Elwood Brehmer

Sub-500: TAPS throughput drops in 2019

Measured on the state calendar, Alaska North Slope oil production is about to be at its lowest level since the first days after startup of the Trans-Alaska Pipeline System. North Slope crude production averaged 499,103 barrels per day through June 24 for the 2019 state fiscal year, which ends June 30. The last time North Slope wells pumped that little oil was 1977 when oil first started flowing through TAPS in late June; production averaged 10,500 barrels per day in 1977, according to Revenue Department figures. It jumped to 789,600 barrels per day in 1978 and peaked at 2.1 million per day in 1988. Daily North Slope production dipped to about 501,000 barrels per day in 2015 but that was followed by two years of increases, which were celebrated by industry and state officials, as it was the first instance of production growth on the North Slope since 2002. The 499,103-barrel average for 2019 is unlikely to improve much in the last days of the month as the combination of warm weather and scheduled maintenance makes summer the least productive season for companies on the Slope. State production analysts in the Department of Natural Resources expected the average daily throughput to decline in their latest projection, but not this much. The Spring 2019 Revenue Forecast released in March pegged fiscal 2019 North Slope production at 511,460 barrels per day. Actual production has been off by about 2.4 percent. However, 2019 was originally supposed to be a bounce-back year after unexpected decline in 2018. The 2019 forecast released in December estimated 526,800 barrels of oil per day from the North Slope following the 521,400 barrels produced per day last year. In the end it means North Slope oil production this year will decline a little more than 4 percent instead of increasing about 1 percent as state officials once thought would happen. Alaska Oil and Gas Association CEO Kara Moriarty said the unexpected decline is probably the result of several smaller factors given the complexity and diversity of North Slope operations. She noted that the long-term production trend has improved, from the industry and state’s perspectives, in recent years and the state’s forecasts are often optimistic. “I do know that we are significantly higher than the forecasts of 2012 and 2013,” Moriarty said. In the fall of 2012, state officials expected North Slope production would be about 421,600 barrels per day this year. At that time, the annual decline rate was in the 6 percent range. Last year, state officials surmised the unexpected drop in oil flow could have been from higher than normal winter North Slope temperatures. Warmer weather decreases the efficiency and capacity of compressors used to process the natural gas that comes with the oil on the Slope, and thus has an impact on how much oil can be produced. BP Prudhoe Bay Production Manager Jennifer Starck said last January actually produced some record cold temperatures at the iconic oil field, but noted that March was warmer than usual. Last March is believed to be the warmest March on record across Alaska. “We live with the natural ambients,” Starck said. Currently, Prudhoe Bay is producing a calendar year 2019 average of about 275,000 barrels per day compared to about 279,000 barrels per day a year ago, Starck said. She added that BP currently has two drilling rigs working at Prudhoe and the company is also “working over” old wells. It also conducted a 3-D seismic shoot over the entire field this winter and believes it can recover another billion barrels from the basin. While the company does what it can to buck production trends for mature fields, she stressed that production from nearly all oil fields starts naturally declines — and Prudhoe is more than 40 years old. Hilcorp Alaska officials did not respond to questions in time for this story, but Moriarty and acting state Division of Oil and Gas Director Beckham also pointed out that Hilcorp’s Moose Pad development in the Milne Point Unit was originally slated to start producing in last fall, but didn’t come online several months later. The $400 million project is now producing about 7,000 barrels per day, according to AOGA and Hilcorp leaders have said it should peak at 16,000 to 18,000 barrels per day. ConocoPhillips’ Greater Mooses Tooth-1 project in the National Petroleum Reserve-Alaska, which started flowing oil last October, is off to a bit of a slow start as well. The company estimated GMT-1 could produce up to about 30,000 barrels per day at its peak; three wells are currently producing about 11,500 barrels per day. ConocoPhillips Alaska spokeswoman Natalie Lowman wrote via email that the company’s estimates are usually a mid-range figure of what a project could produce and the smaller projects generally see more variability because production is dependent upon fewer wells. As a counter to GMT-1, she noted that the company’s nearby CD-5 development, which started in late 2015, was first estimated to produce about 16,000 barrels per day but actual production has been more than double that. Monthly production from ConocoPhillips’ large and aging Kuparuk River field has also been roughly 6,000 to 8,000 barrels per day less than last year, according to Department of Revenue figures. Beckham said he had noticed the daily production totals for 2019 were approaching 500,000 barrels, but said he thinks focusing on the exact number is a bit unnecessary. “For years, for whatever reason, that 500,000-barrel level has been somewhat of a benchmark and it’s an arbitrary number but we do have concerns about low-flow in the pipeline, although I think Alyeska (Pipeline Service Co.) has most of those covered,” Beckham said. “I think the optic is more impactful than the actual volume but I do expect that we’ll have more production online this year and as other years come up.” Alyeska officials have said TAPS should run smoothly as currently designed down to production levels of about 300,000 barrels per day. Brooks Range Petroleum Corp. is expected to start its small Mustang field near Kuparuk this summer, among other work. Longer term, ConocoPhillips’ Willow, Oil Search’s Nanushuk and Hilcorp’s Liberty projects could collectively add nearly 300,000 barrels per day of production to the Slope over the next five-plus years. The Liberty and Nanushuk projects have federal approval and ConocoPhillips is currently in the process of permitting Willow with a final environmental impact statement scheduled to be issued in 2020. ^ Elwood Brehmer can be reached at [email protected]

Back from China, AGDC officials await draft environmental report

Alaska gasline officials are preparing for the long-awaited first draft of the $43 billion Alaska LNG Project’s environmental review after returning from an overseas trip to update potential LNG customers and investors on the latest plans for the project. Alaska Gasline Development Corp. officials expect the Federal Energy Regulatory Commission, which oversees the domestic LNG industry, to publish a roughly 4,000-page draft Alaska LNG environmental impact statement June 28, the last working day of the month. Interim AGDC President Joe Dubler said during a June 20 board meeting that leaders of the state-owned corporation and members of Gov. Michael J. Dunleavy’s administration had productive discussions with senior development representatives from national Chinese companies that are potential participants in several aspects of Alaska LNG on a trip to Asia earlier this month. Dubler and AGDC commercial staff traveled to Beijing and Bangkok, Thailand, from June 10-18. They were joined on part of the trip by Brett Huber, a senior policy advisor to Dunleavy as well as Department of Natural Resources Commissioner Corri Feige and Revenue Commissioner Bruce Tangeman. Dunleavy has long been critical of former Gov. Bill Walker’s plan for a state-led Alaska LNG Project. He made it clear soon after being elected last fall that his administration would slow the pace of the project and try to bring the major oil companies back into the fold. Officials from Chinese oil and gas giant Sinopec Corp., the Bank of China and China Investment Corp. recognize the benefit of focusing on the regulatory and permitting progress for Alaska LNG as a means to de-risk the project for possible future investments, Dubler said. The state-owned oil and financial companies signed a nonbinding joint development agreement with AGDC in November 2017 to advance the prospect of financing up to 75 percent of the project in exchange up to 75 percent of the LNG it produces. At the time, Walker and AGDC leaders were pushing hard to make a final investment decision on Alaska LNG in 2020, shortly after the state would receive a presumably favorable permitting decision from FERC, to capture demand opportunities in the rapidly expanding global LNG trade. “The message was very well received from (the Chinese representatives) that the governor is keeping the project moving with the producers involved,” Dubler said. LNG exports to China have declined dramatically this year after retaliatory tariffs were imposed and increased from 10 percent to 25 percent on June 1. He also stressed that AGDC is no longer pursuing LNG customers or gas supply agreements as the corporation had been under Walker’s plan. Instead, AGDC is refocusing on the “stage-gate” project development process often used by major oil companies to evaluate large projects. The state, BP, ConocoPhillips and ExxonMobil were in between the preliminary front-end engineering and design, or pre-FEED, and the full FEED stage — estimated to cost $1 billion-plus — of development in 2016 when the producers chose to back away from Alaska LNG project because of depressed global oil and LNG prices. The international energy consulting firm Wood Mackenzie concluded at the time that the Alaska LNG Project likely wasn’t economic if developed by Alaska’s major producers, as first envisioned, in part because of the high internal return requirements oil companies typically have. However, a state-led project with federal tax exemptions could be viable, Wood Mackenzie said. The AGDC team also met with officials from Public Company Ltd., known as PTT, Thailand’s national oil and gas company to maintain the relationship, according to Dubler. AGDC signed nonbinding, early-stage agreements with approximately 15 potential Asia-Pacific Alaska LNG customers and investors from 2016-2018 under Dubler’s predecessor Keith Meyer, according to corporation officials. Revenue Commissioner Tangeman, a former AGDC finance official, said meetings with the Chinese companies went very well. The primary message from the Alaskans was that the Dunleavy administration is still interested in monetizing North Slope natural gas through an LNG export project, he said, adding that the recent support from BP and ExxonMobil provided the Chinese representatives “a lot of comfort.” “We’re not interested in doing this (LNG project) at any cost,” Tangeman said in a brief interview. “I think the previous administration’s hurdle was much lower.” The North Slope producer companies own the lion’s share of the roughly 35 trillion cubic-foot gas resource that would feed the project and both have been providing technical assistance to AGDC since March; BP’s assistance goes back to 2017. On May 30, Lt. Gov. Kevin Meyer announced BP and ExxonMobil had agreed to contribute up $10 million apiece to help the state pay for completing the FERC licensing process. AGDC leaders expect that will cost roughly $30 million over the next year or more. The AGDC board approved $20 million in expenditures over the next year to advance the project EIS, which should be finished next June, according to FERC documents. Dubler noted during the meeting that through April 30 AGDC was operating at 9 percent below its $10.3 million budget for the 2019 fiscal year, which ends June 30. Among other things, the corporation gave up its 6th floor boardroom and some office space in the Midtown Anchorage Calais office building it occupies. The June 20 board meeting was the first held in public meeting rooms at the state Atwood Building in Downtown Anchorage and was hampered by technical difficulties. Overall 2019 spending — including corporate operations and Alaska LNG-specific project expenses — is down about $5 million, according to Dubler, who said those cost reductions will continue into 2020. Elwood Brehmer can be reached at [email protected]

ConocoPhillips buys North Slope Nuna prospect from Caelus

A North Slope oil prospect is changing hands in a deal that appears to be another step out of Alaska for a small independent oil company. ConocoPhillips Alaska announced June 17 that it has agreed to purchase 100 percent of the mid-sized Nuna project from Dallas-based Caelus Energy. “This transaction represents an attractive addition to our expanding North Slope position and will allow ConocoPhillips to cost-effectively develop Nuna utilizing Kuparuk River Unit infrastructure. “We believe this acquisition could lead to more oil production, more revenue for the state and more jobs for Alaskans,” ConocoPhillips Alaska President Joe Marushack said in a formal statement. ConocoPhillips officials declined to disclose the terms of the sale. Caelus representatives referred questions about the deal to ConocoPhillips. The Nuna sale marks the second asset Caelus has sold this year. Italian oil major Eni announced in early January that it would acquire Caelus’ 70 percent operator stake in the small Oooguruk field. The company still holds the potentially multibillion-barrel Smith Bay oil prospect discovered in 2016 in remote state waters adjacent to the National Petroleum Reserve-Alaska, but work to appraise and advance Smith Bay has largely been shelved. For ConocoPhillips, the Nuna acquisition is the latest in a series of moves to grow the company’s already large presence on the North Slope. ConocoPhillips purchased all of Anadarko Petroleum Corp.’s North Slope assets for $400 million. The companies had been partners in western Slope exploration and development work, with Anadarko holding a silent minority share in those projects. In December ConocoPhillips also closed a deal to ostensibly swap BP’s 39 percent interest in the large Kuparuk River field for a portion of its interest in the British Clair oil field. ConocoPhillips has also been an aggressive player in recent federal NPR-A lease sales. Development of the Nuna prospect has been subject to fits and starts since Pioneer Natural Resources discovered it in 2012. Pioneer sold Nuna to Caelus in 2014 as part of a larger $550 million deal for all of Pioneer’s Alaska assets. Caelus CEO Jim Mussleman said at the time that the company planned to drill roughly 30 wells at Nuna to produce between 20,000 and 25,000 barrels of oil per day from more than 100 million barrels of reserves. First production was expected in late 2016 for the development pegged at roughly $1.5 billion. Nuna currently consists of a 22-acre gravel pad and road and several exploration and appraisal wells. Caelus subsequently asked for and in January 2015 received a reduction in the oil royalty rate for Nuna from 12.5 percent to 5 percent from the state Department of Natural Resources to improve the economics of the prospect. The state oil royalty modification required the company had to quickly sanction the project and start oil production by October 2017. However, the combination of sustained low oil prices and former Gov. Bill Walker’s decision in June 2015 to veto a portion of refundable state tax credits for oil project development in response to a nearly $4 billion state budget deficit — also the result of fallen oil prices — pushed Caelus to delay work on Nuna. Caelus’ March 2016 request to extend the special royalty terms was denied by then-Division of Oil and Gas director and current DNR Commissioner Corri Feige. Company leaders have said Caelus was once owed more than $100 million in tax credits by the state. The aim of the now defunct tax credit program was to encourage more small independent operators, such as Caelus, to work in Alaska’s oil and gas basins. Elwood Brehmer can be reached at [email protected]

B2B meetings give Alaska producers international exposure

Canadian food brokers and marketers recently gave a handful of Alaska startups a taste of what it would take to go international with their products in a first of its kind trade mission. Lyndsey Smith, a marketing coordinator with the state Division of Agriculture who helped organize the business-to-business meetings, said the goal of state officials is simply to help retail-ready Alaska food products gain exposure in a new market. “We are helping build relationships for local Alaska and Made in Alaska businesses to be able to strengthen a secondary market,” Smith said. The initial round of speed-dating style introductions took place the mornings of June 13-14 at the Grand View Inn in Wasilla. Brokers and marketers from across Canada discussed products, market opportunities and challenges with representatives from five Alaska brands in a series of half-hour, one-on-one meetings. The seven-member Canadian contingent then spent the afternoons touring retailers and farms in Anchorage and the Mat-Su area. Pola Schacter Ley of Vancouver said she came to the meetings with the hope of finding natural food products made from as many local ingredients as possible — and she found what she was looking for. “We’re really focused on plant-based; we’re really focused on vegan, clean ingredients and simple and traditional,” said Schacter Ley. She is not opposed to working with meat or protein-based products; however, they require adhering to a much more complex set of regulations when being sent across the border, she noted. A chef by trade, Schacter Ley said she enjoys working with food producers to find ways to tweak or add value to their products or develop new recipes with them. “I’m open to innovative ideas, always,” she said. Schacter Ley and her husband work with a variety of retailers from large “banner” stores to independent grocers, convenience chains and food service providers. The size of the producer company doesn’t matter as much as its backing, she said. Companies need to be on a positive trajectory and have substantial support to enter a new market. “If the company is small and they can’t supply, let’s say a large banner store, that doesn’t mean I’m not going to work with them. We circle around them with independents,” Schacter Ley said, adding that niche products are often a better in smaller retailers willing to try new products. Selling into large chains also comes with listing fees and other costs smaller stores don’t require, she noted. The meetings were set up through Alaska’s membership in the Western United States Agriculture Trade Association, which helped link the Canadian buyers and marketers with the nine Alaska companies looking to grow. “We are excited to offer these meetings to encourage innovative strategies to expand opportunities for Alaska’s agricultural businesses,” Agriculture Division Director David Schade said. “Leveraging our partnership with WUSATA to help agribusinesses find new markets, including international markets, is one of the many important services we provide to private-sector businesses.” Similar meetings are in the works for August to highlight the state’s booming peony and cut-flower industry. Schacter Ley recommended that the Alaska startups trying to enter a new market such as Canada find additional ways to get their products in front of more sellers, such as committing to trade shows and using social media campaigns. “Nowadays you can’t just work with a store. It takes a lot more,” she said. The trade mission didn’t come with a big set of expectations, either. Schacter Ley said she was happy providing advice and perspective from another market for the Alaska companies and making a single connection during the meetings would make the whole trip a success. She and other brokers from New Brunswick and Alberta said they believe Alaska-sourced products have a similar draw in Canada as they do elsewhere, despite the fact that the country and state share many features. “Vancouver loves Alaska,” Schacter Ley said. “It’s got that raw, rugged beauty and I think B.C. has a bit of that same vibe.” Angele Miller, with Edmonton, Alberta-based Abundant By Design Inc., said she believes many Canadian consumers are comfortable with the slightly higher price point that often comes with Alaska-sourced foods because Alaska is seen as “mysterious” and “pure and clean.” “I think people will pay more for Alaska products than if it came from (the Lower 48),” Miller said. Both Miller and Schacter Ley were impressed by Heather’s Choice, an Anchorage-based dehydrated food startup — think backpacking meals with Alaska ingredients. Sales representative Zach Menzel said all of the eight Heather’s Choice breakfast and general meal options are hypoallergenic; they’re free of gluten, dairy, soy and corn. The meals are based on Prince William Sound sockeye, grass-fed bison from Delta Junction and other Alaska-grown foods. The dehydrated meals have a shorter shelf life than traditional freeze-dried camp foods, “but higher quality ingredients — things a five-year-old could pronounce,” Menzel described. “There’s no preservatives, no artificial ingredients, no flavoring agents, nothing like that. Everything is just whole food dehydrated in our kitchen in Anchorage.” Heather’s Choice products are in about 20 Western states and several Alaska outdoor retailers, despite the company being just five years old, according to Menzel. “We’re just trying to aggressively grow this thing,” he said. ^ Elwood Brehmer can be reached at [email protected]

Alaska senators gain support on transboundary mining issues

Senators from the Western U.S. are joining the Alaska congressional delegation to press the issue of Canadian mining practices in transboundary watersheds . The bipartisan group of six senators — Mike Crapo, R-Idaho; Jim Risch, R-Idaho; Jon Tester, D-Mont.; Steve Daines, R-Mont.; Maria Cantwell, D-Wash.; and Patty Murray, D-Wash. — sent a letter along with Alaska Sens. Lisa Murkowski and Dan Sullivan June 13 to British Columbia Premier John Horgan highlighting the steps states and the federal government have taken to monitor transboundary rivers and what they want provincial officials to do in return. They were compelled to send the correspondence because there weren’t enough delegates to the International Joint Commission from either country to hold its biannual meeting in April, according to the letter. IJC spokeswoman Sally Cole-Misch said it took roughly a year for President Donald Trump’s three appointees to the commission to be confirmed by the Senate and Canadian Prime Minister Justin Trudeau appointed three new Canadian commissioners as soon as the terms of those appointed by his predecessor were completed. The panel of six new IJC commissioners was sworn in May 17. The Boundary Waters Treaty with Canada established the IJC in 1909 specifically to settle disputes over watersheds that cross or comprise the international border. For years, members of the Alaska congressional delegation have been asking provincial leaders, and domestically, State Department officials, to address potential water quality problems from large hard rock mines at the upper reaches of transboundary watersheds in British Columbia; this is the first time senators from other border states have formally joined them. In the Lower 48, transboundary concerns have centered on Canadian coal mines. While numerous Alaska environmental, commercial fishing and Alaska Native groups have called for IJC involvement to provide further protection for Alaska salmon fisheries downstream from mining activity, the commission can only be spurred by a formal call from either the State Department or Canada’s Global Affairs Department. Attempts by the Alaska delegation to get former Secretary of State John Kerry to review Alaska’s concerns regarding Canadian mining activity in transboundary watersheds largely proved unfruitful. Concerns over the British Columbia mine permitting process were heightened after the 2014 Mount Polley mine tailings dam failure. The Mount Polley copper and gold mine is in the upper reaches of the large Fraser River watershed, a major salmon producer for Canada and the U.S. A British Columbia auditor general report concluded the Mount Polley dam breach was the result of inadequate engineering and poor oversight from regulators. The senators’ letter notes that the departments of State, Interior and the Environmental Protection Agency set up a joint working group to determine what could be done to safeguard U.S. economic interests related to the commercial fisheries and tourism enterprises that could be compromised by the impacts from upstream mines. Congress last year approved $1.8 million for Interior Department agencies to spend on improved downstream water quality monitoring systems in transboundary rivers. “While we appreciate Canada’s engagement to date, we remain concerned about the lack of oversight of Canadian mining projects near multiple transboundary rivers that originate in B.C. and flow into our four U.S. states,” the senators wrote to Premier Horgan. “To address these concerns, we have taken steps in partnership with our federal and state governments to improve water quality monitoring and push for constructive engagement with Canada. “In sharing an update on our efforts, we hope to encourage you, in your role as Premier, to allocate similar attention, engagement, and resources to collaborative management of our shared transboundary watersheds.” Alaska Tribes and conservation groups insist a host of mines proposed in the Canadian portions of large salmon-bearing transboundary rivers that flow into Southeast Alaska, such as the Stikine and Unuk, could degrade water quality and endanger those fisheries. They also contend Canadian bonding requirements for mining companies are inadequate. “This is a multi-state, international problem for which we need a multi-state, international solution,” United Fishermen of Alaska Executive Director Frances Leach wrote in a formal statement following the release of the senators’ letter. “Right now B.C.’s massive open-pit mines and waste dumps put some of Alaska and B.C.’s most important salmon rivers, and the fishing jobs that rely on them, at risk. Alaska fishermen and the thousands of people across the world who enjoy wild salmon expect and deserve better from B.C regulators.” Former British Columbia Minister of Energy and Mines Bill Bennett said in a prior interview with the Journal that the provincial and federal Canadian governments have environmental protection requirements for mines on par with the U.S. and Alaskans’ concerns come from a lack of adequate communication between the governments on the issue. Bennett is now a director for the British Columbia-based mining exploration firm Eagle Plains Resources Ltd. The Alaska delegation specifically has asked provincial environmental regulators to provide State of Alaska officials, tribes and Alaska Native corporations a formal consultation process during mine permit reviews. In November 2015 former Gov. Bill Walker and then British Columbia Premier Christy Clark signed a memorandum of understanding to create a transboundary Bilateral Working Group to facilitate the exchange of best practices, marine safety, workforce development, transportation links and joint visitor industry promotion. Bennett said at the time that the MOU represented a significant change in how the state and province interact. Last November British Columbia mine regulators began the process of seeking firms to clean up acid rock leakage from the Tulsequah Chief mine in the Taku River drainage east of Juneau. State officials contend the multi-metal mine that operated for just six years has been leaking acid wastewater into the Tulsequah River, which feeds the Taku, since it was closed in 1957. ^ Elwood Brehmer can be reached at [email protected]

Report: US needs more domestic sources for critical minerals

Filling the country’s domestic deficit of numerous minerals and metals has been a priority of the Trump administration, which on June 4 released a plan for addressing what it considers to be a national security issue. The Commerce Department report, entitled, “A Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals” lays out the ways in which the administration believes the U.S. can improve domestic control over 31 of the 35 often hard to pronounce minerals designated as “critical” in a May 2018 Interior Department report. Interior’s critical minerals list notes that the country imports more than 50 percent of its supply of 31 minerals and relies completely on outside sources for 14 of those, including graphite and many minerals that are essential for modern energy storage and advanced technologies. For several years, the U.S. imported all of its rare earth elements — used in very small quantities in many electronic devices from smartphones to components for fighter jets — until the Mountain Pass rare earths mine in southern California reopened last year. The Interior Department also highlights the fact that China is the country’s primary source for many of the minerals it imports, which provides leverage to a government the administration is now at odds with over trade issues. The reports were compiled following a December 2017 Executive Order signed by President Donald Trump directing the Agriculture, Commerce, Defense, Energy and Interior departments to prioritize addressing the nation’s critical mineral situation. Among the priorities in the critical minerals strategy is a push for federal agencies to thoroughly assess the country’s resources for the various imported minerals and for specifically the Forest Service and the Bureau of Land Management to reform their land-use planning methods to protect access to those resources. BLM oversees 245 million acres of federal land — about 10 percent of the country — and subsurface mineral rights to roughly 700 million acres. According to the bureau, BLM-controlled lands hold approximately 30 percent of the nation’s minerals. The Forest Service manages nearly 193 million acres. The report states that many mineral deposits cannot be developed because of existing land withdrawals, reservations or other land-use restrictions. It notes that those designations can serve useful purposes for everything from wildlife protection to military use, but recommends the Forest Service and BLM coordinate with the U.S. Geological Survey along with state and Tribal governments and mining industry representatives to evaluate areas with use restrictions for mineral resources. “Any (mineral resource) analysis performed should quantify and qualify the economic and national security implications of: reducing the size of an existing withdrawal, reducing the area affected by a land-use designation, changing planning allocations, or revoking an existing withdrawal,” the report states. It further emphasizes a desire to prioritize reviews of withdrawn areas based on the potential for discoveries of critical minerals. Sen. Lisa Murkowski, who chairs the Energy and Natural Resources Committee, said she welcomed the strategy report in a statement from her office. “(The report) provides clear direction on how to reduce our reliance on foreign minerals and thereby strengthen our economy and national security. I urge the administration to swiftly implement its recommendations, especially those that encourage domestic mineral production and continued research into processing technologies, and will continue my work to compliment these efforts with new legislative authorities,” she said. In May, Murkowski co-sponsored the American Mineral Security Act along with Sen. Dan Sullivan, which, among other things, would require the Interior Department to update a list of critical minerals every three years. The Mineral Security Act would also mandate nationwide assessments for the availability of each mineral on the critical list as well as direct Interior and Forest Service mineral project permitting reforms aimed at reducing the time to reach permit decisions and authorize research for critical mineral recycling or replacement materials. While many policymakers and national security experts regularly raise concerns about the United States’ reliance on China for many of the minerals the country imports — such as graphite, rare earths, bismuth, barite and others — the strategy recommends strengthening trade ties with current geopolitical partners and allied countries that could be preferable sources for some minerals. Bokan rare earths Alaska is rich in many minerals and a deposit near the southern tip of the state has the potential to be a significant domestic source of rare earth elements. The Bokan Mountain rare earth underground mine prospect near tidewater on southern Prince of Wales Island holds more than 4.7 million metric tons of indicated rare earth ore, according to a 2015 resource assessment by Nova Scotia-based Ucore Rare Metals Inc., the company working on the project. That translates to approximately 63.5 million pounds of collective rare earth metals. However, Ucore has shifted its attention away from advancing the mine since 2015 following a drastic fall in global rare earth prices. Instead, the company has focused on developing a small mineral processing facility in nearby Ketchikan by late 2020. Ucore leaders have discussed the prospect of financing at least part of the estimated $25 million strategic minerals complex through the state-owned Alaska Industrial Development and Export Authority. The Alaska Legislature in 2014 authorized AIDEA to issue up to $145 million in bonds to help finance the Bokan mine project, which the company estimated in 2013 would cost $221 million to develop. Ucore CEO Jim McKenzie said recent U.S.-China trade tensions have highlighted the importance of addressing domestic mineral supply issues and have recently boosted prices particularly for heavy rare earth elements. 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 plethora of applications including LED displays. Heavy rare earths account for roughly 40 percent of the mineralization at Bokan, according to Ucore. “The Bokan deposit is unique in the U.S., with its unusual skew towards these valuable (heavy rare earth elements). Bokan is also unique in its ease of access, its limited projected development cost, and its significant financial backing by the State of Alaska,” McKenzie said in a formal statement. “We applaud the Trump administration for identifying these critical resources and streamlining their route to production.” Ucore officials declined to comment on the progress of the Ketchikan processing facility because of Utah and Nova Scotia court battles the company is in with Utah-based IBC Advanced Technologies, a metal processing technology company Ucore had entered into a joint-venture agreement with. The companies are now in litigation over that agreement. Ucore Vice President Randy MacGillivray did write via email that the company completed drilling and resource assessment work in 2014 and is satisfied with the results of the 2013 preliminary economic assessment of the Bokan project. Once Ucore officials decide to move ahead with the mine, they expect it will require two-plus years of permitting before construction can begin, according to MacGillivray. ^ Elwood Brehmer can be reached at [email protected]

Alaska becomes a ‘First Frontier’ for 5G

GCI is partnering with global telecom giant Ericsson to make Anchorage among the first cities worldwide to have a standards-based 5G data network. The leaders of the Alaska- and Sweden-based companies made the announcement June 18 during a project unveiling at Alaska Pacific University. The transformation to a 5G network will be “one of the biggest initiatives in GCI’s history,” CEO Ron Duncan said. “The result will be a wireline-wireless experience that will provide our customers nearly ubiquitous data connectivity across the city,” Duncan said. GCI has worked with Ericsson for roughly a decade; the companies also partnered on the recently completed TERRA project, which offers fiber-based high-speed broadband internet to more than 80 Western Alaska communities. Ericsson CEO Börje Ekholm said GCI is joining “an elite group of operators” in being one of the first to launch a true 5G network. “Maybe it’s time to rephrase and not call Alaska the Last Frontier, but the ‘First Frontier,’” Ekholm said. The roughly $30 million project will increase Anchorage’s wireless data capacity by 10-fold and will make Anchorage the 22nd city worldwide to utilize Ericsson’s 5G technology, through GCI’s network, according to Duncan. Ericsson is a telecommunications technology developer that sells network infrastructure and software to telecom retailers and others. About 40 percent of the world’s mobile phone traffic occurs through an Ericsson network, according to the company. 5G is a term used for the fifth generation of wireless networks. The speed and capacity of 5G networks will make such data networks increasingly critical infrastructure, Ekholm said, comparing them to bridges, roads and airports, while acknowledging that it’s still unknown what uses others will come up with for the faster networks. He noted that developers did not consider mobile phone e-commerce or banking when building 4G networks. Supporting artificial intelligence, autonomous cars and “smart city” infrastructure were some of the things 5G networks could be utilized for, the men surmised. “What we know is that 10-times speed, 10-times lower latency, 100-times more connected devices per surface area — we will offer a lot of innovation,” Ekholm said. He estimated there will be roughly 1.9 billion 5G subscriptions globally by 2024. Duncan said he expects the Anchorage project to be done by the end of next year, with the first 5G being available in parts of the city early next year. The work will involve installing Ericsson’s standards-based 5G New Radio equipment and software at 82 cell tower sites across the city, according to GCI. Those towers will work in conjunction with “microcells” — through wireline connections in buildings and elsewhere — across the city to fully form the new network, Duncan explained. He said it’s unclear when the company might expand 5G coverage to other parts of the state. Ekholm added partnering with GCI allows Ericsson to test its products in and get feedback from one of the northernmost markets in the world with a harsh climate. Anchorage Mayor Ethan Berkowitz said GCI’s work will help make the city a more competitive place to attract new people and businesses and retain existing ones. “We live in a time of rapid acceleration where we are more connected than ever before, where things are moving more quickly than they ever have in the past. Unless we are on the cutting edge, we will be left behind,” Berkowitz said. For the Municipality of Anchorage, a faster, higher-capacity mobile network will help the city better deploy resources, such as police, monitor more of its assets in real-time and generally operate more efficiently, according to Berkowitz. “I know that GCI is one of our largest taxpayers; Ron reminds me of that periodically and I am sure that he’s going to appreciate the fact that with 5G we will be able to spend his tax dollars much more efficiently,” he quipped. He said the network would have been immensely helpful while officials were responding to last November’s 7.1 magnitude earthquake. AT&T, GCI’s primary mobile phone competitor, announced last year that Anchorage would be part of its 5G network rollout, which was set to be deployed this year and next. So far, the AT&T has updated its network to 5G Evolution in Anchorage, Bethel and Kusilvak in Western Alaska, which enables customers in those areas with 5G-enabled devices to access faster speeds, spokesman Brent Camara wrote in an email to the Journal. “While we have not yet announced specific plans for 5G cities in Alaska, we continue investing in building the network our customers need today and preparing for the future,” he said. Duncan said in a follow-up media briefing that only AT&T customers in Chicago and a handful of other Lower 48 cities are able to realize the benefits of the new networks. He added that rates for GCI mobile data plans shouldn’t change with the deployment of the 5G network, but noted that more expensive, 5G-capable devices are required to harness the network’s capabilities. Elwood Brehmer can be reached at [email protected]

Without Downtown office, Legislature lacks space for Anchorage special session

With the Legislature at a continued impasse over one of his top priorities, Gov. Michael J. Dunleavy has suggested calling a second special session outside of Juneau to deal with the PFD. The Legislature last held a special session outside of Juneau in 2015 at the former Downtown Anchorage Legislative Information Office building. The $44 million, six-story LIO custom-built for the Legislature in 2014 had adequate space and other amenities to hold floor sessions and committee meetings, said Legislative Affairs Agency Executive Director Jessica Geary, but there were significant sound issues at the time. “(Legislators’) main concerns there were sound quality. The walls were not soundproof and they had some problems with recordings,” Geary said. “If you go back and listen to the floor sessions the record is really lacking — so that was one of the biggest concerns and complaints that came up.” The Legislature eventually abandoned that space in 2016 in response to public pressure over spending to cover the $3.3 million annual lease payments the space required, eventually leading EverBank to foreclose on the owners. Legislators also had an opportunity to purchase the building outright for about $30 million, but former Gov. Bill Walker said he would veto the appropriation if they tried. The building is now occupied by the Anchorage Police Department. As an alternative Anchorage LIO space, lawmakers subsequently purchased a Midtown Anchorage office building from Wells Fargo bank for nearly $11.9 million in 2016. Remodeling the building to better suit lawmakers’ needs has brought the cumulative price for the building to approximately $24 million, according to LAA records. Geary said work on the building is ongoing this summer and should be done in August. While the new Anchorage LIO has three committee meeting rooms, it lacks space for the full House and Senate to meet and therefore still won’t be suitable for a special session, according to Geary. “It’s just office space; that’s all it is,” she said. The governor, who hosted a “Restore the PFD” rally June 6 at a Wasilla resort, specifically proposed holding a session at the Wasilla Middle School, where it’s presumed legislators would hear from more Alaskans who support full PFD payments and the governor’s plan for steep spending cuts. However, officials in the Legislative Affairs Agency, which handles business and behind-the-scenes operations for the Legislature, drafted a list at the behest of legislative leaders outlining the complicating issues with holding the session in the school. The agency cited concerns with security, IT networks, a lack of audio and video recording capabilities for committee meetings and floor sessions, and the fact that the governor’s office would control the camera system in the school, which LAA officials concluded “is not appropriate.” “The governor should not have access to security cameras over Legislative space,” the LAA paper states. The most workable places for a special session in Southcentral would be Anchorage’s Egan or Dena’ina convention centers, Geary said. “We could hold floor sessions there. It would take work to get that set up but it is doable because legislators will have their offices and then committee rooms at the LIO,” she added.

Southwest village prepares to harness river in harmony with salmon

A small Southwest Alaska village is trying to integrate the power of an iconic Alaska river into its electric grid without interfering with the millions of salmon that rely on the same water. The Village of Igiugig and Maine-based Ocean Renewable Power Co. are in the midst of a years-long partnership to refine and eventually utilize the company’s RivGen Power System generator in the Kvichak River. The village of about 70 residents sits at the outlet of Iliamna Lake — Alaska’s largest — which feeds the Kvichak that flows another 50 or so miles before emptying into Bristol Bay. The clear waters of the system support some of the largest salmon runs on Earth. Somewhere between 3 million and 7 million sockeye and countless numbers of other salmon pass by Igiugig each year on their way upriver to spawning grounds in Iliamna’s myriad of tributaries. However, the remote location that affords residents the opportunity to live in such a unique ecosystem also comes at a cost that many rural Alaskans are familiar with. Diesel fuel, which is the primary fuel source for power generation, averaged $5.85 cents per gallon last year in Igiugig, according figures compiled by the Alaska Energy Authority. Acting Igiugig Administrator Karl Hill said that fuel is flown into the village in batches of about 3,000 gallons. Those costs translate into residential electrical rates regularly in excess of 90 cents per kilowatt-hour, according to AEA, which the state then subsidizes through the Power Cost Equalization Program to a more manageable effective household rate of around 30 cents per kilowatt-hour. For comparison, recent electric rates in Anchorage were 18 to 20 cents per kilowatt-hour. Power for businesses and most public buildings is not eligible for the PCE funding, which makes the cost of power a major impediment to economic growth across much of Alaska. “We’re looking for any way we can to be more self-sufficient. To have the means to produce our own energy gives us that much more autonomy,” Hill said of the RivGen System. A 35-kilowatt RivGen system, which is 12 feet tall and about 40 feet wide, landed in Igiugig June 6 after being barged across Cook Inlet from Homer to Williamsport, trucked 15 miles up the Williamsport Road to Pile Bay at the east end of Iliamna and finally loaded on a second barge for the final leg of the journey across the length of the massive lake. That followed a May 23 order from the Federal Energy Regulatory Commission that approved a license for a pilot project to run two RivGen units in the Kvichak for 10 years. Sen. Lisa Murkowski, who chairs the Senate Energy and Natural Resources Committee, has supported federal research and grant programs to advance small-scale renewable energy production and integration into small, isolated power grids. According to her office, the Igiugig Village Council is the first Tribal entity in the country to gain federal approval for an in-river power project. “I am so pleased this project will be able to move forward, reducing local diesel consumption and energy prices. Igiugig’s efforts are blazing a trail for marine renewable energy and microgrid solutions around the world — when we prove these technologies can work in rural Alaska, we are proving they can work just about anywhere else on the planet,” Murkowski said in a June 5 statement. According to the FERC license, the single RivGen can produce power at an average annual cost of 78 cents per kilowatt-hour. Company and village officials plan to install the RivGen soon and operate it for up to a year, ORPC project manager Monty Worthington said in an interview from Anchorage just a couple days before he was to leave the city for a summer of working on the system. The lengthy test should prove whether the system can handle its two biggest remaining challenges: big chunks of ice and tiny salmon. Prior late-summer tests of a prototype bottom-dwelling generator indicated through five monitoring cameras that it can coexist with adult salmon and other fish, according to Worthington. “A million-and-a-half sockeye went past the turbines and we saw no adverse impact,” he said. Juvenile salmon, known as smolt, however, also pour out of Iliamna by the tens of millions each spring on their way to the ocean. The sheer numbers of them and the fact that they aren’t as adept as adults at avoiding hazards when in the strong main river current means how the smolt interact with the RivGen unit must be studied closely. As it’s currently designed there is nothing to block fish or other objects from interacting with the RivGen. A large grate to deflect drifting wood or ice could be added, Worthington said, but a screen small enough to deflect smolt would almost certainly disrupt water flow and in-turn the efficiency of the unit. The National Marine Fisheries Service recommended in comments to FERC that the twin-turbine generator be shut down for two weeks during the late May-early June peak of the smolt outmigration. FERC officials are not requiring such a stipulation, but stressed in their order that the interaction be watched closely. Worthington noted that like adult sockeye, the smolt usually stick closer to shore and the surface of the river when on the move. He also compared the leading edge of the five-foot diameter open turbine to a baseball bat, meaning any little fish that swim through it wont get cut by the unit. “They’re better at avoiding than we assume they are and also they just get pushed out of the way by the pressure wave on the front of these (turbines),” Worthington said. Still, a biologist will be on-site continuously during the smolt season to monitor any impacts the RivGen might have on them. “Certainly, if we find out that smolt are getting injured by our device we won’t be operating at that time of year; it’s a no-brainer,” he added. ORPC officials also feel that they will be able to work around ice flows emitting from Iliamna Lake each spring, though the upcoming winter will be the first that the RivGen is in the water. The Kvichak itself is a fairly quick, deep river near the outlet of the lake so it rarely freezes over and the large lake provides unusually stable flows when compared against other large Alaska rivers. Additionally, the chosen installation site is about 15 feet deep, Worthington said, so ice sheets should drift harmlessly over the 12-foot tall RivGen. The site is also immediately downriver from a large shoal that should deflect large chunks of ice. Still, ever more common mid-winter thaws can send ice downriver at unpredictable times and ice jams in a shallow, braided section below the RivGen site could complicate matters, he acknowledged. Keeping the unit in the water and operating year-round is paramount to maximizing the project’s efficiency and driving down its per-kilowatt cost. “It’s a big experiment and we recognize (ice) is probably one of the riskier aspects of the project, but it’s also such an important one,” Worthington said. If it is damaged ORPC will need to devise ways to protect it or pull it from the water easier, he said. If the yearlong test proves successful, the plan is to install a second unit; combined, the two could produce up to 70 kilowatts of electricity and mostly get Igiugig off of diesel-fired power. The village’s powerhouse has 40 kilowatts of generation capacity, according to the FERC license. Village Administrator Hill said the village has plans to purchase large batteries for power storage and is also working with micro-grid developers to better integrate existing small wind turbines into their power system as well. Completely shutting off diesel generation is rarely feasible, as it is needed to mitigate fluctuations in power from variable renewable sources and make up for sudden spikes in demand that — particularly in small isolated communities — can come from a single residence. ORPC believes two fully operable RivGens with the requisite grid upgrades should allow Igiugig to limit its cumulative diesel generation to about four weeks per year, Worthington said. The first unit and several years of shipping, testing and monitoring has been paid in part by federal Department of Energy grants totaling $2.3 million. Those grants required equal private matches for a total project cost of $4.6 million, according to Worthington, who acknowledged it’s a high price for a small village endeavor. “I think they key is this is all a first-build,” he said. “A lot of our construction costs are easily double what even a second unit would be because to build the turbines we had to build molds for them and everything’s sort of like that.” He estimated a second RivGen would cost about $1 million, with costs gradually shrinking for subsequent units. The technology could also eventually be scaled and applied to other river villages and is very applicable to shallow tidal sites near costal communities, he added. Even with another year or two of refinement, Igiugig’s hydrokinetic power project has already been years in the making. ORPC officials first visited the village in 2011 after initially investigating the prospect of testing their technology at the community of Nenana on the banks of the Tanana River south of Fairbanks. Worthington said the appeal of Nenana was that it’s right on the Parks Highway, which would’ve allowed the company to avoid all of the logistical challenges inherent to working in remote Alaska. However, the glacially muddied Tanana didn’t prove cooperative, he said. The dark water made it difficult to monitor fish, debris and even confirm the composition of the river bottom. Meanwhile, Igiugig leaders were starting to seek renewable energy prospects of their own through Alaska Energy Authority programs. “It was clear they really wanted to partner with technology providers to try to do this,” Worthington recalled. “It was an accepting community.” Prototype tests in subsequent years led to development of the latest commercial RivGen model. Hill said the work with ORPC has indeed been a long process, but one that’s necessary to pioneer new technology. “We have a very active village and council — very progressive,” Hill said. “Living next to this wonderful source of power that flows past us 24 hours a day…it’s pretty obvious that if we can harness some of that energy and not harm the salmon and some of the other fish in our area it’s definitely something worthwhile.” Elwood Brehmer can be reached at [email protected]

Southeast metal prospect has major potential

A Southeast Alaska multi-metal prospect has the potential to produce a big payback if developed into a mine largely due to its proximity to established infrastructure, according to an early evaluation of the project. Constantine Metal Resources’ underground Palmer copper-zinc-precious metals prospect north of Haines could generate $266 million in after-tax cash flow despite a projected mine life of just 11 years based on the results of a preliminary economic assessment, or PEA, released by the company June 3. The Palmer project is a joint venture between Vancouver-based Constantine as the majority and Dowa Holdings, a Japanese metal manufacturer. 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. 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. 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 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. Those costs translate to an operating-capital cost of approximately $65 per tonne with operating income of $92 per tonne of ore, according to the PEA figures. Constantine CEO Garfield MacVeigh said in a corporate release that the PEA is a major milestone for the Palmer project and demonstrates “a high-quality project with strong economics and a progressive, environmentally conscious mine design.” Advanced zinc-copper projects such as Palmer with favorable economics are scarce in North America, MacVeigh said. “What sets the Palmer project apart from its peers is excellent access by paved all-season highway and secondary roads, close proximity to an existing Pacific port ore terminal, reasonable and manageable capital costs, significant district-scale upside for additional mineral resources, and a joint venture that includes a global leader in the zinc smelting business,” he said further. Constantine expects the project would support about 260 full-time jobs during operation. Constantine plans to truck copper and zinc concentrates to the Haines port, where the material would be barged about 15 miles to the deepwater ore terminal in nearby Skagway, which is owned by the Alaska Industrial Development and Export Authority. The barite concentrate would be barged separately from Haines to a rail terminal in Prince Rupert, British Columbia, just south of Ketchikan. Barite is an important industrial mineral in drilling mud for oil and gas wells and has other applications in the medical field. Barite from Palmer would be ready for use and not require additional refinement, according to Constantine. The Palmer deposit currently consists of indicated resources of 539 million pounds of zinc at an average grade of 5.3 percent; 154 million pounds of copper at a 1.5 percent average grade; and 1.1 million tonnes of barite along with gold and silver resources. Inferred resources include more than 1 billion pounds of zinc; 124 million pounds of copper; more than 2.6 million tonnes of barite. According to the PEA, zinc would account for 48 percent of the total value of all the concentrates produced from the Palmer project. Constantine touts Palmer as an environmentally sound project largely due to a design that would eventually store potentially acid-generating rock underground — backfilling mined ore — preventing exposure to rainwater and potential acid leaching. Constantine estimates that 78 percent of the mine tailings would be used as backfill. A portion of the potentially acid-generating waste rock would need to be stored above ground early in the mine’s life until space was available to begin the backfilling underground. “Desulfurized tailings,” accounting for about 15 percent of the total processed material, would permanently be stored above ground, according to the company. However, the Palmer project has detractors. The Chilkat Indian Village of Klukwan and several local conservation groups sued the Bureau of Land Management in December 2017 for not adequately considering the potential impacts of future mine development when approving exploration permits for the project. Alaska U.S. District Court Judge Timothy Burgess rejected the claims in a March 15 ruling that has since been appealed to the U.S. 9th Circuit Court of Appeals. Southeast Alaska Conservation Council staff scientist Guy Archibald said in an interview that the group and others oppose the project because of its location — in the upper reaches of a salmon-bearing watershed — and the omnipresent potential for acid leaching from massive sulfide deposits such as Palmer. Archibald said Constantine’s overall plan to permanently store potentially acid-generating tailings underground is a better plan “on paper” than other traditional mine operations, but he also noted “that even the best laid plans quite often go awry.” Elwood Brehmer can be reached at [email protected]

Legislature passes budget, punts PFD to second special session

Legislators have done their part to at least end the threat of a government shutdown by passing a state operating budget, but what Gov. Michael J. Dunleavy will do in response remains to be seen. The House-Senate budget conference committee resumed meetings June 8 after a three-week hiatus when it became clear the issue holding up everything else — the size of this year’s Permanent Fund dividend checks — could not be resolved in the Senate. The House proceeded to quickly pass the nearly $4.4 billion unrestricted general fund operating budget along caucus lines. In the Senate the budget passed unanimously, with minority Democrats approving the budget with $189 million in cuts in lieu of the governor’s plan for more than $1 billion in reductions. While Senate Republicans touted it as the smallest adjusted operating budget the state has had in 15 years, resulting in a $600 million surplus, House minority Republicans called it “bloated” in a caucus statement. House Minority Leader Lance Pruitt, R-Anchorage, was sharply critical of the fact that the budget does not contain a PFD appropriation. “At this point, it is clear that the House Majority is completely unwilling to have the tough, voter-mandated conversations, and plans to dictate to the people what will happen with the PFD, regardless of what the law says,” Pruitt said. The budget also does not settle the stalemate between legislative leadership and the Dunleavy administration over forward funding of K-12 education, which appears headed for the courts. How exactly that issue will impact school districts preparing for the upcoming year is an open question as well. The House Finance Committee also picked the roughly $200 million unrestricted general fund and mostly non-controversial capital budget back up June 11 and readied it for a subsequent floor vote. Legislation to pay full, roughly $3,000 PFDs according to the statutory calculation died 10-10 in the Senate, exemplifying the split over the issue that crosses party lines. That pushed lawmakers to change course and pass a budget without resolving the PFD to avoid a government shutdown July 1, which is the start of the 2020 state fiscal year. Combined with the operating and capital budgets, paying full PFDs would require a draw on the Permanent Fund Earnings Reserve Account of about $1.5 billion beyond what is allowed by the 5.25 percent of market value, or POMV, structure lawmakers passed just last year. The fiscal 2020 POMV draw is approximately $2.9 billion and House and Senate leaders have been resistant to make additional cash calls on the fund; they contend doing so would set a dangerous precedent and put the long-term value of the $65 billion Permanent Fund at risk. Instead, the Legislature’s budget moves $10.5 billion from the $19 billion Earnings Reserve Account — which is spendable through simple majority votes — into the constitutionally protected corpus of the fund to cover inflation-proofing payments for the next nine years. The Dunleavy administration had proposed a nearly $1 billion inflation-proofing payment for 2020, but the additional transfer could make it more challenging to pay the full dividends, and three years of forgone PFD amounts from 2016-18, that the governor has demanded from legislators. Dunleavy did not issue a customary statement from his office after the Legislature passed the operating budget, but instead tweeted that he would “review and scrutinize” the budget and noted he could veto portions or all of it. “I am absolutely determined to address the budget issues that have haunted #Alaska for years,” Dunleavy tweeted. In an attempt to solve the PFD debacle, legislators approved a House resolution establishing an eight-member Bicameral Permanent Fund Working Group to examine the best path forward for the state in regards not only to PFDs but also the broader fund structure. The working group, which was scheduled to meet for the first time June 12, consists on the House side of majority caucus Reps. Jennifer Johnston, R-Anchorage; Adam Wool, D-Fairbanks; Jonathan Kreiss-Tomkins, D-Sitka; and minority Republican Rep. Kelly Merrick of Eagle River. In the Senate, it is Republican majority Sens. Bert Stedman, R-Sitka; Click Bishop, R-Fairbanks; Shelley Hughes, R-Palmer; and minority Democrat Donny Olson of Golovin. As of this writing, the Permanent Fund Working Group was scheduled to have two meetings to conclude the special session, which ends June 14. Elwood Brehmer can be reached at [email protected]

State awards contract for Medicaid block grant study

Gov. Michael J. Dunleavy’s administration is looking into making Alaska the first state to transform its Medicaid program into a block grant system, but opponents in the Legislature contend it’s an attempt to justify a predetermined outcome. The Department of Health and Social Services on May 29 issued an intent to award a $100,000 contract to Boston-based Public Consulting Group Inc. to analyze the prospect of implementing block grants for federal Medicaid payments, work requirements for Medicaid enrollees, and shifting some Alaska Medicaid recipients to private insurance. The tentative contract calls for Public Consulting to draft a paper by June 30 studying whether or not the initiatives will save the state money, according to the request for proposals for the work. On March 1 Dunleavy sent a letter to President Donald Trump about a number of Alaska-specific policy issues, including Medicaid block grants. “Your Medicaid Administrator, Seema Verma, has urged us to be the first state to receive Medicaid dollars as a block grant. We are eager to do this, but your support of her on this ‘first’ will keep the proper focus and speed on the application,” Dunleavy wrote. The letter followed a meeting the governor and president had while Trump was briefly at Joint Base Elmendorf-Richardson during a refueling stop. State House Democrats wholly denounced the ideas in a letter sent to DHSS Commissioner Adam Crum last month. In it, they argue that a lengthy report done for the state in early 2016 “found that costs of private coverage would be prohibitively high compared to Medicaid coverage,” among other objections. Medicaid would pay insurance costs such as premiums and other out-of-pocket expenses that are typically paid by the insurance recipient. That study, known as the Milliman report and done when state lawmakers were debating a suite of Medicaid reforms, concluded that shifting low-income adults enrolled under expanded Medicaid coverage to the individual private insurance market would cost the state an additional $57 million per year growing to $97 million per year over the first five years of the plan. “Although DHSS’s administrative role and, thus, costs are reduced under this option, DHSS would be responsible for ensuring that the enrollee does not experience costs beyond the allowed Medicaid limits, paying for services not covered by the private coverage benefit plan, and paying co-payments for services paid by the insurer,” the Milliman report states. Milliman Inc., a Seattle-based actuarial and consulting firm, submitted a proposal for the latest study but was not chosen by DHSS officials. DHSS spokesman Clinton Bennett wrote in response to questions about the department’s plans that Public Consulting Group will analyze whether enrolling Medicaid recipients in private insurance is feasible and could lead to overall savings for the state. He noted that “only those with modest health care needs (healthier population) will be eligible for placement in the private market” and the study will identify the parameters of that population. House State Affairs Committee co-chair Rep. Zack Fields, D-Anchorage, said in an interview that Alaska is probably the least likely state for the concepts to work because of the state’s struggling private health insurance market. Premiums in the individual private market are among the highest in the country at hundreds of dollars per month and Alaska is generally regarded as having the highest health care costs in the country; both issues can in part be attributed to the state’s isolation and small population. Also, Premera Blue Cross Blue Shield of Alaska has been the only company offering health insurance on the individual private market in the state since 2017. “The idea that we’d make half-baked decisions with our largest federal stream of investment, which, by the way, is life or death for 215,000 Alaskans that rely on Medicaid health insurance — it’s just crazy,” Fields said. Premera officials declined to comment for this story. The Dunleavy administration initially proposed cutting $225 million to $270 million from the state’s Medicaid program; it’s estimated those state cuts would result in a roughly $480 million corresponding cut to federal Medicaid funds. DHSS officials later said they could achieve approximately $100 million in cuts in the 2020 fiscal year through administrative and regulatory changes, such as cutting provider payments by 5 percent, without legislative action. They also acknowledged the larger cuts first proposed were targets driven by the Office of Management and Budget and not the result of specific policy reforms. Economic analyses done for provider groups found that such cuts would likely result in at least 8,000 job losses in the state. Health care — buoyed by federal Medicaid spending — is the one major industry that has continued to grow through Alaska’s three-plus year recession, according to state economists. According to the Legislative Finance Division, overall spending on Medicaid in Alaska has increased from $1.7 billion to more than $2.3 billion since fiscal year 2015, but the state’s portion of that has actually gone down from $724 million in 2015 to $677 million. The state savings is largely attributable to Senate Bill 74 passed in 2016, which started long-term efforts to reduce overall Medicaid costs and utilization, but also shifted as many eligible costs as legislators could find to the federal government. Fields said the Medicaid reform found in SB 74 is an example of “prudent” policymaking. “When there were studies in the past the administrations and the Legislature did it right and they took the time to make sure they understood the implications of different policy decisions and if the new administration wants to go in a different direction in terms of Medicaid they need to base it on actual information and legitimate studies and not just kind of create an excuse for them to do something they’ve predetermined to do,” Fields said. Block grants for Medicaid have long been a policy favored by many Republicans in Congress as a way to rein in spending, but there has never been enough broad support to make the change. Under the concept, the federal Centers for Medicare and Medicaid Services, or CMS, would issue a lump sum for Medicaid to Alaska each year, and it would be up to the state to keep spending within that amount or cover additional expenses. DHSS spokesman Bennett said via email that the department would need a Section 1115 demonstration waiver from CMS to shift enrollees to private insurance and it’s unclear whether Congress would need to change federal Medicaid laws to allow for block grants. “CMS will need to provide official guidance on (block grants) before state are fully able to consider this approach to funding for state Medicaid programs,” Bennett wrote. Fields said limiting health care for Medicaid recipients — which he sees as a likely outcome of instituting a block grants — would simply push more people back to receiving more care through costly and inefficient emergency room visits that are generally seen as an overall cost driver in the health care system. He also pointed to a May 1 Legislative Legal Services opinion that concludes block grants for the purpose of cost savings would likely be illegal if done through a 1115 demonstration waiver. Legislative attorney Marie Marx wrote while citing prior cases in Arkansas and Kentucky that a cost-focused waiver would likely be invalidated by federal courts because it wouldn’t further the primary mission of Medicaid laws, which is to provide medical coverage to needy populations. “I think it’s critical to look at every opportunity to make the health care system more efficient and the Legislature and previous administration’s have been doing that,” Fields said. “My objection is actually to abandoning reform, which is what this effort represents.” Elwood Brehmer can be reached at [email protected]

Sullivan wants new icebreaker focused on Arctic, not McMurdo

The U.S. Coast Guard is on track to have another icebreaker in five years, but how much time the vessel will spend in the Arctic is open question. Currently, the country’s only heavy icebreaker — the 43 year-old Polar Star — does its work on the other end of the world, returning to its homeport of Seattle each summer for maintenance and repairs. It breaks ice and escorts supply vessels to access the National Science Foundation’s McMurdo Station research center in Antarctica. NSF spokesman Peter West said via email that the 399-foot Polar Star typically starts the trip south shortly after Thanksgiving each year and returns around mid-March from the roughly 11,000-mile roundtrip voyage. NSF officials anticipate the new 460-foot Polar-class icebreaker will take over the Polar Star’s Antarctic research duties once it is ready, according to West. “By Presidential Memorandum, the NSF is empowered to reach out to other agencies for cost reimbursable services in support of the (U.S. Antarctic Program, or USAP),” he wrote. “The USGS has the responsibility for the nation’s icebreaking and is committed to the McMurdo Station breakout mission on an annual basis for the foreseeable future.” Sen. Dan Sullivan said in a meeting with the Journal and Anchorage Daily News on May 28 that the Antarctic policy will likely shift the future icebreaker away from the Arctic-focused missions it should be utilized for. “I think we’re too focused on Antarctica and not focused on our own sovereign interests here,” Sullivan said. The policies directing Antarctic support from the Coast Guard are ones he hopes to change, Sullivan said. “I write the Coast Guard bill. I chair that subcommittee; we’ll see,” he said. Sullivan chairs the Security Subcommittee of the Senate Commerce, Science and Transportation panel. Coast Guard spokesman NyxoLyno Cangemi wrote in response to questions that the Polar Star escorted one cargo ship to the McMurdo Station last year and in 2020 there will be two cargo vessels and one tanker for the icebreaker to escort. The Polar Star does not currently conduct Arctic missions. Presidential Memorandum 6646 issued in 1982 by former President Ronald Reagan directs agencies to support the U.S. Antarctic Program, either directly or through logistics and transportation support. The budget bill passed in February appropriated $655 million to fully-fund one Polar security cutter, or heavy icebreaker, and $20 million for long-lead item items to prepare for building a second. On April 23 the Department of the Navy awarded a contract to Mississippi shipyard VT Halter Marine for building the vessels. The first is expected to be ready in 2024, and, if funded, the second coming a year later and a third to be delivered in 2027. The 2018 National Defense Authorization Act approved construction of up to six heavy icebreakers, but Congress still has to appropriate the funding for building most of them. Alaska’s congressional delegation and numerous Arctic policy experts have stressed the need for the U.S. to upgrade its icebreaking capability to keep up with many other countries — notably Russia and China — that are preparing to have a large presence in Arctic waters as sea ice continues to shrink each year. Cangemi noted other laws compel the Coast Guard to generally support scientific research and the agency “is fully committed to supporting the USAP mission until directed otherwise. Diverting USCG resources, specifically, Polar Star, away from the Antarctic mission would require an order from the White House,” he wrote. This year, the NSF reimbursed the Coast Guard $49,311 per day for use of the Polar Star. The Coast Guard was reimbursed nearly $33,000 per day for use of the medium-duty icebreaker Healy, which supports Arctic research, according to Cangemi. The Polar Star had a fire in its garbage incinerator while on the McMurdo support mission in February; the incident was contained and it is now back in Seattle for repairs. The icebreakers are part of a larger nationwide effort to recapitalize the Coast Guard with new vessels and aircraft. Sullivan noted that the Coast Guard is in the process of adding four medium-sized fast response cutters to Alaska bases — two in Kodiak, one in Seward and one in Sitka — in addition to the two already based in Ketchikan. Additional patrol vessels will be stationed in Petersburg and Juneau as well, according to an April 2018 letter to Sullivan from former Coast Guard Commandant Adm. Paul Zukunft. Elwood Brehmer can be reached at [email protected]

Senate stalls over PFD amount

The clock is ticking towards important deadlines but legislators remain stalled over the size of this year’s Permanent Fund dividend checks. Senators rejected the latest attempt to break the logjam with a compromise amount June 4 with just 10 days remaining in the special session; they also failed to pass a full, roughly $3,000 per person PFD. Finance Committee co-chair Sen. Bert Stedman, R-Sitka, presented the Rules Committee with a proposal on June 3 to pay $1,600 dividends — equal to last year — with a mix of money totaling just more than $1 billion from the General Fund, Statutory Budget Reserve and the Higher Education Investment Fund. The bill was quickly advanced to the Senate floor despite facing clear bipartisan opposition. Sen. Shelley Hughes, R-Palmer, immediately introduced an amendment to increase the PFD amount to equal the statutorily calculated amount of more than $1.9 billion, or about $3,000 per Alaskan, coming from the Permanent Fund’s Earnings Reserve Account, which holds about $19 billion of the roughly $64 billion fund value and is accessible by a simply majority vote. Hughes and others said Stedman’s proposal fundamentally changed the PFD by drawing it from sources other than the fund. Stedman and fellow Finance co-chair Sen. Natasha von Imhof, R-Anchorage, have been among the most ardent opponents to appropriating from the fund in excess of the 5.25 percent of market value, or POMV, draw passed just last year. Doing so would set the dangerous precedent of spending above a sustainable annual amount and could very well lead to the long-term degradation of the fund’s value, they stress. “We need to get away from the ‘me-me’ generation attitude and look to the future,” Stedman said on the Senate floor. “I think protecting the corpus of the Permanent Fund exceeds the benefit in any year of a dividend.” Hughes said her amendment, which passed 10-8, would not have to overdraw the Permanent Fund if the Finance co-chairs would agree to adjust the funding sources in the budget to make it jive with paying a collective $1.9 billion PFD from the Earnings Reserve as residents expect. “I get the math but right now trust is more important,” said Hughes, referring to the belief that the public does not trust lawmakers to make the appropriate decisions after three years of deviating from the PFD formula set in law amid large and ongoing state budget deficits. Former Gov. Bill Walker vetoed half of the PFD appropriation in 2016 in an action that was eventually upheld by the Supreme Court, and the Legislature followed that precedent in 2017 and 2018 to ignore the statutory formula by setting the dividend amount at $1,100 and $1,600, respectively. Stedman noted that a formula-funded PFD would mean violating the POMV statute, a fact many legislators gloss over. “Frankly, we’re running out of liquidity and room to maneuver so something’s got to give,” he said. The fiscal year 2020 POMV draw will be roughly $2.9 billion. Anchorage Republican Sen. Chris Birch, who unsuccessfully proposed an amendment to pay the roughly $900 per person PFDs that would be available with a balanced budget under the POMV draw, called Hughes’ proposal “the height of big spending.” He emphasized that Alaskans receive the benefits of their collectively owned resources through government services provided without personal taxes, not just the PFD. “This ($3,000) dividend erodes public confidence in our ability to protect the Permanent Fund,” Birch said. Von Imhof insisted that making continued draws on the Fund equal to what Hughes proposed would drain the Earnings Reserve — the spendable portion of the Permanent Fund that proponents of a full PFD note currently has nearly $19 billion — by 2025. Gov. Dunleavy issued a statement June 3 in response to Stedman’s proposal in which he promised to veto the bill and said, “it would kill the Permanent Fund Dividend as we know it.” The governor has said any change to the PFD should only be made after a public vote on the plan. While there were enough votes to amend Stedman’s bill on the Floor, which requires a majority of the senators present, there were not enough votes to pass it to the House, which requires 11 votes, or a majority of the full body. That’s because Sens. Tom Begich, D-Anchorage, and Mike Shower, R-Wasilla, were excused from voting. Shower, who Walker appointed in early 2018 to replace then-senator, now Gov. Michael J. Dunleavy in the Senate and was elected to a full term last fall, said via social June 1 media that he has used up all of his personal leave at his primary job and would have to be excused from much of the remainder of the special session, which ends June 14. Shower is a pilot for FedEx. The June 4 floor debate exemplified the split in Senate leadership over the PFD, as Senate President Cathy Giessel and the co-chairs of the Finance Committee voted against Hughes’ amendment while current Senate Majority Leader Mia Costello, R-Anchorage, supported it. “The dividend was created to protect greedy politicians from spending the people’s fund,” Costello said, adding she is open to discussing a new PFD formula, but the historical formula should be followed until it is changed. Bills to change the formula in both the House and Senate were soundly rejected by the public during testimony earlier in the year. Where lawmakers go from here is unclear. The House Majority coalition has agreed to a less-than-full PFD to avoid overdrawing the Permanent Fund or again dipping into savings accounts, but the Senate is split on the issue while Dunleavy continues to demand a full PFD with the threat of budget vetoes looming if the Legislature doesn’t send him one. House Speaker Bryce Edgmon, I-Dillingham, said in a statement after the Senate happenings that the Legislature needs to pass the operating budget that is largely agreed upon to avoid a government shutdown July 1. Layoff notices are also expected to go out to state employees June 14 if the Legislature doesn’t pass the budget by then. “Today’s vote in the Senate perfectly illustrates why an operating budget has not yet been enacted: debate over the amount of this year’s Permanent Fund Dividend is consuming the Legislature,” Edgmon said June 4. “This is why we believe the Legislature should first pass a responsible budget to provide students, elders, and business leaders certainty in the critical services they rely on. Then we can focus on the many important questions surrounding the future of the Permanent Fund.” The House also has yet to pass the capital budget, but that could be done after July 1, as has been done in recent years. Elwood Brehmer can be reached at [email protected]

BP, ExxonMobil commit $10M apiece to Alaska LNG

BP and ExxonMobil are contributing $10 million apiece to help get the $43 billion Alaska LNG Project get its federal construction authorization, Lt. Gov. Kevin Meyer said Thursday. Meyer made the announcement at the Alaska Oil and Gas Association’s annual conference in Anchorage. The state-owned Alaska Gasline Development Corp. estimates it will take roughly $30 million to complete the environmental impact statement the Federal Energy Regulatory Commission is currently drafting. FERC is scheduled to release a draft version of the Alaska LNG Project EIS in June; the agency pushed back from February earlier this year. AGDC officials said at a May 22 board meeting they expect the draft document to be roughly 4,000 pages. The major producers signed a memorandum of understanding with AGDC in March to provide technical assistance on the project. They also signed separate confidential gas sales precedent agreements with AGDC last year that outline the terms — including price — under which they would sell gas from the Prudhoe Bay and Point Thomson North Slope fields into the project. The state capital budget that passed the Senate in early May authorizes AGDC to accept up to $25 million from outside sources to support the Alaska LNG Project. AGDC officials expect to have approximately $22 million remaining for the project at the end of the 2019 fiscal year, which is June 30. Gov. Mike Dunleavy has stressed a desire to bring the producers back into the project after they stepped away in 2016 amid poor oil and gas market conditions. The state has since focused on advancing the regulatory and marketing aspects of the project. “All future decisions on Alaska LNG will be rooted in world-class LNG experience,” Meyer said. The companies are also currently assisting AGDC in reevaluating the overall economics of the project and its $43 billion cost estimate amid new global LNG market conditions. BP Alaska Vice President of Commercial Ventures Damian Bilbao said in an interview that the company continues to be excited about monetizing Alaska natural gas because the company’s share of North Slope reserves are still its “single largest undeveloped resource on the planet.” On the $43 billion estimated cost of the project — a figure calculated in 2016 that includes $9 billion in contingencies — Bilbao said he believes there are avenues in supply procurement and other areas to bring the cost down. Alaska LNG officials have always cited the cost of the 800-mile gas pipeline from the North Slope to the Kenai Peninsula as the main cost obstacle to developing the long-sought project. “Four years is a long time in this industry; it’s a technology-driven industry so our experts feel very confident that the number that was delivered at the end of (the preliminary design period), that $43-$44 billion — they can really look at some opportunities to bring that into the high 30s and we’re going to look at some opportunities to take that down even further,” he said. As for North Slope oil, Assistant Secretary of the Interior Joe Balash, a former Alaska Department of Natural Resources commissioner, said during remarks at the conference that a draft environmental impact statement should be published by the end of summer for ConocoPhillips’ large Willow prospect in the National Petroleum Reserve-Alaska, with a final EIS coming in 2020. ConocoPhillips estimates Willow, with a cost of $4 billion to $6 billion, could produce more than 100,000 barrels of oil per day. Balash also said the Bureau of Land Management, which he oversees, just completed consultation with Canadian officials over the potential impacts to the Porcupine caribou herd from possible oil and gas activity in the Arctic National Wildlife Refuge; the herd migrates across the border. A final EIS analyzing industry development in the ANWR coastal plain should be ready in August and a lease sale will follow towards the end of the year, according to Balash.   Elwood Brehmer can be reached at [email protected]                  

Legislature preps for lawsuit against Dunleavy

After returning from Memorial Day weekend activities across the state, legislators promptly doubled down on their belief that they have properly funded education for the coming year by preparing for a lawsuit against Gov. Michael J. Dunleavy’s administration. The House voted 23-14 and the Senate voted 14-4 May 28 to authorize the joint Legislative Council to file a lawsuit against the administration for withholding more than $1.2 billion in K-12 formula funding approved last year in House Bill 287. The move is presumptive, given the money cannot be dispersed until after the July 1 start of the 2020 state fiscal year. Legislative Council chair Sen. Gary Stevens, R-Kodiak, said during a rare joint House-Senate press briefing that a suit would not be filed until after July 15, which is when the first round of formula-based yearly K-12 state funding is set to be dispersed to school districts. The 14-member Legislative Council handles business and legal matters for the overall Legislature. Dunleavy insists the Legislature’s actions last year to forward fund education violate the Alaska Constitution because, according to a legal opinion from Attorney General Kevin Clarkson, they improperly dedicate state revenue and attempt to usurp the governor’s line-item veto authority over budget matters. Based on those conclusions there is no K-12 funding for the administration to legally disperse, administration officials stress. Dunleavy — who has repeatedly mentioned the prospect of vetoing portions of the budget the Legislature passes — has also vowed not to veto any education funding as long as it is added to the budget for the coming year. Members of the minority House Republican caucus have sided with the governor on the issue and collectively voted against allowing the Legislative Council to consider a lawsuit. The governor cannot sue the Legislature in this instance, according to legal experts. The current iterations of the state operating budget being settled in a conference committee similarly forward fund education for the 2021 fiscal year. Legislative leaders are adamant last year’s forward funding is legal; it’s something lawmakers did for 10 years before declining oil revenues led them to stop the practice in 2015. For them, it’s a separation of powers issue. The issue has largely united Democrat and Republican leaders in the Legislature who for years have been at odds over how to fix the state’s large structural budget deficits. “We have stood firmly on the forward funding that we appropriated last year for this coming year and we are hoping very much that no lawsuit will be necessary,” Senate President Cathy Giessel, R-Anchorage, said during the briefing. “Education funding has been a political football over these past years when we haven’t forward funded. We want to take that football, put it on the ground and settle this issue.” Legislators last sued the governor as a group in 2015, when former Gov. Bill Walker accepted federal Medicaid expansion funds without the Legislature’s approval. That lawsuit was dismissed by a state Superior Court judge in early 2016. In an impromptu May 28 counter-press briefing Dunleavy said he has talked extensively with legislative leaders about the stalemate. He suggested the Legislature could add the 2020 education money to the budget and the administration could distribute the nearly $1.2 billion meant for the base student allocation, or BSA, payments to districts while withholding the $30 million, one-time supplemental payment also approved in HB 287 to spur “almost a friendly suit just so we can get clarification on things moving forward,” Dunleavy said. “I’d ask the House and Senate to fund education and we can agree on an amount that can be withheld that would initiate a suit so we can get clarification; that way the school districts are certain that they’ve got funding,” the governor added. The administration also submitted bills during the special session to make the BSA and $30 million supplemental appropriations outside the budget. While they seem to have little chance of passing, school administrators from across the state testified during Finance Committee hearings that forward funding education is very important as it allows them to make longer term plans and keeps districts from having to issue layoff notices to teachers each year lawmakers struggle to agree on a budget. Districts are expected to issue “pink slips” if the current situation is not resolved by mid-July, and the year-to-year job uncertainty can make it difficult to retain teachers in a state where teacher turnover is already a pervasive issue, according to school district officials. “Stable and predictable — that’s what our industries ask for. It seems reasonable to assure that to our education system as well,” Giessel said. At the heart of the administration’s claim is the fact that forward funding of education in prior years was done with surplus existing revenue, while HB 287 draws anticipated revenue from the General Fund. Legislators contend all budgeting — particularly for the State of Alaska where income streams are based on volatile oil and financial markets — is anticipatory. The administration’s bills to repay forgone Permanent Fund dividend amounts over multiple years rely on the expectation that money currently in the roughly $19 billion Permanent Fund Earnings Reserve Account will be available when the draws would be made up to three years away, many have noted. However, those funds could dissipate if markets falter. Sen. Bill Wielechowski, D-Anchorage, said during floor debate on the Legislative Council authorization that he believes the administration’s argument could apply to most appropriations the Legislature makes, but this situation is unique since the Supreme Court has determined lawmakers have a constitutional obligation to fund public education. On other issues, the Legislature sent the omnibus criminal justice reform rollback legislation, House Bill 49, to the governor for his signature May 28, which Dunleavy thanked them for. That leaves budget issues and the PFD outstanding in the 30-day special session that is quickly approaching its halfway point. Legislators are close to finishing a budget as the House and Senate versions of the operating budget were similar to start the conference committee — with overall cuts in the $200 million-plus range — but a final version has yet to be released. The House is considering the capital budget that passed the Senate and will likely be minimal again this year, which leaves the PFD as the big hurdle for the Legislature. House Finance co-chair Rep. Tammie Wilson has proposed legislation to pay a full, roughly $3,000 per person PFD this year according to the statutory formula with additional draws of roughly $1.4 billion from the Earnings Reserve and $500 million from the Constitutional Budget Reserve, while halving the PFD formula for future years. The idea was roundly dismissed during public testimony. With the Senate approving a $3,000 PFD — but in an unbalanced budget — the House without a dividend appropriation and Dunleavy firm in his demand for a full payment, it remains unclear as to how the situation will be resolved before the June 15 end of the special session. ^ Elwood Brehmer can be reached at [email protected]

Permanent Fund gains 6.48 percent in Q3

The Permanent Fund rebounded from a tough finish to 2018 with a 6.48 percent quarter that put the $65 billion fund back in positive territory for the year. The gains in the quarter that ended March 31 — the third quarter of the Alaska Permanent Fund Corp.’s fiscal year — gave the fund a 3.07 percent investment return for the 2019 fiscal year so far, according to a May 23 APFC release. Permanent Fund investments lost 3.19 percent of their value in the first half of the state fiscal year. The fund held $65.8 billion of assets under management with approximately $1.6 billion of liabilities as of March 31. It ended the 2018 fiscal year last June 30 with a balance of $64.8 billion, from which the state appropriated roughly $2.7 billion to pay out Permanent Fund dividends and support government services. Most recently, the fund had a net balance of $65.3 billion with slightly more than $19 billion in the Earnings Reserve Account, which is the portion of the fund state lawmakers can appropriate from. Calculated as 5.25 percent of the fund’s five-year average value, the fiscal 2020 percent of market value, or POMV, appropriation is expected to be roughly $2.9 billion. Legislators are currently debating whether or not to make an additional draw from the Earnings Reserve that would be outside of the POMV appropriation — despite warnings from financial advisors about the long-term impacts of such ad-hoc draws — in order to pay the larger Permanent Fund dividends that Gov. Michael J. Dunleavy demands. The latest 6.48 percent quarterly return was driven by “an outstanding” 12.36 percent return on the fund’s public equities or stocks, portfolio, which comprises about 40 percent of fund investments, the APFC release states. For comparison, the Dow Jones Industrial Average gained 10.1 percent over the period. The fund’s $15.5 billion fixed income portfolio generated a 5.77 percent return during the quarter. The public market investments slightly outperformed the corporation’s return benchmarks for the given categories, according to fund managers. However, the fund’s private investments did not fare so well “due to the nature of quarterly appraisals and valuations,” the release states, but still outperformed comparable benchmarks. The $8.5 billion private equity portfolio returned 1.25 percent, compared to a Cambridge Private Equity Index return of -0.53 percent during the quarter. APFC leaders note the fund’s five-year private equity return is 24.3 percent. The fund’s infrastructure and private real estate investments similarly netted quarterly returns in of about 0.2 percent but have proved much more fruitful over the long haul. “These negative short-term distortions are not reflective of the generally strong underlying fundamentals, occupancy and cash flows of the properties,” the APFC release states regarding real estate investments. Real estate has generated a 7.97 percent annual return over the previous five years, according to fund managers. Elwood Brehmer can be reached at [email protected]

Oil Search gets federal approval for Nanushuk project

The company working on one of Alaska’s largest oil prospects in decades now has the key federal authorization to develop the project. Oil Search Ltd. announced Thursday that it has received a favorable record of decision from the U.S. Army Corps of Engineers on the environmental impact statement, or EIS, for its Nanushuk oil project in the Pikka Unit on the central North Slope. The record of decision, signed May 14, marks the end of nearly four years of study on the roughly $5 billion project, which has the potential to produce upwards of 120,000 barrels of oil per day at its peak. Peter Botten, managing director of the Papua New Guinea-based producer said in a formal statement that two appraisal wells the company drilled last winter into the southern portion of Pikka reinforce earlier expectations that the oil available for the project should allow for peak production of at least the long-held estimate of 120,000 barrels per day. The trans-Alaska Pipeline System, commonly known as TAPS, is handling about 500,000 barrels of oil per day this year. North Slope production peaked in the late 1980s at approximately 2 million barrels per day. The project is also expected to support more than 1,000 drilling and operations jobs and “several thousand direct construction jobs,” said Oil Search Alaska President Keiran Wulff, who added in a formal statement that the company “will make every effort to work with companies located within the state of Alaska to maximize local hire.” Oil Search is planning a busy 2019-20 winter season with additional drilling work and the start of laying gravel for the project’s future roads and pads, according to Botten. “We remain very excited about the opportunities for Oil Search in Alaska and are looking forward to making material contributions to the state and the local communities, while also delivering value for Oil Search shareholders,” he said. The company reached a deal with Armstrong Energy in October 2017 to buy into Pikka and take over as the project operator for $400 million. Wulff said last fall it planned to exercise a $450 million option to fully buy out Armstrong from the project this year. An Oil Search Alaska spokeswoman said the buy out is on schedule to be completed by the June 30 deadline set as part of the initial deal. Spanish oil major Repsol is also a 49 percent owner in Pikka. While official estimates are more conservative, Armstrong Energy CEO Bill Armstrong has consistently said he believes more than 1 billion barrels can be produced from the Pikka Unit. First oil production is expected in late 2023, Wulff has said. Most of the oil would come from the shallow, conventional Nanushuk formation. It has been the source for smaller nearby discoveries by ConocoPhillips as well as Conoco’s Willow project in the National Petroleum Reserve-Alaska, which is similar in scale to Pikka but a couple years behind in the development process. The Corps of Engineers ultimately chose Oil Search’s preferred development option, which differed from the plan Armstrong initially submitted for its Clean Water Act wetlands fill permit. Wulff noted in a company release that Oil Search changed the plan at the behest of residents of the nearby Native Village of Nuiqsut, who use the Colville River Delta where the project is located for subsistence harvests. The approved plan moves a drill site near the Colville further from the river; realigns some north-south roads to interfere less with east-west migrating caribou; and narrows roads from up to 38 feet wide to 32 feet among other revisions. The changes will also result in a 22-acre reduction to impacted wetlands compared to the original plan, according to the corps. Overall, the project will fill 266 acres of wetlands, the EIS states. “We are committed to close collaboration with the people and organizations of Nuiqsut and neighboring communities to ensure our activities in the field are conducted in a sensitive and respectful manner,” Wulff said. Elwood Brehmer can be reached at [email protected]

State still working with BP, ExxonMobil to refine AK LNG economics

New conclusions regarding the viability of the $43 billion Alaska LNG Project are still several weeks away from being made public, according to officials from the state agency leading the work. Interim Alaska Gasline Development Corp. President Joe Dubler said the state, BP and ExxonMobil have “preliminary answers” to the competitive assessment they are doing of the Alaska LNG Project and those initial results are being further vetted and analyzed before final conclusions are released. AGDC announced March 8 it had signed a memorandum of understanding with BP and ExxonMobil to assist the state corporation in finding ways to bring project costs down and get it through the federal regulatory process as smoothly as possible. Brett Huber, a senior advisor to Gov. Michael J. Dunleavy, said March 14 that AGDC, in consultation with the producer companies and the state Revenue Department would be conducting a 60-day review of the project to determine the state’s path forward. “We’ve agreed on inputs; we’ve agreed on the mechanics. So we’re using that model to finalize the future of Alaska LNG and what we think the competitive prospects are for the project,” Dubler said during AGDC’s May 22 board of directors meeting. Dunleavy has long been critical of former Gov. Bill Walker’s plan for a state-led Alaska LNG Project. He made it clear soon after being elected last fall that his administration would slow the pace of the project and try to bring the major oil companies back into the fold. In 2016, the international energy consulting firm Wood Mackenzie concluded the Alaska LNG Project likely wasn’t economic if developed by Alaska’s major producers, as first envisioned, in part because of the high internal return requirements oil companies typically have. However, a state-led project with federal tax exemptions could be viable, Wood Mackenzie said at the time. BP and ExxonMobil have major interests in seeing a successful Alaska LNG Project come to fruition. They combined to invest upwards of $4 billion between 2012 and 2016 to develop the North Slope Point Thomson natural gas field, which would be one of the main sources of gas for the project; Prudhoe Bay is the other. They also hold collective rights to approximately 70 percent — not counting the state’s royalty stake — of the 35 trillion cubic feet of gas expected to be available for sale through the project. The companies also signed separate and confidential gas sales precedent agreements with AGDC last year that outline the terms — including price — under which they would sell gas into the project. AGDC and the companies are also revisiting the $43 billion cost estimate, which is about three years old, to see if technological advancements and market conditions could bring it down. Spokesman Jesse Carlstrom said via email that potential cost savings have been identified primarily in the construction of the facilities for the project. Approximately $9 billion of the total project estimate is a contingency for cost overruns. Dubler added that corporation leaders who attended the LNG2019 in Shanghai in early April met with LNG shippers, investors, builders and customers that could be involved in Alaska LNG. He said the prospective participants were comfortable with the state’s new plan to slow the project and not start construction as soon as the Alaska LNG environmental impact statement is finished, likely in mid-2020. “We’re trying to find potential partners to get the state out of the driver’s seat and get other people in,” Dubler said. Officials from the governor’s office along with Natural Resources Commissioner Corri Feige and Revenue Commissioner Bruce Tangeman are planning a trip to China next month to discuss the future of the state’s role in the project with officials from Sinopec, the Bank of China and China Investment Corp., according to Dubler. The state-owned oil giant and financial companies signed a nonbinding joint development agreement with AGDC in November 2017 to advance the prospect of financing up to 75 percent of the project in exchange up to 75 percent of the LNG it produces. LNG exports to China have declined dramatically this year after retaliatory tariffs were imposed and are now scheduled to increase from 10 percent to 25 percent on June 1. Dubler reiterated that the administration feels a 75 percent stake in the project is too much for one investor and wants to spread potential investment more broadly. “We think that once we get the (Federal Energy Regulatory Commission) permitting completed it will open up the door for a lot more different types of firms and industries looking to invest in this project,” he said. FERC is scheduled to release the draft Alaska LNG environmental impact statement, or EIS, next month. AGDC Program Management Vice President said during the meeting that the corporation is anticipating a 90-day public comment period for the draft document, that will distill the roughly 150,000 pages of environmental, socioeconomic, and engineering data AGDC has submitted to FERC into a roughly 4,000-page EIS. Elwood Brehmer can be reached at [email protected]

Hilcorp lone Cook Inlet bidder for third straight year

Hilcorp Energy was the lone bidder in the State of Alaska’s annual Cook Inlet basin oil and gas lease sale for the third consecutive year. The Houston-based independent spent $190,350 on three lease tracts totaling 10,286 acres in the sale held Wednesday morning in Anchorage, according to the Division of Oil and Gas. Hilcorp has been the predominant oil and natural gas producer in Cook Inlet since purchasing significant assets from Marathon Oil in 2012. “We are pleased to see bid activity in the Cook Inlet lease sale,” Deputy Natural Resources Commissioner Sara Longan said in a prepared statement. “We recognize the focus of investment has been on the North Slope in recent years. Nevertheless, significant investment is made to sustain current Cook Inlet production, while exploration activities continue to inform and support future development.” The Cook Inlet sales have been quiet for several years. In 2016 the state received no lease bids for its original oil basin for the first time and industry representatives at the time largely blamed the state’s plans to curtail its tax credit program for exploration and development work. State officials note most of the leases covering the prospective areas in and around the Inlet are already leased. As Longan highlighted the recent North Slope sales, held each fall, have been some of the most lucrative in terms of dollars bid in the history of the state’s regular oil and gas lease sale program, with companies cumulatively spending upwards of $35 million in a single sale to acquire exploration acreage. Two of the leases Hilcorp acquired Wednesday are onshore tracts on the southern Kenai Peninsula near Anchor Point and BlueCrest Energy’s Cosmopolitan oil field; the third is near Trading Bay in the central portion of the Inlet where most of the offshore development has occurred.   Elwood Brehmer can be reached at [email protected]


Subscribe to RSS - Elwood Brehmer