Elwood Brehmer

The firms that evaluate Alaska’s creditworthiness mostly agree that the state’s financial picture is getting better, at least in the short-term. Analysts for Moody’s Investors Service have upgraded the state’s fiscal outlook from negative to stable, according to a May 4 credit opinion that cites stabilizing oil prices and substantial growth in Permanent Fund as reasons for the improved opinion of Alaska. S&P Global Ratings similarly revised its outlook on the State of Alaska from negative to stable in a report issued May 4 as well. Both ratings agencies also reaffirmed their general obligation ratings for Alaska, with S&P maintaining its AA- rating and Moody’s keeping its equivalent Aa3 rating for the state. Fitch Ratings also revised its outlook for $319 million in revenue bonds sold by the state-owned Alaska International Airport System from negative to stable May 5 based on a surge in cargo traffic that largely offset lost passenger revenue from the pandemic. S&P’s May 4 opinion followed an April 15 report in which the agency’s analysts concluded states with oil-centric economies and budgets are likely out of immediate harm of the pandemic’s influence on oil prices — which have returned to the mid-$60s per barrel range — but surmised Alaska’s economic recovery would likely be slower than other oil producing states. S&P analysts noted in the most recent report that with Permanent Fund income now supporting the majority of the state budget, oil revenues are likely to account for just 20 percent unrestricted state revenue in the 2022 fiscal year that starts July 1. They also wrote that while the state’s fiscal system still needs structural changes to be sustainable over the long-term, the Alaska Permanent Fund Corp. has exceeded investment return expectations in recent months to give the state more cash to play with, for now. Some lawmakers who have long been opposed to Gov. Mike Dunleavy’s plan to spend from the Earnings Reserve outside of the annual structured draws for fear it would degrade the long-term earning power of the fund have also proposed moving most of the available money in the account into the corpus of the fund to ensure it is not spent. However, S&P analysts indicate doing so might also have an unintended impact on their view of the state’s finances because it would lessen Alaska’s reserves, which currently stand at nearly 250 percent of the state’s annual unrestricted general fund budget. “We expect reserves at fiscal year-end 2021 and 2022 to be significantly better than the state’s estimates absent any transfer from the (earnings reserve account) to the Permanent Fund corpus or unexpected market downturn,” the May 4 S&P report states. The analysts added that the roughly $1 billion in federal American Rescue Plan aid Alaska is set to receive reduces the near-term need for new state revenue sources. The Permanent Fund Earnings Reserve Account, which contains the spendable income the fund generates, held nearly $14.2 billion in reserves available for appropriation by the Legislature, up from $9.8 billion last June. As of May 10, the Fund’s overall unaudited value was $78.9 billion, up approximately 21 percent since the start of the 2021 fiscal year. In general terms, fund managers need to achieve annual returns in the 7 percent range to maintain the real value of the fund over time while accounting for inflation and the annual 5 percent of market value, or POMV, draw lawmakers started in fiscal 2019. Revenue Commissioner Lucinda Mahoney said in an interview that she finds the ratings adjustments “encouraging” but emphasized that lawmakers and state officials need to keep pushing towards fiscal reforms that will improve the state’s long-term sustainability. Mahoney said she stressed the view that Alaska’s revenue streams are more diversified than they may appear in recent meetings with ratings agency analysts. While the state was long dependent on oil prices and production for its revenue picture, the Permanent Fund — through its many billions of dollars in real estate, stocks and other varied income ventures — has indirectly but substantially diversified the state’s revenue picture. “I tried to get them to think about revenues in a different light,” Mahoney said, adding that the strong market performance behind the Permanent Fund’s growth has also improved the state’s pension funds, thereby decreasing the expected long-term pension debt obligation and annual payments. Elwood Brehmer can be reached at [email protected]

Department of Natural Resources Commissioner Corri Feige has approved a sale of the state’s oil that could net up to $3 million in additional revenue over the coming year and more importantly sets the stage for lawmakers to consider a similar five-year sale as well. Feige signed off April 22 on the best interest finding for the one-year state royalty oil sale to Marathon Petroleum Corp. that will have the state make 10,000 to 15,000 barrels of oil per day available to the Kenai refinery between Aug. 1 and July 31, 2022. The sale should represent 19 percent to 25 percent of the state’s total available royalty volume, according to the finding. DNR typically makes a small per-barrel premium on the state’s royalty oil when it is sold in-kind versus receiving an in-value payment from the producers for the state’s oil that they sell. Department officials and local refiners agree on a negotiated price differential that allows the state to capture some of the revenue lost from transportation costs when oil is otherwise shipped to West Coast refineries. In recent royalty in-kind, or RIK, oil contracts the state has generally netted $1 to $2 more per barrel than if it sold its royalty oil in-value, according to DNR; however, the state briefly lost money when oil prices and demand collapsed last year along with the onset of the pandemic. The Marathon agreement calls for an RIK differential price of $2.17 cents per barrel, meaning the state will collect incremental revenue as long as average marine transportation costs between Alaska and West Coast refineries remains greater than $2.17 per barrel. A Department of Revenue forecast projects marine transport costs will gradually climb from $3.01 per barrel this year to $3.56 by 2030. In 2016, DNR officials negotiated an RIK differential of $1.95 per barrel for a previous contract with Tesoro, a prior owner of the Kenai refinery. That five-year contract was for up to 25,000 barrels per day and was unanimously approved by the Legislature, which must pass a bill authorizing each RIK sale longer than one year. A Marathon spokesman did not respond to questions in time for this story, but the best interest finding indicates the company has agreed to start negotiations on another five-year contract that would commence in 2022. DNR officials will make up to 95 percent of the state’s future royalty oil — in the range 70,000 barrels per day — available for nomination by refiners under RIK sales. They prefer to keep a small portion available for in-value sales due to higher royalty values for certain leases and to obtain pricing and other market information from in-value sales. The Kenai refinery has a processing capacity of approximately 68,000 barrels of oil per day and generally produces about 59,000 barrels of refined products daily, according to DNR’s finding. In addition to strictly the monetary benefit, DNR’s commercial negotiators also factor in more subtle reasons for selling the state’s oil locally, such as the incremental economic benefits of processing it here rather than having it sent elsewhere. While being on the edge of Cook Inlet allows Marathon to import oil to the Kenai facility, approximately 90 percent of the oil refined there has been either from the North Slope or Cook Inlet in recent years, according to DNR. Since 1979 the state has sold 964.5 million barrels of North Slope oil through in-kind sales, according to DNR data. Elwood Brehmer can be reached at [email protected]

An unladen oil tanker that’s part of a growing number of foreign-flagged vessels transporting Alaska crude reportedly dragged its anchor for nearly four miles in rough Gulf of Alaska seas while waiting for a pilot escort to Valdez in mid-April. The mishap ultimately resulted in a damaged windlass, or anchor winch, aboard the Bermuda-flagged tanker Stena Suede but little else, according to collated reports. However, it was enough to raise concerns from the federally mandated public oversight group tasked with oil industry activity in Prince William Sound as well as the group of marine pilots that escort large vessels through Southcentral Alaska’s often shallow, tricky nearshore waters. According to the Prince William Sound Regional Citizens’ Advisory Council, or PWSRCAC, the crew on the 810-foot Stena Suede decided to drop anchor roughly 20 miles outside of the Hinchinbrook Entrance to Prince William Sound when winds began to increase on April 14. Continually increasing winds caused the crew to reverse its course of action and attempt to pull the anchor after several hours. During the attempt to retrieve the anchor, the Stena Suede dragged it for nearly four miles — to a position 16.5 miles from Hinchinbrook Entrance — over 30 hours. After the windlass motor failed, the crew reset the anchor and worked to repair the anchor windlass, based on information from the council and a vessel tracking service. The Stena Suede eventually reached the Valdez Marine Terminal a day late on April 16 and departed Valdez April 17. PWSRCAC spokeswoman Brooke Taylor said in an interview that the attempt to anchor in the open Gulf of Alaska amplified the council’s attention to the increased frequency of foreign tankers chartered by North Slope producers to take Alaska oil to refineries across the globe. Taylor stressed that the citizens’ council mostly wants to know more about the vetting process that oil companies use before selecting a vessel operator to carry out a chartered mission. “We were very lucky that it wasn’t a worse situation,” she said, noting that the Stena Suede was unladen with crude oil but still held thousands of gallons of fuel and such situations put the crew at risk as well. “There’s less risk (with an empty tanker) but there’s still plenty of fuel and things that could hit water had this situation gone differently,” Taylor said. U.S. Coast Guard officials said during a May 6 videoconference council meeting that crew leaders on the Stena Suede asked if the Coast Guard had any objection to them “drifting” in the Gulf but did not request assistance. A Coast Guard spokeswoman did not respond to questions about the Stena Suede in time for this story. Southwest Alaska Pilots Association President Capt. Joe Martin wrote in an April 22 letter to Coast Guard Sector Anchorage Commander Capt. Leanne M. Lusk that there are just three acceptable anchorages in Southcentral waters based on the association’s best practices for large vessels. Those are at Knowles Head in Prince William Sound, east of the Homer Spit in Kachemak Bay, and in St. Paul Harbor near Kodiak. While Martin did not specifically reference the Stena Suede in his letter, he wrote that in the association’s opinion, “there is no safe anchorage to be had in the Gulf of Alaska within our pilotage area for large seagoing commercial vessels other than those listed above. This includes adjacent offshore waters. Anchoring in open waters in the Gulf of Alaska is at best imprudent, and at worst negligent, given the unpredictable environmental conditions which may be encountered at any time of the year.” Alaska marine pilots board large ships at predetermined points off the state’s coast and assist the crews in navigating the near shore waters that often have unique tides or highly unpredictable weather, among other factors. Martin also wrote in testimony submitted to the council that the Stena Suede also received damage to its bow mooring equipment but it was made satisfactory for docking at the Valdez terminal and the rest of the tanker’s voyage was uneventful. Longtime Alaska oil industry attorney and analyst Brad Keithley, who tracks Alaska crude shipments weekly, said there are indeed more foreign-flagged tankers visiting Valdez in recent months and the root cause is COVID-19. “It’s a subset of the shift in (Alaska North Slope oil) since the pandemic started,” Keithley said. The price collapse that hit Alaska producers and the state budget so hard last spring was the result of a drastic drop in demand for transportation fuel in the U.S. That forced refineries along the West Coast where Alaska’s oil is typically sent to sharply curtail production, and in turn their oil needs, pushing producers to charter foreign tankers that usually end up in China, he said. According to Keithley, Alaska producers sent an average of approximately 2 percent of their oil to foreign refineries in the years prior to 2020. Last year it jumped to 11 percent, peaking at 17 percent in the second quarter when the global oil glut was at its most severe. He said logistics dissuade the large producers from using their own tankers to make the cross-Pacific journey and therefore they often contract with third-party vessel operators to move their oil. The foreign tankers are likely to keep coming as long as demand from West Coast refineries remains subdued and it has at least temporarily stabilized at about 20 percent less than 2019 levels, Keithley said. “The pandemic certainly started this; it’s a question of whether those West Coast refineries come back up to full demand and I don’t think anyone knows the answer,” he said, noting some California refinery owners have committed to convert their facilities to renewable diesel production. A chart provided by the council indicates that as of May 6, foreign-flagged tankers have loaded in Valdez 11 times since the start of 2020 out of 279 tanker visits. Foreign tankers made just eight calls on Valdez in the three years prior. Regardless of why there are more foreign-flagged tankers calling on Valdez, Taylor said the council primarily wants to learn more about how the unique operating best practices and regulatory requirements in Alaska are communicated to the crews of chartered tankers before they start their journey here. “I’m told anchoring in open water is a technique used in many areas; it’s common practice. It’s a common practice internationally that doesn’t apply here,” she said. “Are the risk factors and the knowledge that people need to navigate our waters — are they being communicated?” Rob Kinnear, shipping manager for Hilcorp Energy’s subsidiary Harvest Midstream, said during the council board meeting that the company, which owns 49 percent of the Trans-Alaska Pipeline System, has chartered vessels when the tankers that normally make the West Coast run were in dry dock or when oil demand has waned on the West Coast. Each charter operator gets port information and vessel traffic manuals — about 800 pages of stuff — before sailing to Alaska, according to Kinnear. “Those documents are present on day one — probably 30 days out from when the vessel is going to load,” he said. The unique aspects of bringing a tanker into Prince William Sound are discussed with the vessel master in a call about a week out, Kinnear added. He said the incident involving the Stena Suede, which was chartered by Harvest, reemphasized the inbound tanker protocol. Alyeska Pipeline Service Co. spokeswoman Kate Dugan wrote via email that foreign tankers are required to have the same design features, such as double hulls, as those purpose-built for the Valdez run under the 1990 Oil Pollution Act. Elwood Brehmer can be reached at [email protected]

A Canadian metals exploration and technology firm has solidified its plan to disrupt China’s control over increasingly critical metal supply chains and Southeast Alaska is at the center of it. Leaders of Nova Scotia-based Ucore Rare Metals Inc. highlighted their “Alaska 2023” plan to complete a $35 million rare earth metals processing plant in Ketchikan by the end of the namesake year during a May 11 videoconference presentation hosted by the Alaska Support Industry Alliance. Ucore chose the Southeast town for its proximity to the Bokan Mountain-Dotson Ridge rare earth mine prospect on nearby Prince of Wales Island, which the company has held since 2007. CEO Pat Ryan said the schedule is “aggressive,” but the company hopes to use revenue from the metals processing facility to support development of a small underground rare earth mine. If developed today, the Bokan project would be just the second rare earth mine in the country. As it stands, Bokan is an advanced-stage prospect that the company largely set aside after a 2015 drop in prices for rare earth metals. Ucore leaders at the time shifted their focus to developing the Ketchikan SMC — in which they hope to deploy an emerging, proprietary metals separation technology dubbed “RapidSX” — to be ready to jump into the burgeoning rare earth supply chain when prices improved. It appears that time is rapidly approaching. Company leaders announced May 4 that they began testing the RapidSX technology under an agreement with a rare earth producer. They expect the design for a commercial-scale system to be ready early next year if the current tests go well, according to the May 4 statement. Ucore Vice President Mike Schrider said rare earth prices started to increase significantly last year and the company is tracking them so it is ready to restart work on the mine when metal prices justify it. With much of the resource delineation complete, Ucore can have Bokan “near shovel-ready” within 30 months of reaching a financing agreement for the mine, he said. In 2014, the Legislature approved the Alaska Industrial Development and Export Authority to issue up to $145 million in bonds to help finance the Bokan project. Ucore estimated in 2013 that the mine would cost about $220 million to develop. Company leaders said they are currently in discussions with AIDEA officials for financing the Ketchikan SMC. An AIDEA spokeswoman did not respond to questions about talks with Ucore in time for this story, but authority leaders have regularly voiced general support for developing Bokan. Ucore’s value-added rare earth plan could put Alaska on a path to help underpin the country’s clean energy revolution in much the same way the North Slope did with oil decades ago, according to Ryan. “The new oil or the new gas for the future are these critical (rare) metals,” he said. Currently, China controls roughly 80 percent of global available rare earth resources, Ryan said, which is potentially problematic given the particular need for them in electric vehicle batteries and motors. It’s because of China’s control over those markets that Ryan said Ucore is working to integrate multiple aspects of the supply chain into its business. “If we don’t do something to regain and recapture the supply chain in North America, in the U.S., it will be lost to China,” he said, insisting that Chinese government officials strategically aimed to the middle of the rare earth supply chain — processing concentrates into metal oxides —to influence the broader downstream markets. “China’s forcing people to set up (rare earth metals processing) in China,” Ryan added. Shipping concentrates to China forgoes upwards of half the total value in the supply chain, he said. The Bokan Mountain prospect holds more than 4.7 million metric tons of indicated rare earth ore, according to a 2015 resource assessment. That translates to approximately 63.5 million pounds of collective rare earth metals, according to Ucore, which are used in a plethora of high-tech applications, from smartphones to advanced batteries and fighter jets. There are 17 minerals defined as rare earth elements, but “heavy” rare earths — such as europium, terbium, and ytterbium with a greater atomic weight — are the most sought after and are used in products that rely on high-temperature magnets. More common lighter rare earths are used in a range of applications including LED displays. Heavy rare earths account for roughly 40 percent of the mineralization at Bokan, according to Ucore. The company hopes to utilize “allied” rare earth feedstock from mines in Brazil, Australia, or the Mountain Pass mine in California, among others, to supply the SMC until the Bokan mine is producing, according to Schrider, who said the feedstock supplies would eventually be blended for oxide production. The company’s economic modeling shows it can be competitive in rare earth oxide markets with its RapidSX separation technology, which uses the same metallurgical processes as traditional plants but does it on a much smaller footprint and at a much lower cost, Ryan said. He described a typical rare earth processing facility as being roughly the size of a football field, while the Ketchikan SMC would fit “in the Red Zone,” or the last 20 yards, he said. Ryan emphasized that Ucore’s biggest hurdle isn’t financing — he’s confident in what they’re developing — rather, it’s China realizing they could lose control of a valuable geopolitical tool. “When they see what’s developing, we’ll have to have our supply chain all wrapped up,” he said, stressing the company will then need political support to keep Chinese government officials from working to unravel what they’ve put together. Elwood Brehmer can be reached at [email protected]

The members of Alaska’s congressional delegation insist their efforts to clear the way for large cruise ships to return to Alaska waters this year are gaining momentum despite little movement of legislation likely need to finish the work. Sens. Lisa Murkowski and Dan Sullivan took to the Senate floor April 29 to pitch the rest of the body on the Alaska Tourism Recovery Act, their legislation to temporarily exempt cruises between Washington and Alaska from the 19th Century Passenger Vessel Services Act. Murkowski said an amended version of the bill first submitted in early March addresses broader cruise consumer protection concerns raised by Democrats and passing it posthaste would help salvage what can be from this year’s summer cruise season. “Back home right now people are not talking about the season for 2021 coming up; the motto is ‘get through to ’22.’ That’s an awful way to be approaching our situation,” Murkowski said, adding that she’s not trying to save the global cruise lines, but rather the businesses in Alaska that rely on their arrival. “It’s jobs; it’s livelihoods and it really is what allows our small communities to keep their doors open,” she said of the tourism industry. The CDC took another step towards loosening its restrictions on domestic cruises April 28 with a letter to industry leaders from U.S. Public Health Service Maritime Unit Capt. Aimee Treffiletti, who is leading the agency’s maritime COVID-19 response, which states that CDC officials acknowledge “cruising will never be a zero-risk activity” and provides further guidance for cruise companies submitting operating plans for review to federal health officials. “We remain committed to the resumption of passenger operations in the United States following the requirements in the (Conditional Sail Order) by mid-summer, which aligns with the goals announced by many major cruise lines,” Treffiletti wrote, adding agency officials are looking forward to reviewing the initial operating plans and moving to the next phase of the Conditional Sail Order soon. The million-plus cruise passengers that arrived to Alaska via the Inside Passage accounted for more than half of the total visitors to the state in most pre-pandemic years and provided the foundation for one of the state’s handful of growing industries in recent years. Pre-2020, the leisure and hospitality industry had become one of the state’s largest employment sectors, but lost nearly 15,000 jobs last year, according to state Labor Department figures. The lack of visitors has also hit many local governments hard. According to City and Borough of Juneau officials, the lack of cruise ship and passenger fees and taxes totaled roughly $26 million in forgone revenue last year. The PVSA requires foreign built, crewed or flagged passenger vessels sailing between U.S. ports to make at least one stop in a foreign port and cruise lines typically used a Canadian port — most often Vancouver — as a stop en route our a starting point for Alaska-bound voyages to comply. However, the Feb. 4 announcement by Canadian transportation officials that they would not be allowing large cruise ships to dock in the country’s ports again this summer disrupted plans for a return to more normal sailings. Alaska’s senators were initially critical of the Canadians’ handling of the situation and Murkowski said they have since tried to find alternatives to the outright ban but also noted that Canada “is in a different spot in terms of their vaccines,” an indication the country’s requisite officials might not be ready to ease their maritime travel restrictions. According to the Canadian government’s COVID-19 Vaccination Tracker online dashboard, approximately 34 percent of Canadians had received at least one dose of a vaccine as of May 4, compared to 44 percent of Americans and 51 percent of Alaskans, according to Centers for Disease Control and state Department of Health and Social Services data. Sullivan spokesman Nate Adams wrote in response to questions about the hurdles facing the Alaska cruise industry that flexibility from Canadian officials on their docking restrictions isn’t likely given the country’s own challenges in managing COVID-19, but it’s also imperative that the Department of Homeland Security provide clarity over what voyage options would meet the exact requirements of the Passenger Vessel Services Act while making sure operations match any potential scrutiny in Canada’s exemption process. Washington Democrat Sen. Maria Cantwell, who Murkowski had a largely positive relationship with during their years together on the Energy and Natural Resources Committee, now chairs the Commerce, Science and Transportation Committee, which has the Alaska Tourism Recovery Act but has not yet officially heard it. Murkowski spokeswoman Karina Borger wrote via email May 4 that while a request to move the bill through unanimous consent was rejected, there is general consensus among the key players that an agreement needs to be reached. According to Borger, allowing cruise ships back to Alaska is the top priority in the senator’s office right now and Murkowski is working multiple angles, including a continued dialogue with Canadian officials to see if they can “meet us halfway,” she wrote. Sullivan implored Alaskans dependent upon cruise passengers for their businesses to keep hope alive in his floor remarks. “Right now, here on the Senate floor, there’s actually been momentum and movement, and I’m confident we can get there,” Sullivan said of the Alaska Tourism Recovery Act. “Even with the CDC, we are starting to see progress with them. We are going to continue to fight and continue to try to move this. Do not give up, Alaska, on our summer tourism season. We haven’t. To the contrary, we’ve made progress. We’re not there yet.” Alaska’s state and federal lawmakers have also been critical of the CDC’s seemingly slow movement towards allowing cruise voyages in U.S. waters and Gov. Mike Dunleavy directed Department of Law officials to join a lawsuit filed by the State of Florida against the CDC last month. Murkowski praised CDC leaders for the updated guidance in a May 1 statement and said agency officials have been more responsive to the Alaska delegation and industry of late. “The CDC has committed to working with us to address any guidelines that may be too restrictive for Alaskans,” Murkowski said. “We aren’t out of the woods yet, but understanding what has to happen for cruise ships to sail is a step in the right direction.” Whether it can all come together quickly enough for the companies to be ready to sail when the time comes is still unclear. The first cruise ships of the year typically arrive in Ketchikan in the last days of April and industry representatives have consistently said they would need at least 8 to 10 weeks to re-crew and prepare the ships for sailing from the time they have clearance to sail. The last ships arrive in Southeast in September most years. On the House side, Rep. Don Young’s spokesman Zack Brown wrote that the most likely avenue to holding a semblance of a summer cruise season this year is for the CDC to lift its sailing restrictions. According to Brown, if the CDC lifts its sailing restrictions, Canada would very likely be pressured into allowing “technical calls” on its ports to satisfy the PVSA. “Congressman Young is running parallel efforts on this front, not only trying to get the CDC to lift their ban, but to convince Canadian officials to update their restrictions as well. Southeast families’ livelihoods hang in the balance,” Brown wrote. “The Congressman calls on the CDC and the Canadian government to trust the science behind vaccines and mitigation strategies and to allow the cruise season to commence in some form.” Elwood Brehmer can be reached at [email protected]

ConocoPhillips rebounded with a profit of nearly $1 billion in the first quarter, with $159 million of that coming from Alaska. CEO Ryan Lance said during a May 4 conference call with investors that ConocoPhillips executives are viewing 2021 as “a catalyst moment” to improve all aspects of the company’s business, similar to 2016 when oil prices reached lows of less than $30 per barrel early that year. Following the depths of that price cycle, leaders of the Houston-based producer set a companywide breakeven target of $40 per barrel of oil production. This time, ConocoPhillips leaders are focused on debt reduction to improve investor returns and driving down sustaining capital costs through supply chain and well-cost efficiencies, according to Lance. “Our entire organization is focused on improving every aspect of our underlying business to make us the most competitive in the industry: capturing additional synergies, lowering our sustaining price, increasing capital efficiency, generating free cash flow, strengthening our balance sheet, consistently delivering peer-leading return of capital to our owners and lowering emissions,” Lance said. “These are the essential keys to long-term success in the business.” The first quarter profit of $982 million is contrasted against a fourth quarter loss of $772 million and a first quarter 2020 loss of more than $1.7 billion when the combination of a Saudi-Russia price war and the global onset of the pandemic took oil prices to the lowest levels in decades. In total ConocoPhillips lost $2.7 billion last year. The $982 million translates to earnings of 75 cents per share and was on the back of more than $10.5 billion of quarterly revenue. ConocoPhillips generated no more than $6.1 billion of gross revenue in any quarter last year. The company’s stock price mostly held steady May 4 following the morning earnings release, closing at $52.57 per share. As to Alaska, where ConocoPhillips has become the predominant producer and explorer on the North Slope, the $159 million net for ConocoPhillips Alaska was the first positive quarter for the state in a year, when the company made $81 million here but lost big overall. ConocoPhillips incurred a tax and royalty bill of $227 million to the State of Alaska during the quarter, according to a company statement. The segment and companywide profits are largely the result of sustained price improvements in global oil markets. ConocoPhillips secured an average realized price of $59.56 per barrel in the first quarter for its Alaska oil, the highest price since the end of 2019. ConocoPhillips’ North Slope liquids production remained ostensibly flat at 208,000 barrels per day in the first quarter when compared to the fourth, but was down from a year ago when the company produced 217,000 barrels of oil and natural gas liquids per day. Senior Vice President of Global Operations Nick Olds said the company will restart four rigs on the Slope this year after suspending all drilling last spring and is still on track to start production late this year from its Greater Mooses Tooth-2 project in the National Petroleum Reserve-Alaska. “Our base Alaska business is performing very well and we’ve built strong momentum coming out of 2020,” he said. Facility and production costs are about 10 percent less than budget in the third and final construction season for the $1.4 billion GMT-2 drill site, according to Olds, who said production would likely start at about 10,000 barrels of oil per day and should eventually peak near 35,000 barrels per day. The company plans to eventually drill up to 48 wells on the 14-acre pad. Engineering work continues on the company’s nearby $6 billion Willow oil project — stalled by a court injunction in a lawsuit over the Bureau of Land Management’s environmental review for the development — and it remains competitive in the company’s portfolio, but a final investment decision won’t be made until the litigation is resolved, Olds said. ConocoPhillips spent $235 million on North Slope capital investments in the first quarter; the most in a year and part of a $1.2 billion capital spend companywide. Executives plan to spend roughly $5.5 billion total on capital projects this year. Elwood Brehmer can be reached at [email protected]

Gov. Mike Dunleavy is trying to salvage Alaska’s fast-approaching summer tourism season through a Florida court. The governor’s office announced April 20 that the Dunleavy administration would attempt to intervene in the State of Florida’s lawsuit against the Centers for Disease control to lift the federal agency’s Conditional Sailing Order that currently prohibits large cruise ships from sailing in domestic waters. Dunleavy’s administration estimated the cancellation of the 2020 season cost the Alaska economy roughly $3 billion in a statement from his office. “Alaskan families and small businesses need fast action to protect their ability to work and provide for their families,” the governor said April 21. “We have been told to follow the science and facts. Cruise ships have demonstrated their ability to provide for the safety of passengers and crew and Alaska has led the nation in (COVID-19) vaccinations and low hospitalization rates. We deserve the chance to have tourism and jobs.” Acting Attorney General Treg Taylor insisted the CDC “simply does not have the authority to arbitrarily shut down an entire industry.” Alaska lost approximately 9,600 jobs in the broader leisure and hospitality industry last year, according to state Labor Department economists, who estimated in January the industry would likely add about 3,500 jobs back this year. At that time it was largely presumed some level of cruise activity would occur this year. While several small cruise companies that fall outside the CDC rules for large ships are operating this summer with Alaska-only itineraries, the global cruise operators that traditionally sail the inside passage from Pacific Northwest ports brought roughly 1.3 million visitors to the state each summer prior to the pandemic. The tourism industry had been one of the few large industries to grow in recent years along with the once-surging Lower 48 economy as others struggled with the impacts of low oil prices, uncertainties from the state’s now omnipresent multibillion-dollar structural budget deficits. The State of Florida first sued the CDC in a complaint filed April 8 in the Tampa Division of the U.S. District Court of Middle Florida alleging the public health agency has unreasonably delayed the resumption of the major industry for many coastal states and violated the Administrative Procedures Act on multiple levels in issuing the Conditional Sailing Order last October. That order lays out a detailed, phased plan to resume cruise sailings but it does not put a timeline on how quickly the process can play out. Representatives for cruise companies have said they are doing everything they can to comply with the order but have received little information on when exactly they can start sailing again. Despite the strong push by state governments to fight the federal restrictions, it’s unclear what practical impact the suit can have on the 2021 summer season. Holland America Vice President Ralph Samuels said April 9 that the tour operator could resume sailings by early July if given immediate clearance. Dunleavy said during an April 16 press briefing that he was told the cruise companies would likely need clearance within “the next couple days” to start the complex process of readying the ships and crews for sailings in the coming months. Middle Florida District Court Judge Steven Merryday scheduled a May 12 hearing over Florida’s motion for a preliminary injunction to lift the CDC rules in an April 23 court order. The governor also announced April 14 a rough plan for a $150 million state aid package for tourism-dependent businesses in the state. Lt. Gov. Kevin Meyer is currently on a multi-week tour of the state to hear from industry leaders about how most effectively package the funding support. Alaska’s congressional delegation has also been working legislative angles to get the big ships sailing to the state again, but that will also require some sort of waiver to the 19th Century-era Passenger Vessel Services Act, which requires foreign-built large passenger vessels to make a stop at a foreign port when traveling between U.S. ports. Canadian officials announced in February that the country would not allow large cruise ships at its ports again this summer, adding another major hurdle for state and federal officials to clear before the ships can sail again. Sen. Dan Sullivan praised the Dunleavy administration’s attempt to join Florida’s lawsuit in an April 21 statement, arguing the CDC has only given states and the industry “many months of mixed messages, foot-dragging and unresponsiveness.” Sullivan and Florida Republican Sen. Marco Rubio introduced legislation April 13 to revoke the CDC’s Conditional Sailing Order. Federal attorneys had not yet responded to Florida’s complaint as of April 26. Elwood Brehmer can be reached at [email protected]

Alaska Air Group Inc. is getting closer to breaking even more than a year into the pandemic but it’s not quite there yet. The parent company to Alaska Airlines and regional carrier Horizon Air reported a $131 million first quarter loss April 22. The early 2021 results are a significant improvement over a year ago when the Seattle-based airline company lost $232 million; however, the most recent $131 million loss includes federal CARES Act Payroll Support Program funding. Without that and other special items, the first quarter loss would have been $436 million. according to the company. Alaska Air Group netted $181 million in the first quarter of 2019. The company lost $430 million in the fourth quarter of 2020 and more than $1.3 billion in all of last year. New Alaska Air Group CEO Ben Minicucci thanked employees for helping return the airlines to positive cash flow in March at the end of the quarter in a statement accompanying the earnings report. “We’re such a big company, but still small enough that each person’s work makes a difference,” Minicucci said. “We’re now laser focused on a return to profitability and growth, with aggressive cost control, optimal productivity across all our work groups, and the operational and financial discipline that Alaska is known for.” Minicucci officially took over as Air Group’s top executive April 1 following the retirement of former CEO Brad Tilden, who took over in 2012 and led the company to a long run of record growth that included the 2016 acquisition of West Coast competitor Virgin America. The $131 million loss was on the back of $797 million of operating revenue, a 51 percent year-over-year decline, and translated to a loss of $1.05 per share, according to the financial filings. Alaska Air Group stock closed April 23 trading at $69.21 per share. Despite the losses, Air Group leaders reduced the company’s net debt by approximately $100 million to $1.6 billion during the quarter and reported a debt-to-capitalization ratio of 62 percent at the end of the first reporting period for the year. Air Group leadership has long held a goal of maintaining the company’s debt-to-cap at less than 50 percent, which they had largely achieved prior to the pandemic. The company also issued early recall notices to approximately 350 Alaska pilots who had been on extended leave during the quarter to prepare for summer growth. In the state of Alaska, at least, officials at the Fairbanks and Anchorage international airports have said they expect collective summer passenger capacity across airlines to be in line with or even exceed 2019 levels, partly due to the fact that it’s unclear at this point whether cruise ships will be allowed to sail to the state this summer. Alaska Airlines averaged 12,472 full-time equivalent employees during the quarter, down more than 25 percent from a year ago. Its operating fleet also shrunk by 24 to 201 aircraft over the year. Air Group held $3.5 billion in cash and other liquid assets at the end of the first quarter and more than $5.3 billion in total liquidity, according to the earnings report. Company executives have stressed their ability to rely on what was a very strong balance sheet to ride out the pandemic despite being in an extremely volatile industry. Air Group received $546 million in Treasury Department loans and grants during the quarter and is eligible for another $584 million in the third round of Payroll Support funding, according to a company statement. Elwood Brehmer can be reached at [email protected]

ConocoPhillips has agreed with a coalition of Alaska Native and conservation groups on a timeline to resolve a court dispute over the adequacy of the environmental review for its multibillion-dollar Willow project that could allow the company to resume on-the-ground activity next winter. Per the agreed-upon timeline to argue the lawsuit, ConocoPhillips will not restart construction work at the large North Slope oil prospect before Dec. 1. The Houston-based oil major intervened in the suit originally filed last November against the Bureau of Land Management over the agency’s approval of the company’s development plan last year. ConocoPhillips was planning to open a gravel quarry to feed road and facility pad construction in the National Petroleum Reserve-Alaska in February before a 9th Circuit Court of Appeals panel stopped work on the project with a preliminary injunction Feb. 13 in which the judges concluded the groups were likely enough to succeed on at least one of the National Environmental Policy Act Claims that allowing the potential environmental harm from the mining work last winter was not worth it. Shortly after the injunction, attorneys for ConocoPhillips requested a July decision on the merits of the case of Federal District Court of Alaska Judge Sharon Gleason so the company could prepare for the 2021-22 winter work season on the North Slope. Timely completion of the project is in Alaskans’ interests because of the economic benefits it can provide, the company’s attorneys wrote. The summary judgment schedule in the case approved by Gleason starts with the conservation groups filing their opening brief by April 23 with defendant replies by May 26 and the plaintiffs’ reply on June 11, according to an April 5 order. As currently proposed, the Willow master development plan calls for the eventual construction of five drill sites stretching north-south over approximately 20 miles in the northeast corner of the federal petroleum reserve. ConocoPhillips also has two other nearby developments in the NPR-A but the Willow project would be several times larger than the single-drill site Greater Mooses Tooth-1 and 2 projects extending from the Alpine field. Full build-out of Willow is estimated at a cost of up to $6 billion, according to the company, with first oil during the 2025-26 winter. The project’s oil production is expected to approach 160,000 barrels per day at its peak. Overall, the project is expected to produce about 590 million barrels over 30 years. ConocoPhillips Alaska representatives have said it’s too early to tell what, if any impact the work stoppage early this year will have on the overall development schedule for Willow. Gov. Mike Dunleavy’s office announced April 15 that the state would also ask Gleason to intervene on BLM’s behalf. Dunleavy said in a statement that developments such as Willow provide the economic base for critical services on the North Slope. “Oil and gas development is critical to North Slope communities, and Alaska has long anticipated bringing the Willow project online. With the potential to produce 100,000 barrels of oil per day, it is imperative that Alaska is given the opportunity to responsibly develop our resources,” Dunleavy said. While the state’s oil production tax applies to projects in the federal petroleum reserve, the state will distribute its 50 percent share of any royalty revenue from Willow through grants to eight North Slope communities. Royalties have been the primary source of petroleum revenue for Alaska since prices fell from their $100 per barrel high in 2014. Department of Law attorneys argued the state has significant economic interests in protecting Willow’s development, not only in the upwards of $3.5 billion the project is expected to generate in state and local tax revenue, but also the direct and indirect jobs it would add to Alaska’s sputtering economy. According to the environmental impact statement for Willow, the project would support at least 1,000 construction jobs and approximately 400 operations positions when finished. Attorney for Sovereign Inupiat for a Living Arctic Bridget Psarianos wrote in an April 19 response to the state’s request that the group does not outright oppose the state’s participation in the suit but waiting to intervene until months after the case was filed could complicate the accelerated briefing schedule the sides had previously agreed to. Editor's note: This story has been modified to note that while construction work won't restart any earlier than Dec. 1, development work will continue. The original version also stated that the state will not receive royalty revenue from Willow. The state will receive 50 percent of the royalties, but under federal law it is required to distribute that money to the North Slope communities as grants. Elwood Brehmer can be reached at [email protected]

The price for Alaska North Slope crude largely recovered months ago from the unprecedented fall it took a year ago, but if a recovery is also going to occur in Alaska’s oil workforce it has yet to materialize. Rather, preliminary employment data for March from the state Labor Department indicates the industry is continuing in the other direction. Approximately 6,300 people were employed in the state’s oil and gas sector last month, which was in line with February but did not reverse a declining trend that has persisted since the start of the pandemic. Following a near-term peak of 10,200 oil and gas jobs in February 2020, the industry has shed nearly 40 percent of its workforce; it is the largest drop among all of the industries the Labor Department tracks. But the recent decline in one of the state’s trademark industries is not an isolated incident. Alaska’s oil and gas workforce has contracted by 57 percent since peaking at an average of 14,800 jobs in 2014. Alaska Oil and Gas Association CEO Kara Moriarty emphasized that while the operating companies would relish the ability to hire more workers again, what has happened in Alaska is reflective of the national picture. Nationally, the industry peaked at nearly 199,000 direct jobs in 2015 and has had 133,000 through the first few months of 2021, a one-third drop in employment. “When you have a price fall like we have from 2014 to today the companies just don’t have as much money to spend and it does force efficiencies and you just can’t drill as many wells when prices are where they’re at today compared to 2014,” Moritarty said. The price for Alaska crude stood at $66.62 per barrel on April 19, according to the state Revenue Department and it has remained greater than $60 per barrel since early February — a return to where it started 2020 — but still far from the $100 per barrel-plus regime the industry enjoyed early last decade. State Labor Economist Neal Fried said the simple price of oil is consistently the best indicator of pending employment trends in the industry. While shale production in the Lower 48 requires more constant and labor-intensive drilling activity, there is clearly no correlation between oil production and jobs in Alaska. Pre-pandemic employment levels are in line with the size of the industry when more than 1 million barrels per day were being produced on the North Slope. Fried said the Labor Department’s definition of an oil and gas worker is quite narrow and is largely limited to employees of the producer companies and others active in exploration or field work, noting employment at Prudhoe Bay includes a host of support professionals, caterers, construction workers and security personnel, among others. While the producers have made significant cuts to their collective workforce, first after 2014 and again since the onset of the pandemic, most of the job losses have been with oilfield service contractors and support companies, according to Fried. “The producer part of the industry changes more slowly,” he said, adding that “right now it’s pretty ugly” in the oilfield support business. Alaska Support Industry Alliance CEO Rebecca Logan said the impact of the negative employment trend is exacerbated by the fact that the state is losing some of its highest paying jobs. “It impacts everyone in one way or another,” said Logan. She generally agreed that the support companies that work on the North Slope have felt the brunt of the cuts via less work from the producers. “You had work stop when oil just hit rock bottom and went below zero (last April). That was the death knell and we haven’t recovered from that,” she said. Doyon Drilling felt the pandemic directly last April when ConocoPhillips informed company leaders that it would lay down its contracted drilling rigs to limit the risk of spreading of COVID-19. The rig de-mobilization came amidst $400 million in cuts to ConocoPhillips’ 2020 capital plan, which previously was approximately $1.5 billion. In early February 2020, Doyon Drilling had 470 employees, according to spokeswoman Sarah Obed, a figure that fell to just 110 by mid-May. The company now employs 222 workers, Obed wrote in an email. ConocoPhillips gradually resumed its drilling program last fall. In contrast, Logan said some of the companies that work more peripherally in the industry, such as logistics and shipping firms, are thriving and she expects the industry to eventually recover at least to pre-pandemic levels because of a small flurry of yet-to-be-developed oil discoveries in recent years. “There’s a very viable industry here,” she said. ConocoPhillips has approximately 1,000 workers in Alaska after a reduction in February of nearly 100 positions across all functions of the company related to a restructuring stemming from the company’s recent acquisition of Texas-based shale operator Concho Resources, according to spokeswoman Rebecca Boys. She wrote via email that the company’s current workforce is “more than sufficient” to advance ConocoPhillips’ existing suite of capital projects, which includes the 100,000 barrels per day-plus Willow project, several smaller satellite prospects and development projects within the Alpine and Kuparuk fields. Boys added that the past year has emphasized the need within ConocoPhillips to “stay focused on cost and become more efficient in what we do. The company must be set up to succeed long-term and be able to provide jobs long-term — across industry cycles and during energy transitions. That said, we will look to grow our workforce accordingly with our projects.” Economist Ed King of King Economics Group and a former state economist said in an interview he believes when several of the current North Slope oil prospects become construction projects — such as Oil Search’s Pikka and Hilcorp’s Liberty prospects in addition to those held by ConocoPhillips — the industry will begin adding jobs again. An outlier, Oil Search bought into Alaska in 2018 when it took over as operator of the Pikka Unit Nanushuk prospect from Armstrong Energy, has added jobs to the industry and currently has about 150 employees in the state, according to spokeswoman Amy Burnett. However, the Australian producer had about 180 Alaska workers a year ago and has since scaled back its development plan for the large Pikka project. “I don’t think that where we are today is the new normal,” for Alaska’s oil industry, King said. “Now that we’re back up in the $60s (per barrel) we should see employment and investment return to where it was two or so years ago.” Longtime Alaska oil and gas attorney and fiscal analyst Brad Keithley sees less reason for optimism in Alaska’s oil fields. Keithley said that largely through 2015 Alaska was a “big project state” with Shell concluding $7 billion of offshore exploration in the Chukchi Sea; ExxonMobil developing the $4 billion Point Thomson gas field; and the major producers also investing significantly in the Alaska LNG Project at the time. He questions whether the market conditions will ever materialize again for multiple large-scale projects like those to occur simultaneously. While Alaska’s political leaders have blasted the growing contingent of large banks that are choosing to formally eschew Arctic oil and gas projects, Keithley said he believes more basic market factors could challenge Alaska’s oil industry for the long-term. The development hurdles of high upfront capital requirements and in some cases decade-long lead times from first discovery to production that have always challenged North Slope operators are likely to become ever-more apparent as the future of oil demand gets increasingly blurry, according to Keithley. He expects ConocoPhillips to see its Willow project and others through as the oil major has bet big on the state in recent years, but he’s unconvinced current prospects are as likely to become producing fields. “We’re getting good geology announcements. What I’m waiting on is financial announcements,” Keithley said. Elwood Brehmer can be reached at [email protected]

It appears officials in Alaska’s gasline agency are starting from scratch in their effort to secure more than $4 billion in federal money to jumpstart the Alaska LNG Project. While still in concept only, the $2 trillion-plus infrastructure plan unveiled by President Joe Biden at the end of March makes no mention of pipelines and discussion about natural gas infrastructure is limited to $16 billion for plugging and abandoning orphaned oil and gas wells and mines. The latest plan to develop an LNG export project for North Slope natural gas backed by Gov. Mike Dunleavy’s administration hinges, at least initially, on a federal subsidy to cover 75 percent of the nearly $6 billion Alaska Gasline Development Corp. officials believe it would cost to construct a large-diameter gasline from Prudhoe Bay to Fairbanks. AGDC President Frank Richards said when the idea was formally pitched to the corporation board of directors in early February that leaders of the state-owned corporation were in confidential negotiations with a “world-class pipeline operator” to potentially lead the pipeline portion of the integrated North Slope gas-to-pipeline-to-LNG effort and also contribute the remaining roughly $1.5 billion for construction of the first pipeline phase. Along with a yet-to-be-built, approximately 60-mile feeder pipeline to draw gas from the Point Thomson field, installing the first few hundred miles of the 807-mile pipeline would provide access to lower-cost natural gas to communities along the pipeline corridor and the Fairbanks area — where the focus is as much on cleaner heat sources as it is cheaper energy — first, and greatly de-risk the rest of the project for private investors, according to the Dunleavy administration. By late January AGDC had identified “likely” lead parties for the North Slope gas treatment plant and pipeline, and corporation officials were working to get the attention of a firm to lead development of and own the LNG plant, which accounts for roughly half of the overall $38 billion Alaska LNG price tag, Richards said at the time. AGDC officials had also informed the members of Alaska’s congressional delegation of their desire to participate in a federal infrastructure and stimulus program and briefed Biden’s transition team on the potential benefits of the project, according to Richards. Approximately two weeks after the president first presented his American Jobs Plan, AGDC spokesman Tim Fitzpatrick wrote via email that corporation officials had no updates on progress to get the Alaska LNG Project included in the massive spending plan because it was still so early in the legislative process and bills have not yet been filed. “We’re confident the project meets the jobs, energy and environmental goals on the table and that we have a number of different legislative paths forward,” Fitzpatrick wrote. Dunleavy spokesman Corey Young wrote in an emailed response to questions about lobbying efforts for the project from the administration that the governor has advocated for the gasline to elected leaders nationwide. “The governor will continue to fight for Alaska resource projects including Alaska LNG as federal legislative opportunities develop and evolve. No one in the world knows how to effectively develop their resources for the benefit of our citizens as well as Alaskans do,” Young wrote. However, congressional delegation staffers working on getting funding for Alaska’s infrastructure priorities said in interviews that securing a $4 billion to $4.5 billion grant for Alaska LNG is an immensely challenged endeavor on several fronts, some more obvious than others. First, the Biden administration has shown little interest in promoting anything related to fossil fuels; it suspended the federal oil and gas leasing program shortly after taking office. And though AGDC leaders have pitched the project as a cleaner source of energy to displace coal, particularly in Asian markets, Dunleavy has taken a highly adversarial approach to addressing his dislike of the Biden administration’s energy policies while at the same time seeking billions of dollars in construction funding for the pipeline. Even if leadership in Alaska and Washington, D.C., can reach a philosophical compromise over what energy is clean enough to warrant federal support, there currently is no legislative avenue to fund the Alaska LNG pipeline — absent an earmark newly revived by Congress last month— because there is no existing federal pipeline development program, according to delegation staff. Some of the earmark appropriations secured by Alaska’s congressional delegation through much of the 2000s drew nationwide scrutiny and provided momentum for a prohibition on earmark funding that lasted roughly a decade before the rule was rescinded by Congress in March. According to the staffers, Alaska Natural Gas Pipeline Act passed in 2004 still contains $18 billion in federal loan authority for an Alaska gas pipeline, but it is only for a project through Canada as currently written, the export route preferred at the time. State level lawmakers consumed by navigating the pandemic and the state’s structural budget problems have spent little time evaluating the most recent Alaska LNG funding scheme since it was first publicized but the federal subsidy request was met with skepticism in the one Senate hearing that covered the topic. Republican legislators who have supported Dunleavy’s desire to pass the project back to the private sector also questioned the realism of the plan to get more than $4 billion in federal funds for a fossil fuel project given the political realities. Elwood Brehmer can be reached at [email protected]

A newly published Outside economic outlook for oil and gas-heavy states backs up what local forecasters have been saying: It’s going to be a long slog back for Alaska. The April 15 S&P Global report entitled, “U.S. Oil and Gas-Dependent States Are Out Of The Woods (For Now),” concludes that Alaska’s economic recovery from the pandemic is likely to be amongst the slowest in the nation, with Texas being the only traditional oil state to be among the national leaders in near-term growth. The international market analysis firm believes the national economy will see gross domestic product, or GDP, growth of 6.5 percent this year and 3.1 percent in 2022 after contracting by 3.5 percent last year, but the recovery will be “uneven,” according to the report. “Without exception, all mineral-producing states were affected by the dual-shock of the pandemic-induced recession and the global energy rout last year, with five of them in the bottom 20 percent of all states in 2020 for economic growth,” the S&P report states. Alaska’s economy contracted by 4.9 percent last year based on state-specific GDP, putting it 42nd nationally and ahead of other oil states like Louisiana, Texas and Wyoming, but behind the likes of North Dakota, New Mexico and Texas. According to figures from the Federal Reserve Bank of St. Louis, Alaska lost $4.1 billion, or 7.5 percent of its total economic output last year compared to 2019. S&P’s authors have pegged Alaska’s growth this year at about 5.1 percent, which would put it 33rd nationally based on the analysts’ projections. That growth is expected to taper to just more than 3 percent in 2022, which would be amongst the slowest growth nationwide. “By 2022, only Alaska and West Virginia (among resource states) are forecast to rank in the bottom 10 states,” the authors conclude. “States that have a high reliance on mining activity and less diversified economic portfolios may see prolonged economic recovery compared to the rest of the sector.” University of Alaska Anchorage economist Mouhcine Guettabi said in a presentation earlier this month that the state’s labor market remains “ugly” with little optimism for significant organic growth in the coming years. The state Labor Department forecasted in January that Alaska this year will recover about 30 percent of the approximately 27,200 jobs lost in 2020 and full recovery to 2019 levels will take several years. Guettabi and other economists also routinely note that prior to the pandemic Alaska was just starting to recover from a three-year recession when most of the Lower 48 economy was strong as well. S&P analysts maintained Alaska’s AA- general obligation credit rating with a negative outlook in the report, a rating issues roughly a year ago when pandemic restrictions were tightest and domestic oil prices briefly went negative. A summary of the state’s fiscal situation notes that improved oil prices are helping the state’s immediate revenue situation, but emphasizes that “Over the long term, the state continues to grapple with sustainable budgeting. While total reserves remain very strong, additional revenue sources will be needed as expenditure reductions have been virtually exhausted over the past several years. The governor’s (10-year) plan recognizes a need for new revenues in fiscal 2023, but it is unclear what that may entail.” Elwood Brehmer can be reached at [email protected]

A request by Alaska Railbelt electric utility leaders to double the time to implement major grid reform legislation has been met with disdain from some key regulators and stakeholders. The general managers and CEOs of the Chugach, Golden Valley, Homer and Matanuska electric associations along with Seward’s utility director wrote to the Regulatory Commission of Alaska in a March 29 letter to ask lawmakers for another year to hash out the regulations needed to stand up a new grid planning organization they’ve dubbed the Railbelt Reliability Council, or RRC. The establishment of such an organization to improve electric generation and transmission coordination amongst the state’s largest power utilities is at the heart of Senate Bill 123 passed last year, which mandated the utilities to work with the RCA on the decades-old issue. Utility leaders noted in a series of subsequent public RCA hearings that most similar legislation comes with a two-year window to complete the accompanying regulations, while lawmakers specifically put a one-year timeline for the complex and often highly technical regulations underpinning SB 123. An audibly frustrated RCA Chairman Bob Pickett responded to the utility’s concerns during an April 7 teleconference that the July 1 deadline for the final RRC regulations has been known since the start of the process. Pickett further said asking the Legislature for such an obscure statutory change at this point in the session is a long shot at best. He also questioned whether the RCA, a sub-agency of the Commerce Department, can make an official request to lawmakers independent of the governor’s office. “At the tail end (of the legislative session) the only way something like this would happen is some kind of lobbyist-driven amendment by the utilities,” Pickett said. Chugach CEO Lee Thibert said the utilities are not trying to stop the process and all backed SB 123 but the regulatory development has taken much longer than expected. “We can’t let this get rushed through and have problems for the next umpteen years. We need to take the time and get it right the first time,” Thibert said.” Matanuska Electric CEO Tony Izzo later told Pickett the utilities would not seek the extension without the commission’s backing, though RCA member Dan Sullivan said he thought the request could be fulfilled if enough weight was behind it. The utilities also contend that early drafts of the regulations maintain too much control over the RRC with the commission and are not in line with the more collaborative intent of SB 123. Renewable Energy Alaska Project Executive Director Chris Rose, who sits on the 12-member RRC Implementation Committee, insists the utilities themselves are having a hard time ceding control over grid infrastructure that under the old system is disjointed, inefficient and intentionally limits third-party investments, namely large renewable energy projects. Rose testified that he and other non-utility committee members have donated countless hours of their time over the past nine months to ultimately improve the region’s electric infrastructure and save ratepayers money. “It was, and still is, stunning to me that the same utilities who like to say that they are working collaboratively with the others on the RRC would submit a letter to you asking to prolong an already too long process for another year without discussing the letter or its implications with the other RRC members,” Rose said. Other RRC committee members said they also believe the utilities want to retain control of the grid and are searching for an opportunity to do so. Suzanne Settle, CIRI Energy Vice President and an RRC committee member, reiterated Rose’s point that the group has put in untold hours in sometimes afternoon-long meetings each week. “Everyone wants to get this right but when you’re trying to do things that are complicated and transformational you’re not going to be perfect, so you just have to do your best and keep improving along the way,” Settle said in an interview. CIRI owns the Fire Island wind project and had plans to expand the project scuttled in 2017 when agreements for tariff rates to transmit the company’s power to Fairbanks couldn’t be reached. It’s those kind of stable-cost deals for renewable power that the RRC should help facilitate, she said. “Regional planning in the long run will reduce electric costs for the bulk of Alaskans, Settle said. “I think it’s 20 years overdue.”

Senate Republican leaders have ultimately agreed to renew the state’s COVID-19 disaster declaration with an option for the administration to scale it back to only the targeted powers and flexibilities Gov. Mike Dunleavy and public health officials have said are needed. The Senate Republicans’ version of House Bill 76 would actually extend the end date of the official disaster declaration from Sept. 30, which the House approved, to Dec. 31 despite the continued instance by Senate President Peter Micchiche, R-Soldotna, that reviving the declaration when the governor doesn’t want it is largely a political game. Staff for Finance Committee co-chair Sen. Click Bishop, R-Fairbanks, said during an April 12 hearing when the committee’s changes to disaster legislation were released that the end date was moved back to align with indications from President Joe Biden that the federal emergency declaration will be in place through the end of the year. Aligning the dates allows the Dunleavy administration to accept additional monthly Federal Emergency Management Administration and Supplemental Nutrition Assistance Program, or SNAP, funds without requiring subsequent legislative action. Micciche said in an April 9 press briefing that HB 76 will be passed in some form to ensure the state gets the $8 million per month in boosted food assistance and other FEMA funding. “We’re going to take our time on (HB 76),” Micciche said, adding that he doesn’t believe the official declaration is necessary and prior indications from state Health Department leaders that the state needed to extend the declaration by April 1 and April 15 in order to get those funds for this month might have been inaccurate. He said administration officials now believe the state has until April 30 to act. Legislative leaders had previously been at odds over the necessity of a full disaster declaration and the disagreement had hampered the progress of the bill most lawmakers say is needed in some form. “There’ll be a Senate position, a House position and hopefully they align,” Micciche said of the disaster legislation. Multiple Senate Republicans have indicated a desire to extend the declaration while others in the caucus — most vocally Eagle River Republican Sen. Lora Reinbold — insist it is an unnecessary ceding of power to the administration. House majority coalition members have been firm in their stance that the official declaration is ostensibly an insurance policy against the unknown that gives the administration the ability to respond quickly if the state’s public health system encounters major problems in managing the pandemic over the coming months, echoing the beliefs of the state’s largest health care organizations and providers. Dunleavy has said since it expired in mid-February that he believes renewing the full declaration would send the wrong signal to Alaskans as well as potential visitors regarding the trajectory of the pandemic in the state. His administration wants only limited powers to support COVID-19 vaccine and treatment distribution; allow for expedited procurement processes; and continued telehealth flexibilities in addition to the emergency funding authority. To that end, Senate Republicans added a provision to HB 76 that would give Department of Health and Social Services Commissioner Adam Crum the power to declare a public health emergency to make the state eligible for the additional federal aid as well as continue Centers for Medicare and Medicaid Services waivers. Crum could enact a public health emergency after Dunleavy issues a proclamation ending the full disaster declaration — seemingly an attempt to satisfy both House leaders and the governor. “As a department we do not believe the facts and science related to COVID-19 currently support a disaster declaration,” Crum said in the April 12 hearing. The “targeted, prescribed responses” contained in the public health emergency provision are what the administration wants, he said, while adding that additional language regarding vaccine and treatment distribution and procurement requirements would be helpful for DHSS officials. The bill also lifts the existing cap on school district funds that limits districts to holding no more than 10 percent of their annual budgets in reserve, which Micciche has said is important to give districts the time to carefully spend and manage open-ended federal COVID-19 aid over several years. As for dealing with the broader issue of federal pandemic aid, the new iteration of HB 76 ostensibly suspends the revised program legislation, or RPL, process for current and future COVID-19 or economic recovery funds in language prioritized by Finance co-chair Sen. Bert Stedman. Stedman, a Sitka Republican, noted the state is preparing to accept another billion-plus dollars in American Rescue Plan funds and stressed lawmakers’ collective responsibility to manage the money. “The concern is there are a significant number of legislators that don’t want to take their obligation seriously enough and to show up in Juneau. We saw that last summer and last fall,” Stedman said in reference to how the roughly $1.2 billion in CARES Act funding the state received was handled. The RPL process allows the administration to amend the state budget out-of-session 45 days after notifying the Legislative Budget and Audit Committee of a change, as long as the committee doesn’t outright reject the proposal. A lawsuit filed last spring alleging the Legislature had shirked its responsibility to appropriate the large sums of CARES money eventually compelled lawmakers back to Juneau for a day to approve the administration’s RPL requests. While many legislators wanted to call a special session to deal with the federal aid, not enough did in a campaign year to reach the two-thirds majority needed to convene and Dunleavy opted against calling them back as well. According to Stedman, the new language in HB 76 that prohibits the administration from using the RPL process on most any federal aid that comes Alaska’s way this year should provide “ample encouragement for the executive branch to call the Legislature to special session to deal with the billions of dollars that are on the table,” he said. Bethel Sen. Lyman Hoffman, the only Democrat in the Senate majority, urged House lawmakers to pass a provision allowing the Legislature to hold remote meetings as the Senate has done, which he said would help alleviate the issue. Bishop called for further amendments to HB 76 but further hearings on the bill have not been scheduled as of late April 13. Elwood Brehmer can be reached at [email protected]

Alaska’s economy isn’t getting worse, but it could also be a long way from substantial improvement. University of Alaska Anchorage Institute for Social and Economic Research economist Mouhcine Guettabi said many of the indicators showing improvements in recent months are more tied to the normal seasonality of the state’s economy and less about a recovery from the forces of the pandemic. “Our losses ballooned over the summer and then shrunk back down in fall and the winter. That doesn’t mean things are getting better; it just means that we’re losing, or had, fewer jobs in the economy,” Guettabi told a virtual audience during a presentation hosted April 9 by the Alaska policy think-tank Commonwealth North. “I’ll summarize with a very technical term and say the labor market is incredibly ugly and really there are no great signs of an organic recovery or things getting back to normal. “That’s kind of the worrisome part.” According to the latest data available from the state Labor Department, Alaska remained down 22,300 jobs in February, or about 7 percent fewer wage and salary jobs than at the start of the pandemic. The situation is worse when looking strictly at the private sector, which had shrunk by 8.6 percent year-over-year as of February. The oil industry has been hardest hit, having lost 3,900 jobs — nearly 40 percent — over the past year. Alaska’s job losses peaked in June when there were roughly 47,000 fewer jobs than a year prior. The state added 7,000 jobs in February, according to preliminary data from the Labor Department, which is very consistent with a longstanding trend of job growth to start the year. Initial unemployment claims have fallen from a peak of 33,312 last April to 2,195 in February, which is in-line with pre-pandemic levels. However, continuing claims have stabilized at approximately 31,000 to 33,000 in recent months, which is still three times greater than pre-pandemic levels, according to the Labor Department. Alaska’s gross product, or GDP, also fell by approximately $4.1 billion, or 7.5 percent, to $50.2 billion last year, according to figures from the Federal Reserve Bank of St. Louis. “We are nowhere near a return to normalcy,” Guettabi said of Alaska’s unemployment numbers, later adding “It’s important to remember the economy was not humming before this.” State Labor economist Neal Fried also said in an interview that some economists are predicting the Lower 48 economy will “roar” back in the second half of the year and nearly return to pre-pandemic levels but such a scenario is unlikely here. “How long it takes us to get back to the 2015 (employment) high — that’s so far into the future I refuse to even take a guess,” Fried said, referencing the state’s prior recession that ended with very modest growth in 2019. Despite the job losses in 2020, Alaskans have, on the whole, seen their collective income increase by roughly $1.4 billion over the past year thanks to the federal funds, mostly in the form of direct stimulus payments and greatly expanded unemployment assistance, he noted. “As bad as things are the majority of people have kept their jobs and are in a better financial situation than a year ago,” he said. Guettabi also highlighted that while some individuals receiving the initial federal unemployment boost of $600 per week on top of state benefits saw a several-month increase in their income over their prior wages, approximately a dozen subsequent research papers were unable to identify any broad link between the higher level of unemployment income and job hunting. “Because of the pandemic there is very little association at the aggregate level between the boost of (unemployment) payments and the decision to seek employment,” he said. The contradictory nature of widespread job losses and overall income growth exposes the need for continued aid that is highly targeted in an effort to make it as effective as possible, according to Guettabi. “Dollars that are coming in, when they go to households that don’t need them right now, are not necessarily making it into the economy, so things like boosting unemployment insurance for people that need it or helping local governments or helping local businesses makes more sense when you identify exactly that need,” Guettabi said. “Business failure can cripple a recovery.” By the end of the year he expects Alaska’s economy to grow very slightly versus 2020, with most of the improvement coming in the service sector from the kind of spending many folks have largely given up over the past year. Anchorage Economic Development Corp. forecasted in January that Alaska’s largest city would add approximately 4,000 jobs this year, but that was before Canadian government officials extended their prohibition on large cruise ships in the country’s ports through the coming summer, leaving the foundational element of Alaska’s tourism industry — which reaches Anchorage — in-limbo again. For much of Southeast the prospect of any level of rebound is likely to depend on whether or not large cruise ships sail the Inside Passage at all this year, Guettabi noted. Elwood Brehmer can be reached at [email protected]

The State of Alaska is pulling out all the stops in an effort to get cruise ships, and the people they bring, back to Alaska, Gov. Mike Dunleavy said April 9. The governor insisted in a lengthy press conference from a hangar in Juneau that Alaska has handled the COVID-19 pandemic as well or better than all other states — a message he conveyed to both prospective visitors and Centers for Disease Control officials — and actions need to be taken now to facilitate some sort of cruise season yet this year. The million-plus cruise passengers that arrived to Alaska via the Inside Passage accounted for more than half of the total visitors to the state in most pre-pandemic years. The prospect of a second summer without those visitors — and the money they spend — has generated strong words from the state’s politicians but little progress to-date towards a solution. There was broad belief that Alaska’s cruise industry would resume this spring prior to a Feb. 4 announcement that Canadian officials would not be allowing large cruise ships in the country’s ports. However, the Canadian decision upended cruise companies’ plans because the Passenger Vessel Services Act, an 1880s labor-protection law, requires foreign-flagged and built vessels to stop in another country on trips between U.S. ports. Additionally, the CDC has been slow to lift its “No Sail Order” prohibiting large cruise sailings domestically. The public health agency released new guidelines for ship operators and port town authorities in an April 2 update to its Framework for Conditional Sailing Order but has stopped short of lifting the ban currently in place through Nov. 1. Dunleavy said he wants CDC officials to recognize that while COVID-19 continues to persist “we have the tools to deal with it.” Through much of the pandemic Alaska has had among the lowest COVID-19 death rates and highest vaccination rates in the country. “Through proper planning and execution Alaska’s already demonstrated that we can bring people into the state and do it right. We didn’t have to shut down mining; we didn’t have to shut down the oil industry; we didn’t have to shut down fishing and we don’t have to shut down the cruise industry,” Dunleavy said. “My message to the CDC, my message to Congress is: Look at what we’ve done.” Sens. Dan Sullivan and Lisa Murkowski said following the April 2 CDC announcement they were encouraged by agency projections that cruising could resume by mid-summer with swift implementation of the phased sailing plan. Alaska’s congressional delegation was highly critical of Canadian officials following their decision to ban cruise ships for another summer but legislation to provide a waiver to the foreign stop requirement has yet to gain traction in Congress despite its implications to many other coastal states. Holland America Vice President Ralph Samuels said during the governor’s briefing that if immediately given the clearance to operate, most cruise companies could be ready to sail by early July as a couple months of lead time is needed to hire and retrain crews and prepare the massive vessels. “You’ve got a lot of hoops to jump through,” Samuels said. Sullivan introduced legislation to revoke the No Sail Order April 13 that would also require the CDC to give mitigation guidance to cruise companies in advance of sailings. Florida Republican Sens. Rick Scott and Marco Rubio signed on as co-sponsors to Sullivan’s bill. Sullivan has had direct conversations with Canadian Transport Minister Omar Alghabra and Canadian Ambassador David MacNaughton about lifting the ban, according to his staff. He has also investigated the prospect of an administrative waiver with Homeland Security Secretary Alejandro Mayorkas. Dunleavy said he believes the CDC should be offering advice to industry but not implementing wholesale restrictions on industry activity. An announcement by the CDC permitting cruise sailings could have provided Congress further impetus to act as well, the governor suggested. “This is an economic death-grapple we’re in with industries. (The CDC) is focused on health, that’s a good thing, but we’ve done this better than almost anywhere else and we should be given the opportunity and the respect that we in Alaska know what to do with this,” Dunleavy said. The state’s efforts to receive clearance from the CDC could include litigation, he added. The most recent CDC order directs cruise companies to discuss, among other things, what they would do in the event of COVID-19 on a cruise ship with port town authorities. “We’ve obviously spent a lot of time on that exact scenario,” Samuels said. Concurrently state tourism officials are working on a nationwide marketing campaign to regain the momentum the industry had prior to 2020, Dunleavy said as well. “There won’t be a person across the country that won’t know about Alaska when we’re done with this,” he said, later adding, “Not only is this the place to come because it’s spectacular and has great people but it’s the safest place in the country.” While the sailing forecast isn’t bright, officials at Alaska’s major airports have reported expectations that summer passenger capacity volumes will quickly rebound to record pre-pandemic levels — and possibly higher — this year. Finally, Dunleavy indicated several times that administration officials are also preparing a tourism-targeted aid package to assist visitor industry businesses, particularly if a second cruise season is lost. The governor is expected to unveil it in the coming week. The state’s broader leisure and hospitality industry lost nearly 15,000 jobs at the normal peak of the summer season last year according to Labor Department data and industry leaders fear another year without large cruise ships could force many businesses that had been temporarily shuttered to close for good, particularly in Southeast. The governments in cruise port towns have taken major revenue hits as well. Juneau Mayor Beth Weldon said each year without cruise ships costs the city roughly $26 million in lost tax revenue and the ancillary activity that’s lost is felt by everyone. “You’d be hard pressed to find a business in town that’s not impacted by cruise tourism,” Weldon said.

Lawmakers held relatively few hearings around the Easter weekend and instead appear to have manufactured another impasse over time-sensitive legislation that a majority of them feel in some form is critical to running the state. House Bill 76, which would renew the state COVID-19 public health emergency declaration, was pulled from the Senate Finance Committee schedule April 6 and a second Finance hearing for ongoing legislation was canceled as well. As of April 7, lawmakers have gone more than a week without hearing the legislation backed by nearly all of the state’s major business, health care, charitable and seafood industry organizations among others and have roughly a week to hash out disagreements at several layers before the state misses out on $8 million in additional federal food assistance aid. HB 76 had not been scheduled for future hearings as of this writing April 7. It was previously believed the state had to address its lack of an official public health emergency by April 1 to receive the boosted Supplemental Nutrition Assistance Program, or SNAP, funds from the federal government but Department of Health and Social Services officials have since indicated they can get the money retroactively if it is dealt with by April 15; Senate President Peter Micciche called it the “magic day” in a briefing with reporters on the issue. Finance co-chair Sen. Click Bishop, R-Fairbanks, called for amendments to HB 76 by April 2, at which point it seemed likely Senate Republicans would introduce the scaled-back version of the bill they have discussed for weeks to address the food assistance, relaxed telehealth requirements, school district reserve limits and select other issues identified by the administration to better manage the pandemic without a true emergency declaration. Bishop did not elaborate as to why it wasn’t heard. Numerous Republicans in both chambers argue a declaration is unnecessary as daily statewide COVID-19 case counts have been relatively stable at lower levels and vaccines are now available to all adults; case levels have increased in recent days but remain low. Declaring a disaster again will just facilitate the continuation of government restrictions that have been overly burdensome for months, they contend. Micciche has maintained his position that the plan for targeted COVID-19 management legislation is the only way to ensure something is enacted. Gov. Mike Dunleavy originally submitted HB 76 to extend the declaration at the start of the session but no longer supports it. Dunleavy has said since it expired in mid-February — when lawmakers also didn’t act despite clear majorities supporting the declaration at the time — he believes his administration can adequately manage public health concerns without a formal declaration. Doing so is a step towards returning to a state of normalcy, according to the governor. House coalition leaders, on the other hand, have emphasized the broad scope of organizations across the state that have stressed the importance of having an active declaration while unemployment remains high and health care and business practices are altered because of the pandemic. Another prolonged impasse at the start of the session over leadership in the House prevented the chamber from taking up the dealing with the emergency declaration when it first expired. While the House and Senate majorities have been at odds for weeks on the details of the bill, HB 76 seemed on track to pass the Senate with Republicans’ changes before it would be settled either via a concurring vote of the House or in conference committee as is traditionally the case in such instances and can be done quickly. The holdup in Senate Finance further squeezes the timeline for lawmakers to at least address the issues they and the administration agree need to be dealt with. As of late March, Alaska and Michigan — the latter where COVID-19 cases have spiked of late, according to CDC data — were the only states to not have some sort of official emergency order in place, according to a spreadsheet from the National Governors Association. Many other states have since extended declarations that were otherwise set to expire March 31. Elwood Brehmer can be reached at [email protected]

Constantine Metal Resources plans to put nearly $9 million into further drilling work at its underground Palmer mine prospect near Haines this summer after the pandemic curtailed work last year. The $8.8 million summer work budget is largely for drilling to further delineate the Palmer project resource base as well as collect geotechnical data for the large underground exploration tunnel the company hopes to dig in the coming years. In total, the leaders of Vancouver-based Constantine hope to conduct roughly 6,000 meters of drilling; the work is being funded by large Japanese mining company Dowa Metals and Mining Ltd. Constantine, which has led exploration at the polymetallic Palmer prospect for years and is continuing as the project operator, will see its ownership share drop to no less than 44 percent, according to a March 30 statement. Constantine CEO Garfield Mac Veigh said in an interview that the company advanced its understanding of the environmental factors at play during the $2.2 million surface work program conducted at Palmer last summer. This year the company hopes to find the “offset” to the prospect’s South Wall deposit with some of its drilling, according to Mac Veigh. An offset is generally a similar geologic formation — in this case likely metal-bearing — that has been displaced and shifted by a fault. “That could have a substantial impact on the economics of the project because that offset should be pretty accessible from our underground exploration,” Mac Veigh said. If developed as currently envisioned, the Palmer project would be an underground mine that would process up to 3,500 metric tonnes of ore per day, or approximately 12.5 million metric tonnes over the life of the mine, based on figures from a 2019 preliminary economic assessment. From that, the mine would produce more than 1 billion pounds of zinc, 196 million pounds of copper, 18 million ounces of silver, 91,000 ounces of gold and nearly 2.9 million tonnes of barite, a common industrial mineral, according to Constantine. The deposit is adjacent to the Alaska-Canada border and near the Haines Highway about 40 miles northwest of Haines along the Klehani River, which flows into the Chilkat River. It is on a mix of federal mining claims surrounded by land owned by the Alaska Mental Health Trust Authority, which is open for development. The mine would cost $278 million to develop and require another $140 million for sustaining capital and reclamation costs for an estimated all-in cost of $418 million, according to the 2019 report. About 1,700 meters of the drilling this summer is dedicated to advancing the company’s knowledge of the geotechnical structures and hydrologic systems in the area of the proposed exploration tunnel, according to Mac Veigh. Constantine was moving towards the major exploratory endeavor to blast a roughly 1.25-mile tunnel that would serve as a space to conduct exploration drilling and collect further geotechnical and hydrologic data in 2019 before a Supreme Court case originating from Maui pushed Department of Environmental Conservation officials to remand and review the wastewater discharge permit for the work and the company to reevaluate its wastewater plan. In the Maui case, the Hawai’i Wildlife Fund and attorneys for the national environmental law firm Earthjustice contend the County of Maui for decades has been polluting near shore ocean waters by injecting millions of gallons of treated sewage water into the groundwater. The groups brought a lawsuit against the County of Maui and in 2014 a federal District Court of Hawaii judge found the wastewater injection well operation violates the Clean Water Act because the wastewater seeping up through the ocean floor can be traced back to the injection wells. The county’s appeal to the Ninth Circuit Court of Appeals was rejected as well. A 6-3 Supreme Court ruling hedged the issue somewhat, contending Maui needed a Clean Water Act National Pollutant Discharge Elimination System permit from the Environmental Protection Agency but also narrowing the scope of when such a permit is required from what the environmental groups were seeking. In Alaska, where the state has taken primacy over wastewater management from the EPA, such permits are handled by DEC. DEC spokeswoman Laura Achee wrote via email that Constantine’s wastewater permit remains valid but the company “is revising their wastewater disposal system engineering plans, and will submit their plans to DEC for review and approval.” There is no timetable for how long that will take. Gershon Cohen, project director for Alaska Clean Water Advocacy, originally petitioned DEC officials to reconsider their 2019 approval of Constantine’s wastewater discharge permit, contending it was wholly inadequate for the amount of groundwater contaminated with hydrocarbons, blasting solids and explosive residue prior studies indicate could be released by the blasting for the exploration tunnel. Constantine’s original plan called for diverting the water into two settling ponds to handle 500 gallons per minute and hold up to 358,500 gallons each for 12 hours to allow solid materials to settle out of the water before it is sent back underground. According to Cohen, that would be enough capacity to handle just two days worth of water flow from the tunnel area and doesn’t account for how the system would operate in winter conditions. “This is going to be a truck traffic-sized opening under a glacier for a mile to reach a deposit,” Cohen said, noting nearby Glacier Creek is a major coho salmon rearing stream and insisting the wastewater would reach the Chilkat, treated or not. “Once it starts leaking it’s never going to stop. If they start digging that tunnel they will be setting in motion something that can’t be reversed.” Constantine has dye water tracing tests ongoing in the area and will likely conduct seismic surveys of the Glacier Creek area to better understand the bedrock and soil makeup and how that could impact water flow as well as establishing infrastructure in the mountainous area, according to Mac Veigh. He said it’s too early to tell how much the new water treatment design will differ from the original plan, but added it probably won’t be finished until late this year after the company has been able to digest all of the data it gathers this year, at the earliest. Constantine is also looking at technologies that would allow it to clean the wastewater before it leaves the tunnel, according to Mac Veigh. Elwood Brehmer can be reached at [email protected]

The leaders of a small Australian explorer believe they have continued a trend that is driving two of the largest North Slope prospects in decades. 88 Energy Ltd. has indicated in a series of reports on early test results from the remote Merlin-1 exploration well drilled last month that the company contacted three zones of shallow Nanushuk sands roughly 40 miles south of ConocoPhillips’ Willow prospect. Drilled off of “sparse 2D seismic,” according to 88 Managing Director David Wall, the $12.6 million Merlin well reached a total depth of 5,267 feet and hit potential pay zones between approximately 3,400 feet and 5,100 feet. It is part of the company’s Project Peregrine in the southern portion of the NPR-A adjacent to the legacy Umiat prospect, which 88 Energy also recently acquired. The Nanushuk formation sands encountered by 88 Energy are approximately 500 feet thicker than those hit by ConocoPhillips’ Willow wells, according to the company, and other potential oil and gas-bearing zones were hit as well. Wall said in an April 5 statement that operational challenges prevented the company from collecting hydrocarbon samples in the two most promising Nanushuk zones but the early results already confirm that the Merlin well “has delivered by far the best outcome of any of the five wells drilled by 88 Energy in Alaska over the last six years.” “Particularly encouraging is the apparent presence of oil in a zone that has not previously been targeted in the NPR-A,” Wall said further. “Whilst the potential volumetric size of this zone is not yet known, the formation could be extensive based on initial interpretation.” Other down-hole characteristics show the most prospective sand zones are similar to those found just to the north at the company’s Harrier prospect and will likely be the target for drilling next winter, according to Wall. ConocoPhillips first announced its Nanushuk-based Willow discovery in the northeastern NPR-A in January 2017 based on two wells drilled the previous winter. Italian major Repsol and Denver-based Armstrong Energy partnered to make the initial large Nanushuk find on the North Slope at what is now the Pikka project being advanced by Oil Search Alaska in the years leading up to the Willow discovery. Both Willow and Pikka are multibillion-dollar projects each with the ability to produce more than 100,000 barrels of oil per day, according to the operators, and they have led to other smaller Nanushuk-sourced prospects nearby. Geologist and wildcatter Bill Armstrong has repeatedly said to the Journal that he believes the shallow and long-overlooked Nanushuk plays are prolific across much of the western North Slope, a prediction that appears to be bearing out. 88 Energy holds more approximately 210,000 acres on the North Slope mostly around the edges of other industry activity. The company’s Icewine project is located south of Prudhoe Bay near the Dalton Highway in an area being worked by several other small explorers. Company leaders said in a March 30 statement that 88 Energy has plugged and abandoned two of the legacy Umiat wells for roughly $1 million, thus satisfying the conditions of the purchase made in early January from Malamute Energy Inc. and Renaissance Umiat LLC. The Umiat prospect was first drilled in the mid-1940s and holds a proven and probable resource estimated at roughly 124 million barrels of oil largely in the Nanushuk sandstones, according to 88 Energy. Umiat has never been developed despite being known for many decades because of its remote location and relative small size compared to most other North Slope oil developments. 88 Energy is subsequently undertaking a full field review to determine what market conditions are needed to finally develop the Umiat prospect, according to a company statement. Elwood Brehmer can be reached at [email protected]

The Alaska Railroad felt the brunt of 2020 on multiple fronts, ultimately absorbing its largest loss in decades, according to its annual report published April 2. Sharp reductions in both the state-owned railroad’s passenger and freight businesses led directly to a $7.8 million net loss last year following three years of annual profits in the $20 million range. The railroad’s ridership fell by 94 percent in 2020 to just more than 32,000 passengers after years of consistent growth that put annual ridership at more than 500,000 passengers. Much of the growth in passenger service was the result of cruise companies contracting with the railroad to pull their passenger cars on various tour trains between Seward and Fairbanks; however, pandemic restrictions issued by the Centers for Disease Control last spring prohibited any large cruise sailings last year. Passenger service revenue fell similarly from nearly $40 million in 2019 to just $3.3 million last year. The prospect for this year’s large ship Alaska cruise season also remains muddied as the CDC issued guidance April 2 for the second phase of a gradual, five-step process for large cruise companies to resume domestic sailings. The Canadian government’s continued ban on large cruise ships at its ports this year also indirectly hurt the chances for traditional Pacific Northwest-to-Alaska cruises because of an antiquated U.S. law that requires foreign-built passenger vessels to stop at a foreign port on trips between domestic ports. Despite all that, Alaska Railroad Corp. CEO Bill O’Leary said that he believes the time railroad officials have had to plan this year’s schedule, which is still scaled back from recent norms, will lead to improved operating costs and a schedule that better matches demand compared to 2020. Railroad officials were “scrambling” last year to salvage summer passenger service that did not start summer service until July 1, O’Leary acknowledged; this year the usually popular summer trains will start running in early June. The railroad has also partnered with Alaska Airlines on a promotion to attract passengers with discounted rail and plane tickets. “Demand is not 2019, that’s for sure, but it’s certainly looking better than what we saw last year,” he said in an interview. The 2020 hit to the Alaska Railroad’s flagship freight service came in the form of a roughly 25 percent reduction in tonnage to 2.6 million tons and a 14 percent year-over-year loss in revenue, from $85.3 million to $73.6 million, according to the annual report. It all led to an operating loss of $18.3 million that was partly offset by the railroad’s real estate holdings, which netted $10.4 million last year. The railroad’s total revenue decreased by nearly 27 percent last year to $150.7 million. Railroad leaders expect to generate approximately $4.2 million in revenue from passenger service and $75 million from freight service this year, and the railroad’s overall net financial position is forecast to improve by approximately 0.2 percent, or about $700,000 this year. O’Leary said those budget projections made last fall appear to be holding close to accurate even with all the closely tied and economic and public health uncertainties still clouding the near-term, particularly on the freight side where North Slope oil activity is ramping back up. “Dozens” of capital projects planned for last year were put on-hold when the full severity of the pandemic became clear, according to the report, and much of the capital work this year will be funded with $94 million in federal CARES Act relief the railroad received as a public transportation provider. Alaska Railroad officials also expect to receive some level of funding via the $1.9 trillion American Rescue Plan signed by President Joe Biden last month “but it won’t be anything near the $94 million,” O’Leary noted. The 2021 capital plan calls for $66.5 million worth of projects, with CARES grants covering $20.4 million of that, according to the report. The Alaska Railroad ended 2020 with $32 million in cash, down more than $50 million from the end of 2019, but O’Leary said he believes the corporation is still in a solid financial position with $99 million in total current assets at the end of last year. “We came into this thing with a strong balance sheet — very good liquidity. It’s not as strong a balance sheet as we’re heading into the meat of 2021 but we’re comfortable with where we’re at,” he said. All told, he expects the Alaska Railroad to have much smoother 2021 as long as the late spring and plentiful snow across much of the southern half of the state doesn’t lead to widespread flooding and unexpected track repairs. “We’re looking forward to a better 2021 and a lot of that is going to be how the passenger season plays out,” O’Leary said. Elwood Brehmer can be reached at [email protected]