988 and 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 west 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 merged with Anchorage independent explorer Great Bear Petroleum in early 2019 and the blended operating company Great Bear Pantheon is conducting the fieldwork. Since then, Pantheon, which holds 100 percent working interests in the Talitha and nearby Alkaid prospect leases, respectively, has pressed ahead with advancing Talitha towards development despite pandemic-driven oil market conditions that drastically curtailed work on in oil basins worldwide, the North Slope included. Company leaders have stressed the project’s location — adjacent to the Dalton Highway and pipeline — as a driver of its economics. Recent improved oil prices — in the mid-$50s per barrel range for Alaska oil — have made company leaders “more optimistic” about the future Cheatham said, but their work plans did not change much even with the market disruptions of 2020. That’s because 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. “The (capital expenditure for development) is so much less because we’re that close to the haul road and the pipeline,” Cheatham said. State Division of Oil and Gas officials approved the company’s applications to form the Talitha and Alkaid units in November; another formal but necessary step towards development. Cheatham also said that the company has the state permits it needs for a long-term production test of a second well it hopes to drill at Alkaid this summer from a gravel pad near the Dalton. While Pantheon would likely start with a phased development and a gradual ramp-up of production, the 2020 resource 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. The Great Bear-Pantheon venture also picked up 46 tracts covering more than 66,000 acres in the state’s North Slope lease sale under the holding company Great Bear Petroleum Ventures II LLC, in which bids were opened Jan. 13 as well. The new acreage gives Pantheon 160,000 contiguous acres in the area. Umiat changes hands Farther south and well off the beaten path, Australian explorer 88 Energy announced Jan. 11 that it has purchased the legacy Umiat oil prospect from Malamute Energy. The Umiat prospect in the far southeast corner of the federal National Petroleum Reserve-Alaska has long been believed to hold commercial quantities of oil — it was first discovered in the mid-1940s — but its isolated location far away from other North Slope projects and other factors to-date have impeded development. However, Umiat is also just south of 88 Energy leases the company has dubbed its “Project Peregrine.” The Umiat Unit formed in 2019 consists of two leases covering 17,633 acres, according to 88 Energy. “Our operational activity at Project Peregrine has provided 88E with a unique position from which to acquire the Umiat oil field at an opportunistic price point,” 88 Energy Managing Director Dave Wall said in a company statement. “The asset has potential to add significant value for shareholders, possibly as a standalone development but certainly in the event there is a material discovery in the imminent Project Peregrine drilling program.” 88 Energy plans to drill the Merlin-1 well at Peregrine starting in February. A 2015 independent resource assessment pegged Umiat’s total proven and probable oil resource at approximately 127 million barrels. Now-defunct Linc Energy drilled two wells at Umiat in 2013-14 and 88 Energy took on the liability to abandon those wells, which is estimated at about $1 million, as part of the deal. Elwood Brehmer can be reached at [email protected]

AIDEA forecloses on Mustang assets after $70M investment

Leaders of the state development bank now must decide what to do with a failed North Slope oil project in which they have invested $70 million. The Alaska Industrial Development and Export Authority took control of the Mustang project in December following years of fits and starts by former operator Brooks Range Petroleum Corp. that ultimately led the state-owned authority to foreclose on the project assets. Approximately a year ago the AIDEA board of directors approved what ended up being the last in a series of amendments to its $70 million total equity investment in Mustang, which had previously been morphed into a loan to Brooks Range’s parent companies. The January 2020 loan modification came after Singapore-based Caracol Petroleum, a majority owner in Brooks Range, failed to make its first two $3.1 million quarterly payments to AIDEA on a $64 million loan to Caracol that the authority approved in May 2019. The amended loan agreement called Caracol’s parent company, Singapore-based Alpha Energy Holdings to commit $60 million for project development by mid-April last year and repay a $10.5 million loan AIDEA made to Mustang in 2019 when Brooks Range failed to meet development targets. However, when Alpha again failed — despite relaxed loan terms — to meet its obligation AIDEA began searching for a partner to lead the project. Majid Jourabchi, President of Houston-based Thyssen Petroleum, a 35 percent owner in Anchorage-based Brooks Range, told the Journal last May that he was part of a team of investors attempting to buy a majority stake in Mustang from Caracol, a 65 percent owner in Brooks Range, according to state business records. The current Brooks Range ownership group is the latest in a series of convoluted structures since oil prices first fell in 2014 and funding for the project became scarce. The Mustang field is adjacent to the southern portion of ConocoPhillips’ large Kuparuk River field and also near the Pikka oil project being developed by Oil Search. The field is estimated to hold about 22 million barrels of oil and could peak at production rates of about 12,000 barrels per day when fully developed. Brooks Range drilled test wells at Mustang in 2011 and 2012 that led AIDEA in December 2012 to take a stake in Mustang with $20 million investment in the holding companies set up for the project’s infrastructure. The $20 million funded the lion’s share of work to build a five-mile access road and a 19-acre drilling and facility pad. The gravel road and pad — in which AIDEA was an 80 percent owner — were finished in April 2013. The road and pad have since been used by other oil companies as an access route and staging area for winter exploration drilling programs. In 2014 the authority put another $50 million toward the originally proposed $225 million processing facility that gave it a 96 percent stake in the holding company, Mustang Operations Center-1 LLC. Full development of the field was estimated to cost about $580 million at the time and included drilling 11 production and 20 more gas and water injection wells, according to AIDEA’s project documents. Brooks Range later changed its plans to utilize smaller, modular production facilities to spur development. Brooks Range leaders said when AIDEA made its first investment that they hoped to have Mustang in production by late 2014 and said when AIDEA made its second payment to the project oil would start flowing in late 2015. 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. Legislators ordered a review of the loan by their auditors, who concluded in a report released in November that the loan was inappropriate because it potentially created a conflict of interest for the Revenue Commissioner but it did not violate any state laws. Brooks Range briefly started production from the small field in November 2019 through temporary facilities after years of delays but funding issues precluded additional development and sustained production. According to documents submitted to the state Division of Oil and Gas, AIDEA took control of the Southern Miluveach Unit that holds the Mustang project through Mustang Holdings, a wholly owned subsidiary of the authority that was formed Sept. 21, 2020. AIDEA officials had been in discussions with Finnex LLC, a newly formed company owned by Thyssen Petroleum Alaska and led by Jourabchi, according to state business records. Jourabchi did not return calls in time for this story. The authority informed Oil and Gas officials in late October that a deal for Finnex to become the operator of Mustang could not be reached and the project would remain in cold shutdown while officials pursued a new operator. Oil and Gas Director Tom Stokes required Mustang Holdings to provide a year-end report on any progress made to find a new operator and advance the project in early December when approving the Southern Miluveach Unit plan of development for this year. AIDEA Executive Director Alan Weitzner wrote to Stokes in a report dated Dec. 28 that Mustang Holding had assumed storage contracts for project equipment; was working on a security contract for the project infrastructure; and had paid annual rent for the Southern Miluveach leases. AIDEA had additionally set up a data room and had entered into confidentiality agreements with several “qualified parties who are capable of operating and/or providing capital required for the intended full SMU development drilling program. “Mustang Holding and major creditors that have recorded liens in connection with prior work on the SMU have been and continue to work closely to finalize plans to advance the resumption of development activities,” Weitzner wrote. AIDEA executives have declined multiple requests for interviews over the years that it has been involved in the project and a spokeswoman for the authority did not respond to questions in time for this story. Elwood Brehmer can be reached at [email protected]

Interior Gas Utility inks supply deal with Hilcorp Alaska

Most of the leaders of the Fairbanks-area gas utility believe they finally have a gas supply contract that will afford it the security needed to grow. The Interior Gas Utility board of Directors voted 5-2 Jan. 19 to approve what could end up being an 11-year feedstock supply contract with Hilcorp Alaska. The agreement has an initial five-year term as well as a pair of three-year buyer options to extend the terms. Hilcorp cannot turn down an extension option if IGU exercises it, according to utility General Manager Dan Britton. The contract could also be the end of a long and circuitous search for additional natural gas supplies for the Fairbanks area that began in 2013 as the state-sponsored $330 million Interior Energy Project. “We can know what our gas cost will be for Titan (LNG plant) feedstock for 11 years and anything we do in the future could improve on that,” Britton told the utility board. Board member Gary Wilken called the contract building block for the utility’s long-term success. “This is a very big deal for this utility,” Wilken said. The initial price of $7.60 per thousand cubic feet, or mcf, of gas is a 1.5 percent price cut from the $7.72 the borough-owned utility pays Hilcorp under its current contract, which was set to expire March 31, according to meeting documents. Britton said the lower gas price — set to rise 8 cents per year — amounts to $100,000 per year in collective savings. Hilcorp also agreed to make the price retroactive to Jan. 1, a $30,000 savings for the utility, according to Britton. Board member Pamela Throop said IGU shouldn’t bind itself to a single gas supplier at a price that is still higher than what Southcentral utilities pay when it has received other proposals to buy potentially cheaper LNG. Former board member Patrice Lee said during a public comment period that the contract all but assures IGU will move ahead with expanding its Southcentral Titan LNG plant — upwards of a $70 million project — despite having other options to lower the cost of gas to customers. IGU currently trucks LNG from the Susitna-area plant to Fairbanks before regasifying it for distribution to customers. Increasing the availability of natural gas in the Fairbanks area has been a primary goal for many attempting to clean up the city’s at-times dangerously poor winter air quality as well as those seeking a more affordable energy alternative to heating oil. Britton said the gas price is about 1 percent higher than most other contracts for Cook Inlet gas because IGU purchases just a fraction of the volumes that most Southcentral utilities do and Hilcorp has agreed to match its supply to IGU’s highly seasonal demand swings. He noted the agreement allows IGU to lessen the volume of gas it will buy for the remainder of the contract once, which allows the utility to continue to search for other options. However, he stressed the contract from the dominant Cook Inlet producer with multiple fields to draw gas from gives the utility the security it needs to grow its firm customer base. “I share the goal to lower prices but you cannot, in my view, supply our customers, to whom we have made a firm commitment, with an interruptible (LNG) supply,” Britton said. Under the deal IGU must purchase a minimum volume of gas that equates to the current demand from its roughly 1,400 customers, according to Britton. The utility also has the option to more than triple its gas requirements of Hilcorp with advanced notice if it decides to expand the Titan LNG plant. The utility was set to make a final investment decision on the expansion project last April but the wildly uncertain economic conditions at the onset of the pandemic made Britton pause his recommendation to approve the expansion. The board has not formally revisited the topic since. He said while Hilcorp could provide gas to feed an expanded LNG plant under the contract IGU management is still open to other LNG sources should a supplier propose a reliable plan. IGU and the Alaska Industrial Development and Export Authority — which led the Interior Energy Project before transferring Fairbanks Natural Gas to IGU — both entertained proposals from other entities pitching lower cost LNG. IGU leaders notably spent months discussing LNG deliveries with Siemens Government Technologies in 2019; however, the neither the global government contractor or other firms could provide AIDEA or the utility with detailed and firm gas supply plans and cost structures. ^ Elwood Brehmer can be reached at [email protected]

State nets $7M from five companies in Slope lease sale

The State of Alaska’s North Slope oil and gas lease sale netted only about half of the bid revenue that the Bureau of Land Management’s sealed bid auction for the Arctic National Wildlife Refuge coastal plain did, but interest from industry was still far greater. The Division of Oil and Gas collected approximately $7 million across 115 bids from five companies, officials announced Wednesday afternoon following the morning bid opening. The state’s North Slope and Beaufort Sea lease sales are traditionally a minor annual event with a small audience of industry representatives, reporters and others present to watch the bid opening. COVID-19 precautions prevented that this year. BLM generated about $14 million in its ANWR sale in which bids were opened a week ago; however, the individual coastal plain leases are many times larger than the state tracts that are usually about 2,500 acres or less and 11 tracts were leased to three bidders. Most of that bidding was from the state-owned Alaska Industrial Development and Export Authority. Oil and gas officials said in the statement announcing the sale results that the bid activity is encouraging despite the rough conditions of oil markets over the past year. “This is good news for Alaskans. We look forward to working with these companies to ensure Alaska’s future in energy development,” Oil and Gas Director Tom Stokes said. The state oil and gas lease auctions have typically been held in late fall. The December 2019 sales netted generated nearly 70 bids totaling about $7.5 million, while more than $28 million was spent on state land by explorers in 2018. The five bidders collected 191,248 acres of state land and near shore areas of the Beaufort Sea and are a mix of small explorers and larger, established producers. Hilcorp Energy was the only bidder on Beaufort Sea acreage and won three tracts along the north edge of the Prudhoe Bay Unit. Per usual, there were no bids for the North Slope Foothills area. Oil Search, the Papua New Guinea-based producer that is developing the large Pikka oil project on the Slope, collected 46 tracts primarily to the south of its current work. The vast majority of the sought-after acreage between the producing fields near the coast is currently leased. Great Bear Petroleum Ventures II also picked up 46 tracts largely to the south of the producing fields as well, spending more than $100 per acre on some of the leases to do so. Great Bear was originally founded as an Anchorage-based independent explorer and held significant North Slope when it was purchased by British Pantheon Resources in 2019. Lagniappe Alaska, an offshoot company of Bill Armstrong, who’s namesake Armstrong Oil and Gas led discovery of the Nanushuk oil formation that is the main source Pikka prospect in the mid-2010s, also won 13 leases mostly on the eastern portion of the Slope near ExxonMobil’s Point Thomson gas field. Explorers have shown more interest in eastern Slope areas in recent years; the area was partly explored in the 1980s and some oil was found but for several reasons was not developed. New North Slope player Arctic Circle Exploration — a Kansas-based independent, according to state business records —also acquired seven leases south of Prudhoe. Elwood Brehmer can be reached at [email protected]

Peter Pan deal increases Alaskan fisheries ownership

One of Alaska’s largest fish processors is officially back home as part of a deal that makes it a “vertically integrated global seafood company,” according to the new owners. The new Peter Pan Seafoods ownership group of McKinley Capital Management, RRG Capital Management and Rodger May of Seattle-based Northwest Fish Co. took control of the once Alaska-based fish company Jan. 1. The new company merges Peter Pan’s commodity-based processing business with Northwest Fish’s expertise in fresh and value-added seafood processing and trading into one domestically owned company. McKinley Capital CEO Rob Gillam said the transaction is the Anchorage-based private equity firm’s way of “betting on Alaska.” For decades Peter Pan — founded in Dillingham — had been owned by the Japanese seafood giant Maruha Nichiro Corp. “We’re excited about the Bristol Bay fishery. We’re excited about Peter Pan Seafoods and we’re excited about the acquisition,” Gillam said. The new company’s vision is to “produce sustainable seafood for the benefit of oceans and people”; May and Gillam said in separate interviews that a major key to Peter Pan’s future success will be the company’s ability to adapt to changing markets because it is now a more complete, integrated fish processing and selling business. “It’s not just about selling fish, it’s about the ability to adapt and tilt your selling operations towards demand,” Gillam said. May, who leads the company’s operations, said the former Northwest Fish plants in the Puget Sound area will largely continue to operate as they have, processing fresh and value-added seafood for retail and food service customers. In Alaska, they want things at Peter Pan’s plants in Dillingham, Port Moller, King Cove and Valdez to be much busier. “The goal is to add more pounds to those plants and do more with those pounds in those plants,” May said. The company’s headquarters will remain in Bellevue, Wash. The specific terms of the deal aren’t being disclosed, but Gillam said his firm and Los Angeles.-based RRG Capital financed the acquisition in an equal partnership. RRG’s expertise “is the dinner plate,” he described. “They do food, agri, water, seafood. That’s they’re specialty and specifically focused on sustainability of your dinner plate.” Gillam, May and RRG co-founder Ari Swiller have known each other for years, which also helped the complex transaction come together, they said. “We believe that sustainably managed, vertically integrated seafood companies are attractive investments and create environmental and social benefits,” Swiller said in a statement about the closing. “By focusing new Peter Pan on its customer and fleet services, we’re confident we can create tremendous value for our customers and our stakeholders.” Gillam said one of the most fruitful ways create that value is to simply operate one’s plants more efficiently, which he believes will be possible with the workforce they have. “We’re very fortunate to have inherited a great group of people,” he said. Peter Pan representatives have already started working to improve the company’s relationship with its fishermen, according to Gillam. Multiple Bristol Bay-area fishing industry representatives working said they are encouraged by what bringing a large processor under local control could mean for fishing in the region. “We’ve made a massive outreach to the Alaska fleet to say, ‘hey, be blunt, let us know,’” Gillam said. “Fishermen are not known for their shyness so we’ve gotten a lot of good feedback.” According to May, Peter Pan leaders have plans for significant growth over the next three-to-five years. “It’ll benefit the fleet; it’ll benefit Alaskan workers. It’ll benefit local communities with more tax revenue,” May said. Slightly more philosophically, he added that he believes avoiding further consolidation among Alaska processors will help the industry also help the industry as a whole. “The simple fact that we were able to keep Peter Pan intact is huge,” May said. Communities buy crab quota With the help of local development groups, 30 Western Alaska communities have bought further into Bering Sea crab fisheries. Bristol Bay Economic Development Corp. and Coastal Villages Region Fund announced a complex transaction in which 30 communities across the Bristol Bay and Yukon-Kuskowkim Delta regions purchased snow and red king crab quota valued at approximately $35 million from the Seattle-based Mariner Cos. that collectively totals about 3 percent of the total crab fishery. As part of BBEDC’s role of the deal, the community development quota, or CDQ, group will increase its ownership share in Mariner crab vessels and take outright ownership of four of them. “Owning boats quite frankly is a headache,” CEO Norm Van Vactor quipped, but he added that the benefit of the transaction for BBEDC is more crab available for its vessels that should make overall operations more efficient. With the CDQs playing a facilitating role in what are really separate deals for each community to own quota, according to Van Vactor, the revenue from the crab fishery will flow directly back into local government coffers. “There’s no middle man,” he said. “I hope the structure that we’ve put together actually makes this just a starting point. The infrastructure is there, if you will, is there now for communities to do more of this.” Coastal Villages CEO Eric Deakin said the crab fishery revenue should help fund solutions to some of the critical issues in the region. “Rural Alaska continues to face high poverty rates and lack of access to resources and there is a growing need for services in the Y-K Delta and Bristol Bay regions, which this deal will help address. We welcome a new generation of Alaskan owners and operators fishing in the Bering Sea and improving livelihoods here,” Deakin said. Van Vactor emphasized that at its core the deal brings more of Western Alaska’s fisheries under local control because of the value of the deal. “This wasn’t a grant or federal program; this was Alaskans through a competitive sales process buying back ownership to Alaska’s Bering Sea resource,” he said. Elwood Brehmer can be reached at [email protected]

State to appeal Corps’ denial of Pebble permit

The Pebble Partnership will have the State of Alaska on its side when the company appeals the federal decision to deny the company approval to construct its mine later this month. Gov. Mike Dunleavy announced via a Jan. 8 statement from his office that his administration would appeal the November U.S. Army Corps of Engineers record of decision, or ROD, denying Pebble the ability to secure a key Clean Water Act wetlands fill permit. Dunleavy said in the statement that the decision signed by Army Corps of Engineers Alaska District Commander Damon Delarosa’s rejecting Pebble’s mine plan sets a “dangerous precedent” that will harm future development in the state. “We have to prevent a federal agency, in this instance, the Alaska District of the Army Corps of Engineers, from using the regulatory process to effectively prevent the state from fulfilling a constitutional mandate to develop its natural resources,” the governor said. The decision was based on flawed conclusions and “usurped the entire public interest review process,” the statement reads. Corps Alaska District leaders found that Pebble’s plan for a large open-pit mine and extensive support infrastructure does not meet Clean Water Act criteria for minimizing development impacts and “is contrary to the public interest.” The Pebble ROD followed draft and final versions of the project’s environmental impact statement — intended to inform the record of decision — that largely concluded the Bristol Bay region’s prolific salmon fishery wouldn’t be meaningfully impacted by the project. Those findings were blasted by conservation, commercial fishing and Alaska Native groups opposed to Pebble for fears it would degrade water quality in productive salmon habitat and the mines waste would be a constant threat to the area’s salmon stocks, particularly in the Nushagak River. Public surveys have consistently found a majority of Alaskans are against the Pebble mine plan. Several state and federal agencies logged criticisms of the draft EIS for cursory analysis and conclusion drawn with incomplete data in official comments on the massive document. Acting Attorney General Ed Sniffen said in the statement from the governor’s office that the Pebble ROD “ignored long-standing guidance that required it to tailor mitigation requirements to recognize Alaska’s unique position of holding more intact wetlands than any of the Lower 48 states combined.” In the first indication that Pebble could have trouble obtaining a wetlands fill permit the Corps officials in late August imposed mitigation requirements mandating the company conduct direct, in-kind mitigation — restoration or preservation — in the Koktuli River drainage, a Nushagak tributary, where the mine would be located. Pebble proposed preserving 112,000 acres of predominantly state land, including 31,000 acres of aquatic resources to offset impacts to 3,300 acres of wetlands and 185 miles of streams. The company did not propose any compensatory mitigation for its west Cook Inlet port site. In June 2018 former Environmental Protection Agency Administrator Scott Pruitt and Assistant Army Secretary for Civil Works R.D. James signed a memorandum of agreement laying out Alaska-specific guidelines generally calling for less rigorous requirements for wetlands fill permits in the state. The memo encouraged Alaska District officials to allow for compensatory mitigation over a larger watershed scale “given that compensation options are frequently limited at a smaller watershed scale,” its states. “Given this flexibility, Alaskans should be assured that discharges of dredged or fill materials into waters of the United States will be evaluated in a reasonable manner, consistent with the agencies’ goal of fair, flexible, and effective protection of the nation’s wetlands resources,” the memo states. Department of Law spokeswoman Maria Bahr wrote in response to questions about the specific flaws in the ROD that the department is preparing the appeal that will identify the state’s arguments and it will be filed by the Jan. 25 deadline. The appeal would be adjudicated by the commander of the Army Corps Pacific Ocean Division headquartered in Honolulu, currently Col. Kirk E. Gibbs. Dunleavy has insisted his administration is neutral in regards to the development of Pebble while many of the project’s opponents consider the appeal further proof the governor is doing what he can to spur its development. Norm Van Vactor, CEO of the Bristol Bay Economic Development Corp., a group that works to support the region’s communities through its ownership of Bering Sea fishing quota, said he is disappointed but not surprised by the governor’s decision to appeal the Pebble denial. Dunleavy has not missed an opportunity to back the project, he said. “There’s been evidence that literally some of the governor’s correspondence are cut and pasted documents that originated with the Pebble Partnership; it’s just blatant,” Van Vactor said in reference to a letter Dunleavy sent to Corps officials in 2019. “He might as well be their spokesman.” He said regardless of the expected appeals he expects the combination of President-elect Joe Biden’s incoming federal administration and Sens. Dan Sullivan and Lisa Murkowski, who both took positions against Pebble late last summer should provide opportunities to protect the Pebble area, something Murkowski has already discussed. Dunleavy spokeswoman Lauren Giliam wrote via email that the governor has always advocated for a “consistent, predictable and fair” permitting climate. “Supporting the attributes of a robust regulatory regime is not the same as cheerleading for a particular project. The Pebble project’s proposal has, for the better part of 20 years, been snarled through ad hoc political decisions as opposed to objective regulatory determinations. The U.S. Army Corps of Engineers most recent decision, a literal 180-degree reversal in the span of a month, is a clear case-in-point,” Giliam wrote. “Time and again, the governor has always deferred to the science of the project, and if it was found to be good for Alaska, he would welcome the opportunity.” Pebble spokesman Mike Heatwole said company representatives briefed administration staff about their plans to appeal the project but they did not request the action from the state. The company still plans to file its own appeal, according to Heatwole. ^ Elwood Brehmer can be reached at [email protected]


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