Elwood Brehmer

Possibilities, costs “enormous” for A2A rail

The backers of a new rail line to link Alaska to Canada and Lower 48 markets insist it would generate upwards of $5 billion of freight revenue through the state. Alaska-Alberta Railway Development Corp. founder Sean McCoshen told attendees of the Resource Development Council for Alaska’s annual conference that the 1,500-mile stretch of new railroad would provide trans-Pacific shippers an alternative to existing bottlenecked ports and rails lines along the West Coast. Oft-referred to as the A2A rail line, McCoshen said just-in-time shippers would benefit from the fact that Southcentral Alaska ports are about four days closer to East Asia by vessel than ports in the Lower 48 and British Columbia despite the longer distance by train. “Our own economic model looks at steady state revenue from export commodities in Canada of almost $5 billion per year. We must complete this project to show shippers we can bring a variety of commodities to and from Alaska’s Pacific ports competitively with the slower, more energy-intensive rail and pipeline routes that exist or are under construction in Canada,” McCoshen said. For comparison, the Alaska Railroad typically generates about $110 million in passenger and freight revenue per year. The project would start by constructing rail from the north end of the Alaska Railroad’s tracks near North Pole and continue south and east past Tok and Tetlin to the Canadian border for about 200 miles of new track in the state. That section would link to 1,300 miles of track built in Canada, starting roughly near Fort McMurray in northeast Alberta. It’s about a $13 billion endeavor, according to company estimates. Canadian rail lines currently get as close to Alaska as Whitehorse in the Yukon. “The possibilities are enormous but so is the project,” McCoshen said. Former Lt. Gov. Mead Treadwell is also working on the project as A2A’s chief operating officer. The idea of a freight rail line to connect Alaska to the rest of the continent has been analyzed several times but has never made it far past the conceptual stage. The project is being driven in large part by a need for new export routes for Alberta’s heavy oil production. Studies analyzing the feasibility of a conceptual rail line linking Alaska and Canada have looked at shipping 1 million barrels of oil per day or more through Alaska but McCoshen stressed in a brief interview that while oil shipments would be a part of the private rail line’s business it would be a general cargo line that “ships everything under the sun.” He noted in his presentation that the Canadian government last year passed a law prohibiting additional tanker traffic out of British Columbia ports and said the lack of new shipping routes and port facilities in the country has stymied growth in other Canadian commodity exports. Importantly, it would open up export routes for many stranded mineral deposits in Northern Canada and Interior Alaska, he said, calling the potential mining benefits “the economic icing on the cake” for the project. In June, the Alaska Railroad signed an agreement with A2A that allows McCoshen’s firm to undertake the environmental and engineering studies for the project while the state-owned railroad corporation would apply for the additional right-of-way from the state. A2A would then rent the track from the Alaska Railroad, he said. A2A is currently waiting on a border crossing permit from the White House and McCoshen thanked Gov. Michael J. Dunleavy for advocating to President Donald Trump for its approval. The Alaska Legislature also passed a resolution in May urging the president to approve the permit. McCoshen added that many, but not all, of the baseline impact studies have been done for the project. “We have a good solid two years of work ahead of us at least before we can get to a final investment decision,” he said. He emphasized the new infrastructure is necessary in a global economy as it would help balance the North American trade deficit with Asia. “This is a 21st century project, not a 19th century project,” McCoshen said. “It is one of several long rail links being pursued around the world and one that will more closely tie the economies of Alaska, Canada and Asia.” Elwood Brehmer can be reached at [email protected]

Gov: Communication key to second year success

Alaskans should expect to see much more of Gov. Michael J. Dunleavy in 2020. Following a turbulent first year in office during which he proposed unprecedented cuts to the state budget, regularly sparred with fellow Republicans in the Legislature and watched an effort to recall him from office materialize, Dunleavy said he will be making more appearances across the state to talk with residents about what they want their state to be. “I could’ve done a much better job at communicating. I’ll be the first to admit that,” Dunleavy said during a Dec. 2 interview with the Journal at his Atwood Building office in Anchorage. “Since I can’t go back in time I will be reaching out and we’ll be going to all the communities, communities that have been affected and meeting with any and every group there is and I fully expect some people not to be happy with what happened with the budget. But what I want to hear from these folks once they get done venting is what they want Alaska to look like. What are we willing to do to get to that point for Alaska to look like that?” The governor and key members of his administration did conduct what they dubbed a “budget roadshow” last spring that consisted of five public events across the state to make the pitch for his budget proposal, which looked to close a $1.6 billion deficit through major spending cuts and diverting what has traditionally been local tax revenue to the state while paying Permanent Fund dividends according to the formula that is still in law. However, those events were disrupted by protesters at times and dismissed by other skeptics because they were coordinated with and sponsored by the national conservative advocacy group Americans for Prosperity. The upcoming legislative session, which starts Jan. 21, will undoubtedly be another contentious one but Dunleavy hopes it can be more constructive — and shorter. Alaska’s regular 90-day session is scheduled to end in late April each year. Lawmakers have gradually extended their work time since 2015 as structural budget deficits that have at times put the state more than 50 percent in the red and correspondingly shrinking reserves have made reaching a yearly spending compromise increasingly difficult. In 2019 the situation hit a new level with special sessions spent debating Dunleavy’s budget plan and subsequent $410 million worth of vetoes that bled into early August, more than a month after the start of the 2020 state fiscal year. Looking back Dunleavy acknowledged the situation left many state programs and private enterprises such as social service providers in limbo. This year, he and members of his administration have been meeting with individual legislators regularly while crafting his latest budget proposal that must be released by Dec. 15 according to state law. He said his administration also has “an idea of what Alaskans are willing to tolerate and what they aren’t,” which should help get the 2020 session off to a more productive start. Last year also started with a nearly month-long leadership vacuum in the state House until a small bloc of Republicans joined with Democrats to form a bipartisan majority coalition primarily aimed at opposing fundamental elements of the governor’s budget plan. Everyone has also had the luxury of hindsight this year to examine the ramifications of some of his budget cuts — the biggest to Medicaid, the University of Alaska and the state ferry system — and lawmakers can start working from there, according to Dunleavy. He said last year’s budget process “was painful for a lot of people” and stressed that he took no enjoyment from the emotional toll it took on many Alaskans. At the same time, he also said it ended up proving the Alaska economy is more resilient than some of his naysayers insisted. “I think one of the successes — and many people may say, ‘come on’ — is making the reductions and having the discussion of what Alaska would look like if we truly reduced $1.6 billion, what would Alaska look like if we reduce $600 million,” Dunleavy said. The Legislature cut General Fund spending by about $200 million, which combined with Dunleavy’s final round of vetoes to reduce the overall state budget by roughly $600 million compared with a year prior. He highlighted that employment and personal income in Alaska are on the upswing this year, counter to the predictions of some economists who said implementing his full suite of budget cuts would send the state back into a prolonged recession. The elephant in the room The elephant in the room during every budget debate last session was the PFD — the state had a revenue surplus without it — and the insistence of Dunleavy and a minority group of legislators in the Senate and House on paying it according to the statutory formula. He wants it to be one of the first topics the Legislature addresses in 2020 because a proposed special session this fall to settle the matter was derailed by the sudden death of former Anchorage Sen. Chris Birch in August and the lengthy process of legislative appointments that followed including Senate Republicans rejecting Dunleavy’s first nominee, Rep. Laddie Shaw. Dunleavy’s first budget appeared to put the PFD above all other spending, as it was the one area of spending that was not cut and instead, by following the formula, was nearly doubled under his plan from the previous year. He emphasized that it was arbitrarily reduced over several years, first by former Gov. Bill Walker by veto in 2016 and then the Legislature in 2017 and 2018, and his aim was to see what programs Alaskans truly value. “I don’t say the PFD is the most important thing. I think it’s important. It’s been a program, if you want to look at it as a program — some of us choose to look at it as a transfer although the courts have changed that dynamic with their (2017) ruling on appropriations — but it’s been around for almost 40 years and it touches more Alaskans than almost any other program we have,” Dunleavy said. “You will have Alaskans that get a PFD that don’t necessarily take the ferry. You’ll have Alaskans that get a PFD that don’t necessarily go to the university. You’ll have Alaskans that get a PFD that may not partake in other state programs, so this is a program that touches about 660,000 Alaskans. The last time there was a major discussion on this in 1999 there was an advisory vote and from the vast majority of Alaskans the message was they prefer to leave the program as it was.” He continued to stress that he wants another advisory vote to precede any changes to the PFD formula, but also said that it needs to be resolved one way or another. “I don’t want to give anyone the impression that it’s the dividend or that’s it and nothing else matters, the state can fall apart,” he added. “My preference is to keep as much money in the hands of people as possible but I know that we have a legislative process. I know that we have to solve this issue or nothing else gets done in the State of Alaska. I’m hoping that we can come up with an agreement, whatever that is, that we can all live with. It may not be something that we’re all excited about but that we can all live with.” Capping spending Lowering the state’s current but ineffectively high constitutional state spending cap has been another priority of the Dunleavy administration and is likely to receive more attention this year, legislative leaders have said. Resolving all of the budget-related issues is likely to get just a little more difficult, as well. Dunleavy said there will likely be a slight downward revision in the state’s revenue forecast based on oil prices that at $63.69 per barrel are currently averaging 3.5 percent below the $66 per barrel price the Revenue Department forecasted for the 2020 fiscal year last spring. An education year One of Alaska’s major policy issues that was sidelined last year because of the prolonged budget drama, according to Dunleavy, was education reform. A teacher and school administrator by trade, he said the administration wants to make 2020 “an education year” and will be introducing several bills to make that happen. His focus is on getting young Alaskans reading at proficient standards by third grade and proficient in algebra by eighth grade. To do that, the administration will submit legislation to establish a pilot program to integrate a pre-kindergarten reading program into K-12 curricula, Dunleavy said. The Department of Education will pay for the new program, which will include reading coaches, advanced training for teachers and parental support, through a $20.7 million, five-year federal grant the department received in early October, according to a statement from the department. The state will start by inviting five or six underperforming schools to participate in the program and hopefully grow it from there, Dunleavy said. After the grant funding is depleted it will be up to the Legislature to decide if the program should continue with state funding. “I think Alaskans will be more apt to want to pay for that because they’ll see the results and the outcomes,” he said, adding similar programs have been successful in Florida and Mississippi. Alaska has long had poor education outcomes. Standardized test results from the 2018-19 school year indicate more than 63 percent of Alaska third-graders were not proficient in English and language arts skills and nearly three-quarters of eighth-graders were not proficient in math. Dunleavy has repeatedly called algebra a “gatekeeper course” that provides students with the math skills necessary for more advanced study in science, engineering and technology fields. He said the Education Department will be making regulatory changes and possibly introduce bills to require that students are proficient in algebra before they leave eighth grade. “If we can get our students reading at grade level by third grade, and kids are proficient in algebra by eighth grade, we just laid the fundamentals for them to be able to do almost anything,” he said. According to Dunleavy, based on initial conversations, the reading concept has support from stakeholders while there has been concern about how small rural schools can focus on algebra when there are often just a handful of students in a given grade. He said he wants to utilize more distance learning classes to remedy those situations and also partner with Alaska Tribes through a formal education compact with the state. He said Tribes can provide a valuable cultural component to education that historically was ignored when Alaska Natives and other indigenous youth were forcibly relocated to boarding schools. “We are probably seeing the results of that inter-generationally, in terms of some trauma that occurred to some folks,” Dunleavy said. “Having the Tribes now oversee in the cases that they wish to oversee education — they’re a part of it. They’re not doing it to their young people, they’re doing it with their young people and supporting their children so I think it’s a different approach for education to be viewed differently in many parts of Alaska.” Editor's note: This story has been amended to provide an updated timeframe for when Gov. Dunleavy's 2021 fiscal year budget proposal will be released. The governor originally indicated it would be Dec. 13; however, a spokesman for the governor's office later said it would the budget would not be released Dec. 13, but it would be before the Dec. 15 deadline. Elwood Brehmer can be reached at [email protected]

State settles Alaska hire suit for $50,000

The State of Alaska has paid $50,000 to settle a lawsuit challenging the validity of its resident hire law following a legal opinion from Attorney General Kevin Clarkson agreeing with the company that brought the suit earlier this year. The lawsuit was filed by the Southeast Alaska general contractor firm SECON in July in state Superior Court alleging that the “Alaska hire” law requiring contractors working on state and locally funded projects to utilize at least 90 percent resident labor under certain economic conditions violates the Privileges and Immunities and Commerce clauses of the U.S. Constitution and the Equal Protection Clause of the Alaska Constitution. Juneau-based SECON is a subsidiary of Colaska Inc., which is part of the larger Colas USA group of construction companies. The company routinely works on Southeast Alaska road projects. Ricky Kirby, a seasonal SECON paving equipment operator from Yakima, Wash., was also named as a plaintiff in the suit. On Oct. 3 Clarkson issued a formal opinion at the behest of Gov. Michael J. Dunleavy indicating he also believes that laws intended to economically benefit Alaska residents at the expense of nonresidents violates the Privileges and Immunities Clause of the U.S. Constitution. Similarly, provisions in the current law could at times put Alaskans from one region of the state ahead of others when being considered for certain work, meaning it violates the Alaska Constitution’s Equal Rights, Opportunities, and Protection Clause, according to Clarkson. The $50,000 settlement, dated Nov. 8, ends the lawsuit in which SECON was seeking to have $158,670 of fines issued by the state Labor Department covering 18 Alaska hire violations since 2017 vacated or repaid. According to SECON’s complaint, the union contractor is managed by Alaskans and has an 85 percent resident workforce but is periodically forced to hire Outside laborers such as Kirby to work on its projects in the state. As it stands, state law requires that staffing for state or locally funded public works projects be conducted with a 90 percent Alaska resident hire requirement by trade when a given project is in a region of the state deemed to be a Zone of Underemployment by the Labor Department commissioner. A region of the state can be considered a Zone of Underemployment if the unemployment rate for the area averaged 10 percent more than the national unemployment rate over the prior 12-month period. The entirety of Alaska can also be deemed a Zone of Underemployment if the criteria are met statewide. Labor Commissioner Tamika Ledbetter found all of Alaska to be a Zone of Underemployment in the most recent employment preference determination issued by the department June 13. The determination was effective through June 2021 for 21 trades until Clarkson’s opinion, which recommended the state stop enforcing the law. Nonresident workers accounted for 17.9 percent of the state’s construction labor force in 2017, according the state Labor Department. A common lack of economic opportunities and the subsistence lifestyle prevalent in rural Alaska, and the state’s highly seasonal industries such as fishing and tourism have historically combined to give the state a significantly higher unemployment rate than the rest of the country. While settling the case means the true constitutionality of the Alaska hire law remains unsettled, some state lawmakers are unhappy with the Dunleavy administration’s decision to stop enforcing a law that otherwise remains remains on the books. Republican Senate President Cathy Giessel sent a letter to Clarkson Oct. 22 insisting it is his duty as the Alaska’s top lawyer to defend the state’s laws until they have been thrown out in court. Clarkson responded Oct. 29 writing that the administration wants Alaskans to work on projects in the state, but also stressing that he took an oath to defend the state and federal constitutions first. Senate Labor and Commerce Committee chair Lora Reinbold, R-Eagle River, said in a brief interview that she had not yet discussed with members of her committee whether they should look into the Alaska hire situation. Reinbold, who is a supporter of many of the administration’s conservative policies, withheld an opinion on Clarkson’s position, saying she needed to research it further leading up to the legislative session that starts Jan. 21. The House Labor and Commerce Committee is currently without a leader because of changes in committee assignments, but Labor and Commerce member Rep. Zack Fields, D-Anchorage, was blunt in his assessment of the situation, saying the issue is one he hopes the Legislature examines closely. “When you have a law that’s been passed that hadn’t even previously been challenged, it’s pretty outrageous for an administration to unilaterally not enforce it,” Fields said. “It fundamentally challenges the balance of powers between the executive, legislative and the judiciary.” The development director for Laborers International Union of North America Local 341, Fields said the decision to not enforce a statute that is still on the books leaves impacted businesses in an untenable situation because the next governor could, and likely would, revert the state’s policy back to enforcing Alaska hire requirements. “The downsides for the State of Alaska and workers are obvious, but I think it is a very fair point that there are a lot of downsides for businesses, too, who are just trying to make reasonable investment decisions, recognizing that they have a graying workforce and that’s particularly true for the construction and oil and gas industries,” he said. For his part, Dunleavy said in an interview that his administration is working on alternative ways to encourage companies to hire more Alaskans on projects in the state. “We’re having discussions about how we can incentivize Alaska hire, how we can make that work without running afoul of the Commerce Clause issue,” Dunleavy said. “We really believe in Alaska hire. We’re doing everything we can with our economic development team to bring jobs up here, industries up here that have jobs.” The governor said he needed to talk further with Clarkson about whether the administration should submit legislation to repeal the current Alaska hire statutes. Elwood Brehmer can be reached at [email protected]

ConocoPhillips seeking investors in North Slope projects

ConocoPhillips has a lot of work to do on the North Slope and company executives are looking for someone else to help pay for it. They announced during a Nov. 19 analyst and investor meeting that the Houston-based oil producer plans to sell up to a 25 percent stake in the producing fields and other projects the company operates in Alaska. A deal to sell part of its Alaska holdings is expected to take place next year, but it could be pushed to early 2021, according to ConocoPhillips Chief Operating Officer Matt Fox. Michael Hatfield, president of the company’s Alaska, Canada and Europe operations, said ConocoPhillips plans to spend approximately $25 billion in the state over the next decade. A large chunk of that investment is expected to go into the company’s Willow prospect in the eastern National Petroleum Reserve-Alaska, which will cost between $4 billion and $6 billion to fully develop and could produce more than 100,000 barrels of oil per day at its peak. “These investments increase production from our fields and more than mitigate the current decline through (the Trans-Alaska Pipeline System). In fact, as a result of these investments, we believe production through TAPS will increase,” Fox said. “This will create a very economically advantaged future for the state of Alaska.” ConocoPhillips Alaska Vice President Scott Jepsen said during the Resource Development Council for Alaska conference in Anchorage Nov. 20 that Willow is likely to require $2 billion to $3 billion of spending before the first oil is produced in the mid-2020s. However, appraisal drilling of the very large prospect last winter indicates all of that investment could generate an additional 50 million barrels of oil beyond initial estimates; the company now says Willow holds between 450 million and 800 million barrels. ConocoPhillips also began producing from its Greater Mooses Tooth-1 drill site in the NPR-A last fall and is in the midst of developing the similar, mid-sized Greater Mooses Tooth-2 oil project, which is expected to come on line in late 2021 at a cost of more than $1 billion. The search for a silent partner in its Alaska work is a reversal of recent moves ConocoPhillips has made to take more control of its North Slope assets. The company announced in a February 2018 earnings call that it had spent $400 million to buy out Anadarko Petroleum’s minority position in the Alpine field and large swaths of western North Slope exploration acreage. Anadarko for years held a 22 percent stake in Alpine and had similar interests in approximately 1.2 million acres of North Slope leases ConocoPhillips has gradually explored. ConocoPhillips currently holds 100 percent of those assets. About 75 percent of ConocoPhillips significant holdings of prospect acreage are still untested, according to Jepsen. The company additionally swapped North Slope and North Sea assets with BP last year in a pair of cash neutral deals that gave each producer a greater stake in the field it operates. ConocoPhillips took BP’s 39 percent share of the Kuparuk River field in exchange for giving up a portion of its interest in the BP-operated Clair oil field in the North Sea. The result is ConocoPhillips now holds a 93 percent stake in Kuparuk on top of the other Slope developments it owns outright. The decision to sell a minority position in its Alaska operations is consistent with ConocoPhillips policy of not investing 100 percent equity in large-scale projects, which is a common practice in the industry, Fox said. “We’re pretty confident we’ll have a lot of interest in Alaska. I think we’ve made the case there as one of the best exploration plays in the world just now; so I think we’re going to have significant interest there,” he said. Company executives also briefly discussed the Fair Share Act, an initiative to raise oil production taxes on the Prudhoe Bay, Kuparuk and Alpine fields by approximately $1 billion per year, according to sponsor estimates. Fox noted the initiative is not yet guaranteed to make it on 2020 ballots — the sponsors are currently attempting to gather the more than 28,000 signatures needed to get it on ballots next year — but said if it does make it on ballots that the company will “have a conversation with the people of Alaska about, does that make sense?” The Fair Share Act sponsors insist the measure is aimed at Alaska’s legacy fields, which they claim are currently among the most profitable oil fields in the world, to not deter investment in new fields. Fox said he believes Alaskans will reject the initiative if given a chance to vote on it, but if they don’t, the company will have to reevaluate its plans. “They will see what Michael (Hatfield) said was $25 billion of capital in this plan being invested across the three assets we’re involved in, plus about the same again in operating cost,” Fox said. “They’ll see that that’s going to turn around the production in Alaska and actually make it increase again. “So our sense is that once the whole dust has settled, then everybody understands what’s at stake, Alaskans will understand that short-term revenue gain is a risky proposition if you’re going to give up all this long-term potential.” Elwood Brehmer can be reached at [email protected]

BP hands off keys for Prudhoe Bay to Hilcorp

Hilcorp won’t officially take over the driver’s seat at Prudhoe Bay for at least a few months, but BP Alaska President Janet Weiss offered up the keys to the iconic oil field Nov. 20. Weiss and Hilcorp Alaska Senior Vice President David Wilkins spoke together at the Resource Development Council for Alaska annual conference in Anchorage. It marked some of the first public statements Hilcorp executives in Alaska have made since the Aug. 27 announcement that the large Houston-based independent producer had agreed to purchase all of BP’s assets in the state for $5.6 billion. Weiss stressed a message of gratitude from BP to Alaskans, noting that she and her husband plan to stay in Alaska when the deal is finalized, likely in the middle of next year. BP opened its first office in Anchorage 60 years ago and just a couple months after statehood, according to company executives. The London-based oil and gas giant has operated the Prudhoe Bay field since 2000. “Alaska has helped make BP, big BP and BP Alaska. We would not be the company we are today without Alaska,” Weiss said. “Truly, thank you, Alaska. You made us far better and you made our lives far richer.” Having regularly talked about “40 more” since the 40th anniversary of the start of oil production at Prudhoe Bay in 2017, she said the sale to Hilcorp as proof BP leaders “deeply believe in (the) 40 more” mantra. “Hilcorp is an expert in mature fields; it’s what they do. They’re fantastic at adding decades to mature fields. They unleash the ideas of their people and bring creativity to the fore,” Weiss said. Cumulatively, more than 13 billion barrels of oil have been pulled out of Prudhoe with about 2 billion more available for the taking, making it the most prolific oilfield in the country’s history, according to BP. “It’s one of the great fields across the planet. With Hilcorp at the reins I believe there’s far more than 2 billion left to go and far, far more than 40 more (years),” Weiss said. Hilcorp has been credited with stabilizing natural gas production in Cook Inlet since it purchased Marathon’s and Chevron’s assets there in 2012. At the time, some Southcentral utility managers were discussing the viability of importing natural gas from Canada to prevent power shortages in the region. Since then, utilities have been able to secure long-term gas supply contracts, mostly with Hilcorp. The company has also had similar success in its oil work on the North Slope, but the production turnarounds have also come with a string of regulatory violations and other operating incidents. Most notable among those was a prolonged early 2017 natural gas pipeline leak beneath the waters of central Cook Inlet. The leak drew widespread criticism for how the company handles the often aging assets it buys, but did not result in significant regulatory action. On the flipside, Hilcorp was lauded last year when the company completed a $90 million project to transform a cross-Inlet gas pipeline to an oil carrier, which ultimately reduced Cook Inlet tanker traffic and allowed the company to close the Drift River oil tank farm on the western shores of Cook Inlet. The pipeline project was long-sought by environmental observers who worried the tank farm’s location near the base of Mount Redoubt, an active volcano, could eventually lead to a spill during an eruption. Hilcorp and BP made their first Alaska deal in 2014 for $1.25 billion when Hilcorp purchased BP’s offshore Endicott and Northstar oil fields. That deal also gave Hilcorp its 50 percent operator roles in the Milne Point field and the prospective Liberty project, which had been solely owned by BP. Hilcorp’s Wilkins noted that Nov. 25 marked the fifth anniversary of the company taking over at Milne Point, where it has turned oil production around. When BP handed Hilcorp the keys to Milne Point the Prudhoe Bay satellite field was producing about 19,900 barrels of oil per day. Today, after $640 million of investment, Milne Point is producing about 33,000 barrels of oil per day. That investment included drilling 50 wells and adding the first drilling pad — dubbed Moose Pad — to the Milne Point field since 2002, according to Wilkins. “We did it in half the time of pads built on the North Slope and for about one-third of the cost,” he said of Moose Pad. The company is also working on projects testing polymer flooding of reservoirs to recover viscous heavy oil that is prominent across much of the Slope but historically has been difficult to produce economically. Wilkins attributed the success at Milne Point to some of Hilcorp’s core business principles. “We drove responsibility down to the lowest level. Everybody contributed. Everybody owned it,” Wilkins said. “We found ways to get over obstacles and get it done.” He added that the company’s success is largely dependent upon its partnerships with “smart organizations,” such as the University of Alaska. Hilcorp is currently spending about $3 million on university grants and research to advance environmental studies and industrial technologies, according to Wilkins. And while Hilcorp is often credited for rejuvenating tired oil and gas fields, BP has been lauded since the deal was announced for its decades of philanthropic work across Alaska. BP Alaska Vice President Damian Bilbao told Alaska Chamber members in late October that the company would continue to honor its charitable commitments in the state through 2020. Wilkins also emphasized Hilcorp’s giving plan, which starts with the company giving each employee up to $2,500 to donate to 501(c) charities. The company then matches each donation up to $2,000 for a total contribution of up to $4,500 per employee. He said the total giving so far in 2019 is about $2.4 million. “Our philosophy is we bring people and money back to our communities,” he said. Hilcorp currently has more than 500 employees in Alaska, with approximatley 90 percent residents. The company’s immediate focus has been figuring out the future for each of BP’s roughly 1,600 Alaska employees, according to Wilkins. Company officials have conducted almost 2,000 interviews over the past month and are close to extending offers to the BP employees that want to make the transition to Hilcorp. In the 2014 deal, Hilcorp added about 200 of the 475 BP employees that had been working on the related fields and projects, BP said at the time. “BP’s excellent, qualified workforce will be key to the operation of Prudhoe Bay into the future and we will look forward to onboarding the vast majority of the folks that are interested in coming onboard,” Wilkins said. Bilbao said that impacted employees will know their future by Dec. 20 and BP will likely begin any necessary layoffs on Feb. 20. “One of our biggest challenges in this process is that most of them don’t want to go anywhere else,” Bilbao said of BP Alaska employees, a development that has surprised corporate leaders in Houston and London. “As much as we’ve tried to find jobs for them elsewhere (in the company), they don’t want to go.” Sale details Despite going all-in on Alaska, Hilcorp executives — led by founder and CEO Jeffrey Hildebrand — did not spend as much time examining what they bought as some outside observers might expect. According to Bilbao, the $5.6 billion deal was negotiated over six to seven weeks and Hilcorp officials received about four hours of briefings specifically on Prudhoe Bay. Last winter, BP conducted the first 3-D seismic shoot of the entire Prudhoe Bay field, which was seen by some industry observers as a sort of sales pitch to potential buyers. However, seeing the seismic data was not a part of Hilcorp’s deliberations, Bilbao said. “(The deal) was centered around cash flow modeling and cash flow risk. That’s typically how you do a deal like this. You don’t really get into the details,” Bilbao said. “I can tell you that Hilcorp was incredibly excited about the opportunity that Prudhoe Bay still represents.” As for BP, selling off its portion of Alaska is a means to pay for other new assets after spending upwards of $67 billion over the past decade on cleanup and settlements related to the Deepwater Horizon oil spill. Last year BP bought roughly $10 billion of Lower 48 oil assets from Australian resources giant BHP. Company leaders held a desire to pay for those acquisitions with cash, not debt, leading them to evaluate which assets were best suited to sell off, Bilbao explained. Fortuitously for BP, it already had an existing partner with the requisite cash and expertise to put a deal together. “They’ve shown at Milne Point that they can take a field we operate, reduce the complexity and bring new pads online for lower dollars per barrel that we would’ve,” he said. Alaska accounts for about 3 percent of BP’s global portfolio and is outside of the areas where it holds most of its upstream assets — the Gulf of Mexico, the North and Caspian Sea regions and Angola. Some of Alaska’s unavoidable costs, combined with the state’s continued debates over oil tax policy, led BP to sell Alaska, according to Bilbao. “It’s an expensive place to operate and that’s not just the field, it’s also the cost of moving (oil) to market across the pipe and the ships and it’s an unstable fiscal environment, which factors into the way you look at your growth capital investment options,” he said. He further acknowledged that Alaska operations have had a hard time attracting internal investment capital for several years and getting the $2 billion or so needed for a new drill site within Prudhoe would have been a struggle as well, he said. One of the few Alaska-centric things BP is not yet selling to Hilcorp, at least at this point, is Alaska Tanker Co. The fleet of four, 1.3 million barrel-capacity, double-hulled tankers operate almost exclusively between Valdez and West Coast refinery markets. “What I’ve told people is we will soon have four tankers and no crude and they’ll have a lot of crude and no tankers. So I’m guessing we’re going to have to figure out a way to resolve that, but that is not part of this deal,” Bilbao quipped. ^ Elwood Brehmer can be reached at [email protected]

Congressional Democrats ask for investigation into Alaska use of forest grant

A pair of federal lawmakers are asking for an investigation into Alaska’s use of a U.S. Forest Service grant to analyze timber harvest prospects if the Roadless Rule is lifted from the Tongass National Forest, but Dunleavy administration officials insist the request is baseless political move. Michigan Democrat Sen. Debbie Stabenow and Arizona Democrat Rep. Raúl Grijalva sent a letter to U.S. Department of Agriculture Inspector General Phillis Fong Nov. 18 urging her to investigate “the potential misuse” of a $2 million U.S. Forest Service wildfire assistance grant to the State of Alaska. The letter references a Sept. 24 Alaska Public Media news report that indicated at least some of the grant was used to offer input on the Forest Service’s work to develop an Alaska-specific Roadless Rule and not on fire suppression efforts. The IG has 60 days to respond to the letter. Grijalva chairs the House Natural Resources Committee and Stabenow is the ranking Democrat on the Senate Agriculture, Nutrition and Forestry Committee. Former Gov. Bill Walker requested the USDA and the Forest Service work on exempting the Tongass from the rule, which largely prohibited new road building in undeveloped national forest lands, after numerous failed attempts through the courts to get the state exempted or the rule repealed entirely . USDA officials announced Oct. 15 their preference to fully repeal the Roadless Rule from the nearly 17 million-acre Tongass ahead of the release of the draft environmental impact statement written for the work, which was published a few days later. A full exemption would open more of the 9.2 million acres currently classified as roadless to development activities, such as mining, logging, and energy development, all of which are made more economic with road access. A public comment period on the draft Alaska Roadless Rule EIS is open through Dec. 17. The Roadless Rule exemption would only apply to the Tongass; the Chugach National Forest in Southcentral Alaska historically has not been used for large-scale timber harvests. Local and national conservation groups as well as several Southeast Tribal organizations have said the land-use policy reversal ignores the economic transformation that has occurred in Southeast Alaska over the nearly 20 years since the Roadless Rule was put in place. They contend fishing and tourism — industries boosted by intact wild lands — have largely filled the void left by the region’s dwindling timber industry. The lawmakers’ letter notes Alaska’s request to modify an existing wildfire grant does not indicate the money would be used for fire suppression work. According to grant records, state Department of Natural Resources officials in August 2018 asked for $2 million to work on the Alaska-specific Roadless Rule in addition to $3 million requested earlier under a state fire assistance grant. The letter also questions whether awarding some of the grant money to the Alaska Forest Association, which supports a full repeal of the Roadless Rule, was appropriate given other stakeholders allegedly did not receive similar funding. They specifically asked the Inspector General’s Office to investigate whether using the $2 million on the Roadless Rule was appropriate for fire assistance grant program funding; whether any funding was available to other Tongass stakeholders; and if it is permissible for the a state to use Forest Service funds to help convince the USDA, of which the Forest Service is a subagency, to make a regulatory change requested by the state. “The Tongass is our largest National Forest and is essential to addressing the climate crisis. It is critical that we ensure this taxpayer funded grant was properly awarded and used,” Stabenow and Grijalva wrote. Gov. Michael J. Dunleavy issued a sharp response to the pair Nov. 20. “The grant was appropriate and legal; all the information anyone needs to reach the same conclusion is readily available to the public,” Dunleavy said in a prepared statement. “I respectfully suggest Congressman Grijalva and Sen. Stabenow do their homework before asking a federal agency to conduct a costly, time-consuming and ultimately pointless investigation into a grant that will provide essential information about lifting the Roadless Rule. Exempting the Tongass from the Roadless Rule will create new jobs and economic activity in a region hit hard by the misguided policies of a previous administration.” On March 14, Alaska Forest Association board of directors President Bert Burkhart signed a cooperative agreement with the Alaska Division of Forestry under which the state would provide up to $250,000 for the AFA to use in drafting an economic analysis of the amount of timber made available for harvest in each of the alternatives included in the Roadless Rule EIS, which was published approximately six months later. According to the agreement, the funding came from the 2018 Roadless Rule Modification to the Forestry Division’s Consolidated Payment Grant issued by the State and Private Forestry Organization of the Forest Service. Burkhart referred questions about the grant to DNR officials when contacted by the Journal at Local Manufacturing Inc., an Aberdeen, Wash., lumber mill. AFA Executive Director Owen Graham also declined to comment for this story. However, a source involved in the matter said Burkhart negotiated the agreement directly with DNR officials and contracted with Terra Verde Inc., a La Center, Wash., environmental services firm to conduct the actual timber analysis. A Terra Verde representative said he could not comment on the company’s work without prior consent from a client. DNR spokesman Dan Saddler wrote via email that Jim Eleazer, a state forester, negotiated the contract with representatives from the Forest Assocation. The Division of Forestry did not solicit proposals to conduct the timber analysis through a formal process, according to Saddler; the cooperative agreement cites a section of the Division of Forestry’s enabling statute that gives the DNR commissioner the ability to enter into contracts and agreements with subject matter experts. A Nov. 20 statement from DNR says that Forestry “in 2018 accepted a modification to an annual forest programs grant” from the Forest Service. Saddler wrote that the analysis being conducted by the Alaska Forest Association is technical in nature and requires interpretation of forest plan standards to determine how much timber would be available for harvest under the varying Alaksa-specific Roadless Rule environmental impact statement alternatives. "It must be stressed, AFA is not making any recommendations to the state on what alternative is the preferred; it is simply providing analysis of data concerning each specific alternative," Saddler wrote. "Simpluy put, the state asked a question: How much net positive timber will each alternative produce?" DNR officials denied a public records request for the materials produced by the Forest Association, citing deliberative process privilege. The work product will be used to inform the state's comments on the draft Alaska Roadless Rule EIS and disclosing it now "might hinder the candid decision making of a state agency," according to Saddler. As to whether other Tongass stakeholder groups got funding to help them participate in the process, DNR Commissioner Corri Feige said in the Nov. 20 statement that the Organized Village of Kake — a Tribal government that is a cooperating agency in the EIS process and has opposed repealing the Roadless Rule — received travel funds as part of the federal grant as well. Kake is a community of about 600 on Kupreanof Island in the central portion of the Tongass. Kake Council President Joel Jackson wrote in testimony for a Nov. 13 hearing of the House Natural Resources Subcommittee on National Parks, Forests and Public Lands that Southeast Alaska tribes “received no money to participate in the process as cooperating agencies, nor did they have their resources, expertise or staff time reimbursed.” “The process was designed to shut us out,” Jackson wrote in his committee testimony, adding that Kake has decided to withdraw as a cooperating agency in the Roadless Rule EIS as a result.   Elwood Brehmer can be reached at [email protected]

Revised management plan released for NPR-A

A huge chunk of Arctic Alaska is a big step closer to having a new land-use plan that could open millions of additional acres to oil and gas exploration. The Bureau of Land Management released the 485-page draft National Petroleum Reserve-Alaska Integrated Activity Plan Nov. 21 to resounding support from Alaska’s congressional delegation. BLM Alaska State Director Chad Padgett, who formerly served on Rep. Don Young’s staff, said in a prepared statement that revising the management provisions for the 23 million-acre federal reserve in the western Arctic is one of several actions the agency is taking to promote responsible energy development in the state. BLM is also leading the environmental impact statement review for the highly contentious Arctic National Wildlife Refuge coastal plain oil and gas leasing plan. “With advancements in technology and increased knowledge of the area, it was prudent to develop a new plan that provides greater economic development of our resources while still providing protections for important resources and subsistence access,” Padgett said. The existing NPR-A Integrated Activity Plan was finalized in early 2013 under the Obama administration and has been roundly criticized by development proponents for restricting industry access to large swaths of highly prospective oil acreage, some of which are currently deemed to be critical habitat for caribou and waterfowl populations that are important subsistence food sources for nearby village residents. Sen. Dan Sullivan said the draft NPR-A plan is “welcome progress towards evaluating how to best realize the potential of Alaska’s vast energy resources.” Sen. Lisa Murkowski stressed the options in the revised plan better align with the statutory purpose of the petroleum reserve, which was first designated by President Warren Harding in 1923 when it was controlled by the U.S. Navy. “We have recently learned a great deal about the abundant resources of the NPR-A, and updating the deeply flawed (2013 plan) to provide greater access is necessary to reflect our opportunities for responsible development,” Murkowski said in a formal statement. Today, about 52 percent, or 11.8 million acres of the NPR-A are open to industry. The vast majority of the acreage currently under lease is held by ConocoPhillips, which is in the environmental permitting process for its large Willow oil prospect in the northeast portion of the reserve and is also working on smaller projects in the area. Expected to cost between $4 billion to $6 billion to fully build out, the Willow project could produce upwards of 100,000 barrels of oil per day at its peak, according to the company. Former Interior Secretary Ryan Zinke first directed department agencies to reevaluate the reserve’s oil and gas potential as well as changes to the management plan in May 2017. State officials under both former Gov. Bill Walker and Gov. Michael J. Dunleavy’s administration have pushed Interior to revise the 2013 NPR-A plan and the state is also looking at ways to link several communities in the reserve with year-round road connections. In December 2017, the U.S. Geological Survey issued a resource assessment for the NPR-A in which the agency concluded the reserve and nearby state lands could hold some 8.7 billion barrels of technically recoverable, undiscovered oil, primarily based on the recent Nanushuk discoveries in the area. A 2010 NPR-A assessment projected a mean resource estimate for the reserve of just 896 million barrels. Interior officials announced BLM would begin analyzing changes to the NPR-A plan about a year ago. The first option to change management in the reserve, Alternative B, would actually cull the amount of leasable land by about 400,000 acres to 11.4 million acres, but it would provide for two north-south pipeline corridors through the 3.6 million-acre Teshekpuk Lake Special Area that could allow industry to transport oil and gas from offshore leases to the Trans-Alaska Pipeline System. Caelus Energy holds near shore State of Alaska leases in Smith Bay, just to the northwest of Teshekpuk Lake. The small Texas-based independent announced in 2016 that based on exploratory drilling it believes the Smith Bay prospect could hold as much as of 6 billion barrels of currently stranded oil. The area surrounding Teshekpuk Lake has been the primary focus of the land-use debate in the NPR-A, as it is important habitat for the Teshekpuk and Western Arctic caribou herds and a major breeding area for large populations of waterfowl in the summer. However, it is also considered one of the most highly prospective areas for oil and gas deposits largely based on the boom of recent Nanushuk formation oil discoveries — including ConocoPhillips’ Willow — in the region. BLM would also recommend 12 qualifying rivers in the NPR-A for inclusion in the Wild and Scenic River System under Alternative B. Alternative C would open an additional 5.3 million acres to exploration, thus making about 75 percent of the reserve open for leasing. It would also provide for one pipeline corridor through the Teshekpuk Lake Special Area. The third and final alternative considered to expand leasable acreage would make 18.3 million acres, or about 80 percent of the reserve, open for leasing and that would include the Teshekpuk Lake Special Area. Impacts to caribou calving and migratory bird habitat could be mitigated through the use of lease stipulations that would place restrictions on permanent facilities in certain areas limit the timing when exploration activity could occur as well, according to BLM. The draft plan also includes a “no action” alternative to maintain the status quo as required by the National Environmental Policy Act. Each of the alternatives to change land-use management in the reserve would eliminate the Colville River Special Area, which provides habitat protections over 2.4 million acres adjacent to the river. The Colville River makes up much of the eastern boundary of the NPR-A. The Wilderness Society Assistant Alaska Director David Krause said the conservation group will be fully engaged in the public EIS process primarily to ensure the Colville River and Teshekpuk Lake areas are protected. Krause said he’s not surprised by the main aspects of the alternatives after an initial review of the draft, but he emphasized that major changes to the current plan are likely to lead to more policy battles that won’t further industry’s interests either. “Ultimately, deconstructing the existing plan that is very science-based, I think, is going to create an environment of increased conflict and I think greater uncertainty for business,” he said. BLM recommended opening the entire 1.5 million-acre ANWR coastal plain to leasing in the final lease sale EIS the agency published in September for the area. Representatives for the Inupiat Community of the Arctic Slope, a regional tribal government, declined to comment on the draft NPR-A plan. A spokesman for the North Slope Borough said borough officials would focus on reviewing the document after the Thanksgiving holiday. A 60-day public comment period on the draft NPR-A Integrated Activity Plan runs through Jan. 21. Elwood Brehmer can be reached at [email protected]

Tax initiative sponsors sue state over ballot summary

The drafters of a voter initiative to increase production taxes on Alaska’s largest oil fields have sued Lt. Gov. Kevin Meyer and the Division of Elections over problems with the summary of the measure meant for printed election materials. Oil and gas industry attorney Robin Brena wrote in a 12-page complaint filed Nov. 14 in state Superior Court that Meyer and Elections officials misconstrued some of the basic parameters of the initiative in the ballot summary and then refused to correct the errors when they were notified of them. Brena is a sponsor of the initiative and chairs Vote Yes for Alaska’s Fair Share, the campaign group formed to back the proposal. He has pushed for changing or repealing Alaska’s oft-debated oil production tax system since the current tax rates were passed by the Legislature and former Gov. Sean Parnell in 2013 with the support of industry stakeholders. Overseeing elections is the primary duty of Alaska lieutenant governors. Brena and other sponsors submitted the Fair Share Act, a two-page rewrite to the state’s current oil production tax system known as Senate Bill 21, to the Division of Elections in mid-August. Meyer certified the initiative application Oct. 15 based on a legal opinion from Attorney General Kevin Clarkson. With the initiative application certified, Vote Yes for Alaska’s Fair Share is now able to collect signatures for its petition. The group has until Jan. 21, the start of the next legislative session, to gather 28,501 signatures collectively from 30 of the 40 state House districts to get it on a 2020 statewide ballot. The Department of Law memorandum to Meyer states that the initiative meets all of the procedural and constitutional requirements to be on general election ballots in 2020 but also surmised that unclear wording in the statutory language could make implementing the initiative a challenge if voters approve it. It also contains the 396-word proposed ballot summary for the Fair Share Act that precipitated the sponsor group’s lawsuit. State law requires the summary be a “true and impartial summary of the proposed law,” but Vote Yes contends it fails on both counts. The complaint speculates that Meyer and Clarkson may have allowed their personal disagreements with the proposed oil tax change to infiltrate the summary. Meyer is a former ConocoPhillips employee who opposed changing SB 21 as a state senator and Gov. Michael J. Dunleavy formed his administration on the premise of balancing the state’s budget without raising any state taxes. Clarkson was previously an attorney at the Anchorage law firm owned by Brena, which was named Brena, Bell and Clarkson prior to his attorney general appointment. The complaint also details discrepancies between the initiative and summary language regarding what oil fields the new tax rates would cover and what exactly those rates would be. The initiative states that it would apply to North Slope fields that produced “in excess of 40,000 barrels of oil per day in the previous calendar year and in excess of 400,000,000 barrels of total cumulative oil production.” To date, the Alpine, Kuparuk River and Prudhoe Bay fields are the only North Slope fields that meet those production criteria. Brena has said in interviews with the Journal that the tax increase is focused on the mature fields that currently account for approximately 90 percent of North Slope production as a way to add upwards of $1 billion in annual revenue to the state without deterring exploration and development of new fields. Opponents of the initiative insist targeting the largest fields, which provide infrastructure and capital needed to support smaller projects, would discourage in-field development but also add more complexity to the state’s already layered oil production tax system. However, the applicability of the initiative is not as simple as the bill language appears, according to the ballot summary. It states that the Fair Share Act would change the tax for North Slope fields “where the company produced more than 40,000 barrels of oil per day in the prior year and/or more than 400 million barrels total. It is unclear whether the area has to meet both the 40,000 and 400,000 million thresholds or just one of them.” It additionally notes that the initiative does not define what an oil field or unit is; those terms do not appear in current oil tax code, but are common terms used to define oil and gas developments by the Department of Natural Resources and other regulatory agencies. “The Fair Share Act expressly states that its terms ‘only apply’ to areas which the annual per barrel production threshold ‘and’ the total cumulative production are met,” the complaint asserts. “To be true and impartial, the Summary’s description should be corrected to use the term ‘and’ and remove the suggestion that ‘and’ may mean its opposite and something quite different.” It also highlights the “400,000 million” as an apparent typo that would make the cumulative production threshold 1,000 times greater than intended. Department of Law spokeswoman Cori Mills wrote via email that the department is reviewing the specifics of the complaint and cannot comment on it. Mills did note, though, that her understanding is that it has historically been up to the lieutenant governor to decide exactly what the summary should be for both the initiative petition and ballot summaries. The summary included in the attorney general’s opinion is a recommendation, according to Mills. “The process generally does not involve seeking input from the sponsors before creating the summary. Any changes to the summary have generally occurred after litigation has been filed,” she wrote. Vote Yes also argues that the summary incorrectly characterizes what is intended to be a new, higher net tax rate for the large fields. The initiative would repeal the sliding scale per barrel credit — an oil price-sensitive mechanism used to reduce the 35 percent net tax rate on oil produced from the fields — and also add a 15 percent tax on top of the current 35 percent base for a 50 percent net tax on the oil at market prices of more than $50 per barrel. On this provision, the summary notes that the initiative uses the term “additional tax” but claims it is unclear what the new 15 percent tax would be in addition to, potentially creating problems with its applicability. The statutory language of the Fair Share Act does not mention repealing the base 35 percent net tax. Brena wrote in the complaint that the summary interpretation even contradicts the Clarkson’s opinion on this specific issue. “To state the obvious, there is only one existing tax on production net value and it is set forth in (production tax code) and as even the Attorney General’s opinion noted, ‘The sponsors likely intended for this to be in addition to the existing tax levied by (Senate Bill 21).” Finally, the complaint says the Clarkson’s opinion and the summary would render Section 7 of the Fair Share Act that aims to make tax filings on the large fields public records “completely meaningless.” The initiative would make those filings “a matter of public record” in an attempt to provide more information on how the companies developing the oil, which is a public resource in Alaska, are faring financially in those efforts, according to Brena. To the contrary, the phrase “a matter of public record” is interpreted in the summary to mean the records would be handled under the Alaska Public Records Act. Currently, tax records and other potentially sensitive business information held by the state are mostly kept confidential, meaning there likely would be little change in the tax documents that would be disclosed, the complaint concludes. “Sponsors do not often advance initiatives for the purpose of changing nothing,” Brena wrote in the complaint. “The Summary is far from a true and impartial description of Section 7 of the Fair Share Act.” According to the complaint, an attorney for Vote Yes emailed and called Law Department attorneys several times to correct the summary in the days following the Oct. 15 certification of the initiative. Representatives for the group also sent a “redlined” version of the summary to state officials highlighting the parts of the summary that they felt needed to be changed with an offer to pay for any additional printing costs. However, Law attorneys told the sponsors on Oct. 21 that they would not further discuss the contents of the ballot summary. The complaint asks the Superior Court to issue an injunction requiring the Division of Elections to correct inaccuracies in the summary and have the state reimburse the group for applicable costs and attorneys’ fees. ^ Elwood Brehmer can be reached at [email protected]

First oil finally flows from Mustang project

A small but long-awaited North Slope development has quietly started producing oil. Brooks Range Petroleum Corp. achieved first oil from its Mustang project Oct. 30, according to Houston-based Thyssen Petroleum CEO Majid Jourabchi. Thyssen Petroleum became an owner-investor in the project in 2014. Jourrabchi said first production was about 620 barrels per day from one well. The Mustang project is adjacent to the southern portion of ConocoPhillips’ large Kuparuk River field and also near the Nanushuk oil project being developed by Oil Search. The single well, North Tarn 1-A, that is producing will eventually be turned into a gas injection well, according to Jourabchi. The company is targeting the same sandstone formations that have helped produce more than 2 billion barrels of oil from Kuparuk. Mustang holds 22 million barrels of proven reserves, according to Brooks Range. Peak production estimates for the field have been in the range of 12,000 barrels per day. However, Brooks Range installed modular early production facilities capable of handling approximately 6,000 barrels per day over the past year to expedite production without the initial expense of permanent processing facilities. Anchorage-based Brooks Range has been working on Mustang for years, though the project has gone through fits and starts since oil prices collapsed starting in late 2014. Brooks Range CEO Bart Armfield said in a December 2018 interview that the company was then owed $22 million in refundable tax credits by the State of Alaska, which slowed repayment on the incentive program in 2016 while facing multibillion-dollar yearly budget deficits under former Gov. Bill Walker. The delay in tax credit payments, combined with reluctance from its investors to fund development activities after oil prices fell sharply, delayed the startup of Mustang, which once was scheduled for 2014. Armfield told the Alaska Industrial Development and Export Authority Board of Directors in April that startup of Mustang would mark the first time a small independent company such as Brooks Range had taken a North Slope oil prospect all the way from discovery to development without it changing hands. “If little Brooks Range can do it anybody should be able to go to the North Slope and do it,” he said at the time. AIDEA first partnered with Brooks Range in December 2012 when the authority approved a $20 million investment in a nearly $30 million, five-mile gravel road to access the prospect and 20-acre gravel pad to host production facilities. The gravel infrastructure was completed in April 2013. At the time, Brooks Range leaders said they wanted to have the field in production by fall 2014 and credited incentives in the just-passed and industry-supported oil production tax structure under Senate Bill 21 for improving the economics of the project and spurring it forward. In April 2014, AIDEA committed an additional $50 million of investment into a planned $225 million Mustang oil processing facility known as Mustang Operations Center-1, or MOC1, which authority leaders then saw as a facility other small companies prospecting in the area might potentially be able to use. However, when oil prices fell from $100-plus per barrel in late 2014 to eventually less than $30, it caused company and authority leaders to reevaluate their plan. AIDEA and Brooks Range owners agreed to rework their partnership last May when the authority approved a transaction to shift from an investor to a lender in Mustang by selling its stake in the holding companies set up under the original deals for the gravel infrastructure and processing facilities. That move freed Brooks Range to focus on getting to first oil — and cash flow — with a smaller, less expensive early production facility before eventually growing the operation. AIDEA spokesman Karsten Rodvik wrote via email that achieving first oil from Mustang is an important milestone for the state and the authority will continue to help the Brooks Range facilitate its investment plan for the project. Armfield wrote in the company’s development plan submitted to the Division of Oil and Gas Sept. 30 that Brooks Range prepared its North Tarn 1-A well for production in the third quarter. The transport of produced oil from the early production facilities to ConocoPhillips’ common carrier Alpine pipeline was expected to start in the fourth quarter of the year. According to the Mustang plan of development, four new wells are scheduled to be drilled in the first half of 2020. The company continues to plan for eventually drilling up to 10 production and 11 injection wells, which would be accompanied by central processing facilities capable of handling up to 15,000 barrels of oil per day. Elwood Brehmer can be reached at [email protected]

Alaska’s largest solar farm opens in Willow

The sun is about to take its annual vacation from much of Alaska but Jenn Miller’s team will be ready for its return. Miller is the CEO of Renewable IPP, which officially opened Alaska’s largest solar farm Nov. 15. The now-1.2 megawatt facility installed last year by the Renewable IPP group on a 17-acre property along the Parks Highway near Willow has expanded from a 140-kilowatt pilot project. Fairbanks-based Golden Valley Electric Association also opened a 563-kilowatt solar farm in south Fairbanks last fall. Miller said the initial concept for a commercial-scale solar farm stemmed from the positive results she and other Renewable IPP members experienced after outfitting their homes with solar arrays in 2017. What they learned from those endeavors gave them the confidence to believe they could successfully have a community-wide impact with more solar panels. “We just said, let’s do one big system and see how that goes,” Miller recalled in an interview. The 140-kilowatt test case went well enough that the four-person team quickly began working on the expanded solar farm, which is expected to come online in December. When it does, it should generate enough electricity to power about 200 homes. It will also offset enough power produced from Southcentral’s natural gas-fired power plants to prevent approximately 2 million pounds per year of carbon dioxide emissions, according to Miller. Renewable IPP reused old oil and gas drilling pipe to build the support structures that hold the 3,240 solar panels to reduce the environmental impact of the project. Miller said an outpouring of support from nearby Willow residents has been the biggest surprise since starting work on the first phase of the project early in 2018. Matanuska-Susitna Borough Mayor Vern Halter is among those supporters. Halter lives about a half-mile from the solar farm and acknowledged his initial skepticism in the project. “The first time Jenn and her husband came on my lot and said they were going to put a solar farm on this property I thought, ‘man, they’re nuts.’ With hard work and dedication — look at what happened — so it’s a great day in the Mat-Su Borough,” Halter said during Renewable IPP’s Nov. 15 re-opening celebration. About half of the funding for the $1.5 million project was financed through the Alaska Energy Authority’s Power Project Fund loan program; the rest came from private capital. AEA Executive Director Curtis Thayer said in an interview that the Renewable IPP team approached the state-owned authority with their loan proposal barely six months ago. “The came to us with a solid business plan and we were able to put a financing plan together,” Thayer said. Power from the project will be sold to Matanuska Electric Association under a 30-year contract Renewable IPP has with the utility. According to Miller, Renewable IPP produces its power for about 5 to 6 cents per kilowatt-hour, and sells its power to MEA for about 8 cents per kilowatt-hour. MEA CEO Tony Izzo said the solar farm will increase the amount of renewable-sourced power the utility uses from 12 percent to 15 percent of its overall generation portfolio. The vast majority of MEA’s renewable generation is hydropower from the state-owned Bradley Lake hydro facility on the Kenai Peninsula. Integrating solar power into its grid has been a learning experience MEA officials have shared with the Renewable IPP team, Izzo said, adding it’s also something the member-owned utility’s customers expect more of. The utility recently hired a grid modernization expert to study what upgrades need to be made to its power transmission and distribution network to make it easier to accept more renewable power. “We’re looking to the future and meeting members’ needs,” Izzo said. “A lot of them have expressed a desire for us to reduce our carbon footprint.” Determining the best sites within its broad service territory — which stretches from Eagle River and Matanuska Glacier to the south and east and Denali State Park to the north — for future renewable projects will be part of the grid analysis, according to Izzo. Miller said finding an adequate location was one of the biggest challenges in developing their solar farm. The parcel is adjacent to the Parks Highway and the “three-phase” power lines paralleling the highway that are necessary for connecting to a new power supply. She said the group is already looking for another property for another solar farm. Renewable IPP Chief Financial Officer Chris Colbert said the 11 rows of solar panels pretty much max out the property’s power producing capacity. That’s because the panels have to be positioned at about a 45-degree angle to capture as much sunlight as possible and putting them closer together would cause the rows of panels to start casting shadows on each other when the sun is at a low angle, Colbert explained. Even with about 50 feet of space between the rows Colbert said shadows will reach the lower part of the arrays in December. At that point the Renewable IPP team won’t worry too much about snow covering the panels because the fleeting early-winter sun doesn’t provide for much power generation, Miller said. However, she noted that when the sun starts making its return in February the reflective snow cover around the panels will help boost power production. The Alaska Center for Energy and Power, run by the University of Alaska Fairbanks, installed a weather station at the farm to monitor sun conditions and help improve power production forecasts, Colbert said. Miller added ACEP is also testing slick panel coatings that could limit snow buildup. Elwood Brehmer can be reached at [email protected]

Anchorage secures $25M grant for Port of Alaska

Anchorage is getting a $25 million shot in the arm to help rebuild its long beleaguered port. Municipal officials announced Nov. 6 that they will receive a $25 million grant from the federal Department of Transportation to help complete the $214 million petroleum and cement terminal the Anchorage Assembly approved construction of earlier this year. The money is coming from the federal agency’s Better Utilizing Investment to Leverage Development, or BUILD, Grant program. Anchorage Municipal Manager Bill Falsey said in a formal statement that the lump sum helps fill a significant funding gap and gives officials overseeing the Port of Alaska modernization project plenty of confidence that they will be able to complete the petroleum and cement terminal in 2021. Port of Alaska Director Steve Ribuffo thanked the congressional delegation in a formal statement as well. The delegation sent a letter in July to DOT Secretary Elaine Chao supporting Anchorage’s grant application. According to the municipality, Anchorage was competing against approximately $10 billion in other project applications for a portion of $1 billion in grant funding. “I also thank the port staff and program team who put in some long hours writing a highly competitive application. This award is a giant step towards successful completion of the petroleum and cement terminal,” Ribuffo said. “With this success, we can start directing more attention to planning and financing new general cargo facilities.” The congressional delegation noted the statewide reliance on Anchorage’s port in a joint Nov. 6 statement about the grant. “Alaskans have been sounding the alarm about the critical state of Alaska’s primary import terminal for years and, thankfully, the Trump administration and Secretary Chao have listened and are taking action to help us. This new BUILD Grant will help offset the cost of the first phase of the port’s desperately-needed modernization program,” the delegation said. “We thank Secretary Chao for the administration’s prudent investment today to help ensure that safe, cost-effective and resilient operations at the port continue for years to come.” The grant comes as the municipality is in drawn-out litigation against another arm of federal DOT, the U.S. Maritime Administration, or MARAD, for its role in the failed port expansion project from about 10 years ago. The municipality sued MARAD in 2014, alleging the agency allowed contractors to perform shoddy work on new docks that ultimately cost more than $300 million for work that largely needed to be redone. A trial in the case is finally set for February 2020. In July the Assembly approved a $42 million contract to start construction on the new import terminal next spring. While there is consensus that the ports aging and badly corroded docks — some of which are more than 50 years old — are in need of replacement, an informal group of port user companies strongly objected to moving ahead with the project because municipal officials still needed $81 million to finish the project. They worried the tariffs levied on the goods and commodities offloaded at the port would be raised to fill the funding gap. Fuel company representatives stressed that significant additional import tariffs on petroleum products could impact Ted Stevens Anchorage International Airport’s robust cargo traffic business, which they said can be very sensitive to even small changes in fuel prices. The companies instead urged municipal leaders to hold off on building the new terminal, or PCT, until they had a complete funding plan. However, Assembly members approved the project mainly on the belief that it was important to start moving ahead with the new facilities at the port, which is the import hub for most of the consumer goods used across mainland Alaska, rather than risk another earthquake or other event rendering the port useless as more firm financing plans were arranged. Falsey has also stressed that the new PCT — located away from existing docks — needs to be finished first to free up space for work on the port’s cargo terminals that will require complex logistics to keep the port open during dock construction. The municipal Port Commission, and advisory body to the Assembly, voted 5-4 on Oct. 23 to recommend petroleum and cement tariff increases that would cover debt service on bonds that would be sold to pay for the remaining PCT work to be done in 2021. The stepped rate changes would increase petroleum tariffs at the port from 16.4 cents per barrel of fuel now to 55 cents per barrel in 2029. On cement, the recommended tariff increase would add a fee of $3.93 per ton, according to municipal figures. Port of Alaska spokesman Jim Jager said the BUILD Grant award is extremely helpful for port officials, but it will not reduce the needed tariff adjustments. They have applied for numerous federal grant and loan opportunities over the summer and expected at least one or two would be successful, he said. “The notion that we were going to get some grant was cooked into the tariff proposal,” Jager said. He noted that if the city gets additional outside funding the tariff schedule could always be revised back down later. The Assembly, which must approve any tariff changes, is expected to take the issue up later this month. ^ Elwood Brehmer can be reached at [email protected]

Aging fleet plagues ferry system fixes

Alaska’s ferries are facing a forecast of some rough seas ahead. How that will manifest largely depends on the conclusions of a study examining the options to reshape the Alaska Marine Highway System that Department of Transportation officials are currently reviewing. DOT Commissioner John MacKinnon said in an interview that the study, conducted over spring and summer by the Anchorage-based research firm Northern Economics, evaluated 11 different options for overhauling the network of large vessels that move people, vehicles and goods between 35 communities spread across more than 3,000 miles from Bellingham, Wash., to Dutch Harbor. The desire to reshape the ferry system follows years of budget cuts that correspond to significantly diminished service across much of the network. Since peaking at $111.2 million in the 2012 fiscal year, the state-funded portion of the annual AMHS operations budget has roughly been cut in half. Service levels, measured by the cumulative number of weeks ferries in the 12-vessel fleet operate over a year, have been cut about 25 percent over that time, according to AMHS figures. This year’s budget calls for a $56 million state subsidy — a compromise between the Legislature and Gov. Michael J. Dunleavy’s original proposal of $21.8 million, which would’ve resulted in shutting the system down in October. The prospect of no ferries running for nine months or more generated strong backlash from many legislators and Alaskans in coastal communities and led to the softer, but still significant budget reduction for this year. While the budget cuts on the state side of the ledger are mainly due to lower oil revenues that have driven major cuts across state government, AMHS leaders have also had to deal with fewer ferry riders, even when the service reductions are accounted for. Ridership has declined over the past 20-plus years from about 350,000 ferry passengers in 1998 to 251,000 passengers in 2018. At the same time, vehicle transport has remained steady at about 100,000 car, truck and van shipments per year, according to AMHS figures. The prevailing belief is that coastal travelers have turned to the skies, favoring speedy and ever-more reliable jet traffic over more leisurely, scenic and cheaper ferry trips. Alaska Airlines offers daily flights to nine communities the ferries also call on and small regional airlines fly to most of the others. MacKinnon said that the drop in ridership coincides with GPS and other advancements that have made flying through coastal Alaska’s notoriously bad weather safer and more consistent. “The chance of them doing a flyover now and not being able to land is a lot smaller than it used to be, so our competition is just technology that the airlines have been able to use to improve their performance,” MacKinnon said. The final and possibly biggest challenge facing ferry managers, according to MacKinnon, is the age of the fleet. Most large vessels are retired and scrapped once they reach 30 or 35 years old, he said, while six of the 12 ferries are already more than 40 years old. Additionally, twin fast shuttle ferries Chenega and Fairweather, built in 2004 and 2005, are currently docked and up for sale; they have proved to be expensive to run — favoring speed over fuel efficiency — and have been plagued by engine problems and hull cracking. DOT sold the 55-year old ferry Taku in January 2018 to a Dubai-based company for $171,000. “I’m sitting here looking at the Malaspina, 56 years old, and then we’ve got the LeConte, the Columbia and the Aurora in the 45-year-old range and then from the late ‘70s to ’98 we didn’t build a ship,” MacKinnon said. “So we’ve got some newer ones and then we’ve got some older ones that should’ve been scrapped.” The ten operating ferries average 37 years old and that includes the Tazlina and Hubbard “day boats” that entered service earlier this year. The collective age of the fleet makes for costly routine maintenance that often leads to longer dry dock layups as more areas in need of repair are discovered. The Matanuska, one of the original mainline ferries launched along with the state system in 1963, recently received about $40 million of work to repair damaged steel and upgrade some systems to current safety standards. It’s sister ship, the Malaspina, is scheduled for a long-term layup in January. Repairing the Malaspina is estimated to cost upwards of $16 million, but that bill could approach the Matanuska’s total as the vessel is examined in dry dock, according to MacKinnon. The smaller LeConte was docked in October for a regularly scheduled $1.2 million overall, but it was determined that further hull steel repairs were needed for a total bill of about $5.2 million. MacKinnon said the similarly sized and aged Aurora, which went in for its evaluation Nov. 4, could need similar attention. The cost led DOT to halt repairs to the LeConte until it’s known whether it or the Aurora will be cheaper to repair. That question should be answered later this month, according to a department statement. MacKinnon is working to tally all of the recent repair bills for the older vessels to see just how much of the mostly federal money has been spent keeping them on the water. “We probably could’ve built a couple new for that kind of money,” he surmised. He stressed in a follow-up email that while the age of some of the ferries means they require significant upkeep, it doesn't mean they aren't safe. Each vessel is inspected by the Coast Guard before receiving an annual approval to operate from the Coast Guard. "Ships are required to dry dock three times every five years, but out of an abunance of caution, the ships are dry docked every year. "Crews also perform a variety of inspections on a regular basis," he wrote. When the ferries are laid up for repairs longer than expected — a common occurrence of late — it simply means some communities don’t get the service they planned on. That deters riders as well. The system has lost a lot of its formerly consistent commercial customers because of its inability to be reliable, MacKinnon added. It all paints a picture of a ferry system beloved by countless Alaskans that is in need of change to pull it out of what is now a slow, downward spiral. But a group of Southeast legislators insist there is already money available to fix the vessels that the administration is choosing not to use. Democrat Sen. Jesse Kiehl, Reps. Jonathan Kreiss-Tomkins, Sara Hannan, Andi Story and Independent Rep. Dan Ortiz sent a letter to Dunleavy and MacKinnon Nov. 12 in which they call the decisions to lay up the LeConte and Malaspina "a funding priority crisis that can be solved." The lawmakers wrote that the Legislature put $20 million aside in a previous budget to deal with unexpected costs to the ferry system. They argue the administration has a responsibility to Alaskans to use that money to repair the vessels. Not doing so puts the small Southeast communities served by the vessels — towns and villages with limited transporation options — "in an existential crisis," they wrote. "With the multitude of recent, severe budget cuts to AMHS, and delayed maintenance to system vessels, this is leading to future economic and social disasters, if management action is not taken quickly," the letter states. According to Kreiss-Tomkins staffer Kevin McGowan, the extra $20 million is in the Alaska Marine Highway System Fund, the system's operating fund. To access the money, the administration would have to send a request to the bicameral Legislative Budget and Audit Committee, which typically handles out-of-session funding issues. DOT would then be able to spend the money on ferry repairs if the request were approved by the committee. The AMHS Fund held $35.6 million at the end of October, according to state Treasury Division records. DOT spokeswoman Meadow Bailey wrote via email that the department was given authority to spend $13.5 million of the $20 million on vessel repairs this year, but the remaining $6.5 million would only be enough to repair either the Aurora or LeConte, not both. "We believe it would be irresponsible to spend the available $6.5 million on one very old vessel; we need to stop pouring money into vessels that will not provide service for years to come," Bailey wrote further. "The old vessels are literally rusting out from under us and they require so much maintenance each year that we can't count on them for scheduling." The reshaping plan now being vetted by the Dunleavy administration is the second attempt in recent years to address the ferries’ systemic challenges. In May 2016, former Gov. Bill Walker signed a memorandum of understanding with the Southeast Conference — a community development group originally formed in 1958 to advance a transportation network that became the ferry system — directing DOT to partner with the nonprofit in addressing the system’s mission statement, governance structure, operations, revenue opportunities and other potential partnerships that could support major changes to the system. That report concluded that a public corporation — similar to the Alaska Railroad Corp. — with an expert-filled board of directors would be the best option for Alaska’s ferries. The public corporation model would provide stability in management and board oversight that could translate into the long range planning that is needed to maximize efficiencies available in vessel operations and overall fleet management, according to the report. However, MacKinnon contends the prior administration’s attempt to fix the AMHS didn’t do enough to fundamentally change how it operates. “Our study is a broad study looking at a variety of things, there’s was focused on one thing,” MacKinnon said, “basically change the management structure from government managing it to a board of stakeholders.” A public records request for a copy of the draft report was denied by department officials, who cited deliberative privilege authority while it is being internally reviewed and finalized. The latest study is scheduled to be finalized in December. The state's contract with Northern Economics to produce the document was for up to $250,000. The first big, system-wide change the Dunleavy administration made was to implement a “dynamic” pricing schedule that increases fares as more passenger, vehicle and cabin tickets are sold for a given sailing. Dynamic pricing, along with new change fees and increased fares around special events in port communities, are all intended to take the amount of fare box revenue from current levels of about 35 percent up to 50 percent of the system’s overall operating revenue, MacKinnon said. The 50 percent mark is a goal set by the Legislature during the budget debates earlier this year. Hitting the 50 percent fare box recovery mark “requires concentrating on the high revenue runs, raising rates where the market will bear it and dynamic pricing. Dynamic pricing works well for airlines,” MacKinnon said. He suggested the broader reform effort could include local ferry authorities that manage vessels and runs in more isolated route segments, such as Prince William Sound. That would allow for dedicated vessels that are purposed specifically for certain runs to maximize efficiency. It’s a model that has worked well for the Inter-Island Ferry Authority between Ketchikan and Prince of Wales Island, he said. “I think it’s great when a community steps up and says, ‘We’d like to take control of our own destiny,’ and it will take investment by the state,” MacKinnon said. The public corporation model floated by the Walker administration required significant changes by the Legislature to AMHS statutes, and though it’s unclear exactly what plan the Dunleavy administration will settle on, it will undoubtedly require legislative buy-in as well. MacKinnon added that it’s a time to examine the overall concept of state-run ferries. While many residents of isolated coastal communities consider the ferries to be their version of Alaska’s road system, he contends the analogy misses a couple key points. “We don’t operate the busses on public roads. We run the airports; we don’t run the airlines, but on the marine side we not only own the ships and the ports, we operate them,” MacKinnon said, adding that he’s heard from private vessel operators who’ve told him they don’t even try to compete with the state ferries. “Our goal is not the demise of the system; it’s fixing the system,” he said. “You can always fix it by throwing more money at it but I think the reality is there’s no more money to throw at it.” Elwood Brehmer can be reached at [email protected]

Trilogy announces successful drilling at third Ambler prospect

The company with two copper prospects in a remote, mineral-rich region of Alaska is adding another. Trilogy Metals Inc. announced on Nov. 7 that it hit copper, zinc, silver and small amounts of gold and lead during summer drilling at its Sunshine prospect in the Ambler mining district northwest of Fairbanks. The Vancouver-based junior mining firm hit zones of at least 0.87 percent copper in each of the six boreholes tested; all but one of the holes contained copper zones with mineralization excess of 2.08 percent, according to the exploration report. For comparison, a 2016 research article published in the scientific journal Resources concluded that the average ore grade at currently producing copper mines worldwide is approximately 0.62 percent. However, the high costs associated with developing isolated prospects in Alaska often require much better-than-average resources to justify turning a prospect in the state into a producing mine. Zinc occurrences in the same zones were largely in excess of 2 percent, with silver densities reaching 74 grams per metric ton of ore. The results are from 1,356 meters of drilling over the six boreholes. Trilogy targeted the specific drilling sites following a $2 million electromagnetic geophysical survey the company conducted last spring over much of the Ambler prospect belt. Interim Trilogy CEO James Gowans said in a formal statement that Sunshine is just one in a host of prospects across the large Ambler mining region, “which has the potential to be one of the most prolific mining districts in the world.” “The grades and widths of mineralization found at the Sunshine prospect are very similar to what we see at the Arctic project and I expect that with more drilling we can delineate more mineralization at Sunshine,” Gowans said. Other companies are exploring other prospects in the Ambler region, which stretches for roughly 75 miles along the southern flank of the western Brooks Range in the upper reaches of the Kobuk River drainage. Trilogy is also working in other parts of the area, including its aforementioned and advanced Arctic prospect, about eight miles east of Sunshine. Former CEO Rick Van Nieuwenhuyse said last spring that Trilogy leaders hope to complete a feasibility study of Arctic early next year. Environmental permitting for Arctic should start once the environmental impact statement for the controversial, state-sponsored 211-mile Ambler Mining District Industrial Access Project is closer to complete as well, he said. The high-grade Arctic prospect covers approximately 36 million metric tons of ore with 3.07 percent copper, 4.23 percent zinc, 0.73 percent lead and 47 grams per ton of silver. Generally referred to as the Ambler road, the up to $350 million access project is a state-led plan for an unimproved industrial road off of the Dalton Highway to reach the large Ambler mining district. Under the plan, the Alaska Industrial Development and Export Authority would build the road via revenue bonds once it secures commitments from mining companies that would ultimately fund the project through tolls and use agreements. The road project has drawn opposition from local Alaska Native organizations, residents of the area and environmental groups who are worried the project will disrupt caribou migrations important for subsistence harvests. The proposed mines have also drawn scrutiny for potential impacts to salmon and whitefish runs in the Kobuk River drainage. In addition to the young Sunshine and mature Arctic prospects, Trilogy is also working on the mid-stage, copper-based multi-metal Bornite prospect to the south of the other two. The company completed more than 7,600 meters of drilling this year from 10 boreholes in and around the known resource. The $9.2 million drilling program at Bornite was funded by Australia-based South 32 through an agreement the companies signed in 2017. According to a company report issued prior to this year’s drilling, Bornite contains indicated resources of more than 40 million metric tons of ore holding an average of 1.02 percent copper for 913 million pounds of the metal. ^ Elwood Brehmer can be reached at [email protected]

Mineral exploration spending strong for second year; Icy Cape grows

Mineral exploration is on the rebound in Alaska and a unique state-owned prospect is showing promise. Nearly $150 million was spent prospecting mostly for large mine opportunities in the state last year and likely in 2019, according to Curt Freeman, president of Fairbanks-based Avalon Development Corp. That is up from just more than $50 million three and four years ago, but off from a peak of roughly $350 million per year in the late 2000s, when substantial work was being done at the Pebble deposit. The figures were compiled with data from the Alaska Department of Natural Resources. Freeman tallied 18 large exploration projects across the state for “every metal under the sun,” he said. “It was a pretty good year for exploration all the way around.” However, he noted Alaska’s six metal mines are all large operations and the state does not have a single mid-sized producing mine. As is the challenge for many industries in the state, the high cost of operating in very remote places often requires very large and inherently complex projects to be economic. The Alaska Mental Health Trust Land Office is exploring a growing heavy mineral prospect it owns at Icy Cape on the exposed Gulf of Alaska coast between Cordova and Yakutat. Trust Land Office minerals and energy manager Karsten Eden said simply the prospect of industrial-use minerals is commercially viable and contains significant quantities of in-demand minerals such as garnet and epidote — as well as gold. “Every sample has gold in it,” Eden said of the drilling work that’s been done there. He spoke Nov. 5 at the Alaska Miners Association convention in Anchorage. When it started in 2017, the focus of the exploration was on the beach sands that underlie the spruce forests along the coast at Icy Cape. Now the resource delineation work has shifted to the deeper sediments, Eden said. Since 2017 the Trust Land Office has had 13,000 feet of core samples drilled from boreholes down to 300 feet, he said. The Trust Land Office manages roughly 1 million acres of land across Alaska for real estate and resource development purposes, the proceeds of which go to fund the Alaska Mental Health Trust Authority’s work to benefit Alaskans with mental health and addiction challenges. Specifically, the multi-heavy mineral prospect consists of abrasives garne and epidote, and zircon, magnetite and gold. They are present across most of the 48,000-acre property, which is closed to public access, but the exploration team is interested in 23,000 acres of it, according to Eden. The magnetite allowed the Trust Land Office to fly a magnetic survey of the area to better hone in on prospective areas to drill, he said. Different layers of the area’s marine sediments are largely comprised of similar minerals, just in consistently different sizes, he said. That can be beneficial when marketing the processed minerals as certain grain sizes are used for certain applications. “Where you have the highest concentration of heavy minerals you definitely have the highest concentrations of gold,” Eden said. Tests of the minerals’ characteristics by industrial users and labs indicate Icy Cape has “elements of prime quality,” he added, also noting that industrial manufacturers want large prospects that they can count on to produce for 15 years or more. Garnet, a fairly hard, multi-use mineral is in high demand, according to Eden. “The main producer India doesn’t export anymore so people are looking for garnets,” he said. Further resource evaluation will be coordinated with the ongoing logging of various portions of the property to take advantage of increased access to portions of it, according to the Trust Land Office. Eden said the next steps are to compile a formal resource evaluation while looking for a private partner to lead development of the prospect. That work would likely include building a port facility to handle supply shipments and mineral exports. “Gold you can always fly out,” he said. Elwood Brehmer can be reached at [email protected]

Leadership aims for common ground next session

Alaska’s leading lawmakers hope they can start to solve some of the longstanding, fundamental issues that challenge the state by improving a simple but crucial aspect of their work next session: communication. At a forum hosted by the Alaska Chamber on Oct. 29 in Girdwood, House Speaker Bryce Edgmon and Senate President Cathy Giessel said regardless of specific policies, they want to improve their working relationships with top decision makers in the Governor’s Office when they convene in Juneau next January. Both said that despite all parties spending months together in Alaska’s small Capitol building, they rarely if ever spoke with some of Gov. Michael J. Dunleavy’s closest advisors. “Last year in the House we virtually had little to no relationship with the governor,” Edgmon said. “I never talked once with his chief of staff. I never met his (Office of Management and Budget) director other than on the street — things like that. I’m encouraged that the governor’s got a new chief of staff that’s got legislative experience.” Dunleavy’s former chief of staff Tuckerman Babcock, who previously chaired the Alaska Republican Party, is known for his very conservative and uncompromising positions on many policy matters. Former OMB Director Donna Arduin, who has held equivalent positions for several Republican governors across the country, routinely told legislators questioning the governor’s budget proposals in committee hearings that it was not the responsibility of her office to vet the impact of those ideas. Policy goals aside, Giessel said that ideally next session would provide the public a chance to see the Legislature and the governor “actually working together, actually communicating. That would provide them, I believe, with something that’s been lost and that’s trust in government.” Looking back at last session, she acknowledged she likely could’ve been more aggressive in pursuing a dialogue with Dunleavy and some of his cabinet officials. Edgmon and Giessel spoke alongside Dunleavy’s current chief of staff and former Alaska Senate President Ben Stevens during the Alaska Chamber’s annual fall forum Oct. 29. Stevens was a policy advisor to Dunleavy prior to taking the role of chief of staff. Dunleavy spokesman Jeff Turner said the governor was on a personal trip during the Chamber event. Stevens noted it is common for governors during their first year in office to have an up-and-down relationship with legislative leaders, but said Dunleavy also acknowledges that if he would’ve had “more of an open-door policy,” better relationships could’ve been formed. “The governor’s in a cooperative mood to try to work with the Legislature and see if we can come to a resolution” on some of the pressing issues facing Alaska, namely the state budget and Permanent Fund dividends, Stevens said. Babcock said in a brief interview that he and Dunleavy decided early on that he would not be a primary conduit between the administration and the Legislature, though some governors do delegate that duty to their chief of staff. Instead, legislative leaders had frequent discussions with Dunleavy’s Legislative Director Suzanne Cunningham and regular meetings with the governor himself during the session. Also, Giessel and Edgmon never requested to meet with him, according to Babcock. “They’re just making excuses for how antagonistic they were towards the governor,” he said. In spite of budget debates that stretched into August — more than a month after the fiscal year 2020 budget took effect — Dunleavy’s goal for next spring is that he and lawmakers can reach agreement on a balanced budget in the traditional 90-day legislative session, according to Stevens. He said Dunleavy is going to continue to “face the budget head-on,” but at the same time the governor understands achieving his goals will require compromise. “I think this concept — I don’t know when it occurred — but the concept in politics that compromise equates to surrender is not really conducive to an agreement,” Stevens added. While there was a breakdown of communication between branches of government last session that largely left the state’s fiscal issues unresolved, legislative leaders seemed to form bipartisan bonds. Giessel, a staunch Republican, said she considers the biggest success of last session being the two-way trust formed between her and Edgmon, a longtime Democrat turned independent. “We formed a good basis of communication. I would also identify the positive communication I had with my minority leader, (Democrat) Sen. Tom Begich, which again, is probably shocking to some people. It’s shocking to me,” Giessel said. “I’m known as a fairly partisan Republican but yet on the positive, that communication really helped us move forward.” Throughout the year Giessel and Edgmon have issued numerous joint statements and aligned the mostly Democrat House and Republican-dominated Senate majorities on a host of issues. Deciding the dividend The biggest issue facing lawmakers continues to be the PFD, which Edgmon forecasted would continue to be the “elephant in the room next session.” Giessel said she’s looking forward to the report the bicameral Permanent Fund Working Group is expected to publish near the start of the session in January. The eight-member committee formed last year has examined the history of the Permanent Fund and various ways lawmakers could approach changes to the PFD formula and their fiscal impacts. “I have great expectations that the Permanent Fund Working Group report that they’re going to put together will provide a good basis for us moving forward on settling on the formula,” Giessel said. The group is chaired by Republicans Rep. Jennifer Johnston of Anchorage and Sen. Click Bishop of Fairbanks, who have advocated for revising the PFD formula. For Dunleavy, all other budgetary decisions precipitate from paying a full, statutorily calculated PFD. He primarily campaigned on paying full PFDs with minimal cuts to other state services at a time when budget forecasts indicated higher oil prices and production would provide most of the revenue to do just that. However, when oil prices fell nearly 30 percent between the November 2018 election and his early December inauguration, Dunleavy chose to stick to his PFD promise at the expense of other appropriations in a decision that has elicited strong support and backlash. The PFD is one of the issues that has united Giessel and Edgmon; both contend the state cannot afford to pay dividends at the amounts the current law calls for. Edgmon recalled public hearings the House Finance Committee held across the state following the release of Dunleavy’s budget plan, which would’ve cut approximately $1.2 billion in state spending and pulled another roughly $400 million in municipal tax revenues into state coffers. “We thought we heard resoundingly from the general public that they wanted a balanced approach,” he said. “They value the dividend but they also value public education, transportation, public safety, health care services and having stability in government.” With legislative leaders at odds with an entrenched governor over the PFD, it’s unclear at this point how the upcoming session will be different than the last. Dunleavy’s willingness to reverse about half of the more than $400 million he originally vetoed from the state operating budget was a big step towards improving his relationship with the majority of legislators but there’s still a lot of repair work to do, according to Edgmon. Education funding, spending cap, oil taxes On other issues, Stevens said reaching a resolution on education funding procedures could hopefully lead to important discussions about what reforms are needed to the state’s K-12 system. Dunleavy and the Legislature are currently involved in a lawsuit over whether the Legislature’s decision to forward-fund education across gubernatorial administrations is allowed by the Alaska Constitution. “We’ve gotten over and over reports that our outputs from the education system are diminishing in terms of comparison to national standards and national test results, so I think that’s probably one thing that we find out and agree upon early depending on the outcome of that case,” Stevens said. A school administrator prior to running for office, Dunleavy repeatedly said last spring that his administration would be putting forth a K-12 education reform package that didn’t materialize. Edgmon, who in 2017-2018 led a caucus that pushed for oil tax changes and rejected a state spending cap, acknowledged those positions likely aren’t workable in the current situation. As for a spending cap in state law, he noted legislators have taken to invoking the constitutional authority that generally allows them to bypass statutes relating to appropriations. That means a constitutional amendment, or amending the current constitutional spending cap is in order, he said, though those have very high hurdles for success. Constitutional amendments require a two-thirds vote from both the House and Senate before they can be put up to a public vote. Giessel concurred with Edgmon, adding that a revised constitutional spending cap proposed by Dunleavy is in the Senate Finance Committee and will likely be heard, and tweaked, during the session. Stevens called a new constitutional spending limit “a foundational part of a true fiscal plan,” contending Anchorage’s municipal tax cap — a limit on the revenue side of the ledger — has effectively limited spending increases in the city. Alaska passed a constitutional spending limit in 1982; it capped overall state General Fund spending on things other than debt service and PFDs at $2.5 billion at the time. However, allowances for inflation and population growth mean the state would have to spend somewhere near $12 billion to hit it today, Edgmon estimated, roughly twice the current budget. The trio also laid to rest rumors that the legislators or the governor would attempt to preempt a voter initiative to raise oil taxes by doing it themselves, likely at a lesser rate than the initiative calls for. The Fair Share Act sponsors estimate their voter initiative, which was certified by the Division of Elections Oct. 15, would raise approximately $1 billion per year in new revenue. The panelists all noted changing Alaska’s oil tax system is an issue that historically has required two years of debate to get new lawmakers educated on the exceedingly complex and contentious matter and vet all the ramifications of such a significant policy change in addition to pre-session analyses with consultants that haven’t happened this year. “Be wary of the initiative process to generate revenue, because, what’s next?” Stevens said. Many in the public believe higher oil taxes are a means to pay for higher PFDs, Edgmon surmised. He went on to say that adding another major issue to what is almost assured to be another tense time in Juneau wouldn’t be fruitful. “Quite frankly there are some differing world views with the Dunleavy administration and the Legislature that still exist. We have to get past that. To through oil taxes on top of that — I don’t know where it takes us,” he said. Budget gap widens Though lawmakers aren’t going to voluntarily add to their workload, it appears a variety of factors are combining to add to the budget deficit they will have to deal with when the session starts Jan. 21. First, Alaska North Slope oil prices and production are both tracking below expectations for the first four-plus months of the 2020 fiscal year. While North Slope production typically peaks in the winter and early spring, that is the same time of year when oil markets are at their softest. Legislative Finance Director David Teal told a gathering of the Alaska policy group Commonwealth North Nov. 1 that lower-than-expected oil revenues are likely to result in an $85 million deficit this fiscal year, which will be covered out of the $2.2 billion Constitutional Budget Reserve — the state’s lone remaining savings account. Teal noted further that this year’s capital budget was also funded via $142 million from the CBR, which is not a long-term solution. Additionally, the Legislature took $30 million from the Power Cost Equalization Fund to pay for higher public safety and corrections costs related to criminal justice reforms last session; mandatory public employee pension payments could increase by up to $100 million; and the state’s Medicaid bill could be $75 million more than was budgeted for after Dunleavy vetoed a portion of Medicaid funding without making major changes to the underlying program. “You’ve got to cut $150 million from the budget to stay even,” Teal said. If accounting for full PFDs, it all adds up to another projected annual deficit of $1 billion or more. Elwood Brehmer can be reached at [email protected]

RDC conference features positives, challenges, plus BP and Hilcorp

Conference season is in full swing in Alaska and the annual gathering of the players in the state’s biggest industries is right around the corner. The Alaska Resources Conference hosted by the Resource Development Council for Alaska is slightly later than normal this year. It will be held Nov. 20-21 at the Dena’ina Center in Anchorage. The conference will focus on Alaska’s oil and gas, mining and timber industries and the energy in those sectors is positive these days noted RDC Executive Director Marleanna Hall. Alaska Gov. Michael J. Dunleavy has committed his administration to removing impediments to development across the state and at the federal level the Trump administration has largely done the same. Under Trump, the Army Corps of Engineers in September finalized revisions to the scope of the hotly debated Waters of the U.S. Rule, changes which scale back the jurisdiction of the corps and the Environmental Protection Agency to require Clean Water Act permits for some development projects. In mid-October, U.S. Department of Agriculture Secretary Sonny Perdue announced the administration’s preference to fully exempt the Tongass National Forest from the Roadless Rule, a change long sought by timber and mining advocates in the state. Additionally, an oil and gas lease sale for the Arctic National Wildlife Refuge coastal plain is expected late this year or early next, marking the culmination of decades of effort to access the billions of barrels of oil estimated to reside there. While those are all positive developments for those sectors, Hall said she expects to hear plenty from oil industry speakers talk about their biggest upcoming challenge. “I think we’ll have a lot of messaging on why the oil tax initiative should be rejected again,” she said. The sponsors of the Fair Share Act voter-driven initiative are currently gathering the signatures and support they need to get the measure — which aims to raise the state’s collective oil production tax revenue by approximately $1 billion per year — on the ballot in 2020. Rex Rock, CEO of Arctic Slope Regional Corp., long an advocate for opening ANWR to oil exploration, will provide the keynote address Nov. 20. Hall said she is particularly intrigued to hear from National Energy Laboratory Director Brian Anderson, who is scheduled to discuss ways to burn fossil fuels cleaner in an era of climate change later that day. The last speakers of the first day, BP Alaska President Janet Weiss and Hilcorp’s Alaska head Dave Wilkins, will cover recent big news in Alaska circles, that being “the passing of the torch,” as Hall described it, of Prudhoe Bay from BP to Hilcorp next year. The second day of the conference will start with talks about two potential megaprojects in the state, the $13 billion Alberta to Alaska railway and Qilak LNG’s recently proposed $5 billion North Slope offshore LNG export terminal. It will conclude with a discussion about the Alaska Roadless Rule revision process by Forest Service officials and Southeast Conference Executive Director Robert Venables. While the conference is largely attended by industry employers, Hall said RDC always encourages students to attend as well so they can gain insight into the industries they could join after graduation. RDC offers free admission to full-time students for its public events. The student registration deadline for this year’s annual conference is Nov. 13. The agenda is at akrdc.org/conference. Elwood Brehmer can be reached at [email protected]

Permanent Fund returns 1.24% in Q1

Fluctuating stock markets led the $65 billion Permanent Fund to return 1.24 percent during the first quarter of the 2020 state fiscal year, according to results published Friday by the Alaska Permanent Fund Corp. The fund finished the quarter Sept. 30 with a market value of $64.1 billion and had an unaudited value of $65.6 billion as of Oct. 31, according to the APFC. Broken down, the $64.1 billion included $47.9 billion in principal portion of the fund and $16.2 billion in the Earnings Reserve Account, which holds the portion of the fund that is available for spending by the Legislature. However, the Earnings Reserve total includes more than $7.7 billion that is already committed to the state’s General Fund for dividends and government services plus a $4.6 billion transfer to the corpus of the fund to protect the real value of the principal against inflation for years to come. APFC Chief Investment Officer Marcus Frampton noted in a formal statement that domestic stock returns were middling during the quarter while global stocks generally declined slightly. Stocks make up about 40 percent of the fund’s overall portfolio. The Dow Jones Industrial average lost 0.54 percent during the quarter, while the S&P 500 gained 1.7 percent. “Beneath the surface and belying the positive domestic quarterly returns was significant volatility and evolving investor views on topics ranging from international trade relations, (the) U.S. political landscape, and global central bank interest rate policy,” Frampton said, adding that the fund’s growing private equity investments help insulate it from short-term disruptions in stock performance. “In the context of turbulent markets and a constantly changing landscape, I am pleased with this performance and believe that the portfolio is well-positioned to outperform going forward.” The 1.24 percent gain beat the corporation’s passive return benchmark of 0.81 percent but fell below the APFC Board of Trustees strategic return objective of 1.46 percent for the quarter. It translated into statutory net income of approximately $1 billion into the Earnings Reserve Account, according to the APFC. The State of Alaska will draw about $2.9 billion from the fund during the 2020 fiscal year for dividends and services based on the annual 5.25 percent of market value, or POMV, draw approved by the Legislature in 2018. APFC adviser firm Callan and Associates projects the fund will achieve an average annual return of 7 percent over the next 10 years, which is in line with its historical performance. As for other segments of the fund’s portfolio, $15.9 billion of fixed income investments generated a 2.51 percent quarterly return; the $9 billion of private equity netted 4.22 percent; and $3.9 billion in real estate holdings lost 0.62 percent. Elwood Brehmer can be reached at [email protected]

Alaska Miners Association celebrates 80 years

Mining is one of Alaska’s oldest industries and the Alaska Miners Association exemplifies that. The trade group was founded before World War II and is celebrating its 80th anniversary during its annual convention in Anchorage at the Dena’ina Convention Center Nov. 3-9. Mining continues to be a major industry in Alaska; it employs roughly 13,000 people at small placer and prospecting camps to world-scale mines across the state, according to the Alaska Department of Labor. But even the enduring association doesn’t match the history of mining in Alaska. Commercial mining and Alaska’s “gold rush” years started more than a century before when Russian engineers discovered gold near the Kuskokwim River in 1832, according to the group. The Kuskokwim River valley long supported placer gold operations and today is home to the Donlin Creek gold prospect. With a resource of approximately 33 million ounces, the Donlin mine will be one of the largest open-pit gold operations in the world when it is developed. As for the convention, state Department of Environmental Conservation Commissioner Jason Brune, a former Anglo American representative, will be the keynote speaker Nov. 6, and he will give an update on the mining-related issues the department has dealt with in the first year of Gov. Michael J. Dunleavy’s administration. Dunleavy’s first public appearance after being elected last year was at the Miners convention, where he emphatically declared Alaska would be “open for business” with him as governor. Department of Natural Resources Commissioner Corri Feige will provide the keynote address Nov. 7, sharing her vision for mining in the state and BLM Alaska officials will discuss new priorities regarding mining on federal lands in the state on Nov. 8, according to materials provided by the association. As is customary, the convention will also feature numerous discussions regarding mining policy in Alaska as well as updates on the plethora of large prospects — from copper and gold to graphite and rare earth elements — across the state. Representatives from several of Alaska’s large producing mines will also discuss what their companies have learned in developing metal prospects in the state’s sensitive environment and harsh climate in presentations Nov. 7. Evening activities will start with a history night and inductions into the Alaska Mining Hall of Fame and the convention will conclude with the Alaska Miners Association’s annual awards banquet.

Alaska hire preference in limbo after AG drops defense

Editor's note: This story has been updated with a statement from Associated General Contractors of Alaska Executive Director Alicia Siira. Alaska’s local hire requirements are a touchy subject these days. On one hand, they are a means to ensure the residents of a state with historically high unemployment aren’t passed over when often large, nationwide construction firms are looking for help. At the same time, though, several iterations of Alaska hire laws have been struck down as unconstitutional, which appears to have led Attorney General Kevin Clarkson to conclude the current in-state hire mandates for many public projects are illegal, too. Clarkson issued a formal legal opinion Oct. 3 contending the state’s Alaska hire statute violates portions of both the U.S. and Alaska constitutions. In the 11-page opinion written for Gov. Michael J. Dunleavy, Clarkson wrote that laws intended to economically benefit Alaska residents at the expense of nonresidents violates the Privileges and Immunities Clause of the U.S. Constitution. Similarly, provisions in the current law could at times put Alaskans from one region of the state ahead of others when being considered for certain work, meaning it violates the Alaska Constitution’s Equal Rights, Opportunities, and Protection Clause, according to Clarkson. Clarkson’s interpretation of the Alaska hire law was published as the state Department of Labor and Workforce Development was being sued by SECON, a Juneau-based general contractor firm that works extensively on government-funded Southeast road projects as well as Ricky Kirby, a seasonal SECON paving equipment operator from Yakima, Wash. The Labor Department implements the Alaska hire law. SECON is a subsidiary of Colaska Inc., which is part of the larger Colas USA group of construction companies. While the law was being challenged, the case had not been adjudicated and state Superior Court Judge Peter Ramgren had not indicated how he might rule on the complaint, according to court records. Filed in July, the lawsuit alleges the state’s residential hiring preference violates the Privileges and Immunities and Commerce clauses of the U.S. Constitution and the Equal Protection Clause of the Alaska Constitution. SECON was fined by the Labor Department and paid $3,678 in July 2017 for violating the Alaska hire law while working on a public water system project; the company was additionally fined 17 separate times from Feb. 15 to May 20 for not meeting resident hire thresholds on a host of projects it worked on earlier this year, according to the complaint. The 2019 fines totaled $158,670. The complaint asserts that SECON is a union contractor managed by Alaskans and has an 85 percent resident workforce but is periodically forced to hire Outside laborers such as Kirby to work on its projects in the state. As it stands, state law requires that staffing for state or locally funded public works projects be conducted with a 90 percent Alaska resident hire requirement by trade when a given project is in a region of the state deemed to be a Zone of Underemployment by the Labor Department commissioner. A region of the state can be considered a Zone of Underemployment if the unemployment rate for the area averaged 10 percent more than the national unemployment rate over the prior 12-month period. The entirety of Alaska can also be deemed a Zone of Underemployment if the criteria are met statewide. Labor Commissioner Tamika Ledbetter found all of Alaska to be a Zone of Underemployment in the most recent employment preference determination issued by the department June 13. The determination was effective through June 30, 2021, for 21 trades — boilermakers to culinary workers to carpenters and tugboat workers — until Clarkson’s opinion. The subsistence lifestyle and lack of economic opportunities prevalent in rural Alaska and the state’s highly seasonal industries have historically combined to give the state a significantly higher unemployment rate than the rest of the country. The resident hire preference was suspended in 2013 under former Gov. Sean Parnell when the Lower 48 was continuing to recover from the Great Recession that largely missed Alaska. It was reinstated statewide in June 2015 by Gov. Bill Walker’s administration after the national unemployment rate had fallen below Alaska’s, which at the time was mostly holding steady. According to the most recent data available from the Labor Department, nonresidents made up 20.9 percent of the Alaska workforce in 2017. Kirby’s and SECON’s attorney Michael Geraghty wrote in the complaint that the state cannot justify upholding the Alaska hire law because there is no good reason for treating nonresidents differently than Alaskans. Discriminating against nonresidents won’t improve the employment situation of residents because workers from Outside “are not the ‘peculiar source of the evil at which the statute is aimed,’” Geraghty wrote, citing a 1978 U.S. Supreme Court ruling that struck down a prior Alaska hire law focused at oil industry employment based on the Privileges and Immunities Clause. “The residency law, thus, unlawfully discriminates against out-of-state individuals like Kirby who have the requisite skill, knowledge, and experience to work on publicly funded projects in Alaska, but for the residency law,” the complaint further contends. Geraghty was attorney general for Alaska from 2012-14 under former Gov. Sean Parnell. Kirby, according to the complaint, can make more money working on Alaska projects for roughly half the year than he can working in his home state of Washington for the same amount of time. Kirby is a member of the International Union of Operating Engineers, Local 302, which covers Alaska, Washington and Idaho. Local 302 Juneau district representative Corey Baxter said in an interview that union contractors such as SECON call him when they need workers for projects in the area. Baxter subsequently calls Local 302 union halls in Anchorage and Fairbanks if there are not enough Southeast workers to fill projects. However, he said it can be a challenge to get workers to temporarily relocate, particularly in summer when work is plentiful. “We can’t force somebody to come down to help,” Baxter said. He added that union officials always try to hire in state when they can, but sometimes they have to go Outside to meet the labor demand. SECON’s complaint lays out a similar scenario. The state does have a detailed process by which companies can have the local hire requirement waived on a case-by-case basis; it includes advertising the positions that need to be filled statewide for at least three days, according to an informational paper published by the Labor Department. The Associated General Contractors of Alaska, a trade group that represents numerous contractors subject to Alaska hire requirements, issued the following statement from Executive Director Alicia Siira. "In the construction industry, few people believe in local and Alaska hire more than we do," she said. "This determination will not open the floodgates to Outside contractors coming to Alaska. It costs more for a contractor to import labor from the Lower 48 than it does to hire local. The public projects that the Alaska hire law applies to have a prevailing wage requirement — workers are paid at published rates. These requirements also include paying $100 per day to workers whose domicile is more than a specific number of miles away from the job. There are not margins on construction projects to allow contractors to hire Outside labor unless it's absolutely necessary because workers are not available. And why would they? The excellent training Alaskans recieve in the construction trades results in some of the best trained workers in the country, and our industry wants to make sure they stay in Alaska." Clarkson wrote in his opinion that just because the Alaska hire law is based on good intentions, that doesn’t mean it passes legal muster. “Despite its popularity among some Alaskans, Alaska hire has not fared well in the courts,” also referencing the 1978 Supreme Court ruling and other rulings by the Alaska Supreme Court against broader Alaska hire laws that have since been repealed. “The U.S. Supreme Court has long held that the Privileges and Immunities Clause ‘plainly and unmistakably secures and protects the right of a citizen of one state to pass into any other state of the union for the purpose of engaging in lawful commerce, trade, or business without molestation,’” Clarkson wrote, citing the same U.S. Supreme Court precedent as Geraghty. Department of Law spokeswoman Cori Mills wrote via email Oct. 29 that the state was close to finalizing a settlement with SECON. But some legislators are not keen on the attorney general not defending the laws they’ve passed. House State Affairs Committee co-chair Rep. Zack Fields, D-Anchorage, called Clarkson’s opinion “politically charged” in a statement issued shortly after it was published. He acknowledged that courts have struck down local hire mandates for privately funded projects, but noted that, except for Dunleavy, both Democrat and Republican gubernatorial administrations since 1986 have implemented Alaska hire laws. Senate President Cathy Giessel, R-Anchorage, sent a letter to Clarkson Oct. 22 in which she wrote that his opinion “caused consternation” to her and many of her constituents. The State of Alaska has long tried to find a balance between being unjustifiably parochial and supporting employment for Alaskans, according to Giessel. She wrote that Alaska hire laws have been “tested and refined through the judicial process” but the current version has not been thrown out in court. Giessel stressed that as attorney general, Clarkson has a constitutional duty to enforce and defend the laws of the state, including Alaska hire. “Your ad hoc determination that the laws of our land, which remain untested in the courts, are unconstitutional is a diversion into the lawmaking field that is rightfully the purview of this branch of government (the Legislature). I respectfully urge you to cease a law creation process that appears to be done by executive fiat,” she wrote. “I also respectfully urge you to modify or revoke your Oct. 3 opinion in recognition of the constitutional obligation of the executive branch to faithfully execute the laws of this state enacted by the Legislature.” Clarkson responded to the Senate President Oct. 29, writing in a four-page letter that he and Dunleavy share her desire to see Alaskans working on projects in the state, but stressed that he took an oath of office to defend the state and federal constitutions. "Nowhere in law is the attorney general charged with a duty to defend every statute, however plainly unconstutitional it may be," Clarkson wrote, contending Alaska Supreme Court precedent gives the attorney general the discretion to handle the state's legal matters as he or she deems appropriate. At this point it’s unclear if Dunleavy, who has long stressed a need for state officials to follow the laws of the state — most often regarding the Permanent Fund dividend — will seek to repeal Alaska hire in the upcoming session. A spokesman for Dunleavy did not respond to questions in time for this story. Elwood Brehmer can be reached at [email protected]

UK sale close boosts ConocoPhillips income; nets $306M in-state

ConocoPhillips netted more than $3 billion in the third quarter as the major oil producer continues to focus its long-term strategy. Much of the large quarterly profit stemmed from closing a $2.2 billion sale of North Sea assets in Britain to BP during the period. The $3 billion net is a 60 percent year-over-year improvement and includes a nearly $1.8 billion gain from dispositions, according to the earnings report released Oct. 29. ConocoPhillips reported adjusted quarterly earnings — omitting one-time items — of $914 million, a 43 percent decrease from a nearly $1.6 billion adjusted profit a year ago. On the financial side, ConocoPhillips’ Alaska operations generated a $306 million third quarter profit, which was down 29 percent year-over-year from $427 million. Alaska spokeswoman Natalie Lowman wrote via email that ConocoPhillips paid $283 million in taxes and royalties to the State of Alaska in the third quarter. The company’s North Slope oil production increased 20 percent year-over-year to average 190,000 barrels per day; however North Slope oil prices for the quarter were down 18 percent from a year prior at $62.78 per barrel, according to the earnings report. ConocoPhillips invested $427 million in North Slope capital projects during the quarter, bringing its year-to-date capital spend in the state to more than $1.2 billion, compared to a full-year 2018 spend of just less than $1.3 billion. Lowman noted that the increased capital expenses mean the company “has reinvested 112 percent of our adjusted net income back into Alaska projects.” ConocoPhillips’ year-to-date adjusted net income in Alaska is $1.07 billion. The North Sea sale announced in July 2018 coincided with a North Slope deal with BP in which ConocoPhillips acquired the London-based major’s 38 percent stake in the Kuparuk River field, which it operates. The companies said at the time that the transactions generally amounted to cash-neutral asset swap. ConocoPhillips now holds 92 percent of Kuparuk; the legacy oil field produced 107,000 barrels per day during the 2019 state fiscal year, according to the Alaska Department of Revenue. Chairman and CEO Ryan Lance said in a formal statement that the third quarter results continue the company’s success since it reset its value proposition when oil prices bottomed out in 2016. “This business is all about having a sustainable strategy with consistent execution,” Lance said. “We believe ConocoPhillips offers both — a shareholder-friendly, returns-oriented value proposition and strong delivery on our commitments.” The net income totals were the product of nearly $10.1 billion in revenue during the quarter, which roughly matched the company’s third quarter 2018 revenue total when oil prices were markedly higher. The net income translated to quarterly earnings of $2.76 per share. ConocoPhillips stock closed trading Oct. 29 at $57.09 per share, up 2.5 percent for the day following the strong earnings report. ConocoPhillips also finalized its acquisition of the mid-sized Nuna prospect on the North Slope from small independent Caelus Energy in the third quarter. Company executives have described the Nuna deal as a roughly $100 million purchase. Now folded into the Kuparuk River Unit, ConocoPhillips Alaska leaders have said they expect Nuna to begin producing oil in 2022, with peak production hitting about 20,000 barrels per day. During the coming winter the company plans to drill seven more exploration and appraisal wells on its large lease holdings in the National Petroleum Reserve-Alaska, following up eight such wells the company drilled last winter in one of its busiest North Slope exploration seasons. ConocoPhillips is in the midst of constructing the Greater Mooses Tooth-2 oil project — peak production is pegged at up to 40,000 barrels per day — in the NPR-A as well as permitting its very large Willow prospect in the reserve. Willow is scheduled to come online in the 2025-26 timeframe with peak production estimates reaching 130,000 barrels per day. Elwood Brehmer can be reached at [email protected]

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