Elwood Brehmer

A billion opportunities: Alaska positioned for major funding boost to state's ferries

Alaska appears to be in prime position to capture well more than $1 billion in federal funding for ferries that many stakeholders hope is the catalyst for long-sought change in the Alaska Marine Highway System and elsewhere. The $1 trillion Infrastructure Investment and Jobs Act signed in November by President Joe Biden establishes new national programs and boosts existing funding to collectively offer nearly $1.6 billion in ferry-specific funding, according to information from the office of Alaska Republican Sen. Lisa Murkowski, who was among a group of 10 senators that negotiated the framework of the bill with the White House. As it turns out, the lion’s share of that $1.6 billion is likely headed to Alaska over the next five years due to the specific language of the provisions. Though it’s not a forgone conclusion all of the money that flows to Alaska will go to the Alaska Marine Highway System, it represents the opportunity for a sharp turnaround from the constant pressures that budget cuts and an aging fleet have put on the state’s ferry system. Less than two years ago, 10 of the then-12 Alaska Marine Highway ferries were laid up for repairs or lack of funding with little prospect of significant changes. “There’s basically a billion dollars set aside for the next five years,” said Robert Venables, executive director of Southeast Conference, a community development group. “It’s historic and game-changing if we use it wisely.” Venables was also the longtime chair of the state’s Marine Transportation Advisory Board, which sunset last year and was replaced by the newly formed Alaska Marine Highway Operations Board. Most of the overall $1.6 billion will go to a new program aimed at improving rural ferry service nationwide. The program will provide $1 billion spread over five years to eligible rural ferry systems that operated between 2015 and 2020, according to the bill. The catch is that the money is only available for rural ferry routes over 50 miles in length, of which Alaska has many and other states very few, staffers to Alaska’s congressional delegation noted. A program to fund pilot project electric or low-emitting ferries also provides up to $250 million for those endeavors across the country, but a provision in the bill requires at least one of those pilot tests be conducted in the state with the most qualifying marine highway system miles — Alaska. The state is also set to receive $73 million from $342 million in grants aimed at ferry vessel and terminal construction through an existing capital program, according to Murkowski’s office. For context, the Alaska Marine Highway System has had an annual operating budget of roughly $140 million in recent years. Alaska Department of Transportation Commissioner Ryan Anderson said the state will be “aggressive” in its pursuit of the available ferry funds but added that DOT officials would also welcome partnering with communities on local ferry projects where appropriate. “We’re going to really be looking hard at how all this can fit together because we want to make the most of all of those funds,” Anderson said in a December interview. According to delegation staffers, the new programs should be established by Oct. 1, the end of the federal fiscal year, but the final timelines will depend on agency rule-making procedures. Regardless, the state is starting to use other supplemented capital funds more quickly available from the infrastructure bill to replace the 57 year-old Tustumena ferry that serves Southcentral and Southwest Alaska communities on some of the longest, harshest runs in the system. The $200 million-$250 million Tustumena replacement vessel has been designed since 2016 but construction of the 330-foot ferry had been on hold as Alaska struggled to deal with ongoing budget deficits. Anderson said a 30-40% increase in annual federal highway capital funds to the state — approximately another $1 billion over five years — because of the infrastructure bill made now the time to move on the new ferry. “People want us to think generational; do those things that are good for the long term of Alaska. This would be one of those things. Replacing a ship is generational,” Anderson said. The Tustumena replacement is just one instance in which Anderson believes the state will be able to leverage the new federal funds to invest in ferry systems along much of Alaska’s coastline. As for AMHS-specific investments, he said he expects to lean heavily on the new operations board, which is expected to hold its first meeting soon, for strategic direction. “DOT participates but really this board is going to be integral in the decision-making process,” Anderson said. Another key provision allows federal highway money formerly restricted to capital projects on roads and ferries to be used for ferry operations, which has been at the center of the debates between Dunleavy and legislators over the AMHS budget. Venables said he and other coastal community leaders are concerned politics will cause much of the ferry money to be used for short-term budget fixes instead of forward-looking investments. “There’s an unprecedented amount of funding available to the Marine Highway System, but it needs to go toward the new Marine Highway System, not the old concepts and models of the last 50 years,” Venables said. Dunleavy’s proposed budget relies on ferry revenue and federal funding for all but $5 million of the $141 million AMHS operating budget for next fiscal year. Cordova Mayor Clay Koplin, an outspoken advocate for changing and investing in the state’s ferries, said he’s skeptical the funding will lead to significant improvements in ferry service and reliability unless bigger, structural changes are made to the system’s governance. Many AMHS stakeholders have long said the current state agency structure does not work for the ferry system because it injects political uncertainty that prevents the long-term planning needed to improve the operations and economics of the state’s ferries. “Every time the (state) administration flips you repeat the cycle. I hate to say it but I’m somewhat pessimistic that we’re going to see real change going forward,” Koplin said of the AMHS. Anderson emphasized that he wants to do his part to improve Alaska’s ferries given the opportunities about to arrive. “The Marine Highway System is another unique piece of Alaska that is necessary,” he said. “It’s a part of the highway system that needs to be taken care of.” Elwood Brehmer can be reached at [email protected]

Biden administration wants to return to Obama-era plan for NPR-A oil

Biden administration officials in the Bureau of Land Management on Monday announced their plans to return to Obama-era rules for oil and gas development in the vast National Petroleum Reserve-Alaska on the North Slope. According to a written statement issued by the BLM Alaska office, attorneys for the agency are expected to file a status report in U.S. District Court of Alaska indicating that BLM leaders want to go back to the 2013 NPR-A Integrated Activity Plan, which is essentially the land-use plan for the 23 million-acre reserve. The filing is in a lawsuit brought by conservationists over the NPR-A land-use plan finalized by Trump administration officials shortly before they left office last January. The plan approved under Trump opened an additional 7 million acres to industry leasing, or about 30 percent of the reserve, for a total of about 18.5 million acres on the western Slope open to development. For comparison, the previous NPR-A plan approved in 2013 under the Obama administration allowed BLM to lease just more than 11.7 million acres, or almost exactly half of the reserve. That plan closed to leasing more than 3.5 million acres — much of which is a vast wetlands complex — in the Teshekpuk Lake Special Area. The area is the calving grounds for a distinct population of caribou and is the summer nesting home for large numbers of migratory birds, both of which are important subsistence resources, according to area Tribes opposed to oil development there. However, since 2013 a handful of large oil discoveries have been made around the Teshekpuk Lake area, most notably ConocoPhillips $8 billion Willow prospect. With work currently on hold as its permits currently under a court-ordered revision, Sen. Lisa Murkowski has said keeping the Willow oil project moving toward development is a top priority for her this year. Kristen Miller, acting executive director for the Alaska Wilderness League, said the Trump administration’s changes to the NPR-A plan were rushed and violated multiple federal environmental laws. “Returning to the 2013 management plan is the right move and will restore protections to the reserve’s critical special areas, in particular Teshekpuk Lake. Now, especially as it prepares to take public comment on its ‘America the Beautiful’ initiative, we hope the (Biden) administration recognizes the potential for America’s largest single piece of public land to provide landscape-level protection of ecosystems and sustain healthy and diverse wildlife and habitat for the future,” Miller said in response to BLM’s announcement. For their part, leaders of the Arctic Slope Regional Corp. and the North Slope Borough said in a joint statement that reverting to the 2013 land-use plan “diminishes Alaska Native self-determination by ignoring the needs, concerns and input of the local people who live, work and subsist in and around the NPRA.” ASRC President and CEO Rex Rock, Sr. said North Slope leaders have made multiple offers to work with Biden administration officials on issues such as the NPR-A to no avail. “(Interior) Secretary (Deb) Haaland and President (Joe) Biden have chosen, with this decision, to not only ignore the voices of the North Slope Iñupiat but to exclude us from the decisionmaking process on issues that impact our Iñupiat communities and our culture,” Rock said. ASRC holds joint subsurface mineral rights with BLM to portions of the NPR-A. Gov. Mike Dunleavy called the Biden administration’s decision “another unwarranted hit to Alaska and the nation” in a statement from his office. “The U.S. Department of Interior proposes to lock down Alaska, take away local opportunities, resources and other benefits that the National Petroleum Reserve is intended for. This is another sign of the federal government turning its back on Alaska and hampering domestic energy production,” Dunleavy said. The Trump administration plan mostly opened the Teshekpuk Lake Special Area to industry leasing. BLM Alaska officials said at the time that their plan responds to requests from the state and local governments for increased economic opportunities and uses seasonal restrictions on industry activity and other mitigation techniques to minimize the impacts on wildlife from oil exploration. BLM’s announcement should also essentially end the lawsuit largely filed to keep the 2013 plan in place. In 2017, the U.S. Geological Survey drastically increased its estimate for the amount of recoverable oil in the NPR-A, largely on the belief that additional Nanushuk oil formations are available in and around the Teshekpuk Lake area. The USGS now estimates there are roughly 8.8 billion barrels of available oil in the reserve and adjacent state lands, up from just 896 million barrels in 2010. Elwood Brehmer can be reached at [email protected]

State enters court fight alongside feds to keep Cook Inlet fishing grounds closed

Gov. Mike Dunleavy’s administration will be fighting in court to keep much of Cook Inlet closed to commercial salmon fishing after a federal judge approved the state’s request to intervene in a lawsuit over the fishery. U.S. District Court of Alaska Judge Josh Kindred granted the state’s motion Jan. 6 to join the National Marine Fisheries Service as a defendant in suits filed last fall by the United Cook Inlet Drift Association and individual fishermen in an attempt to force the agency to reopen the federal waters of central Cook Inlet to salmon fishing this coming season. Often referred to as the EEZ — an abbreviation for its formal name, the exclusive, economic zone — the area currently closed by federal regulations this year covers all of the waters beyond 3 miles offshore in central Cook Inlet. Fishing would still be allowed in state waters up to the 3-mile line. Intervening in the consolidated lawsuits also puts the state in the odd legal circumstance of arguing alongside the federal government in court to prevent what Dunleavy administration officials insist would be a gross example of federal overreach. State attorneys wrote in their intervening motion that if UCIDA were to win their suit, “Alaska would face the prospect of NMFS being forced by judicial order to manage fisheries in Alaska’s sovereign waters, and without the preemption procedure required by the (Magnuson-Stevens Act).” At issue is not just what boundaries will be placed on the Inlet fleet, but likely the fate of the otherwise viable, productive fishery, according to UCIDA President David Martin. “If the EEZ is closed, basically commercial fishing in Cook Inlet is going to be put out of business,” Martin said. The offshore area extending north from roughly Anchor Point accounts for roughly 20% of the total Cook Inlet salmon harvest and nearly half of the drift gillnet fleet’s catch, according to a North Pacific Fishery Management Council analysis of the fishery. The council voted in December 2020 to close the Cook Inlet EEZ to commercial salmon fishing after state officials would not agree to the terms of co-management of the Inlet’s salmon runs or federal oversight presented to them — an attempt to comply with a 9th Circuit Court of Appeals ruling in a prior lawsuit by UCIDA. Commercial fishing in the EEZ remained open last year as the council went through the process to finalize the rule, which happened in November. The 2015 ruling directed the council to draft a fishery management plan for Cook Inlet salmon that covered the entire range of the highly transient species. A prior plan delegated management authority over the EEZ to the state, which spurred UCIDA’s first lawsuit. Salmon management has largely been deferred to the state, in part because the species is managed by escapement goals in the rivers, which are in state jurisdiction. Fish and Game manages salmon returns to a variety of rivers and oversees subsistence, sport, commercial, and personal use fisheries throughout the basin. That’s gotten more complicated over the past few decades as the populations of Anchorage, the Kenai Peninsula, and the Mat-Su have grown, personal-use fisheries have been established, and sport fisheries have become major economic drivers for tourism. Fish and Game officials told the council in 2020 that closing the EEZ might lead to a decline in the drift fleet’s harvest, but the variable nature of salmon fishing made it difficult to quantify the likely impacts. Martin questioned whether the two processors still operating on the Kenai Peninsula would open if the EEZ remains closed this year. “It’s the state systematically putting the Cook Inlet commercial fisheries out of business,” he said. A spokesman for Dunleavy said the administration couldn’t comment on the situation while the lawsuit is pending. Agreeing to close off a large portion of the drift fleet’s fishing grounds is the latest, and likely the most dramatic, step taken by state regulators under Dunleavy to squeeze commercial fishing in the Inlet, Martin said, whether it’s the drifters or east side setnetters. Both groups primarily target sockeye bound for the Kenai and Kasilof rivers. The Kenai River Sportfishing Association was the only group to support the original proposal to shut down commercial fishing in the EEZ when it was before the council. KRSA founder Bob Penney donated more than $350,000 to a political group that supported Dunleavy’s 2018 campaign for governor. Penney’s grandson, Clark Penney, was also issued a since canceled no-bid contract to work on projects for the state���s development bank in the months after Dunleavy took office. The Board of Fisheries also took several steps at its 2020 Upper Cook Inlet meeting to increase in-river objectives for salmon runs on the Inlet’s major river systems and limit the likelihood for commercial fishermen to catch king and coho salmon, citing the need to conserve some stocks and the desire to increase sport fishing opportunities for others. The drift fleet was down to about 250 permits last year, down from a historic peak of nearly 570 participants, according to Martin. Fish and Game Deputy Commissioner Rachel Baker, the state’s representative on the council, acknowledged the situation has put the state in somewhat of an odd position but insisted department officials were faced with two bad options. The challenges of Cook Inlet salmon management were further exemplified by the fact that it took the council nearly six years — right up to its deadline — to reach a decision, she said. The structure of NMFS oversight for management delegated to the state would have interfered with the way the state manages salmon fisheries to the point that “it just wouldn’t work,” Baker said. “We just couldn’t live by those requirements, frankly.” The other alternatives dictated to the state created inefficient and duplicative management structures led by NMFS, an agency with no salmon management experience, according to Baker. “The court didn’t mandate how the council or the National Marine Fisheries Service or the state would manage the Cook Inlet EEZ, all the court order said was that the council’s fishery management plan for salmon had to somehow include the Cook Inlet EEZ,” she said. Baker also stressed that state officials understand the importance of commercial salmon fishing to the Kenai Peninsula’s economy and way of life. More than 75% of Cook Inlet permit holders are area residents based on state permit data, one of the highest rates of local participation among the state’s major salmon fisheries. “I don’t think any of us are glad we ended up here,” she said. “It was just a series of very unfortunate events.” Martin said the drifters just want the state to follow the law. “The Magnuson-Stevens Act has the 10 national standards on how fish are supposed to be managed. We would like the state to manage it but under the legal guidelines of Magnuson and other applicable laws,” said Martin. “They said they don’t want to do it.” Expedited schedule approved Judge Kindred also agreed to an expedited hearing schedule on Jan. 6 in an attempt to resolve the case before the late June start to the Cook Inlet sockeye season, but not on quite as quick of a timeline as the fishing group requested. Kindred scheduled oral arguments in the case for April 15, with a decision following “as soon as practicable, but not later than June 20, 2022,” the scheduling order states. UCIDA had requested the April 15 hearing date but also asked for a ruling deadline of May 15. Elwood Brehmer can be reached at [email protected]

Dunleavy requests funding for state takeover of wetlands permitting

Gov. Mike Dunleavy wants the state of Alaska to revisit the idea of taking over one of the most complex and contentious development authorizations in the country. The governor included just more than $4.9 million in his 2023 fiscal year state budget proposal for the Department of Environmental Conservation to start work toward taking over Clean Water Act Section 404 permitting for development in wetlands and other water bodies with federal jurisdiction. Section 404 permitting, as it is often known, is currently administered by the U.S. Army Corps of Engineers and overseen by the Environmental Protection Agency across the vast majority of the country. Development-minded state officials have long insisted the national standards for wetlands impact avoidance and mitigation are too onerous in Alaska, which is more than 40% wetlands and contains more wetlands than all other states combined. More specifically, development advocates argue federal standards for compensatory mitigation widely used in the Lower 48 — restoring, enhancing or preserving wetlands likely to be developed — aren’t practical in Alaska given the relative lack of damaged and at-risk wetlands in the state. EPA leaders in the Trump administration urged Army Corps officials to develop Alaska-specific mitigation standards as a means to give permit reviewers more flexibility in approving wetlands mitigation plans for projects in the state. Dunleavy noted during his budget rollout briefing that the state taking primacy of Section 404 permits doesn’t mean any federal standards or requirements will be waived and the EPA will retain oversight. But he claimed Alaska is the best in the nation at hitting permitting deadlines and said his administration is confident it can run the program “more efficiently” than the federal government. Environmental impact statement reviews are often spurred by the need for a Section 404 wetlands permit and for large development projects they typically take several years to complete. “This will allow this (Section 404) permitting process to be under the umbrella of the state, which we believe will have better outcomes,” Dunleavy said. To date, just three states have taken on wetlands permitting from the federal government: Michigan, New Jersey and Florida. Dunleavy spokesman Jeff Turner wrote in response to follow-up questions that state primacy over Section 404 permitting will produce faster decisions on permits that could make development projects more feasible. That should ultimately mean more job growth and improved revenue to the state, according to Turner. Army Corps of Engineers Alaska District officials rejected the proposed Pebble mine’s development plan in November 2020 based on their belief the large project would have significant impacts on the aquatic ecosystem of the Bristol Bay region and could not meet Clean Water Act Section 404 mitigation standards. The Dunleavy administration attempted to appeal the corps’ decision last year on Pebble’s behalf before corps officials ruled the state lacked jurisdiction to do so. Alaska most recently investigated taking over Section 404 permitting in 2013 under Republican Gov. Sean Parnell, when lawmakers passed a bill authorizing the state to pursue the program and providing $1.5 million to do it. However, the funding was cut the following year as the state’s financial situation worsened. This time, the $4.9 million requested from the state’s general fund would cover 28 new full-time positions in the Department of Environmental Conservation to staff the state’s 404 program. An additional four positions would need to be added in 2024 to fully implement the program, according to an Office of Management and Budget report. DEC officials say the Legislature’s 2013 Section 404 program approval is sufficient for today so no additional legislation is needed beyond the budget request. They also acknowledge the plan is aggressive, but hope to have the program implemented in fiscal year 2024. While the plan is to fund it with general fund money to start, the state could shift to an applicant fee-for-service model similar to what is used by the corps or a hybrid of the two, DEC spokeswoman Laura Achee wrote via email. Brian Litmans, legal director for the Anchorage-based environmental law firm Trustees for Alaska, said he believes the effort will prove too costly once again. Trustees attorneys regularly challenge permit approvals for development projects in court. “It’s an incredibly expensive program to administer,” Litmans said. “As a result, there are only three states that have primacy over the program.” The Army Corps Alaska District Regulatory Division typically handles between 600 and 800 regulatory actions per year, according to Corps officials. Litmans added that he would have concerns with the adequacy of the Section 404 permits if the state does take over given the volume of work it entails. “Ensuring that each project that is looking to get authorization to fill wetlands — there’s quite a bit that goes into showing that they comply with the Clean Water Act’s requirements, and the Army Corps of Engineers has always been running the program and is familiar with what is required. It is asking quite a bit of the state of Alaska,” Litmans said. “There’s no indication right now the state is able to take on a program of this size and nature.” Elwood Brehmer can be reached at [email protected]

State regulators fine Hilcorp for more well work violations

State oil and gas regulators hit Hilcorp Energy with two more fines totaling $64,000 to end 2021 for violating well work rules at a pair of its Cook Inlet fields. The fine orders were issued back-to-back by the Alaska Oil and Gas Conservation Commission Dec. 29 for not meeting the conditions of a drilling permit while drilling a well into the Swanson River field in September and failing to test blowout prevention equipment during a well workover conducted in May at the North Cook Inlet gas field. The fines of $39,000 for the Swanson River and $25,000 for the North Cook Inlet violations followed a $10,000 fine imposed on the Houston-based producer by the AOGCC on Nov. 30 for a defeated well safety valve system discovered in September by an agency inspector at the large Prudhoe Bay North Slope oilfield. At Swanson River, Hilcorp workers conducted integrity tests of the casing and shoe of a just-drilled well on consecutive days without giving AOGCC inspectors a chance to witness the tests. Workers then proceeded with additional drilling without also providing the agency with data from the foundation integrity test until AOGCC officials requested it more than a week after the test was conducted, according to the order by the commission. The AOGCC, led by a panel of three commissioners, regulates the highly technical subsurface aspects of the oil and gas industry. The Swanson River order states that “Hilcorp’s lack of good faith in its attempts to comply with the clearly stated conditions of the (permit to drill), the potential seriousness of the violation, track record of regulatory non-compliance and need to deter similar behavior in future operations” were weighed against the company in determining the penalty. Conversely, the fact that Hilcorp gained little from the violation and it caused no human injuries or harm to the environment were mitigating circumstances for the three-member commission. The North Cook Inlet order states that work continued for five days on a well without testing the blowout prevention equipment after activity that could have compromised the blowout preventer’s ability to seal the well bore if a well control incident occurred. The commissioner’s wrote in this case that the regulations for testing blowout equipment are clear and the benefits Hilcorp realized from the violation as well as the potential seriousness of the violation factored into their decision to levy an initial $20,000 fine with an added assessment of $1,000 for each of the five days work went on after the test should have occurred. AOGCC commissioners generally have wide latitude to issue fines against operating companies. State law allows the commission to levy fines of up to $100,000 for an initial violation and up to $10,000 for each day a violation continues. AOGCC chair Jeremy Price said in response to questions about Hilcorp’s recent violations that agency officials are concerned with the company’s ongoing compliance issues. “Small mistakes can lead to big mistakes so we take this seriously,” Price said, adding the company appears to have taken good-faith steps to prevent repeat issues. The commission issued five enforcement orders with fines in 2021; three of them were issued to Hilcorp. Hilcorp Alaska spokesman Luke Miller wrote in an emailed response to questions about the orders that the company has taken steps to improve its internal controls as the company has grown in the state and company officials will continue to work with the AOGCC to maintain safe and compliant operations. “Hilcorp takes seriously AOGCC’s recent orders and is taking proactive measures to ensure similar incidents do not happen in the future, including better contractor management, revising procedures, and dedicating additional resources focused on well integrity,” Miller wrote. Hilcorp entered Alaska in 2012 with the purchase of several mature Cook Inlet fields and has since grown to become the predominant natural gas supplier to Southcentral utilities as well as the operator of the iconic Prudhoe Bay oilfield on the North Slope. Hilcorp currently has more than 1,400 employees in the state. The company did not dispute the agency’s findings and informed AOGCC officials in late November that the North Cook Inlet situation had been broached with all of Hilcorp Alaska’s operating and drilling engineers. The situation is also being highlighted in pre-work meetings with all of the company’s drilling rig crews, according to the order. Hilcorp also AOGCC officials that it would pay what was then a proposed $39,000 fine for the Swanson River drilling permit issues and would advise company personnel on the importance of adhering to permit requirements; hold daily discussions about upcoming steps in drilling work; and clarify the differences in processes between North Slope and Cook Inlet drilling permits to engineering staff, according to that order. Elwood Brehmer can be reached at [email protected]

Environmental group threatens feds with lawsuit to halt drilling in NPR-A

A national environmental group is planning to sue the Interior Department to stop oil exploration work in a broad swath of northwest Alaska congressionally designated for the activity, citing risks to polar bears. Attorneys for the Center for Biological Diversity on Dec. 22 filed a Notice of Intent to Sue Interior and Bureau of Land Management officials over alleged Endangered Species Act violations in the agencies’ approvals of 88 Energy’s exploration drilling in the southern portion of the 23-million-acre National Petroleum Reserve-Alaska. “Continued oil and gas exploration and development is fundamentally incompatible with polar bear survival and recovery,” the notice states. The 60-day notice, which is required before suing federal agencies over many regulating statutes, states that the authorizations for 88 Energy’s drilling program don’t include incidental take approvals for polar bears. The notice says the best way to fix the violations is to immediately order the company to stop work and not approve its drilling permit application for this winter. 88 Energy applied Dec. 4 with BLM for the permit to drill its Merlin-2 well. Attorneys with the environmental group additionally contend that comprehensive scientific studies project most of the world’s polar bear populations, including the Southern Beaufort Sea population at the center of the lawsuit, will go extinct in the next century due to a loss of sea ice without aggressive actions to curb global greenhouse gas emissions. According to the center, 88 Energy’s planned five-year exploration drilling program is likely to impact bears in the area through noise and on-the-ground development associated with long-term industrial activities, which includes building more than 80 miles of ice roads each winter. Changes to this winter’s planned ice road route compared to last winter also add to the “amount of road constructed in potential polar bear denning habitat,” the notice states. The Center for Biological Diversity intends to sue BLM if the agency doesn’t rectify the ESA problems, or at the very least consult with U.S. Fish and Wildlife Service officials to ensure that proper polar bear impact mitigation methods are implemented in the work and the proper incidental take authorizations are in place, according to the 10-page notice. 88 Energy has been exploring the southern edges of the North Slope for years, previously on state land. The small Australia-based operator has one of the largest lease-holdings on the Slope; 88 Energy holds rights to more than 440,000 net acres through its state and federal leases. The company’s Merlin project in the NPR-A is near the legacy Umiat oil prospect in the southeastern corner of the federal reserve. The Umiat prospect, despite being long-known to hold oil, has not been developed, in large part because of its remote location far west of the Dalton Highway. 88 Energy is targeting the popular Nanushuk sand oil formations roughly 50 miles south of ConocoPhillips’ large Willow oil project largely based on Nanushuk formation discoveries. North Slope geologists have said the Nanushuk oil plays predominantly run north-south. 88 Energy expects to drill the Merlin-2 appraisal well starting in February. It is planned slightly east of the Merlin-1 well drilled early this year, which the company insists hit significant oil. 88 Energy leaders and a BLM headquarters press representative did not respond to questions in time for this story. Also in the NPR-A, early fieldwork on the $8 billion Willow project was suspended via injunction by the 9th Circuit Court of Appeals last February after a group of Alaska Native and local environmental groups similarly sued BLM, in part over the agency’s polar bear-related ESA authorizations for the work. A U.S. District Court of Alaska judge then formally invalidated portions of the Willow environmental review over the summer, prompting the company and agency to begin working on revised plans and permits. Elwood Brehmer can be reached at [email protected]

Murkowski ‘optimistic’ about progress on Alaska priorities in 2022

Making an important but temporary exemption for Alaska-bound cruises permanent, prioritizing salmon and keeping one of Alaska’s largest oil projects in decades moving forward are among Sen. Lisa Murkowski’s objectives for the coming year, all while campaigning for reelection. It’s going to be a busy 2022 for Alaska’s senior senator, but she says she’s welcoming it. “I am so done with 2021,” Murkowski said in a Dec. 23 call with the Journal and the Anchorage Daily News. “There are some good reasons to be hopeful and optimistic in 2022,” she said, despite what appears to be yet another wave of COVID-19 cases nationwide as we approach the new year. And while inflation is presenting its own challenges, job markets are robust and the national economy continues to recover. Alaska’s congressional delegation continues to push for resolution on a time-sensitive issue: a permanent Alaska-specific waiver from the Passenger Vessel Services Act, a 19th century law that Alaskans in the tourism business have become very familiar with over the past year. The PVSA, as it is often known, requires foreign-built, crewed or flagged passenger vessels sailing between U.S. ports to make at least one stop in a foreign port — an attempt to buoy the nation’s shipbuilding and maritime industries. Last spring, Alaska’s congressional delegation successfully propelled the current, temporary exemption through Congress to President Joe Biden’s desk via Rep. Don Young’s Alaska Tourism Restoration Act. The exemption was needed this year because Canadian transportation officials in February announced they again would not allow the ships to dock in the country’s ports in 2021 after similarly banning cruise ships in 2020, in an attempt to limit the spread of COVID-19. All told, a little more than 100,000 passengers toured the Inside Passage via large cruise ship late last summer, representing about 10% of pre-pandemic cruise traffic to Alaska. Southeast Alaska lost approximately 45% of the nearly 8,400 tourism-dependent jobs it had in 2019 when no ships sailed in 2020, according to state Labor Department figures. Murkowski said she has not spoken to any Canadian government officials regarding the likely status of the country’s ports and borders next summer, but she believes stakeholders in British Columbia are concerned about a permanent PVSA exemption after assuming the temporary waiver wouldn’t pass. “I think now they’re paying attention a little bit more,” she said. “If COVID is still active (next spring), right now our borders with Canada are in a much better place than they were in 2020, but what happens if Canada decides, nope, we’re not taking any risks with omicron so we’re going to put in place the same limits on our passenger vessels and (in Alaska) we’re stuck again. I want to address this and I think the proposal that I have is absolutely one that is worthy of advancing.” She submitted a bill for a permanent Alaska PVSA waiver in September. The legislation includes a provision that reinstate the foreign-stop requirement on Alaska cruises if a large, U.S.-built cruise ship were to enter service. Currently, all of the world’s large cruise ships are foreign-built vessels. Rep. Don Young also submitted legislation exempting Alaska cruises from the PVSA in the House. Under the water, Murkowski said it’s past time for more resources to go toward learning more about the North Pacific and what changes in the ocean environment are doing specifically to salmon runs in Alaska, many of which are in concerning, downward trends across the sate. “We’ve seen incredible abundance in Bristol Bay with our salmon and then absolute crashes on the Yukon and the Kuskokwim,” she said. “We need to know and understand better what is happening.” She noted that while more marine research funding alone is not likely to provide a total solution, it could help fill in data gaps from harvest surveys and other research work not done over the past two years because of the pandemic. “We need to know that when we’re operating, we’re working with sound science and ensuring that we are funding (fisheries) research appropriately, and in my view, we haven’t placed the priority that we need on that,” Murkowski said. She and Sen. Dan Sullivan are attempting to start rectifying that with the Alaska Salmon Research Task Force Act earlier this month. The bill that would establish a task force of 13 to 19 state, federal and stakeholder members with the directive to produce a report detailing current shortcomings in marine research and ways to improve Alaska salmon research and management. On the North Slope, Murkowski said she will also be pressing Interior Department officials in the Biden administration to fix the issues in the federal environmental review for ConocoPhillips’ $8 billion Willow oil project identified by a U.S. District Court of Alaska judge earlier this year. “Willow really is a huge and significant priority for me,” she said, adding that she’s been told progress is being made on the permit revisions needed before fieldwork can get started on the massive oil project in the National Petroleum Reserve-Alaska. The delegation collectively thanked President Joe Biden and administration officials for defending in court — though ultimately unsuccessfully — Willow’s permits approved under the Trump administration. ConocoPhillips estimates Willow could generate more than 2,000 construction jobs over several years and oil production from the prospect could peak at upwards of 160,000 barrels per day. More broadly, she expects congressional Democrats to pitch more targeted initiatives and legislation next year, which could help them gain more bipartisan support for some of what they want to do after the $1.75 trillion budget reconciliation bill failed in the Senate earlier this month. To that end, Murkowski contends West Virginia Democrat Sen. Joe Manchin “gave the country a gift” when he said he would not vote for the reconciliation bill, which included a repeal to the Arctic National Wildlife Refuge Coastal Plain oil and gas leasing program. Manchin, whom she considers a friend, didn’t buy the “budget gimmicks” in the reconciliation bill, according to Murkowski. She estimates it would’ve ultimately cost more than $3 trillion after short-term funding streams for many of the proposed programs would have run dry. “I think he was reminding (Congress) that if you want to have legislation that is going to be enduring for the country — that you’re going to have to figure out not just how to count to 50 Democrat votes, but how to get bipartisan support,” Murkowski said. She acknowledged that Republicans have used similar tactics to push legislation through in the past, but “it doesn’t make it any better.” She would be open to discussions regarding some Democrat priorities, such as extending the child tax credit, if legislation follows its normal course, she added. “Let’s sit and talk about it, let’s see what we can do,” Murkowski said in regards to the expiring child tax credit. Elwood Brehmer can be reached at [email protected]

Hilcorp gives each employee a $25,000 philanthropic bonus to give to a cause of their choice

Hilcorp Energy is upping its giving game as the company continues to expand its presence in Alaska. The Houston-based oil and gas producer is giving each of its employees a $25,000 philanthropic bonus to give to the causes and nonprofit organizations of their choice. Alaska Community Foundation CEO Nina Kemppel said the philanthropy should result in more than $16 million for the company’s Alaska-based employees to grant to nonprofits in their communities. She called coming funding injection a “huge” deal for the state’s nonprofits. “I think the nonprofit sector is going to be pleasantly surprised with all the support they’re going to get,” Kemppel said. For comparison, the popular Pick.Click.Give program that allows Alaskans to donate a portion of their Permanent Fund dividends to hundreds of nonprofits in the state generates roughly $3 million most years, Kemppel added. The Alaska Community Foundation began administering Hilcorp’s giving program in early 2020 as the company was seeking regulatory approval of its $5.6 billion buyout of BP in Alaska, which included the operator position at the large Prudhoe Bay oil field. Companywide, Hilcorp will offer nearly $50 million for its employees to give as they see fit. Hilcorp employs more than 1,400 people in Alaska, and the vast majority reside in the state, according to company leaders. BP was known in the state for having a strong corporate giving program, and Kemppel acknowledged there was concern when BP announced it was leaving Alaska among some in state’s philanthropic sector, largely due to the unknown that came with the quickly growing and privately held Hilcorp. The typically quiet company, through its giving program, provides each new employee with an individual giving account seeded with $2,500. Hilcorp then matches all employee contributions up to $2,000 per year. The $25,000 will go into to those accounts. In the roughly 18 months since Hilcorp took on BP’s assets, its employees have given more than $6.7 million to the community foundation and nearly 850 other Alaska charitable organizations and nonprofits with the support of the company, according to Kemppel. Any nonprofit with a charitable IRS status is eligible to receive a donation through Hilcorp’s Giving Program after they are screened by the ACF, she said, and there are thousands of them. Nearly 100% of Hilcorp’s Alaska employees have also made their own contributions beyond the $2,500 from the company, according to Kemppel. “For a lot of the nonprofits who are really stretching to offer more services and more help for their communities right now, $2,500 or $1,000 goes a long way,” she said, adding the money is granted to everything from social service providers to community art projects to youth sports programs. “It’s really inspiring to see the thought that goes behind a lot of the gifts. It’s changing the way philanthropy is done in Alaska.” In the field, Hilcorp has stemmed production decline if not boosted output from the mature Cook Inlet oil and gas wells it has acquired over the past decade and the North Slope oil fields it more recently took over. However, the company has experienced several operational and environmental issues with the aging facilities it chooses to operate, most notably the prolonged early 2017 natural gas leak from one of the company’s Cook Inlet subsea pipelines. The $25,000 contribution to each employee’s individual charitable fund is part of a $100,000 overall performance bonus announced in mid-December that Hilcorp employees have earned for increasing the company’s production rate by 275,000 barrels of oil equivalent per day and its equity value to more than $10.5 billion, according to Hilcorp representatives. Employees also earned up to $75,000 in direct bonus pay. The benchmarks were set in 2016 and were known internally as the Northbound 275 Goal, the latest in a series of long-term, companywide performance objectives Hilcorp leaders have set in recent years. Hilcorp leaders said the multi-year growth targets have helped create alignment among the company’s employees. “From our receptionists to our geologists to the men and women in the field, we truly have the smartest and hardest-working team in the business. Despite the many hurdles over the last several years, everyone worked hard — and importantly together — to tackle every problem,” Hilcorp Senior Vice President for Alaska Luke Saugier said. “This spirit is what I think makes this a special place to work and what drives success. This is about celebrating their success and sharing it with the communities where we live and work.” Kemppel said the Alaska Community Foundation wants to “ride the momentum” of the $25,000-per-person philanthropic bonuses to encourage Hilcorp employees to become even more engaged in philanthropy work. To that end, Hilcorp and the foundation are planning to host nonprofit giving fairs this February and March in Anchorage and Kenai to give the company’s employees more information about local causes and organizations they can give to. “It’s going to be a great opportunity for our state and growing philanthropy in general,” Kemppel said. Elwood Brehmer can be reached at [email protected]

Oil and gas regulators hear arguments on authority over Hilcorp’s Cook Inlet leak, 4 years later

It took a win in Alaska’s highest court to get it, but Hollis French has had his day in front of the Alaska Oil and Gas Conservation Commission. “It went about the way I thought it would,” he said afterwards. The virtual public hearing held Wednesday morning by the AOGCC was more than four years in the making and it appeared as if French had spent much of the intervening time preparing for it. Reciting lines from Teddy Roosevelt, he implored the three-member commission to preserve its authority over petroleum resources wasted in the state and to hold those responsible for the waste accountable to the extent practical. “Conservation means development as much as it means protection. I recognize the right and duty of this generation to develop and use the natural resources of this land, but I do not recognize the right to waste them, or to rob, by wasteful use, the generations that come after,” French said to the commissioners, quoting the former president and famed conservationist. At issue was the commission’s decision in 2017 to not investigate Hilcorp Energy for wasting state resources, a violation of state law, during a months-long gas leak from a Cook Inlet pipeline owned by the company early that year. While French actually chaired the commission during the leak, he was outvoted by now-retired Commissioner Cathy Foerster and current Commissioner Dan Seamount and the commission did not act on the leak Alaska’s laws against oil and gas waste are typically viewed as among the most stringent in the country. The Alaska Department of Environmental Conservation similarly did not take any enforcement action against Hilcorp for the prolonged gas leak. French insists the commission’s official stance that the agency doesn’t have jurisdiction over oil and gas that has been metered shortly after it leaves the wellhead dangerously cedes authority in favor of industry and would leave the state powerless to deal with similar situations elsewhere. “Under the rule that the other commissioners were using, you could waste lots and lots of gas in Alaska as long as it was downstream of the meter,” he said. “It does not matter to the public which side of the meter the leak is on.” Shortly after French, also a former Democrat state senator, was fired from the commission by Gov. Mike Dunleavy in early 2019, French petitioned the then two-member AOGCC — Foerster and Seamount — to hold a hearing regarding the commission’s jurisdiction over the leak. When his petition was denied, he took the issue to state Superior Court. Another loss in Superior Court led French to appeal to the Alaska Supreme Court, which ruled in his favor Sept. 3. A production operator in the Cook Inlet oil and gas fields before becoming an attorney, French argued the case himself. The commission has maintained that the leak of gas for which the state’s royalty would be paid was outside its jurisdiction, in-part because the leak was in an eight-inch line carrying fuel gas back to an oil-producing offshore platform. However, that belief “puts the cart before the horse,” Justice Daniel Winfree wrote in the Supreme Court opinion. “The commission’s mission is investigating and identifying oil and gas waste, and it therefore has jurisdiction over (according to state law) ‘all persons and property, public and private, necessary to’ investigate oil and gas waste. The commission thus had jurisdiction over the leak at issue,” the Supreme Court opinion reads. “If we accepted the commission’s understanding of jurisdiction, the commission could always undermine (a state law) hearing requirement by deciding the substantive issue behind closed doors and then disclaiming jurisdiction.” French is is not asking for a fine against Hilcorp but he did suggest the commission review the pipeline’s maintenance records. AOGCC Chair Jeremy Price said after the hearing that he and the other commissioners could not answer questions regarding a pending matter. The commission is expected to issue an order on French’s petition, but there is no timetable as to when. Price was appointed by Dunleavy to replace French in 2019. In 2018, Hilcorp applied with the Department of Natural Resources for a royalty reduction for the Middle Ground Shoal Platform A that was shut down as a result of the gas leak. Then-DNR Commissioner Andy Mack wrote in a letter denying the request that Platform A was temporarily shut down due to the pipeline leak, which is a mechanical factor that state law expressly prohibits being used as justification for a royalty reduction. A Hilcorp spokesman declined to comment regarding the hearing. On behalf of the commission, Senior AOGCC Petroleum Engineer Jim Regg gave an overview of the commission’s look into the leak in 2017 during the public hearing. Regg is also the commission’s inspection program supervisor. The commission determined that the leaking gas had passed through the customer transfer meter and separated from the production property, according to Regg. He said AOGCC staff investigated the leak, reviewed field and inspection files along with other Cook Inlet pipeline information at the time. He also noted that two prior leaks in the pipeline had been reported in 2014 by then-operator XTO Energy, when the gas was determined to be “buy-back gas” from a leaking utility fuel gas line. In explaining commission’s position, Regg said state law requires that produced natural gas be measured before it leaves the lease it was produced from. “This is the point AOGCC has always deemed the resource, oil or gas, to be produced,” he said. Because the gas had been purchased by Hilcorp, the commission “deemed it recovered or produced and not susceptible to being waste,” he added. Regg’s presentation was a means for the commission to counter assertions in the Supreme Court opinion that there was not a substantive investigation into the leak in 2017 despite what the commission previously claimed. French said after the hearing that he found Regg’s presentation curious and highlighted that Regg is an engineer, not an attorney. “He knows the piping and the piping’s interesting, but this isn’t a question about how the pipes are screwed together,” French said. Administration officials said it is unclear whether the Supreme Court ruling truly broadens the agency’s jurisdiction beyond historical standing or if it just compelled the agency to hold the hearing. “Absent jurisdiction there is no hearing,” French said in response. “It seems to me fairly obvious that the agency took a highly truncated version of their jurisdiction over that leak and the Supreme Court reversed that decision.” Elwood Brehmer can be reached at [email protected]

Oil flows from Greater Mooses Tooth-2, ConocoPhillips’ latest North Slope project

ConocoPhillips continued its march west on the North Slope this week with the startup of oil production from its second development in the National Petroleum Reserve-Alaska. The Houston-based producer announced Tuesday that oil started flowing from its $1.4 billion Greater Mooses Tooth-2 field Sunday — on time and under budget, according to the statement. The westernmost oil project on the Slope, GMT-2 is expected to reach peak oil production of about 30,000 barrels per day from 36 wells that are in the process of being drilled. The company currently has a handful of wells completed. It is a satellite drill site to ConocoPhillips’ large Alpine field, which is where the new oil will be processed. GMT-2 extends road access about eight miles south and west into the federal area from the $700 million Greater Mooses Tooth-1 drill pad that started producing oil in late 2018. ConocoPhillips Alaska President Erec Isaacson thanked North Slope stakeholders for working with the company to allow GMT-2 to go forward. “The GMT-2 team safely executed this project in an environmentally responsible manner, marking another successful milestone for development in the NPR-A. Projects like these create hundreds of jobs in Alaska and contribute to a stable Alaska economy,” Isaacson said. “We appreciate the collaboration with stakeholders from Kuukpik Corp., the community of Nuiqsut, the North Slope Borough and (Arctic Slope Regional Corp.) that made it possible.” [Proposed Ambler project underscores promise and peril of the Alaska Native Claims Settlement Act] ASRC holds a portion of the mineral rights to the area. ConocoPhillips first submitted permit applications to the Bureau of Land Management for GMT-2 in 2015. Construction of the project spanned three winter seasons and provided about 700 construction jobs, according to the company. The State of Alaska’s oil production tax applies to the oil produced from the federal area, and while half of the 16.67% federal oil royalty revenue is sent to the state, the state does not receive direct royalty payments from the production. Written into federal statute, the money sent to the state funds a grant program aimed at offsetting the impacts of oil development on nearby North Slope communities. ConocoPhillips also expects to develop its $8 billion Willow project farther west in the the NPR-A in the coming years; however, construction of that very large oil field is on hold due to legal challenges of its federal environmental permits. Elwood Brehmer can be reached at [email protected]

2021 in Review: Top Stories

1. Lawmakers spin their wheels on fiscal solutions through four special sessions The year started with sincere hope among many Alaska lawmakers that it would finally be the time for a grand fiscal compromise that would end years of fighting over Permanent Fund dividend checks and a decade-long run of budget deficits. However, as Gov. Mike Dunleavy tried, and tried again, and again, and again and again — over the regular legislative session and four special ones — it became increasingly clear the factions that have kept the state mired in the same budget debates for years would push the issue into the next year once more. The initial optimism for a long-term fiscal solution stemmed from the fact that it looked like the state would be out of savings, or very close to it, by year’s end, giving entrenched lawmakers no choice but to compromise. Projections at the beginning of the calendar year from the nonpartisan Legislative Finance Division said the Constitutional Budget Reserve, or CBR, Alaska’s lone active savings account at the time, would be down to less than $600 million when the 2021 state fiscal year ended June 30. With Department of Revenue and budget officials in the administration stressing the need to maintain a balance of at least $500 million, but ideally more, in the CBR for managing the state’s day-to-day cash flow needs and anemic near-term revenue projections, there appeared to be no way out but to reach some sort of major budget-cut-tax-and-spend agreement. It was mostly downhill from there. Dunleavy moderated his position from demanding “full” PFDs based on the traditional formula still in law to a 50-50 split of the Permanent Fund’s spendable earnings between government and dividends each year at the end of the regular session in mid-May. He announced his compromise plan at a press conference in the Capitol while backed by a large group of legislators, many of whom previously opposed much of the governor’s fiscal agenda, saying it was an important first step towards a solution. Despite that, Dunleavy’s insistence on enshrining the PFD in the Alaska Constitution remained a hard line many legislators were not willing to cross. They say putting the PFD on par with funding for education, public safety and other core services the state is responsible for could lead to serious problems in times of low revenue. Another group of legislators was willing to work with Dunleavy on the constitutional amendment, so long as the administration provided a way to fill the $1 billion to $1.5 billion annual deficits the governor’s plan was projected to create. New taxes or a less than 50-50 PFD again proved to be things Dunleavy could not commit to; his past proposal for major cuts to balance the budget started a recall effort and turned part of his own party against him. This year, administration officials testified in front of legislators numerous times that the governor would be open to carefully crafted new taxes to fill part of the deficit, but the idea was largely dismissed by Dunleavy in public statements. The stalemate over the PFD — this year’s and long-term — again pushed Alaska towards a government shutdown; this time within 2 days, the closest ever. After he signed the budget, Dunleavy persisted with two more special sessions in August and October, though by then it was clear little was likely to be achieved. Consistently rising oil prices throughout most of the year provided for increasingly optimistic revenue and budget forecasts, which most legislators eventually used as a way to avoid a solution this year and the administration used as evidence Alaska doesn’t need new taxes to pay bigger dividends. In the end, eligible Alaskans received a PFD of $1,114, slightly larger than 2020. — Elwood Brehmer 2. $10B+ in North Slope work on hold There was renewed optimism among those with a vested interest in Alaska’s oil industry to start 2021. Drilling was resuming after the early pandemic shutdown and two major projects totaling more than $10 billion in North Slope investments were on the horizon, but that began to change quickly. The year is going to end with both the Willow and Pikka oil projects on hold indefinitely for separate reasons. ConocoPhillips appeared to score a small court victory Feb. 1 when U.S. District Court Sharon Gleason denied an injunction attempting to stop ruled early gravel work the company planned to do last winter for its $8 billion Willow project. Gleason concluded the activity was unlikely to harm polar bears and other wildlife in the National Petroleum Petroleum Reserve-Alaska until the broader merits of two suits challenging federal approvals for the project were determined. The company could move ahead, but only briefly. The 9th Circuit Court of Appeals overturned Gleason’s decision less than two weeks later on an expedited appeal. The three-judge 9th Circuit order halted work on Willow for the winter and sent the case back for Gleason to reconsider. Through early summer, ConocoPhillips attorneys and representatives expressed hope the issues over the temporary injunction could be resolved, allowing work to resume this winter. That was until Gleason invalidated significant portions of the Interior Department’s environmental analysis of Willow. The company did not appeal the ruling by an October deadline. ConocoPhillips Alaska leaders said they remain committed to the project and the best path forward is to remedy the issues identified by Gleason — likely a multi-year endeavor — rather than continue a potentially longer court fight. Meanwhile, Oil Search Alaska leaders said they were hopeful the company would sanction the first, $3 billion phase of its Pikka oil development between the large Alpine and Kuparuk North Slope fields until this fall when documents filed with the state indicated a likely takeover of the company would delay the decision until at least next year. Oil Search shareholders approved the company’s purchase by Australian-based producer Santos Ltd. in early December. Both projects were once expected to start production by late 2025 after several years of construction. Alaska-based leaders of Papua New Guinea-based Oil Search also acknowledged the mid-sized explorer and producer was having difficulty financing the project as more and more investment banks turn away from Arctic oil and gas projects. — Elwood Brehmer 3. Bristol Bay breaks sockeye run record Sockeye flooded into Bristol Bay this year, topping the all-time run record with 66.1 million sockeye attempting to return to the region’s large river systems. It blew away the preseason forecast and topped the previous record of 62.9 million, which was set in 2018. It’s only the third time the total inshore run has topped 60 million in the bay’s history. It wasn’t the only record set, either — the Nushagak district also saw its two largest single-day harvests ever, with more than 1.8 million sockeye harvested in a single day in July. Prices were also somewhat higher than last year, and competitive — Peter Pan Seafoods announced a pre-season price of $1.10 per pound and raised it to $1.25 per pound in July, competing with OBI, which also announced a $1.25 per pound base price with a 15-cent postseason adjustment. However, it wasn’t all rosy news about the run. Overall fish size was down by about a pound. Managers noted that the fish were younger on average, with three-year-olds as the dominant age class. Managers aren’t sure why yet. The overall ex-vessel value reached about $247.7 million before post-season adjustments, which is the fourth largest in the bay’s history. It’s one of the only regions in Alaska that did well for salmon value this year — others struggled to even get fishing periods, if they fished at all. Next year’s run is predicted to break even this year’s record, with a forecast of 71.9 million sockeye for the various systems, according to the Alaska Department of Fish and Game. Some of that has to do with the large sizes of the sibling class related to next year’s run, with exceptional returns projected for all major Bristol Bay systems. — Elizabeth Earl 4. Delegation salvages Southeast cruise season Canada dealt another blow — albeit unintended — to Alaska’s tourism industry in early February when leaders of the Canadian Transportation Ministry announced the country’s ports would again be closed to foreign passenger vessel traffic in 2021. The members of Alaska’s congressional delegation said the closure came as a complete shock and were critical of Canadian officials for not notifying them ahead of time. The news effectively killed the start of the 2021 Alaska cruise season, as the 19th century-era Passenger Vessel Services Act requires all foreign-flagged and built passenger ships to stop in a foreign port on their way between domestic destinations. Cruise ships traveling to Alaska from the West Coast typically used Vancouver as their PVSA compliance stop. For their part, the members of Alaska’s congressional delegation used their outsized collective influence to push an Alaska-specific PVSA exemption bill through Congress and to President Joe Biden’s desk before Memorial Day. That allowed large cruise companies to resume service to the state by late July, providing some additional business for Southeast tourism businesses reeling from no large ships in 2020. The PVSA exemption coincided with action from the federal Centers for Disease Control and Prevention to approve COVID-19 mitigation plans for cruise vessels and port towns. Southeast tourism industry leaders estimate more than 110,000 cruise passengers visited the region last year, which is about 10 percent of pre-pandemic passenger volumes. Sen. Lisa Murkowski introduced legislation in September to permanently exempt Alaskas from the PVSA, as the prior bill was only effective for this year. — Elwood Brehmer 5. Crab stock crashes lead to deep cuts, closures in Bering Sea It was tough for crab in Western Alaska this year. Surveys revealed a terrible surprise for crab fishermen: a roughly 90% drop in snow crab stocks in the Bering Sea, leading to drastically reduced crab catch limits. The Alaska Bering Sea Crabbers Association estimates it to result in about a $200 million loss for the fishery. Scientists aren’t exactly sure what happened to the crab. If they’re alive, they’ve moved far away from the survey area and were missed entirely; if they’re dead, there could be a variety of causes. The North Pacific Fishery Management Council is moving to start a process to study how to minimize bottom contact for pelagic trawl gear in crab protection areas, in part to see if that will help conserve crab stocks. Snow crab aren’t the only stock in trouble, though they’re the most surprising. In recent years, managers were actually able to increase the total catch limit for snow crab because the recruitment looked promising, but that seems to have reversed this year. One decline that wasn’t really a surprise was the Bristol Bay red king crab fishery, which will be closed completely due to low stock abundance this year. This will be the first closure for the fishery since 1995, but the stock has been declining for some years with gradually smaller catch limits. However, the closure is still a serious impact for the affected harvesters and communities that depend on Bristol Bay red king crab for a living. The North Pacific Fishery Management Council also moved to study if extending the closure area for the stock in Bristol Bay could help, in part because the crab in the bay may be moving northward from their older, traditional areas. — Elizabeth Earl

Anchorage wins port suit against feds

Anchorage city attorneys, with a little outside legal help, have done something many said they shouldn’t even bother to try: They bested the federal government. Senior Federal Claims Court Judge Edward J. Damich ruled for the Municipality of Anchorage Dec. 9 in the city’s lawsuit against the U.S. Maritime Administration, commonly known as MARAD, for the federal agency’s role in the failed Anchorage port expansion project nearly eight years after city officials filed the lawsuit. Following the ruling, Anchorage Mayor Dave Bronson called it a “victory for Alaska,” given the city-owned port is the import terminal for most of the consumer and industrial goods used statewide. The Anchorage Assembly officially renamed the facility the Port of Alaska in 2017 to highlight its importance to the state as a whole. “The court’s decision comes at a crucial time as we are working with state and federal partners to secure nearly $1.6 billion to repair the port, to ensure our supply chain is kept intact, and guarantee food security for our citizens,” Bronson said. Sections of the Alaska’s main port are approaching 60 years old, and work to patch badly corroded piles that support the current docks is nearly constant each summer. Damich unequivocally ruled in favor of the city, but whether or not Anchorage will get the full $367 million municipal attorneys have petitioned for is unclear. In addition to his order affirming MARAD’s liability for the ultimately shoddy work performed more than a decade ago, the judge ordered briefs up to five pages be submitted detailing the costs incurred by the city as a result of the unusable open-cell sheet pile system and how much was originally spent installing the structure that eventually failed. In sum, more than $300 million of public money was spent on the project with little to show for it. The city also sued several contractors on the project, including PND Engineers, which designed the sheet pile system used to build the new dock. PND representatives consistently said faulty installation caused the structure to be damaged, a claim backed by construction firms that previously worked with design. A city-commissioned study done by then-CH2M Hill, a competitor to PND, concluded the design was incompatible with the glacial silt soils that underlie the area. The municipality eventually settled that case for $19.3 million across seven contractors. The municipality settled with PND Engineers for $750,000. Assistant Municipal Attorney Robert Owens said the order regarding the sheet pile expenses is intended to clarify minor differences, such as numbers being transposed, in the claims figures used by the city’s attorneys throughout thousands of pages of court filings since the case was brought in March 2014. The city’s only lawyer to work the entirety of the lengthy suit, Owens called the initial thought of suing the federal government “daunting” while acknowledging he didn’t have much of a concept as to what it meant. “Some of the government’s lawyers told me casually that there’s no way the municipality could sue and win against the feds. It seemed like uncharted territory as far as I was concerned,” he said. Former Mayor Dan Sullivan, whose administration filed the complaint, initially downplayed the likelihood of suing MARAD because winning a claim against a federal agency is often viewed as such an unlikely feat. The ruling came nearly 10 months after a nine-day trial conducted last February over Zoom. Damich ruled that the 2003 memorandum of understanding, or MOU, transferring oversight of the large and complex construction project from the city to MARAD legally bound the agency to do everything in its power to produce a bigger and better port for Anchorage. Justice Department attorneys argued the MOU simply 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. Damich made it clear in his 28-page order that he disagrees with that argument. “Every witness confirmed that MARAD’s role under the 2003 MOU was to build the port — which is exactly what MARAD attempted to do. This is clear evidence of MARAD’s duty to deliver the project to Anchorage,” Damich wrote. He added that if Anchorage were in charge of the work, the city would have been the entity hiring and firing contractors, actions executed by MARAD. A 2013 Inspector General audit of MARAD concluded agency officials did not adequately plan or monitor the work being done at the port and occasionally didn’t comply with federal contracting requirements. Anchorage was the first in a series of port projects the agency took on in the mid-2000s. MARAD began managing infrastructure construction so federal money could be appropriated to the specific projects quicker. Owens said while nothing is certain, he doesn’t expect the ruling to be appealed, but city officials also aren’t assuming there will be any money that will come out of it. The court established MARAD breached its contract but did not discuss the merits of damages, according to Owens. “Hopefully the court will be prepared to move forward with its second decision on damages,” he said. Anchorage Assembly member Christopher Constant said he’s skeptical MARAD will make good on its obligation even if Damich orders a payment. “It is a great thing that the court has ruled that the federal government misdirected this project and not the muni, but the cynics say it’s going to take as long as it did to get this decision — whatever it was — seven years or something,” he said. Constant chairs the Assembly committee with oversight responsibility of the port. He said it will likely take a strong push from Alaska’s influential congressional delegation to get what, if anything, is awarded out of the government. Owens noted there is a government fund from which judgments against agencies are paid, again emphasizing that a significant judgment is not guaranteed despite the ruling. He also thanked other city officials and the four mayors Anchorage has had for their support during the case. “Across the board every administration has been really supportive of it and been open and asked good questions,” he said. Port Director Steve Ribuffo said the ruling is positive, but it won’t slow what’s being done to secure other sources of federal money, some of which could come via the $1.2 trillion infrastructure bill Congress passed and President Joe Biden signed last month. “We are going to continue and work the grant application side of things as if this (ruling) hasn’t happened yet,” Ribuffo said. Work is almost completed on the roughly $200 million petroleum and cement terminal at the south end of port facilities. The two-year project was the first in a series of individual infrastructure replacement projects that must be carefully sequenced to allow the port to stay open during construction. “We are at the start of the design process for the cargo docks, which is the next phase of the program,” Ribuffo said. Elwood Brehmer can be reached at [email protected]

Alaska banks positioning for rising rates, inflation

Returns have largely moderated from many early-year records for Alaska’s banks, but the lending business remains strong as people have money to spend. The drop-off from record income quarters corresponds to the wind-down of the U.S. Small Business Administration’s extremely popular Paycheck Protection Program, said Jed Ballard, chief financial officer at Northrim Bank. Lenders that originated PPP loans have been able to realize the fees that are usually spread out over the life of a loan up front when the loans are forgiven, as intended. Northrim processed more than $600 million in PPP loans in just more than a year. At First National Bank Alaska, the PPP loan total since the start of the program was $588 million through the third quarter, according to the bank’s quarterly income statement. Northrim has also been able to leverage the PPP business by turning those borrowers, often new to the bank, into customers in other realms, according to Ballard. While overall loan volumes have fluctuated in recent quarters as PPP loans move on and off institutions’ ledgers, he said longer-term business is solid as well. “We have been doing very well; the thing that really is positive to me is our core loan growth across the state,” Ballard said. Northrim ultimately netted nearly $8.9 million in the the third quarter following $8.3 million in the second quarter after several $10 million-plus profits. The statewide lender increased its asset base approximately 6% in the quarter to just more than $2.6 billion. Northrim has grown both its assets and deposits by about one-fourth over the past year. Alaska’s largest in-state bank, First National Bank Alaska, increased its net income to nearly $14.4 million in the third quarter following three periods in the $13 million range, but it was still behind a year ago when the then-$4.7 billion bank netted $15.5 million in the third quarter of 2020. FNBA has similarly increased its assets nearly 20 percent over the past year. FNBA’s return on assets has gradually declined to 1.11% over the past year. The average return at Northrim fell to 1.40% in the third quarter after reaching 2.31% a year ago. Steve Lundgren, CEO of Denali State Bank in Fairbanks, similarly said PPP lending activity has driven the community bank’s income “abnormally high this year,” adding the fee revenue will be hard to replace. Denali netted $1.3 million in the third quarter, basically matching its prior several quarters. The Interior-area bank has also seen significant increases in total assets as well; its base has grown approximately 20 percent so far this year to reach more than $462 million. First Bank in Southeast Alaska also continues to perform well despite drastically curtailed cruise seasons the last two summers that cut deeply into one of the largest sectors of the region’s economy. The Ketchikan-based bank collected nearly $2.8 million in revenue last quarter, up from $2.1 million in the second quarter on $793 million in assets. More broadly, bank leaders across Alaska have also highlighted through much of the pandemic that loan delinquency and foreclosure rates have been declining and the numbers their institutions reported for the third quarter continue to back that up. First Bank, for instance, had just $753,000 in non-current loans during the third quarter and has maintained a loan loss reserve in the $4.3 million range for much of the year, an indication bank leaders do not anticipate a surge in delinquent or nonperforming assets. That has largely been attributed to the effectiveness state and federal pandemic aid programs to avoid sweeping closures primarily in the tourism industry in Southeast but also in other industries. FNBA saw a slight increase in its non-current loans last quarter to $17.6 million, but that still represents just 0.32% of the banks total assets. FNBA has also kept a stable loan loss allowance of $23.5 million the last three quarters. The trillions in government stimulus and aid dispersed over the past 18 months is also leading to increasing inflation after a decade of inflation rates of about 2 percent or even less per year. Alaska bank leaders mostly believe they are well-positioned to deal with an inflationary period, which Federal Reserve officials have said of late is likely to stick around for some time. Lundgren, at Denali State bank said almost certain increases to the 3% and lower interest rates for fixed loans and mortgages that have driven the national real estate boom of the past couple years will undoubtedly slow home buying and mortgage refinancing to a degree, but added that rising rates provide more income for the floating rate loans lenders are much more likely to keep in-house. Denali, like most smaller banks, generally sells its home mortgages. The banking industry really is in a pretty good position as far as the rate environment,” Lundgren said. Northrim Bank Economist Mark Edwards highlighted that low mortgage rates have allowed many homebuyers or those refinancing to maintain similar monthly housing payments even as home prices have gone up. “If housing (costs) were going up as fast as housing prices are inflation would be even higher,” Edwards said, noting that the situation gives people more flexibility to deal with rising costs elsewhere in their personal budgets. He said the primary challenge with inflation is how much subsequent Federal Reserve rate increases will impact the overall economy. “How fragile is the economy? The rebound in employment is positive but clearly there is still a global pandemic and we don’t know how it’s going to end,” he said. “The faster the economy grows — that eats into inflation.” Ballard said the fertile banking environment underscores many of the complexities of the current economic situation, both in Alaska and nationally. “You wouldn’t expect that Northrim would have two record years in a row during a pandemic,” Ballard said. “There’s a lot that goes into that.” Elwood Brehmer can be reached at [email protected]

Ousted state commissioner French to argue his case before AOGCC over Hilcorp gas leak

Hollis French has a complicated relationship with the Alaska Oil and Gas Conservation Commission, and he’s about to add to it. The former Anchorage state senator and Democratic candidate for lieutenant governor was appointed to lead the powerful agency that regulates subsurface oil and gas work in 2016 by then-Gov. Bill Walker. French’s tenure on the three-member panel, though, was short-lived. He was removed from the commission by Gov. Mike Dunleavy in January 2019, roughly a month after the newly minted governor took office. AOGCC commissioners are rarely fired because it must be done with cause, a core enabling provision for the agency designed to attract industry expertise over partisan appointees. Backed by testimony from longtime commissioners Cathy Foerster and Dan Seamount, who accused French of shirking responsibility and being frequently MIA from the commission’s downtown Anchorage office, Dunleavy claimed French was derelict in his duties as the agency’s chairman. Now retired, Foerster preceded French in holding the AOGCC gavel. Seamount continues to serve on the commission. Dunleavy appointed Jeremy Price, who was the governor’s deputy chief of staff at the time, to replace French in October 2019. For his part, French insists the office discord was mostly rooted in simple personality and policy differences — the commissioners’ testimony from the time reads like something out of the Hatfields and McCoys — and that while he did not have a strict office regimen, he often worked remotely and completed all of the necessary work. Within a month after being fired, French returned to the AOGCC with a petition. He wanted the commission to investigate whether Hilcorp Energy’s months-long natural gas leak from a 50-plus-year-old pipeline on the floor of Cook Inlet was a waste of the state’s gas resources. French believes it was. The pipeline supplied fuel gas to platforms in the Middle Ground Shoal field in the central part of the Inlet. Hilcorp Alaska is the dominant player in the Cook Inlet basin and the major natural gas supplier to Southcentral utilities. The gas leak was one source of disagreement between French, Foerster and Seamount when he was on the commission, as well. Foerster and Seamount outvoted French, contending the agency, which typically deals in the highly technical realms of well drilling and resource production, did not have jurisdiction over the leak and therefore could do nothing about it. The commission similarly denied French’s petition for a hearing on the matter in 2019. The commissioners alleged an investigation was conducted while the leak was ongoing and it was concluded that because the gas had been metered and removed from the production facilities the leaking gas could not be waste. Undeterred, French took his petition to Alaska Superior Court, where a ruling was issued in favor of the commission. However, the Alaska Supreme Court was much more amenable to French’s arguments. In early September of this year, the state’s high court issued a six-page order in favor of French and sent the case back to the AOGCC for Price and his colleagues to deal with. The subsequent hearing is scheduled for Dec. 15. French said in an interview that the brevity of the Supreme Court order exemplifies how easy a case it was for the five-justice court to decide. Justice Daniel Winfree wrote for the justices that the commission’s argument that it lacked jurisdiction over the leak “puts the cart before the horse” in that the AOGCC has the purview to investigate “all persons and property, public and private” in conducting its business. Accepting the AOGCC rationale would mean the commissioners could usurp the agency’s enabling statute by deciding substantive matters in private meetings before using the lack of jurisdiction argument in other matters, according to the court. The court also questioned whether or not the commissioners opposed to hearing French’s petition did their due diligence before making their decision. “The commission’s statements about having investigated whether the leak was waste are wholly unsupported,” the September order states simply. “The commission’s dismissal order contains several factual statements about the alleged investigation and waste determination, but there is no supporting evidence in the administrative record. “French’s request for a hearing therefore was improperly denied. The commission has jurisdiction over waste determinations, and substantial evidence does not support its assertion that it investigated and concluded the leak was not waste.” In late October the court also ordered the state to pay French’s court fees of $596.82. An attorney by trade, French represented himself. Attorneys asked about the circumstances of the case said the commissioners’ big error was in not granting French’s initial hearing petition. If they had allowed him to plead his case as a member of the public and then simply chose not to act, French would’ve had a much more difficult time succeeding in court, they said. French was not so much concerned about taking action against Hilcorp, but rather making sure the AOGCC maintained its authority, he said. His time working on the Cook Inlet platforms early in his career also gave him valuable background into the industry, according to French, which helped in this case. “No state agency with a shred of self-respect would give up its power, yet this state agency was falling all over itself to give away its power,” he said in an interview. “The agency’s position was extremely narrow. To me, it was just about preserving, really for the future, some future commission’s power to enforce rules against waste.” Alaska, with its unique public ownership of oil and gas resources, has some of the strictest rules against resource waste in the country. “They never thought about what would happen if this was a pipeline running down the Park Strip in Anchorage or near their house,” French said. A Hilcorp Alaska spokesman declined to comment. AOGCC chair Price also did not respond to questions in time for this story. French said his expectations are “fairly low” for the Dec. 15 hearing, particularly given he has already achieved his main objective. “This should be more of a learning opportunity than going back and trying to get some money out of Hilcorp,” he said, semi-seriously suggesting Hilcorp be tasked with conducting its own sort of community service by offering a few of the company’s engineers to volunteer at the University of Alaska Anchorage’s popular Alaska Native Science and Engineering Program. The program encourages middle and high school-age Alaskans to pursue careers in the science and technology fields. Elwood Brehmer can be reached at [email protected]

More than 70M sockeye expected in Bristol Bay next year

If the forecasts are close to accurate, this year’s Bristol Bay sockeye run won’t be a record for long. Biology teams with University of Washington and the Alaska Department of Fish and Game both expect more than 70 million sockeye to return to Bristol Bay for the first time in recorded history. Daniel Schindler, a biologist with UW’s Alaska Salmon Program, said multiple factors in the university’s record run forecast bolster its credibility. For one, all of the Bay’s nine large river systems are predicted to do very well, rather than just one or two forecasted to have outsized sockeye returns. The fact that the 2022 run will be on the heels of an inshore run of approximately 66.1 million sockeye — the all-time record — which provides researchers more to go on as well, according to Schindler. Both the UW and Fish and Game forecasts are a weighted average of several models that use what are known as sibling relationships to formulate predictions, largely based on how many salmon of certain age classes returned in prior years. The vast majority of Bristol Bay sockeye spend two or three years in the ocean following a year or two rearing in freshwater. That allows forecast authors to correlate their expectations for three-ocean sockeye returning the coming year to how many two-ocean sockeye returned the summer prior. “The tendency has been for fish to spend three years in the ocean instead of two and that trend has increased over the last 60 years or so, except for the last 10 years,” Schindler said, adding that this year’s record run was more than half two-ocean sockeye. “If the forecast turns out, it will be the largest return of three-ocean fish in history.” The UW forecast calls for 71.9 million sockeye, which would be 60% greater than the 20-year average return of 44.9 million fish. The state expects more than 75 million sockeye will flood Bristol Bay starting next June. A run of more than 70 million sockeye would allow for an inshore harvest of 52 million to approximately 60 million, according to the forecasts. More than 40 million sockeye were harvested from the Bay last summer; the 2021 run of 66.1 million fish was also 32% above the state’s preseason forecast and the latest in a string of very strong sockeye returns Bristol Bay, which is the largest commercial sockeye fishery in the world. State Fish and Game research biologist Greg Buck said the recent good runs also serve to give biologists confidence beyond just last year’s spectacular performance. “We’ve had some really large returns so that we can say (2022) is believable,” Buck said. The biologists both gave credence to what has been the prevailing theory about the generally increasing abundance of Bristol Bay sockeye — that a warming Bering Sea is becoming more productive — while salmon fisheries are largely suffering elsewhere in the state and beyond. “It is clear that productivity is up but we’re going to get a couple low returns. Who knows when it will happen?” Schindler said. He believes the large lakes that juvenile Bristol Bay sockeye rear in are becoming more productive as they warm with the climate as well. “We’ve shown that juvenile salmon grow faster now than historically. That corresponds with this buildup in the number of fish that have returned to Bristol Bay in the last few decades,” Schindler said. Buck said he attributes the positive trend in sockeye productivity more to what’s happening in the saltwater mostly because the trend is across nearly all the region’s rivers; the Kuskokwim River to the north has also seen improving sockeye returns, he noted. Both biologists said the Bay’s sockeye run has to peak at some point, but they don’t think it’ll be anytime too soon. “How high can it go? I don’t know, but I just released a forecast that was the largest forecast the department has ever put out. There were lots of discussions, but in the end I’m confident with the forecast we released. It’s entirely possible,” Buck said. On the other end of the commercial fishing equation, representatives for the fishing fleet said there are a lot of variables that go into the highly competitive and often arcane fish processing industry and it’s not as simple as “ramping up” for a big run, so the capacity that is available every year isn’t likely to change much just because of record forecasts. Jon Hickman, vice president for Peter Pan Seafood, said at least his processing company should have no problem managing another record Bristol Bay sockeye run. “We could’ve had more fish and handled it just fine last year,” he said. That’s because Peter Pan has plants in King Cove and Port Moller — areas where fishing peaks at different times than the Bay — so fish that can’t be cleaned on traditional Bristol Bay slime lines can be sent to those nearby facilities, according to Hickman. He said preparedness and looking ahead to incorporate fishing openers, tides and other factors into a processing schedule are the keys to not getting overwhelmed when the fish are arriving fast. “It’s making sure the person that’s moving those (fish) tenders and those pieces around is looking three days ahead,” Hickman said. “We feel good about next year.” Elwood Brehmer can be reached at [email protected]

Interior Department report seeks more revenue from oil and gas on federal land

A brief but anticipated report from Interior Department leaders largely concludes the government is not charging enough for oil and gas produced from federal territory. Industry representatives said the report is the latest in a series of confusing messages from the Biden administration regarding energy policy. Alaska-based oil and gas analysts noted the administration did not go out of its way to target Arctic leasing and development as some expected, which could be viewed as a victory of sorts for the industry in the state. Interior officials said in a statement accompanying the report that the agency recommends reforms that would improve returns for taxpayers, discourage speculation in leasing federal acreage and hold operators more responsible for site remediation. “The Interior Department has an obligation to responsibly manage our public lands and waters — providing a fair return to the taxpayer and mitigating worsening climate impacts — while staying steadfast in the pursuit of environmental justice,” Interior Secretary Deb Haaland said. “This review outlines significant deficiencies in the federal oil and gas programs, and identifies important fiscal and programmatic reforms that will benefit the American people.” According to the report, onshore federal royalties “are consistently lower than state-issued leases and federal offshore leases” and in many instances have never been raised. Interior officials also highlighted that leases not sold in a competitive auction can often be acquired by an operator for a “modest” administrative fee without needing to offer a bonus bid. The report subsequently recommends Bureau of Land Management officials increase royalties for individual lease sales and initiate rule-making processeses for setting higher minimum royalties as well as increasing the $2-per-acre minimum bid for most federal leases — a price set in 1987. “Such low prices for leases, coupled with generous 10-year lease initial terms that are frequently extended, encourage speculators to purchase leases with the intent of waiting for increases in resource prices, adding assets to their balance sheets, or even reselling leases at a profit rather than attempting to produce oil or gas,” the report states. Alaska Republican Sen. Lisa Murkowski said in a statement from her office that the report is “a series of preordained conclusions” aimed at eventually ending production from federal acreage. “What is especially upsetting is that it took Interior 10 months to produce a document that is just 15 pages long, lacking any meaningful analysis, and that repeatedly misrepresents how development actually works,” Murkowski said. “The policies it calls for won’t maximize returns for taxpayers or even reduce emissions — instead, they will hurt production in states like Alaska, further raise energy prices, and increase our nation’s import dependence.” Delegation staffers also questioned why royalty rates that are a portion of production value and not a nominal fee need to increase over time, as well as how the report and other actions the administration has taken will impact how the industry deploys capital in the country. President Joe Biden ordered the report via an executive order issued shortly after he took office, directing agencies to review all rules and policies that could impact climate change. The Interior Department claims the authority to make most of the recommended changes through regulation. Alaska oil and gas analyst Brad Keithley wrote via email that from the state industry’s perspective, the report could be a positive for what it doesn’t have — Alaska-specific provisions or broad, climate or environmental-focused rules, which leaves room for those items to be more tailored to local conditions. However, Keithley also noted the report mentions Interior agencies will continue evaluate ways to revise fiscal terms “to monetarily account for the costs of carbon dioxide, methane, and nitrous oxide.” “These can be addressed as they arise, but it leaves a sense that this report isn’t the last word on what may be coming down the pike,” he wrote. Alaska Oil and Gas Association CEO Kara Moriarty called the report simply “disheartening,” particularly given the president’s recent decision to sell a portion of the Strategic Petroleum Reserve and his urging for OPEC nations to increase production to curb price increases amid recovering demand following the 2020 market collapse. “Why wouldn’t you be sending signals for immediate policy and future policy that says, ‘We want to meet that demand and increase supply here.’ ” Moriarty said. Longtime Alaska petroleum economist Roger Marks said federal leases are often more fiscally attractive to oil and gas operators because the royalty rates are typically lower than those tied to state or private acreage and the federal government does not impose a severance tax on produced resources. Royalty rates in Lower 48 states with significant production generally range from 16.67% to up to 25% in portions of Texas. The state of Alaska charges a 16.67% royalty on most new leases and 12.5% on the legacy leases that supply the vast majority of oil production from the North Slope. Because oil companies predominantly judge investments in leases based on an expected rate of return, higher royalty rates on produced resources would likely lead to smaller and fewer bids, but that might not be a bad thing for the Treasury as long as there is eventually production, according to Marks. “If a property comes through (and produces) you’ll end up getting much more money, and if the property doesn’t prove to be commercial you’ll end up getting less money because the bid will be less,” he said. Marks also said he previously encouraged the Alaska congressional delegation to find ways to increase taxes and fees for production from federal lands because states are at a competitive disadvantage. In Alaska, the situation mostly applies to offshore production from fields beyond the three-mile state boundary. That’s because the state’s oil production tax applies to the 23-million-acre National Petroleum Reserve-Alaska on the North Slope, the result of management legislation specific to the NPR-A. Additionally, royalty rates are 16.67% for leases in the “high-potential” areas of the NPR-A — mostly in the eastern, more accessible portion of the reserve — and 12.5% for other areas. Bidding activity in NPR-A lease sales has ebbed and flowed with industry’s view of the area’s prospectivity. Millions of dollars of bids were submitted in the years after the discovery of the large Alpine oil field on nearby state lands, followed by a period of relative dormancy before ConocoPhillips’ Willow discovery in 2017 refocused attention back to the NPR-A. Elwood Brehmer can be reached at [email protected]

Roadless Rule tug of war continues under Biden

Once a hot-button issue that epitomized the fundamental conservation-development debate across a large portion of the state, the continued fight over the Roadless Rule in Alaska has now become a better example of the bitter tug-of-war consuming much of the national political scene than a representation of what’s actually happening on the ground, according to some key stakeholders. U.S. Department of Agriculture officials in the Biden administration did their part to continue the fight Nov. 23 when they kicked off a 60-day comment period on their plan to reverse the Trump administration’s wholesale repeal of the rule, which was finalized just more than a year ago. Robert Venables, executive director of the Southeast Conference, noted that while USDA and Forest Service leaders are asking for the public’s input on their proposal to flip the overarching land management regulations for the massive Tongass National Forest back to pre-Trump times, they have made their intent clear for months. The Southeast Conference is a regional community development organization. To that end, USDA Secretary Tom Vilsack announced the agency’s preference to reinstate the Clinton-era Roadless Rule in July as part of their “Southeast Alaska Sustainability Strategy,” which includes $25 million for short-term investment priorities identified by local communities. Under the Trump administration, former USDA Secretary Sonny Perdue in 2018 similarly announced intentions to completely exempt Alaska from the 2001 Roadless Rule before a draft environmental impact statement analyzing a range of management options was published. The full repeal at least temporarily opened 9.2 million acres of the nearly 17 million-acre Tongass previously classified as roadless to more development activities, such as mining, logging and energy development, all of which are made easier and economic with road access. USDA and Forest Service officials under Trump additionally disregarded recommendations by a group of leading Tongass stakeholders convened by former Alaska Gov. Bill Walker, who opposes the rule, for a scaled-back but not fully repealed Roadless Rule as a means of ending the political and legal challenges. The regulatory changes apply only to the Tongass; the Chugach National Forest in Southcentral Alaska historically has not been used for large-scale timber harvests. The State of Alaska first secured an exemption from the Roadless Rule for the Tongass as part of a 2003 court settlement to a lawsuit over the rule’s applicability in the state with the Bush administration, but that exemption was overturned by a Federal District Court of Alaska judge in 2011. Subsequent appeals and other attempts by the state and resource development groups to have the Roadless Rule invalidated proved fruitless. This time, Alaska Republican Sen. Lisa Murkowski called the Biden administration’s move to reinstate the rule a “needless” decision that will impact numerous industries because of other protections already in place for the Tongass. “It misses a genuine opportunity to work together to establish a sustainable regional economy. And it is exasperating, given that we just passed a historic infrastructure bill, that the Biden administration is intent on returning the Tongass to an overly restrictive environment where projects almost always take longer and cost more, if they can proceed at all,” Murkowski said. “Everything from the deployment of broadband to the development of more affordable energy stands to suffer under a return to the failed Roadless Rule.” According to a Forest Service report detailing comments received in 2019 on the draft plan to repeal the Roadless Rule, 96% of the 15,909 unique comments the agency received on the plan supported keeping the rule in place. Venables, who served on the state’s Roadless Rule advisory committee, said it’s unlikely anyone is surprised by the Biden administration’s actions, but it’s unclear what will change practically. He and other Tongass stakeholders said when the exemption was finalized that the continued political uncertainty regarding the status of the Roadless Rule would probably serve to stymie any now-enabled large developments. “We were very much involved in trying to craft some compromise solutions towards Tongass management that we thought had really good merit for them,” Venables said of the advisory committee. “The local input rarely has the input you hope for.” The Southeast Conference has long opposed the Roadless Rule, primarily for its restrictions on community-level infrastructure projects such as energy development. “As long as the trees grow and people need wood and jobs (the Roadless Rule) will be a discussion item, and until both sides come together and agree on a custom compromise, it’s always going to be that back-and-forth, and here we are today,” Venables said. Sitka Conservation Society Executive Director Andrew Thoms, who also served on the state advisory committee, said he’s pleased the rule will almost certainly be back in place, but what’s often more important is that there are adequate resources for local forest managers to address projects proposed in Roadless areas. “In Sitka my computer and my lights are running off of a hydro project developed under the Roadless Rule,” Thoms said of the Blue Lake project. “With the Southeast Alaska Sustainability Strategy I think we see there’s so much more we can do with the Tongass if the staff and management levels (in the Forest Service) are right.” Alaska Forest Service officials said in mid-November that they received more than 270 investment proposals totaling more than $273 million in a separate comment period earlier this fall. Timber industry advocates also contend that even with the complete exemption in place, the widespread clear-cutting of old-growth stands that many Roadless backers fear just won’t happen, in part because the forest-level land-use plan doesn’t call for it. The Tongass Land and Resource Management Plan finalized in 2016 by the Forest Service allows for roughly 188,000 acres of timber to be harvested across the Tongass without the Roadless Rule, according to the record of decision. Roughly 165,000 acres of old-growth stands, just less than 1% of the Tongass, is newly available for harvest under the total exemption, according to an analysis by the Alaska Forest Association. Venables said he does appreciate federal officials attempting to address other sectors of the economy through the sustainability planning. “It’s not all doom and gloom, but the (Roadless) conversation has been a hard one to have because the process hasn’t really been set up to hear and act on what’s been heard,” he said. Elwood Brehmer can be reached at [email protected]

Drill results add to Ambler-area copper prospect’s high-grade reputation

Alaska weather hampered drilling at the remote Arctic hard rock mine prospect for much of the summer, but Ambler Metals was still able to identify mineralization that bolsters the company’s claims of a high-grade deposit, according to recently published drilling results. The first two infill drilling holes located near the center of the proposed open-pit mine combined to hit three mineralized zones with copper equivalent grades of at least 4.77%. Those results were highlighted by a 19.9-meter interval of mineralization containing more than 6.7% copper, nearly 7.6% zinc and approximately 97 grams of silver per ton of ore, for an overall copper equivalent grade of more than 11.7%, according to the drilling report. Trilogy Metals, the firm that first advanced the multi-metal Arctic prospect and is now an owner in Ambler Metals, the joint-venture operator, released the results Nov. 22 and Nov. 29. Richard Gosse, vice president of exploration at Trilogy, said the zones hit near the heart of the pit are some of the best in the long history of the prospect. “These assays from the 2021 drill program are an exciting start to the infill drill program at Arctic. Grades of almost 12% copper equivalent over 20 meters, considered close to true width, is one of the best intervals at Arctic since the first hole was drilled in 1967,” Gosse said. Initially targeted for its copper, the Arctic deposit is the most advanced exploration project in the broad Ambler mining district along the southern edge of the Brooks Range in the Interior. Currently envisioned as a 12-year, open-pit mine with a startup cost estimated at just more than $900 million, according to a feasibility study published last year, the deposit is currently believed to contain about 2.1 billion pounds of probable copper reserves at an average grade of more than 2.2%. Copper reserve averages exceeding 1% are generally considered high-grade deposits for large-scale mines. It’s that concentration of mineralization that has made the prospect attractive, Trilogy leaders have said. The company also owns the nearby Bornite prospect currently estimated to hold roughly 6 billion pounds of copper. Drilling on the northern edge of the delineated pit hit zones of nearly 25 meters averaging 3.5% copper equivalent and a 5.6-meter zone with a nearly 10.2% copper equivalent grade. The two bore holes hit multiple zones of silver exceeding 25 grams per ton, which contributed to the boosted grades of blended mineralization. Gosse said the high-grade extensions were discovered in holes drilled primarily to collect geotechnical information. Ambler Metals originally planned to drill and collect roughly 14,500 meters of core samples last summer but persistent low clouds kept the helicopters needed to support drilling grounded for extended periods, company leaders said in September. The Arctic program ultimately consisted of about 4,100 meters of drilling, according to Trilogy. A decision to ultimately build the mine will depend primarily on how quickly the Alaska Industrial Development and Export Authority can progress development of the Ambler access road. Trilogy leaders have long said the 211-mile industrial-use road is a prerequisite to constructing any mine in the remote mineral belt. Local governments for villages near the road’s planned intersection with the Dalton Highway have formally opposed the road over concerns it will impact migrating caribou and could eventually be opened to the public — thus increasing hunting and recreational pressure — in areas relied upon for subsistence harvests. Critics have also questioned the economics of the toll road concept given the Arctic prospect is the only one in the region anywhere close to development-ready. Elwood Brehmer can be reached at [email protected]

ConocoPhillips readies Greater Mooses Tooth-2 for startup

ConocoPhillips Alaska is coming out of the industrywide pandemic slowdown with a $1 billion-plus oil project almost ready to go and a lengthy lineup of North Slope prospects behind that. The Houston-based producer’s $1.4 billion Greater Mooses Tooth-2 project is on track to start producing oil within weeks, slightly ahead of schedule after three years of work, according to North Slope Asset Development Manager Vincent Lelarge. Drillers were finishing work on the fourth well at GMT-2 when Lelarge discussed the company’s activities during the Resource Development Council for Alaska virtual conference Nov. 17. The project is permitted for up to 36 wells, according to ConocoPhillips. “We’ll be drilling for years to come,” Lelarge said, adding that the reservoir qualities identified in early production tests “are at or better than expected.” Production rates from GMT-2 should ramp up throughout next year. ConocoPhillips estimates peak production could reach 40,000 barrels per day. The Alpine satellite is also another incremental step west into the National Petroleum Reserve-Alaska with industry infrastructure. Development of GMT-2 followed on the heels of Greater Mooses Tooth-1, a $700 million oil development brought online in late 2018. ConocoPhillips Alaska has produced more than 600 million barrels of oil since startup at Alpine in 2000 and, according to Lelarge, company leaders expect to send another 600 million barrels through the field’s processing facilities over the coming decades, as well. Much of that oil is likely to come from the Brookian geologic sequence topset sands — popularized by Armstrong Oil and Gas and Repsol in the Pikka Unit — that have proven to be a very hittable target across the western portion of the Slope in recent years. To that end, ConocoPhillips is working toward production from the predominantly north-south play, internally dubbed the “Narwhal trend” this year after drilling from the existing CD-4 site in Alpine. “The Narwhal trend is a great example of a Brookian topset,” Lelarge said. ConocoPhillips applied with state Division of Oil and Gas officials Nov. 12 to establish a Narwhal participating area, an administrative step necessity prior to producing new oil. Future production from the Narwhal trend could come from CD-8, an Alpine satellite planned for later this decade to the south of existing facilities, according to Lelarge. Additionally, the company’s powerful extended-reach drilling, or ERD, rig, which arrived to the Slope in early 2020, is now drilling from CD-2 drill site. From there, ConocoPhillips finally expects to produce oil from its long-held Fiord West prospect that underlies the sensitive Colville River Delta north of the Alpine field. In 2015, ConocoPhillips agreed with the Alaska Department of Natural Resources to commission a rig that could pull oil from the Fiord West prospect in the company’s Alpine oil field without needing additional pads, roads and pipelines. Committing to the new drilling rig gave ConocoPhillips the opportunity to extend its leases for Fiord West. Division of Oil and Gas officials also approved an updated drilling plan for another one of the company’s mid-sized North Slope prospects on Nov. 17. ConocoPhillips representatives previously requested to change their current development plan for the large Kuparuk River field to include additional appraisal drilling at its partially developed Nuna project. The company purchased the Nuna project from struggling independent Caelus in 2019 after Caelus invested significantly in initial infrastructure; a transaction company leaders referred to at the time as “$100 million for 100 million barrels.” Now, ConocoPhillips plans in April to start drilling an injector/producer well pair into the Torok reservoir targeted by Caelus following tests of an existing well pair. And that is all without mention of the company’s preeminent prospect, the $8 billion Willow project north of the GMT Unit in the federal petroleum reserve. Lelarge said the company is continuing to advance detailed engineering and design work on Willow while its permitting team works with Bureau of Land Management officials to remedy project approvals partially vacated by a U.S. District Court ruling earlier this year. A ConocoPhillips Alaska spokeswoman wrote via email that there is no expectation regarding how long the supplemental environmental impact statement for Willow will take, but company leaders “encourage BLM to proceed in a manner that will minimize delay.” A BLM Alaska spokeswoman was unable to comment on a schedule for the Willow permitting work. Industry advocates view Willow as another major hub — much like Alpine — for additional development further west in the NPR-A. Alaska’s Republican leaders lauded the Biden administration in spring when Justice Department attorneys defended the Willow record of decision approved by BLM officials in the Trump administration. Elwood Brehmer can be reached at [email protected]

Little projects add up to no oil production decline at Prudhoe

Hilcorp Alaska has arrested a longstanding downward trend in oil production at Prudhoe Bay in the year-plus the company has run the iconic North Slope field but, according to Hilcorp leaders, it isn’t the result of anything particularly big or drastic the company has done. Rather, it has been “hundreds of fairly small projects” that have combined to add enough production to bend the decline curve quite abruptly, said Jill Fisk, senior asset team lead at Prudhoe Bay West for the normally tight-lipped Hilcorp. In some cases it has been as simple as returning idled equipment back to service. Production rates have been increased at drill sites across the expansive field as the company has brought more wells online, “not by drilling new ones, but by repairing and returning to production the ones we have,” Fisk said. Facility repairs will allow Hilcorp to return a drill pad to service at the Lisburne satellite field as well. “We now have a record number of wells online in the western satellite fields (of Prudhoe),” she said. Hilcorp assumed operations at Prudhoe Bay in July 2020, culminating the company’s $5.6 billion purchase of BP’s remaining Alaska assets. The Houston-based producer is scheduled to take over operations at the Point Thomson North Slope gas field by early next year as well, part of a separate, non-monetary agreement with ExxonMobil, the majority owner and current operator. Hilcorp also increased facility “uptime” at Prudhoe from 85% to 94% in its first year at Prudhoe, another incremental production improvement, according to Fisk. She spoke during a virtual edition of the Resource Development Council for Alaska’s annual conference on Nov. 17. Many facilities at the mature field have long acted as a de-facto limit on production capacity because of the need to process water and natural gas produced alongside the oil. To that end, Hilcorp has worked to increase daily water throughput by approximately 200,000 barrels per day year-over-year, according to Fisk, and additional projects to increase gas handling capacity have added roughly 15,000 barrels of new production per day. “When you can move more gas or move more water you can make more oil,” Fisk said. According to Hilcorp’s figures, the average daily oil production capacity at Prudhoe has been flat at just less than 290,000 barrels since the company took over the field. That followed years of capacity decline of about 4% per year. Raw production data from the Alaska Department of Revenue largely backs up the company’s numbers. The volume of oil produced and processed through Prudhoe Bay facilities averaged just over 304,000 barrels per day in October, up from an average of approximately 299,000 barrels per day in October 2020 and 271,000 barrels per day in 2019. While oil production volumes for a given month can be influenced by temperature differences and facility maintenance, the stabilized production trend is generally consistent across the calendar. “This achievement is due to the hundreds of projects executed all across the field by the hundreds of people all working towards the same goals,” Fisk said. Hilcorp resumed development drilling at Prudhoe this fall after drilling was stopped following the collapse of oil prices at the onset of the pandemic. The initial drilling is focused on Schrader Bluff reservoirs in the western satellite fields; the same formation targeted for enhanced production at the Milne Point field via polymer flooding techniques. “We will extend our experience and knowledge base from Milne into Prudhoe,” Fisk said. The company is now more than three years into a long-term reservoir flood experiment with U.S. Department of Energy researchers to test the effectiveness of polymer-based liquids to recover heavy oil from Milne Point. Hilcorp representatives have said as the project has progressed that early promising signs are translating into strong results. According to Fisk, the polymer test floods have economically produced about 630,000 barrels of oil over what could have been achieved with a traditional water flood of the Milne Point reservoirs. “(Hilcorp) is on track to deliver one of the most successful polymer floods in the world as far as current results go,” she said.   Cook Inlet gas On the other end of the state, Hilcorp will continue steady development of its Cook Inlet gas resources, according to Fisk, which includes full-time work for onshore and offshore drilling and well repair rigs into next year. Hilcorp is the primary supplier of natural gas to Southcentral region utilities. After a delay, gas production has commenced from the Seaview drill pad in Anchor Point and the company plans to drill an exploration well at nearby Whiskey Gulch soon, Fisk said. Hilcorp previously received approvals from state regulators to drill two oil and gas exploration wells over the summer from an onshore pad at Whiskey Gulch, just outside of the Seaview unit. Those wells, according to plans filed with the state, targeted Sterling, Beluga and Tyonek gas formations as well as underlying oil prospects. Fisk said Hilcorp is also working to replace pipelines associated with the Middle Ground Shoal platform to bring the offshore field back into production. Elwood Brehmer can be reached at [email protected]

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