Elwood Brehmer

Board tightens rules to protect Kenai kings

The Alaska Board of Fisheries on Feb. 14 approved a new escapement goal aimed at getting more of the once iconic late-run king salmon into the Kenai River, but the move amounts to another blow to many Kenai Peninsula commercial fishermen targeting sockeye salmon also returning to area rivers. After numerous amendments to the proposal and hours of discussions with stakeholders and Department of Fish and Game managers, the board voted 5-2 in favor of managing the late-run Kenai kings with an optimum escapement goal, or OEG, of 15,000 to 30,000 large fish at its Upper Cook Inlet finfish meeting in Anchorage. In 2017, department officials set a sustainable escapement goal, or SEG, of 13,500 to 27,000 large late-run Kenai kings and the board made several corresponding changes to in-river sport fishing regulations. The department sets — and the board approves — biological and sustainable escapement goals based on scientific data for salmon stocks across the state; the board can then set optimum escapement or in-river goals at higher levels. Such larger goals set by the board often account for in-river harvest or other allocative considerations. The department managed to an escapement goal of 15,000 to 30,000 late-run Kenai kings of all sizes from 2013 through 2016 before switching to the slightly lower range goal for large fish — kings more than 34 inches long — in 2017. The large fish goal was implemented in part to focus escapement on bigger fish that are productive spawners. It also aids department managers in achieving a more accurate escapement census for Kenai kings, which are counted by sonar in the lower river. (All numbers that follow referring either to run size or harvest are in terms of large Kenai king salmon, as estimated by ADFG) The late-run kings return to the Kenai in July and early August when sockeye, pink and coho salmon are also in the river, so counting only large kings allows managers to better enumerate kings from sonar images including multiple species of similar- sized salmon. The total return of late-run Kenai kings before harvest has been on a general downward trend since peaking at more than 91,000 kings in 2004. In 2019, the total late run of Kenai kings was just 12,780 fish, which was the smallest run in more than 20 years according to Department of Fish and Game data. The restrictions on all fishing just to achieve that number for Kenai kings led in part to another disappointing commercial season, with only 2.1 million salmon landed, or about 37 percent less than the recent 10-year average. That brought in a total of about $18 million in ex-vessel value, which is about 40 percent less than the recent 10-year average in the fishery, according to an ADFG season summary released Nov. 25, 2019. Both the Kasilof River and Kenai River sockeye salmon escapement goals were exceeded in part because of restrictions on commercial fishermen due to the weak Kenai River late-run king salmon numbers. The average size of the Kenai king — historically renowned for being the largest king salmon on Earth — has been in decline for years as well. The Kenai River Sportfishing Association, commonly known as KRSA, submitted the proposal to establish the OEG for late-run Kenai kings. Board members who voted for the new, higher OEG said getting more fish into the river is one of the most fundamental ways they can help rebuild the stock. Board chair Reed Morisky of Fairbanks said the board is not going to let the late-run Kenai kings disappear under his leadership. “We’d be irresponsible not setting (the OEG) there for these kings,” said Israel Payton, a board member from Wasilla. Payton acknowledged the 15,000 to 30,000 large fish OEG at times will have implications on commercial sockeye fisheries, but also stressed the “paired restrictions” implemented to limit fishing time and gear in the East Side setnet fishery when managers restrict the in-river sport fishery only take effect during years of low king returns. Märit Carlson-Van Dort concurred with Payton’s assessment of the Kenai king situation. “If we’re in times of abundance and if the run improves, then we have no problem. That’s how I see it,” said Carlson-Van Dort, a board member from Anchorage. “But right now it’s not improving and that’s a big problem.” However, managing to the new, higher OEG instead of the 13,500 to 27,000-fish SEG increases the likelihood that the department in any given year will use the paired restrictions. The paired restriction concept was first enacted during the board’s 2014 Upper Cook Inlet meeting and has since been modified. KRSA and other sport fishing advocates have pushed for restricting or outright eliminating the East Side setnet fishery because the near shore nets intercept Kenai and Kasilof-bound king salmon at a higher rate than other Cook Inlet commercial fisheries. Salmon tend to swim along the beach as they approach their natal rivers and while kings generally swim deeper than the sockeye that the set netters are targeting, a portion of the kings returning to the Kenai are caught in set nets each year. KRSA founder Bob Penney insisted in testimony to the board that he has long supported the commercial fishing industry in general, but Cook Inlet king salmon, and particularly those in the Kenai, are managed for sport fishing. “Stop killing kings or stop fishing,” was Penney’s message to setnetters at the meeting. From 2014 to 2019 the East Side setnet fishery harvested an average of 1,764 large Kenai king salmon per year, or about 8 percent of the total average run of 20,469 fish according to Fish and Game data. During that time the in-river sport and dip net fisheries took an average of 3,976 large kings per year between harvest and catch-and-release mortality estimates. Cook Inlet sockeye, on the other hand, are managed with a commercial fishing priority. A KRSA-backed 2016 ballot initiative would have banned setnets in Cook Inlet but was declared unconstitutional by the Alaska Supreme Court. KRSA Executive Director Ben Mohr said commercial fishing appropriately drives management across most of Alaska; however, the urban centers that surround much of Cook Inlet mean the region’s fisheries should be managed differently, according to Mohr. “Cook Inlet is different. We hear it all the time and it’s true,” Mohr said to the board. Paired restrictions The latest paired restrictions approved Feb. 14 call for limiting the East Side setnet fishery to no more than 48 hours of fishing per week when department managers restrict the Kenai River king salmon sport fishery to no bait in an attempt to reduce in-river harvest in times of low returns. According to the department, prohibiting bait in the Kenai king sport fishery reduces the catch rate by approximately 50 percent. If managers feel based on sonar counts and run projections that the no-bait and 48-hour setnet restriction is not sufficient to meet the OEG, the sport fishery can be restricted to no bait and no retention of king salmon greater than 34 inches long. At that point, setnetters would be limited to no more than 36 hours of fishing per week. KRSA’s original proposal called for limiting harvest to kings less than 36 inches under this restriction tier, but Payton proposed the 34-inch maximum to align with the size fish department officials consider “large king salmon” for counting purposes. When the sport fishery is limited to strictly catch and release, the setnet fishery is limited to 24 hours of fishing time per week; and when the Kenai late-run king sport fishery is closed the East Side setnet fishery is closed as well. The regulatory language also calls for a mandatory 36-hour setnet closure starting between 7 p.m. Thursday and 7 a.m. Friday each week while the paired restrictions are in effect. Managers can also allow East Side set netters to fish 600-foot “beach nets” without the time limitations during times of paired restrictions. Central Cook Inlet district setnet fishermen are typically allowed to fish up to 1 or 1.5 miles offshore depending on the sub-area. Kenai/Soldotna Advisory Committee vice chair and Kasilof-area setnetter Paul Shadura said that 600-foot beach nets can be productive at some setnet sites but noted the paired restrictions are announced via emergency order from the department, which means fishermen don’t know at any given time how or when they will be implemented. That uncertainty can have practical implications on scheduling fishing crews and work hours for setnetters with other employment, according to Shadura. Additionally, the new regulations direct department managers to implement the paired restrictions earlier in the setnet fishery when they project the OEG will not be achieved under the normal regulatory regime. Previously, the setnet restrictions kicked in July 1 — when the late-run sport fishery also officially starts — in years of low returns; the board pushed that date up to June 20 in an effort to protect the early-returning late-run kings. The setnet restrictions can only be lifted after the OEG is reached based on daily sonar counts. Setnetters often bristle at the premise of paired restrictions, noting that while harvest is restricted in the sport fishery when king returns are low, anglers and guides are still allowed to fish continuously when setnet fishing time is greatly reduced. Board member John Jensen, of Petersburg, highlighted that situation in discussing KRSA’s proposal. “I know we have to conserve king salmon and that’s paramount but it’s going to come at some cost,” he said. Jensen and Fritz Johnson of Dillingham voted against the new Kenai king management measures. Commercial fleet protest latest restrictions On a larger scale, Shadura and other commercial fishermen said their groups again took the brunt of conservation-focused fishing restrictions at the Upper Cook Inlet meeting. “Board of Fisheries members should be aware of the devastating consequences of enacting these series of restrictions at this board cycle to the Cook Inlet commercial fisheries,” Shadura wrote in comments to the board. “The industry will be damaged, losing the baseline economies within Southcentral communities, many of which have anchored these communities for decades.” Setnetters also questioned the science behind the new OEG. Allowing more fish to escape and spawn during years of large returns makes it less likely that the overall run will be as productive as it could be in the long-term if it were managed to the lower SEG range based on department modeling. That’s because, among other factors, juvenile kings rearing in the river will compete with each other for limited food supplies, the commercial fishermen argue. Commercial fishermen generally support management that achieves the lower end of a sustainable or biological escapement goal, as that usually limits forgone harvest opportunities while also allowing the run to be as productive as possible by returning many more fish than were allowed to spawn several years prior, they insist. The theory is known as maximum sustained yield management. Specific to the Kenai, they note the early run of kings, which is not subject to commercial harvest in the Inlet, is also suffering. However, KRSA and other in-river advocates note that sport fishing is at its best when more fish are allowed to enter the river and can be harvested there. They argue that while ADFG models indicate the OEG likely won’t result in maximum sustained yield, it will not exceed maximum sustained recruitment, or the point at which so many fish escape and spawn that their offspring do not replace them one-to-one. ADFG Commissioner Doug Vincent-Lang said the OEG is an allocative decision that will simply put more fish in the river at the expense of other users. “It will increase the number of fish into the river. It may not over time increase the yields of fish into the river,” Vincent-Lang told the board. He added that the department doesn’t have a firm answer as to what is harming Kenai kings — or king stocks statewide — but said it is likely numerous factors impacting the fish when they go out to sea. “When we don’t understand ocean conditions we should err on the side of caution and put more fish in the river,” Vincent-Lang said. ^ Elwood Brehmer can be reached at [email protected]

Board approves new dip net fishery on Susitna River

Mat-Su residents will have another opportunity to dip net salmon in their own backyard starting this summer. The Alaska Board of Fisheries voted 5-2 on Feb. 13 to approve a personal use dip net fishery on a section of the lower Susitna River for all species other than king salmon at its Upper Cook Inlet Finfish meeting in Anchorage. A proposal by the Matanuska Valley Fish and Game Advisory Committee to establish the dip net fishery was amended by the board to better align it with the extremely popular July dip net fisheries on the Kenai Peninsula. The fishery approved by the board will be open Wednesdays and Saturdays from July 10 to July 31, which is in line with the Kenai Peninsula dip netting periods. However, those fisheries are open seven days per week under normal regulations. The Matanuska Valley AC originally pushed for opening the portion of the Susitna to dip netting Wednesdays, Saturdays and Sundays from July 10 to Aug. 15. “The attempt was to build a fishery that was conservative and still offer a decent amount of opportunity,” said Andy Couch, a Susitna-area guide and Matanuska Valley AC member in testimony to the board. Mike Wood, a Northern District set netter who chairs the Mat-Su Borough Fish and Wildlife Commission, said in testimony that he cautiously supports the Susitna dip net fishery because “giving people the opportunity to harvest food from their backyard is very important,” despite the allocation issues and concerns that the newly conceived fishery could become popular to the point of being problematic at times, as has happened with Kenai River dip netting. “There’s a huge amount to be gained by having a new user voice on the river,” Wood said of the new Susitna fishery. Department of Fish and Game officials and others said the Susitna will largely avoid the habitat degradation issues that have arisen on the Kenai as the popularity of the dip net fishery there has grown, in part because the Susitna is a very large, glacially turbid and fast river with dramatic water-level fluctuations; the river is constantly changing. The location of the fishery also will inherently curb its popularity to some degree, as a boat is required to get there. Dip netting will be open on the Susitna in a roughly seven-mile area starting one mile downstream from Susitna Station to the upstream end of Bell Island. The area starts about 20 miles downriver from the nearest boat launch at Deshka Landing in Willow. The Susitna River dip net fishery will be the second personal use fishery in the region. A dip net fishery targeting sockeye on Fish Creek in Knik Arm is opened by the Department of Fish and Game via emergency order during years of large sockeye returns. Representatives from the Kenai-Soldotna Fish and Game Advisory Committee said their group was split on the Susitna proposal, with some supporting any way to reduce pressure in the Kenai dip net fishery, which targets sockeye, and commercial fishermen opposed to it because it would add another harvest group to fisheries that are already fully allocated. Upper Cook Inlet Drift Association President David Martin said the numerous sport fisheries in the massive Susitna drainage already provide for ample harvest opportunity in the region. He also highlighted previous actions the board took at the meeting to restrict commercial drift fishing in the central portion of Cook Inlet as a means of allowing more sockeye and coho salmon to reach the Northern District of the Inlet and make it into the Susitna as rationale against opening the river to dip netting. “To put another new fishery on top of (the commercial fishing restrictions) is kind of pouring salt in the wound,” Martin said. Other supporters of the fishery testified that it is intended to target chum and pink salmon, which generally are not targeted by commercial or sport fishermen in the Inlet and are largely considered plentiful in the Susitna drainage. Board member John Wood, of Willow, suggested prohibiting retention of sockeye salmon as board members expressed continued concern for Susitna sockeye stocks and urged continued conservative management by Department of Fish and Game officials in prior discussions. He said he does not want to add additional sockeye harvest on the Susitna until weir counts improve. Earlier in the meeting the board removed a “stock of yield concern” designation from Susitna sockeye at the recommendation of the department. However, other board members and department staff noted that the “bright,” or fresh, chum salmon prevalent in the lower river can be difficult to differentiate from similarly bright sockeye, even to the experienced eye. Board member John Jensen, of Petersburg, stressed that the board needs to “be really precautionary” when it opens a new fishery, but ultimately voted in favor of it with the season amendments. Wood and Gerad Godfrey, of Eagle River, voted against the Susitna dip net fishery after the board rejected the sockeye restriction. “It’s a clean fishery with a selective harvest component,” board chair Reed Morisky of Fairbanks said, noting fish can be released quickly from a dip net. Board member Israel Payton, of Wasilla, noted that the sport catch of sockeye in the Susitna drainage is about 6,000 fish per year out of an in-river run that is in the hundreds of thousands of fish most years. “If the department is worried about abundance the fishery will close,” Payton added. The board also rejected numerous proposed changes to the Kenai dip net fishery. Elwood Brehmer can be reached at [email protected]

State scraps revisions to workforce training regulations

State Labor Department officials have for now scrapped a plan to overhaul training requirements for aspiring plumbers, electricians and linemen following strong pushback from legislators and numerous construction trade groups. Department of Labor and Workforce Development Commissioner Tamika Ledbetter announced Feb. 7 that the department had suspended the pending regulations package to allow for additional stakeholder engagement on ways to strengthen career and technical training. The 30-page packet of regulatory revisions also addressed numerous other technical code changes, but the lion’s share of the more than 400 pages of public comments submitted to the state about the proposed changes were focused on the prospect of removing apprenticeship requirements for the highly technical trades. “My goal is to ensure that Alaskans are trained and prepared to participate in this economy,” Ledbetter said in a formal statement. “Many good ideas have already emerged from this process. I am confident that through respectful dialogue we will get the best possible outcome for the Alaskans that we serve.” This past Dec. 4, the department issued proposed regulations that would allow individuals seeking to become a journeyman plumber, electrician or lineman to qualify for the certificate of fitness exam for a given trade through 12,000 of general work experience in the field instead of the currently mandated 8,000 hours of work in a registered apprenticeship. Numerous other proposed changes dealt with building code issues and didn’t elicit the same response. Lawmakers in a Feb. 5 House Labor and Commerce Committee meeting said the plan would amount to a workaround that requires little documentation for contractors that want to offer journeyman opportunities while paying lower wages to inexperienced workers. Workers’ Compensation Division Director Grey Mitchell said the on-the-job training proposal would still require trainees to take the requisite certificate of fitness exam after accruing the 12,000 work hours to reach journeyman status. “Our goal was simple, to increase training opportunities and employment opportunities for individual Alaskans and give employers more options to train their future workforce,” Mitchell said. Rep. Zack Fields, D-Anchorage, a director for Laborers’ Local 341, said the proposal inadvertently undermines contractors that invested in apprenticeship programs because employers that offer the work experience route would not be subject to the same wage scales as companies that utilize a certified apprenticeship. It would encourage employers to hire out-of-state workers who would accept lower wages, according to Fields. “You’re setting up a puppy mill type of operation. This is not good public policy,” he said. Fields also said reaching the 12,000-hour threshold would be unrealistic for many trainees in the often seasonal fields. Lawmakers were also critical of the department’s decision to issue the changes without actively consulting industry stakeholders. According to Mitchell, 37 states don’t require apprenticeship experience to take a journeyman exam. That puts Alaskans at a competitive disadvantage, he said. “A lot of these adjustments are things that staff have basically heard from the public over a number of years,” said Mitchell, who spent much of his career in the department’s Labor Standards and Safety Division. An initial iteration of the regulations also allowed employers to supervise journeyman trainees at a 10-1 ratio, but that provision was stripped out before implementation of the whole package was suspended. Fields was one of 17 Republicans and Democrats the House and Senate and independent Rep. Dan Ortiz who signed a Jan. 13 letter to Ledbetter express their “strong opposition” to the proposed training regulations. Lawmakers argued the regulations would allow trainees to repeatedly perform basic tasks without adequate skill growth while still accruing training work hours. “We want good jobs with decent pay and excellent training for high-standard, quality work and safety,” the Jan. 13 letter states. “We urge you to withdraw these proposed regulations and stand with Alaska businesses and workers for whom the apprenticeship system is the foundation of workforce development.” Associated Builders and Contractors of Alaska President Amy Nibert said during the Feb. 5 hearing that the department should withdraw the regulations and engage stakeholders to resolve the issues that have been raised. Elwood Brehmer can be reached at [email protected]

‘Yield’ concern lifted for Susitna sockeye, but tighter rules remain

The Alaska Board of Fisheries decided that Susitna River sockeye salmon have sufficiently rebounded to remove their special status but at the same time does not want to relax potential harvest restrictions. The board voted unanimously to remove the “stock of yield concern” status from Susitna River sockeye Feb. 11 at the Upper Cook Inlet Finish Meeting in Anchorage. However, board members also stressed to Department of Fish and Game biologists that they do not want to change how the fish are managed. In fact, the seven-member board subsequently took actions aimed at increasing the volume of sockeye and coho salmon that ultimately make it back to the Susitna River. The status as a stock of yield concern was placed on Susitna River sockeye in 2008 after the salmon — largely headed to a handful of lake-fed, clear water tributaries — failed to meet the minimum sustainable escapement goal, or SEG, of 90,000 fish in the Yentna River. The Yentna is the major western tributary to the very large Susitna River. Upper Cook Inlet commercial drift fishermen have long advocated for lifting the status and associated fishing restrictions placed on them because ADFG managers eventually learned through subsequent enumeration studies that the sonar-based methods used to count sockeye on the Yentna were undercounting the fish. “It’s a gimmick and hopefully the board sets management based on data,” Upper Cook Inlet Drift Association President David Martin testified to the board. Martin also alleged the status was put on Susitna sockeye just to restrict commercial harvest. ADFG Commercial Fisheries and Sport Fish Division leaders on Jan. 27 sent a memo to board members recommending that the yield concern designation be discontinued. At the meeting, managers said the weirs — the most accurate way to count migrating fish — at Judd, Chelatna and Larson lakes showed sockeye stocks in those drainages were mostly achieving their respective minimum escapement objectives in recent years. Board member Israel Payton of Wasilla, a strong advocate for increasing returns of sockeye and coho to the Susitna, acknowledged the flawed data the designation was based on in explaining his rationale for wanting it removed. “We do not assess Susitna sockeye stocks very well,” Payton said. To that end, ADFG Commissioner Doug Vincent-Lang said state budget cuts could push the department to discontinue weir counting at Larson Lake near Talkeetna and Chelatna Lake, which Lake Creek drains into the Yentna. Vincent-Lang said he’s hopeful the department will find funding partnerships to keep the weirs in operation over the coming years; but he’s also comfortable the systems will continue to meet minimum sockeye escapement goals with conservative management that will continue if the weirs are cut. “These are tough decisions,” Vincent-Lang said, adding he asked staff to look for ways to cut spending that don’t impact in-season management. The location of the Susitna drainage weirs at the outlets of headwater lakes does not allow department officials to manage the commercial fisheries targeting the sockeye in-season because the run is largely through Cook Inlet by the time enough fish have reached the weir to make management decisions based on weir-counted escapements. John Wood, a board member from Willow, said the Susitna drainage is not as productive for sockeye as other large Southcentral rivers for a host of reasons and therefore needs to be managed differently. ADFG biologists said they generally believe Susitna sockeye stocks are as productive as they can be given warming summer water temperatures and predation from invasive northern pike in area lakes among other issues. In an attempt to allow more sockeye and coho through Cook Inlet and into the Susitna the board voted 6-1 to restrict the commercial drift fleet to fishing eastern Cook Inlet near the Kenai and Kasilof rivers and farther south near Anchor Point in late July and August. The drift fishing restriction ostensibly reinstates the central Inlet “salmon corridor” measures enacted by the board in 2014 to pass more sockeye and coho to northern Cook Inlet streams. The commercial fishing restrictions were eased at the board’s 2017 Upper Cook Inlet meeting. Board member Gerad Godfrey of Eagle River noted the board recently changed Kodiak commercial salmon fishing management policies to allow more Cook Inlet-bound sockeye to reach the area and said it only makes sense to subsequently structure Inlet management to allow more fish headed for the northern reaches of the inlet to get there. Reviving the “salmon corridor” policy was proposed by Mat-Su Fish and Wildlife Commission chair and northern district setnetter Mike Wood. Board member John Jensen of Petersburg cast the lone vote against. UCIDA’s Martin said the action pulls the drift fleet out of its historical fishing grounds in the middle of the Inlet and would ultimately hurt young fishermen trying to get into the industry. He predicted “another disaster” for the commercial fishery. Payton and other board members acknowledged the strain the Susitna-related decisions would put on Inlet drifters but also noted they take the vast majority of the overall harvest of Susitna sockeye and coho stocks. “I truly believe putting more fish up there (in the Susitna) will increase everyone’s yield over time,” Payton said, also stressing that the board members don’t enjoy restricting the drifters even more. “It’s important to have a thriving commercial fishery in the Northern District; it’s important to have a thriving sport fishery in the Northern District,” he said. The board also voted 4-3 to amend the preamble of the Central District Drift Gillnet Fishery Management Plan to state that it is meant to “ensure adequate escapement and a harvestable surplus of salmon into the Northern District drainages.” The changes also direct the department to manage the drift fleet so “all users” have a reasonable opportunity to harvest Kenai River coho and Northern District salmon stocks. Payton, who pushed for the intent language change, said it should be a way to bring all Northern District user groups — sport, commercial set net and subsistence — together. Godfrey said it’s an admirable goal to bring users together on issues but added that he doesn’t believe the new wording changes anything substantive. Fritz Johnson, of Dillingham, similarly called the change “superfluous.” Board chair Reed Morisky said it adds clarity for managers as to how the board wants various salmon stocks allocated. Martin called the drift fleet-related actions “strictly political” and “void of science or consideration for maximum sustained yield” of inlet salmon. ^ Elwood Brehmer can be reached at [email protected]

Efficient Slope production a plus under carbon dividend plan

Alaska could actually benefit from its oil production under a conservative-driven plan to address climate change, according to backers of the proposal. Catrina Rorke, a vice president with the Washington, D.C.-based Climate Leadership Council, said Alaska’s oil and gas production is “really carbon cheap” when compared against hydrocarbons produced in other major basins around the world and is therefore desirable under the carbon fee-and-dividend plan the nonprofit council supports. “You use the fewest resources to produce oil and gas in the state of Alaska; fewer than the Lower 48 and certainly fewer than the global average,” Rorke told a lunch gathering of the Alaska-based public policy group Commonwealth North Feb. 5. Members of the Climate Leadership Council and Americans for Carbon Dividends were in Alaska to pitch the “Baker-Schultz” carbon fee-and-dividend plan to state business and policy leaders. At its core, the Baker-Schultz plan would put a $40 per ton fee on domestic carbon emissions, whether from burning petroleum fuels, industrial processes or other sources. It is named after former Republican secretaries of state James Baker and George Schultz, who served under presidents George H.W. Bush and Ronald Reagan, respectively, and authored a report in 2017 that serves as a foundation for the plan. The Climate Leadership Council lists some of the world’s largest energy companies as its founding members, including BP, ExxonMobil, Total and Shell. It’s estimated the $40 per ton base fee administered by the federal government would generate upwards of $400 billion per year, according to Americans For Carbon Dividends Director and former Pennsylvania Republican Congressman Ryan Costello. The fee would gradually increase over time to ensure emitters and carbon technology developers would continue to push for lower carbon solutions, Rorke added. She also noted that the plan calls for exempting communities with unavoidably high energy costs from the fee, as is the case across much of rural Alaska. That massive sum of money would then be redistributed back to every American in the form of an equal-share dividend regardless of how much carbon any one person is responsible for emitting. Costello and Rorke stressed that the dividend would allow Americans to decide and finance the best personal route to adopt a lower carbon lifestyle. “The point of pushing (the money) right back into the American taxpayers’ pockets is that we don’t have a huge population of ideas on what we could alternatively do with those dollars,” Costello said, adding the base dividend would total about $2,000 per year for a family of four. “Over time it’s going to favor energy that doesn’t emit carbon or companies engaged in carbon storage and trapping technologies.” The groups believe the Baker-Schultz carbon fee-and-dividend would cut the country’s greenhouse gas emissions by 50 percent from 2005 levels by 2035 if it were enacted quickly, which would be a greater reduction than the Paris Climate Accord goals. The Climate Leadership Council projects about 80 percent of Americans would receive more money back in dividends than they would spend in costs added to goods and services as a result of the carbon fee as high-income individuals are also generally the largest individual carbon users. That’s where Alaska could realize an upside, according to Rorke. Because it’s unlikely that oil and gas production will ever totally disappear, it would be beneficial to produce hydrocarbons efficiently, which Alaska does for a number of reasons, she said. For starters, the state prohibits flaring of natural gas except in emergency situations — partly a result of the gas being a commonly held resource — and Alaska’s traditionally large, conventional oil and gas pools demand less resources to develop when compared to Lower 48 shale development that requires near constant drilling to maintain production. “Alaska’s going to come out ahead when those emissions are priced into the economy. The cleanest sources of energy are the best sources of energy,” Rorke said. “And oil and gas from Alaska is quite frankly on the list of the cleanest sources of energy and what we know how to do well today.” The Baker-Schultz plan also calls for a repeal of federal carbon regulations to allow businesses the ability to plan for the dividend, which would be the nation’s primary climate change policy, supporters say. Costello said the regulatory limit is key to gaining bipartisan support for the plan. “If we can build a political movement from the center out you can create a nucleus of smart, thoughtful bipartisan elected officials from the Democrat and Republican parties to center an energy policy that can address the climate issue,” he said, stressing that the centrist-based movement wouldn’t allow fringe climate change-denying conservatives or progressives who demand extreme actions to scuttle the plan. To keep American companies competitive, the plan also calls for the fee to be put on imported goods and lifted from American exports, Rorke added. “It puts the carbon fee on a domestic basis. It lets other countries deal with climate change the way they see fit and it establishes the U.S. on a level playing field,” she said. With the U.S. leading the way, the idea is that other countries would follow suit with their own carbon fees. The groups are touring the country to drum up support for the plan before attempting to get enacting legislation through Congress. “It’s the most comprehensive, effective climate change policy out there,” Costello professed. Elwood Brehmer can be reached at [email protected]

Board votes to add 100,000 sockeye to goal for Kenai River

Upper Cook Inlet fisheries managers will be trying to allow a few more sockeye salmon into the Kenai River this summer following decisions by the state Board of Fisheries on Feb. 11. The seven-member board voted 6-1 to increase the tiered, in-river sockeye goals for the Kenai by 100,000 fish at its Upper Cook Inlet Finfish Meeting. The change to increase the number of sockeye that make it past the Department of Fish and Game sonar located just downstream of the Sterling Highway bridge in Soldotna is generally in line with the department’s recommendation to slightly increase the sustainable escapement goal for Kenai sockeye but followed strong opposition from commercial fishing interests. ADFG uses scientific data to set biological and sustainable escapement goals for salmon fisheries statewide that are then adopted by the board, while the in-river goals can be set at larger numbers to achieve objectives such as additional harvest. The proposal to increase the in-river target ranges was submitted by the Kenai River Sportfishing Association, commonly known as KRSA. KRSA consultant biologist Kevin Delaney said increasing the in-river Kenai sockeye goals is one of the most important actions the board can take at the two-week meeting. At projected total run strengths of less than 2.3 million fish, the board increased the in-river goal from the current 900,000 to 1.1 million sockeye to 1 million to 1.2 million. At runs projected from 2.3 million to 4.6 million the in-river goal increases to 1.1 million to 1.4 million. For runs projected larger than 4.6 million, the goal increases to 1.2 million to 1.6 million fish. The 2020 preseason Kenai sockeye late-run projection is 2.2 million fish, which is 37 percent less than the 20-year run average. The in-river goal increases the board approved were less than what KRSA first proposed prior to the meeting. The group amended its original proposal that called for increasing the upper end of the in-river goals by 300,000 fish compared to what the board ultimately passed. Commercial harvesters argued in part that recent low Kenai sockeye returns are a symptom of managers frequently exceeding the upper end of the escapement goal, which makes for more competition among juvenile sockeye rearing in the system and ultimately results in fewer salmon returning per spawner, or escaped, salmon. Upper Cook Inlet Drift Association President David Martin said the group of drift boat commercial fishermen doesn’t want ADFG to continue to raise the sockeye escapement goal “to try to find the tipping point.” Martin pointed to run and escapement data from the 1980s that he says shows lower escapement goals over time produce better runs. “The data shows we’re down to a (spawner) replacement of almost one-to-one,” he said. “There’s reasonable opportunity to harvest the resource.” KRSA founder Bob Penney said concerns about over-escapement of sockeye into the Kenai are overstated. “Those salmon provide life and food to the bears, the raven, the trout and to all the rest of the critters that live on that river. If there’s more fish on the grounds, don’ worry, they won’t get wasted,” Penney testified. “Mother nature will take care of it.” Penney, a longtime real estate developer, was a major donor to a group that backed Gov. Mike Dunleavy’s gubernatorial campaign. Dunleavy previously represented a large part of the Mat-Su region in the state Senate, an area that predominantly supports management favoring sport and personal use salmon fisheries. Board members John Jensen of Petersburg and Israel Payton of Wasilla said the increased in-river goals don’t change the overall Kenai sockeye management — and contentious harvest allocations among user groups — much. Board chair Reed Morisky of Fairbanks said the Kenai is one of the primary fisheries that provides opportunity for roughly 400,000 Southcentral Alaska residents and tourists to harvest salmon. “We all know that tourism is growing in the state. That doesn’t mean the commercial fishery should be done away with, not at all,” Morisky said. “But over time circumstances and economies change.” Board member Gerad Godfrey of Eagle River was the lone vote against the in-river goal changes. He said he is concerned about lost commercial fishing opportunity as a result of the increased in-river targets. “My concern is the viability of this river and the carrying capacity of any river in nature whether it’s being managed by man or not,” Godfrey said. Prior to the board increasing the in-river goal, ADFG staff recommended increasing the Kenai sockeye sustainable escapement goal, or SEG, from the current 700,000 to 1.2 million to 750,000 to 1.3 million. Fisheries Research Coordinator Jack Erickson told the board that the new SEG range is based on more than 30 years of solid run, harvest and escapement data that indicates the river is likely to produce the maximum sustained yield of sockeye with annual late-run escapements of 770,000 to 1.7 million fish. “We’ve seen large escapements in the past and there’s never been a year when (the sockeye run) failed to replace itself,” Erickson said. “That means that we’ve had stability.” He acknowledged there is some uncertainty regarding sockeye productivity with large escapements and said the department took a “precautious approach” with the increase of 100,000 fish at the upper end of the SEG . Payton said he concluded the department doesn’t really know what exactly the SEG should be after reading management and research reports but suggested the Kenai is likely more productive than once thought given new data that shows some Cook Inlet-bound sockeye are harvested in Kodiak-area commercial fisheries. ^ Elwood Brehmer can be reached at [email protected]

Hilcorp taps The Alaska Community Foundation to manage giving

Hilcorp Alaska and The Alaska Community Foundation announced a philanthropic partnership Jan. 31 that will lead to more than $5 million of giving in the coming year. Foundation CEO Nina Kemppel called the partnership “innovating news” for philanthropy in the state and said in a formal statement that it is based on similar work Houston-based Hilcorp Energy has done with charities in its home city. “Hilcorp has a successful history of enhancing its social investment through the Greater Houston Community Foundation, and we’re thrilled to have the opportunity to take that proven model and help Hilcorp expand its corporate giving to Alaska beginning with $5 million over the next 12 months,” Kemppel said. Under the partnership, The Alaska Community Foundation will assume administration of Hilcorp Alaska’s corporate giving program, which seeds each new employee with $2,500 to donate to the nonprofit of their choice and then matches employee donations with up to $2,000 per person per year for as long as they’re employed with the company. Foundation Vice President of Communications and Development Elizabeth Miller said Hilcorp Alaska employees will simply log on to an online account and pick any eligible 501(c)3 organization to donate to, at which point The Alaska Community Foundation will take over and disperse the funds. Since it was announced last August that Hilcorp had agreed to purchase all of BP’s Alaska assets there have been questions among Alaska’s nonprofits about whether or not Hilcorp would fill the pending void left by BP’s departure. The London-based oil giant had established numerous philanthropic relationships over its 60-year run in the state and was generally seen as a strong corporate giving partner. Hilcorp Alaska Senior Vice President Dave Wilkins has said in several recent public appearances that the company plans to triple its current Alaska workforce of approximately 500 people, which will add greatly to the amount of money the company donates through its individual giving program. He also routinely notes that more than 90 percent of the company’s Alaska workers also reside in the state. “There is no better organization than (The Alaska Community Foundation) to help our employees invest in Alaska,” Wilkins said in a formal statement. “Whether it is an after school program for at-risk youth, their church or a homeless shelter, we empower our employees to become lifelong philanthropists and determine how best they can help their communities.” Hilcorp employees have donated more than $15 million to U.S. nonprofits since the inception of the company’s corporate giving program in 2007, according to a joint statement. — Elwood Brehmer

Pebble releases draft mitigation plan

The Pebble Partnership’s federally-mandated plan to offset its mine project’s impacts to wetlands and salmon-bearing streams includes cleaning beach debris, improving fish passage in compromised waters and upgrading the water treatment systems in area villages, but Tribal leaders in the community closest to the proposed mine site don’t feel it’s adequate. The U.S. Army Corps of Engineers on Jan. 27 published Pebble’s compensatory wetlands mitigation plan to counter the impacts the open-pit mine and its associated infrastructure, which includes 72 miles of roads, ports, and a 192-mile gas pipeline from the Kenai Peninsula to help power the mining operation. The Clean Water Act mandates the wetlands mitigation and the Army Corps of Engineers oversees wetlands fill permitting under the law. Pebble expects to disrupt 3,083 acres of wetlands and water bodies under federal jurisdiction across the broad scope of the project and of that, 2,227 acres will be permanently impacted, according to the plan. More than 70 percent of the permanently impacted areas would be at the mine site. The 856 acres of temporary impacts would be in areas of the transportation and pipeline corridors where some fill material would be used temporarily during construction and eventually removed, the plan states. Upgrading the water treatment facilities in the villages of Newhalen, Nondalton and Kokhanok is Pebble’s first mitigation initiative. According to the documents filed with the Corps of Engineers, demand on the wastewater treatment systems exceeds their designed handling capacity in all of the communities. Newhalen and Kokhanok are on the north and south shores of Iliamna Lake, respectively, and Nondalton is north of the lake on the Newhalen River system near the southern boundary of Lake Clark National Park. The company also plans to restore access for salmon to up to 8.5 miles of habitat — commensurate with the miles of streams the mine facilities would remove from the headwaters of the Koktuli River, which supports five species of salmon — mostly around Dillingham, the largest community in the Bristol Bay region. The mitigation plan states that the portions of the Koktuli watershed that would be permanently removed generally have lower salmon spawning and rearing values, but Pebble acknowledges that indirect impacts from altered water flows and elevated nutrient levels could affect larger salmon spawning and rearing areas downstream. Finally, Pebble is proposing to clean up marine debris from 7.4 miles of coastline around the proposed Amakdedori port site on the west side of Cook Inlet, from which the company hopes to export its ore concentrates. Pebble CEO Tom Collier said in a formal statement that the company “took a holistic approach” to offsetting the impacts from its development and tried to remedy existing issues related to salmon and water quality. “Each initiative we are proposing tackles lingering environmental issues that might not otherwise be addressed due to local financial constraints and competing priorities in the area,” Collier said. Pebble Vice President of Permitting James Fueg said in an interview that the company first did its best to minimize wetlands impacts by scaling back the size of the mine and redesigning facilities in its overall project plan. However, he said the lack of development in the region beyond the immediate communities made it difficult for the company to identify opportunities to restore damaged wetlands or preserve areas threatened by other development; those are the mitigation options traditionally preferred by the Corps. Fueg stressed that the coastline rehabilitation is not “just a visual thing,” but that it addresses direct problems for wildlife. He noted it’s a remote area that otherwise likely wouldn’t be cleaned of lost fishing gear and other debris. “We’ve seen cases out there of birds and other things that have gotten entangled in the ropes and nets lying around there so it’s easy to demonstrate that’s a real threat,” Fueg said. The company would continue to monitor and clear the section of shoreline through the life of the project, which is currently pegged at about 20 years, he added. The Corps of Engineers has the final say over what Pebble must do to mitigate its impacts to wetlands and could amend the company’s proposal when it issues its record of decision on the overall project plan, which is tentatively set for this coming summer. Fueg said whatever mitigation work ultimately needs to be done will be finished before any work is done on the mine itself. The fish access projects would focus on replacing damaged or poorly installed culverts that prevent salmon from moving freely to their desired habitat for a given life stage. Culverts and similar potential barriers can impede adult fish passage, but more often they prevent juvenile salmon or resident species from moving back upstream to prime rearing areas during their seasonal migrations, according to Department of Fish and Game biologists. “Frankly, there are hundreds of culverts in the state database (that need fixing) and the reality is that while there may be a quote-unquote ‘responsible party’ associated with that — in other words, who’s the owner of the road; who’s the owner of the right-of-way — the fiscal situation being what it is the majority of those are not going to be fixed anytime soon,” Fueg said. “So there’s an opportunity to do good there and a lot of opportunities for further mitigation if we need to go down that road.” Each of the water treatment projects will likely cost multiple millions of dollars, according to Fueg, who also acknowledged they will require complete access to the facilities but said the Tribes in the communities were supportive of the concept. Nondalton Tribal Council President George Alexie said his council has opposed Pebble “from day one” and discussed the prospect of the company working on the community’s water infrastructure. Pebble’s mitigation plans simply don’t do enough to offset the damage the project will do to large areas of spawning and rearing habitat at the mine site, Alexie contends. “The council opposed the idea of Pebble trying to weasel their way in and throwing all their money around. They tried that a few times but the council didn’t want anything to do with it,” he said. Nondalton’s water treatment plant is controlled by the city council, according to Alexie, but he said the group shares the Tribal council’s beliefs about the controversial mine plan in-part because several individuals serve on both panels. Nondalton City Council officials could not be reached in time for this story. When asked whether he believed Pebble would be granted access to do the proposed work, he said, “I have my doubts.” Tribal leaders in Newhalen have not explicitly supported the project in formal comments, but have expressed desires for more economic opportunities in the region on multiple occasions. Many Newhalen and Kokhanok residents are also shareholders of Alaska Peninsula Corp., a Native village corporation that supports the project and has an agreement with Pebble to allow the company to use its land around Iliamna Lake for its transportation corridor. Lake and Peninsula Borough Manager Nathan Hill said it’s not his role to evaluate the plan but borough officials sought to ensure that mitigation work benefitted the region and connected Pebble with local individuals who could help make that happen. He said he heard that early on the company was considering doing culvert work in the Mat-Su area — where fish passage impediments are a bigger problem — and thought mitigation closer to the project footprint made sense. Hill emphasized that the borough has not taken a stance on Pebble because it has its own local development permits the company must secure, but he also noted that the village leaders will have the final say as to whether or not they want Pebble to do the work in their communities. Elwood Brehmer can be reached at [email protected]

London company aims to drill prospect from off Dalton Hwy.

A new British entrant to the North Slope plans to finish a unique oil project started years ago by a small Anchorage explorer. In an interview with the Journal, London-based Pantheon Resources executives said they expect to produce up to 30,000 barrels of oil per day from the Greater Alkaid prospect discovered in 2015 by Great Bear Petroleum. Pantheon bought Great Bear and its roughly 200,000 acres of North Slope leases in January 2019. CEO Jay Cheatham said the Greater Alkaid prospect is particularly promising in large part due to its location: a little more than 20 miles south of Prudhoe Bay and directly adjacent to the Dalton Highway. “We’ll be drilling from a pad that’s right next to the Haul Road. All of our competitors on the North Slope literally have to spend billions of dollars to get to first oil,” Cheatham said, adding that won’t be the case for Pantheon. He and Pantheon Technical Director Bob Rosenthal stressed the location not only precludes the need for expensive infrastructure and logistics to reach the prospect, but it also allows for year-round development. Pantheon will literally be drilling “underneath the Dalton Highway and the (Trans-Alaska) Pipeline, or TAPS, which means we can get on production faster than anybody else,” said Rosenthal, a former Great Bear manager. “The idea is to build a pad next to the highway and drill long, horizontal multi-stage fracked wells and put this into production as soon as we can.” Company representatives are in discussions with state officials regarding the viability of expanding a gravel turnout on the highway to serve as the company’s drilling and production pad, according to Cheatham. Great Bear first started working the area in 2012 and drilled several wells targeting unconventional shale plays but the company decided to drill the conventional Alkaid-1 well into the Brookian geologic sequence when the prospect “popped up” in 3-D seismic data at its fortuitous location, according to Rosenthal. The large Nanushuk and Torok formation oil discoveries made by several companies working farther north and west on the Slope in recent years are also zones of the Brookian sequence, but they are older than what Pantheon is targeting, Rosenthal said. “You can get similar porosity and similar permeability,” he said of the Brookian plays. “It keeps stepping across the slope — stepping west to east.” He added that Pantheon’s target zone is about 8,000 feet deep. Rosenthal’s description of the geology is generally in line with what state geologists have said about the Brookian sequence in prior interviews with the Journal. Cheatham said Great Bear spent upwards of $200 million exploring the area but had to suspend the Alkaid-1 well when the Sagavanirktok River — which the pipeline and highway parallel — overflowed and flooded in the spring of 2015. Pantheon reentered the Alkaid well last spring and it flowed approximately 100 barrels per day from a six-foot interval of a larger, 450-foot likely oil-bearing column, according to Cheatham. This year, the company plans to drill one or two more Alkaid wells and initiate a long-term production test that should allow the company to move its contingent recoverable resource estimate of 76 million barrels to the reserve category, which is a seemingly small but significant shift for oil developers, Cheatham said. He and Rosenthal emphasized a belief that the additional drilling will also allow the company to add to its resource totals. As it stands, they said an independent assessment gave the Greater Alkaid prospect a net present value of $595 million, or about $8.50 per barrel, with an industry standard 10 percent annual discount rate. The pair declined to specify a timeline for commercial production from Alkaid, but Rosenthal said they hope to start producing “as quickly as we can possibly do the job.” If and when that occurs, Cheatham said Pantheon is likely to install temporary modular production facilities at the drill site and start by trucking the oil about 20 miles north to TAPS Pump Station 1. As the field is developed and permanent facilities are installed, he said Pantheon could eventually put its oil into the pipeline on site. “It’s an open-access pipeline so we have talked to people about being able to tap into the Trans-Alaska Pipeline System right there,” Cheatham said. “There’s a potential to do a hot tap into the line.” Company leaders also eventually plan to drill their Talitha prospect to the southwest of Alkaid, which is on the roughly 200,000 acres of state leases the company holds in the area and they believe holds several billion barrels of oil. “(Talitha) is a very large accumulation that we see there keyed off of an old well drilled by my former company, ARCO, in 1998 called the Pipeline State-1 well,” Cheatham said. Pantheon’s Talitha targets are in Brookian and Kuparuk formations, according to a company investor presentation. ^ Elwood Brehmer can be reached at [email protected]

ConocoPhillips earns, spends $1.5B in Alaska during 2019

Lower oil and gas prices took a bite out of ConocoPhillips’ fourth quarter earnings but the upstream-focused oil major still managed to net its largest full-year profit in 2019 since the global reset of energy markets more than five years ago. ConocoPhillips executives reported $720 million fourth quarter and nearly $7.2 billion full-year profits for 2019 during a Feb. 4 earnings call. In Alaska, the Houston-based producer netted $368 million for the quarter, which rounded out a nearly $1.5 billion full-year profit from its extensive North Slope operations. The company paid approximately $263 million in combined fourth quarter taxes and royalties to the State of Alaska, according to ConocoPhillips Alaska spokeswoman Natalie Lowman. Overall, ConocoPhillips paid just more than $1 billion in taxes and royalties to the state in 2019, according to company figures. ConocoPhillips’ companywide capital program declined just more than $100 million in 2019 to $6.6 billion, but its capital investments in Alaska grew by about $200 million to $1.5 billion for the year. Lowman noted via email that the company’s 2019 Alaska capital investments exceeded its adjusted net income of $1.44 billion in the state last year. The companywide earnings were down 62 percent year-over-year for the fourth quarter, but up 14 percent for all of 2019. Company officials attributed the drop in quarterly earnings to a slight decline in global production and oil and gas prices that were 11 percent lower than the fourth quarter of 2018 on a per-barrel equivalent basis, according to the earnings report. The $7.2 billion full-year profit was boosted by a nearly $1.8 billion gain from selling European assets that was realized in the third quarter. The earnings were the result of $8.1 billion of quarterly revenue, a 21 percent year-over-year decline, and $36.6 billion of full-year revenue, which was down 5 percent from 2018. The $720 million and $7.2 billion profits translated to fourth quarter earnings of 66 cents per share and full-year earnings of $6.43 per share. ConocoPhillips stock traded at around $57.10 per share in the hours after the earnings release, down slightly from a $58.50 per share Tuesday opening price. The company repurchased approximately $3.5 billion of stock and paid $1.5 billion in dividends to shareholders during the year, actions that were funded from free cash flow and marked a 43 percent return of cash flow from operations to shareholders, according to the earnings report. ConocoPhillips also increased its quarterly dividend to 42 cents per share last year. The company’s full-year Alaska earnings were down 16 percent to just more than $1.5 billion in 2019 on a 9 percent drop in oil prices despite 18 percent growth in the company’s North Slope oil production from 2018. Alaska oil production attributable to ConocoPhillips averaged 202,000 barrels of per day in 2019, meaning the company accounted for more than 40 percent of all North Slope oil production last year. CEO Ryan Lance emphasized in a formal statement that 2019 capped a “highly successful” three-year period in which the company transformed its operations and balance sheet to match the new realities of energy markets even with the fourth quarter earnings decline. “We’ve positioned ConocoPhillips to deliver sustained value through price cycles due to our strong balance sheet, focus on free cash flow generation, compelling returns of and returns on capital and our commitment to environmental, social and governance leadership,” Lance said. “We have laid out a powerful 10-year plan based on our formula for value creation and we look forward to successfully delivering that plan in the quarters and years ahead.” Company leaders have frequently stressed a goal to be profitable at market prices of $40 per barrel of oil equivalent, which also accounts for natural gas and liquids production. ConocoPhillips realized an average price of $48.78 per barrel of oil equivalent in 2019. ConocoPhillips is advancing several oil projects in the National Petroleum Reserve-Alaska on the western North Slope and has ramped up its winter exploration drilling program in recent years. Elwood Brehmer can be reached at [email protected]

Recession persists for Anchorage as state economy recovers

Anchorage’s economy is expected to grow slightly in 2020 but despite incremental recovery statewide in 2019, the city continues to be mired in a mild recession, according to data published Wednesday by the Anchorage Economic Development Corp. AEDC President Bill Popp said the city ultimately lost approximately 300 jobs last year leading to a fifth year of recession based on preliminary data for the second half of the year. He added that the final numbers are more likely to increase the job-loss total if it changes at all. The economic advocacy group a year ago projected slight job growth for Anchorage in 2019 but state budget cuts and a prolonged fiscal debates in Juneau resulted in direct government job losses as well as a broader economic uncertainty that made some employers hesitant to invest, Popp said. He spoke Wednesday at AEDC’s annual economic forecast luncheon. Anchorage’s unemployment rate averaged 5.1 percent for the year, which often is not indicative of a declining economy but hints at labor force issues, according to Popp. In an interesting departure from the status of its largest city, statewide Alaska added more than 2,000 jobs last year, according to preliminary data from the state Labor Department. The growth followed three years of losses brought on by the sharp drop in oil prices in 2015. Anchorage retailers shed approximately 400 jobs last year, which Popp said was largely due to the cultural shift to online shopping impacting national retail chains. He noted Anchorage lost Pier 1 Imports, Bed, Bath and Beyond and its locally beloved downtown Nordstrom store last year. Anchorage also lost roughly 400 state and local government jobs last year; primarily the result of Gov. Mike Dunleavy’s cuts to the University of Alaska budget and lower enrollment at the Anchorage School District, according to Popp. The city’s health care sector also lost about 100 jobs in 2019, marking the first contraction in Anchorage’s health care industry in 15 years, Popp said. Anecdotally, it’s believed the uncertainty stemming from last year’s debate over the Medicaid budget between the Legislature and Dunleavy and the governor’s subsequent Medicaid vetoes has curtailed hiring in health care, according to Popp. Those losses exceeded small gains in the oil and gas and tourism industries and growth of about 400 jobs in the construction trades partially due to earthquake repairs, he said. AEDC leaders expect Anchorage to add approximately 100 jobs next year despite continued reductions in state government and a loss of 200 jobs in oil and gas employment mainly from Hilcorp Energy’s pending acquisition of BP’s Alaska assets. Popp said it’s common to see a slight decline in jobs through such a transition as some employees head elsewhere for work with the seller — in this case BP — and others retire or head to different fields. Overall, AEDC predicts the sector will lose about 200 jobs this year. Hilcorp Alaska Vice President Dave Wilkins said at the AEDC event that the company has agreed to hire roughly 800 current BP employees and plans to add another 100 to 200 jobs to its Alaska workforce over the year. It’s unclear at this point if the major oilfield transaction will ultimately result in job losses or gains. While Anchorage’s economy is slowly trending upward in the near term, Popp said some demographic data combined with a growing concern among employers adds up to potential long-term challenges for the city. Outmigration is significantly outpacing in-migration and births, which has led to a gradual but steady population decline in Anchorage of 9,200 residents since peaking in 2013 at 301,000 people, according to Labor Department data. AEDC expects the city will lose another 1,000 people in 2020. Similarly, Anchorage’s workforce has shrunk by about 10,000 individuals since 2011 to 149,000, according to AEDC. Popp said that upwards of 20,000 people per year have left Anchorage to move Outside between 2014 and 2018, when the most recent data is available. However, an average of only 16,000 people moved to the city from Outside to replace them. “That’s a loss of talent; that’s a loss of future opportunity; that’s a loss of retirees. It’s a mix of population,” he said. Additional research into job postings in the city — which are on the rise — indicates Anchorage employers have “an intention to hire, an intention to invest,” Popp said to the crowd of mostly business professionals, “but if you don’t have people to fill those jobs that you the business community are creating, they’re not jobs, they’re just good intentions.” He reiterated a position long held by AEDC that Anchorage as a whole needs to be more proactive in attracting young and skilled workers. “Communities across the United States are competing with communities across the United States to attract and retain workforce,” Popp said, adding that livability and an ample workforce are major factors in determining where companies are investing. “If you don’t have a policy and strategy in place as a community you are not on the radar for national businesses in the coming decade because having to transport a workforce into an area do to business is the most expensive option you could possibly expect to have.” Elwood Brehmer can be reached at [email protected]

Quake-free 2019 means dip in construction spending in ‘20

The amount of money flowing into Alaska’s construction industry is expected to dip to roughly $6.7 billion in 2020 but large resource projects on the horizon continue to fuel hope for industry leaders in the state. Associated General Contractors of Alaska Executive Director Alicia Siira said a forecasted decline of $500 million, or about 6.9 percent, in construction spending this year is largely due to the dwindling number of repair projects stemming from the 7.1 magnitude earthquake that struck Southcentral Alaska in November 2018. While the Anchorage and Matanuska-Susitna school districts are still working on long-term rehabilitations to several schools severely damaged by the earthquake, the vast majority of repairs to roads and private buildings have wrapped up. AGC of Alaska released its annual construction spending forecast Jan. 30 in Anchorage. The report was compiled by the Alaska research firm McDowell Group. Last year’s forecast for $7.2 billion of construction spending attributed approximately $200 million in government spending to earthquake-induced projects, with additional spending related to private-sector repairs. “We saw a spike last year due to unexpected earthquake repairs,” Siira said, adding that other sectors of the industry are expected to see mostly flat spending year-over-year. “Although the outlook is relatively flat, there are certainly some bright spots for construction. Overall, petroleum, oil and gas spending is still a bright spot; we’re seeing lots of activity up there. Mining is still going to be a big one, as well,” she said. Oil industry spending will lead the way with $2.9 billion in capital investments, which is a nearly $200 million year-over-year increase. The growth in oil activity — driven by large prospects being developed by ConocoPhillips and Oil Search, a new entrant to Alaska — will offset spending declines in the mining and utility sectors. Mining companies are expected to spend about $170 million on capital projects this year, which would be about $100 million less than 2019 as several expansion projects at producing mines are completed. New work this year includes a new tunnel at the underground, multi-metal Greens Creek mine near Juneau and an expansion of the processing facilities at the Pogo gold mine in the Interior, according to the report. The Department of Defense is also starting to wrap up years of work on projects at Interior Alaska installations and that is also contributing to the smaller, $6.7 billion spending forecast, according to Siira. Statewide national defense spending is pegged at about $500 million this year in the report, which is about $200 million less than 2019. Specifically, the lion’s share of $325 million allocated to a new radar system at Clear Air Force Station through 2021 was spent from 2017-19. Also, preparations for two new squadrons of F-35 fighters to Eielson Air Force Base, which included new hangars, flight simulators, and other facilities, are mostly complete as the first fighters are set to arrive later this year. Overall, public construction spending is expected to be nearly $2.3 billion this year, which is roughly a $300 million decrease from 2019. Activity in most of the subsets of public spending is generally anticipated to be flat, with the exception of Defense and earthquake projects declines. State and federal spending on transportation projects should be flat in the $1 billion range, according to the report. However, substantial work is set to begin again at Anchorage’s Port of Alaska after city officials approved a $42 million contract last summer for Seattle-based Pacific Pile and Marine to construct the first phase of a new petroleum and cement terminal at the port, which is the primary hub for inbound goods statewide. The new fuel and cement dock is the first of a series of large dock construction projects at the port in the coming years. While a final cost for the entirety of the port modernization work is not yet available, it will clearly be many hundreds of millions of dollars. Private sector construction spending will be mostly flat this year at about $4.4 billion, according to the report. Utility spending will also be down roughly $300 million to $150 million following the completion of GCI’s $140 million 5G upgrade, the report states. Construction industry impact While the winter release of the construction forecast is an annual tradition of sorts for industry leaders, this year’s report also highlights the significant influence the construction trades have on Alaska’s economy as a whole. According to McDowell Group, the industry provided $3.3 billion of direct and induced income across Alaska in 2018, representing more than 10 percent of the state’s total labor income for the year. On the employment side, state Labor Department figures have long pegged the construction industry as accounting for less than 5 percent of the state’s total workforce with an average of 15,000 to 17,000 jobs. Alaska’s three-year recession has put the reported construction workforce towards the bottom of that range of late. However, the Labor Department estimates do not include self-employed contractors, as they are much more difficult to quantify for state researchers because they are not required to file the same financial and insurance records with the state as larger companies are. Based on federal statistics, the McDowell Group report concluded that there were more than 7,300 self-employed construction workers in Alaska, bringing the total industry workforce to 23,600. That direct employment also supports another 17,700 jobs in the state, according to the report, meaning the industry helps provide more than 41,000 jobs in Alaska; about 9 percent of all employment in Alaska in 2018. Siira said the report gives her and other industry leaders more new, solid data that they can use to help advocate for their industry. “We are really excited to release this economic impact report. A study on the construction industry in Alaska has never been done to this level of detail, and the results exceeded our expectations. The construction industry is a major contributor to Alaska’s economy, and now we have the numbers to back it,” she said. Combined, the closely tied oil and gas and construction industries support approximately 82,000 jobs in the state providing more than $6.4 billion of income, according to McDowell Group reports. Oil and gas impacts The Alaska Oil and Gas Association released a similar economic impact report for its industry Jan. 29 that was also compiled by the firm. It’s worth noting that some of the labor data for the construction and oil and gas industries undoubtedly overlaps given oil companies provide a significant portion of the work done by construction companies in the state. The construction report also concluded that the state’s construction workforce has become a bit more Alaskan in recent years. Alaska residents comprised 82 percent of the state’s construction workforce in 2017; that’s up from 79 percent in 2013, which is also the statewide resident hire average across industries. “That’s a number we can really be proud of as an industry,” Siira said in reference to the increasing resident-hire rate. ^ Elwood Brehmer can be reached at [email protected]

Microcom-OneWeb partnership promises Alaska coverage by year-end

Alaska telecommunications provider Microcom has teamed up with a global counterpart to bring high-speed internet capabilities to every inch of the state by the end of the year. Microcom and London-based OneWeb announced an agreement Jan. 15 that will make the Anchorage-based company the Alaska distributor of space on OneWeb’s global broadband network that is currently in-the-works. A year ago Microcom founder Chuck Schumann announced his company’s plans to eventually supply up to 80 gigabits of broadband Internet capacity statewide via several special satellites strategically positioned in orbits to provide the best possible connectivity for Alaska customers. Microcom’s plan to drastically grow the state’s broadband capacity with its Aurora System project started with the formation of subsidiary Pacific Dataport Inc. in 2017 to implement the Aurora System. Schumann said in an interview that the partnership with OneWeb will greatly enhance the Aurora project by, among other things, giving customers a much stronger broadband network. He anticipates the companies’ combined work will “upend” Alaska’s internet market by making higher speed, lower cost connectivity available to everyone in the state, he said. “Both of these services working together promises the best of both words and some incredible benefits as far as resiliency and redundancy on the network because, now, I come into a location if I’m providing service for health care or any other business that needs really good, reliable communications — we’re going to be able to do that because we’ve got redundancy built into what we’re doing,” Schumann said. The redundancy comes from the different technical approaches Pacific Dataport and OneWeb have for operating their satellites. Pacific Dataport’s small Aurora System satellites — the first of which is scheduled to launch late this year with 10 gigabits of capacity — will work in high, geosynchronous orbits more than 1,000 miles above Earth that mirror the planet’s rotation. Historically, satellite-based systems have provided little service to Alaska because they are often obstructed by objects on the ground due to an orbital location that is too far east to serve Alaska well. However, Pacific Dataport's Aurora satellite network will be positioned roughly over Hawaii “to give the best possible look angle” to Alaska, according to Schumann. They will be able to provide broadband service up to 500 miles north of the North Slope, he said. Pacific Dataport representatives have said a second Aurora satellite is scheduled to launch in 2022 and will increase the network’s capacity to 80 gigabits of broadband. Currently, Alaska has about 2.5 gigabits per second of satellite bandwidth across multiple broadband providers, according to Pacific Dataport. OneWeb Enterprise President Campbell Macfarlane said the company is using low-earth orbit, or LEO, satellites in its network and plans to employ nearly 700 of them at varying latitudes, meaning they will not have the same issues as other low-orbit satellite systems. OneWeb’s satellites are being assembled two per day at a factory in Florida. A launch of 30 is scheduled for Feb. 7 from a facility in Kazakhstan, according to Macfarlane. OneWeb touts a diverse list of major international companies as its partners and investors on its website, including fellow telecoms Hughes, Qualcomm and Intelstat alongside major players in other industries such as Coca Cola and aerospace giant Airbus. A corporate presentation says OneWeb has raised more than $3 billion of investment for its broadband project. Schumann has said the Aurora project is fully financed. On the ground, the partnership makes Pacific Dataport the Alaska distributor of OneWeb’s network for Alaska and Hawaii, according to Schumann. Pacific Dataport will sell wholesale network capacity and Microcom will serve retail and support functions, he said. Alaska and other Arctic jurisdictions are first in line for OneWeb’s new broadband network because the satellites are being put into orbits north to south, according to Macfarlane. OneWeb expects to go live for global service in October 2021, he said. “Alaska will get the first taste of this new technology,” Macfarlane said. “Couple that with a hybrid GEO technology (from PDI) as well and you’ve really got the best of both worlds, so no one in Alaska can say they’re not connected. In two years time that will be a thing of the past.” He and Schumann said they believe the coming access to high-speed broadband could transform everything from health care delivery in rural Alaska — where doctor visits are increasingly performed remotely in a service known as “telehealth” — to real-time monitoring of commercial fisheries to in-flight Internet access. PDI and OneWeb have also been discussing the opportunities high-speed broadband could hold with resource companies, they said. Connecting to their combined broadband network will require nothing more than a user terminal and a requisite power source. “This is going to upend the model here in Alaska where everybody has looked at bandwidth — that Internet capacity was scarce and the prices were very high. What Pacific Dataport is doing with bringing these services together is making bandwidth plentiful across Alaska, over every inch of Alaska and bringing prices down,” Schumann said. “It’s going to be a whole different way to think. It’s going to allow people in rural communities to participate in the Internet and in the world economy — working remotely, for instance.” Macfarlane said a company or organization in a specific location could purchase broadband capacity and the terminal equipment with the ability for excess bandwidth to be available to the community through a wi-fi network. Reliable high-speed broadband can also open up a host of information technology jobs as well. Schumann added that reliable blanket broadband coverage also makes expanding cellular coverage easier and less expensive because phone providers would be able to use the network for a “middle mile” connection between a tower and a network hub rather than needing to install costly fiber optic links. Macfarlane also noted that relying on satellite-based broadband networks largely eliminates the need for the cost and environmental impact of burying fiber optic cables to extend Internet to rural areas. He compared the transition from terrestrial fiber optic Internet to broadband to the shift from landlines to cell phones that has happened over the past couple decades. “I reckon 10 years from now the thought of putting a fiber to a remote site will be abhorrent. That’s the change; that’s how dynamic it will be,” Macfarlane said. (Editor's note: This story has been corrected to accurately reflect the orbital position of Pacific Dataport's Aurora satellites.) Elwood Brehmer can be reached at [email protected]

McKinley Capital buys research firm McDowell Group

One of Alaska’s premier investment companies is branching out with the purchase of one of the state’s go-to research firms. Anchorage-based McKinley Capital Management announced Jan. 29 that it has acquired McDowell Group, which has offices in Anchorage and Juneau. A statement from McKinley Capital regarding the purchase says McKinley will use McDowell’s nearly 50 years of multidisciplinary research experience to form a new economic research and consulting arm at McKinley that will be led by McDowell principal and former state Commerce Commissioner Susan Bell. McKinley Capital CEO Rob Gillam said combining the businesses under the new research unit will, among other things, help improve McKinley’s ability to better market the benefits of investing in Alaska. “This acquisition is great for McKinley Capital, for McDowell Group and for Alaska,” Gillam said in a prepared statement. “It provides McKinley Capital with a new business unit and complimentary capacity; it provides a long-term ownership plan and expanded clientele for McDowell; and it strengthens and solidifies two Alaska businesses, which together proved more than 60 high-paying jobs.” The companies did not disclose a price for the transaction. Gillam has stressed his firm’s focus on data-focused investment strategy in multiple interviews with the Journal since taking over the company from his late father and company founder Bob Gillam in October 2018. McKinley manages a roughly $5 billion global investment portfolio, according to Gillam. McDowell has long been a primary choice for Alaska trade associations seeking to quantify the economic impact of their respective industries. The firm has also conducted extensive analysis of the state’s health care system, education and transportation systems. McDowell principal Jim Calvin called the move a “natural evolution” that gives the firm more opportunities to grow its business through McKinley’s connections. “The research we do at McDowell goes hand-in-hand with McKinley Capital’s data-driven method of investing,” Bell added. “To lead McKinley Capital’s new economic research unit is an honor and I look forward to seeing how integrating McDowell and McKinley Capital will bring new possibilities to Alaska as a whole.” The acquisition is another move that further puts McKinley’s business in the public light after decades of avoiding press coverage under Bob Gillam. Last May, McKinley announced a partnership with the University of Alaska Lab for Data Science and Artificial Intelligence to mentor and provide students an area in the firm’s Anchorage office where they can work on AI and data science projects. This past September, the Alaska Permanent Fund Corp. announced McKinley had been selected to manage $100 million in the corporation’s new $200 million Alaska Investment Program, which seeks in-state investment opportunities for the nearly $67 billion Permanent Fund.

Alaska Air Group doubles bottom line in 4Q; up 76% for year

Alaska Air Group finished 2019 by netting $181 million in the fourth quarter, which capped a full-year profit of $769 million and put the airline company on track to hit its long-term financial targets, executives said during a Jan. 28 earnings call. The $181 million quarterly profit nearly doubled its fourth quarter income of $93 million in 2018 and the $769 million annual total was 76 percent better than $437 million for last year. Alaska Air Group CEO Brad Tilden called 2019 a “turning point” for the Seattle-based parent to Alaska Airlines and Horizon Air as the company largely completed integrating Virgin America into its operations more than three years after buying its former West Coast competitor and is starting to see the benefits of the deal. Alaska Air Group was in the midst of a long run of record profits before the Virgin America acquisition, which caused the company to focus less on costs and more on quickly blending the airline into Alaska Airlines’ operations in recent years. “We’ve made progress on many fronts but we’re especially pleased with our momentum on commercial initiatives designed to improve the guest experience and drive revenue gain,” Tilden said, adding that Air Group leaders expect their year-end results to show the best unit growth in the industry. The profits came on the back of more than $2.2 billion of operating revenue for the quarter and nearly $8.8 billion for the year, which were 8 percent and 6 percent improvements over 2018, respectively. They translated into earnings per share of $1.46 for the quarter and $6.42 for the year. Alaska Air Group also announced a 7 percent increase to its quarterly dividend Jan. 29 to 37.5 cents per share. It’s the seventh time since the dividend was instituted in 2013 that it has been raised. Alaska Air Group stock closed Jan. 28 trading at $65.54 per share. The stock price jumped to $66.83 the next morning following the Jan. 28 post-trading earnings release. The revenue generated a record $1.8 billion in operating cash flow for the quarter, which, after approximately $700 million of capital investments, left Air Group with $1.1 billion in free cash flow, a $760 million year-over-year improvement, according to Chief Financial Officer Brandon Pedersen. The company ended the year holding roughly $1.5 billion in cash, Pedersen said. On the cost side, the company held its full-year unit cost growth to 2.3 percent on 2 percent capacity growth, which matched its initial cost guidance while also absorbing an unexpected $42 million cost from new agreements with its mechanics unions during the fourth quarter, according to Pedersen. The company’s top financial priority in 2019 was de-leveraging its balance sheet, Pedersen said, and it paid off more than $600 million in debt over 2019, which brought its debt to capitalization ratio down to 41 percent. By the end of the year Air Group had repaid approximately 75 percent of the $2 billion it borrowed to purchase Virgin America in 2016, executives said. Pedersen also commended the company’s treasury team for getting 79 percent of the company’s debt on fixed terms that average 3 percent interest. He said Air Group ended 2019 holding 113 of its aircraft unencumbered and roughly $400 million in available credit. It all helped Air Group generate a 12 percent full-year pretax margin, which was a 3.1-point improvement over 2018 and puts the company on track to reach its goal of sustained 13 percent to 15 percent pre-tax margins, Pedersen said. Tilden added achieving those margins is the company’s top financial priority for 2020. He said Air Group would pay out $130 million in annual performance bonuses Jan. 29, a figure that roughly equates to an extra month of pay for most employees. Tilden thanked employees for offering “genuine and caring service” and said he found the company’s workforce energized about the future following two weeks of meetings at Air Group hubs across the country. “This industry can be challenging but our people know what it takes to win: a relentless focus on safety and on-time operation; truly remarkable service and a low-fare, low-cost, high-efficiency profile,” Tilden said. “We continue to do these things and we’ll continue to grow.” Alaska Air Group Chief Commercial Officer Andrew Harrison said one of the main initiatives the company has implemented in recent years that has spurred revenue growth is its focus on expanding its premium products. First class and premium seating comprised just 7 percent Air Group’s revenue when it first started offering premium cabin seating in 2017; today, that figure is up to 22 percent, according to Harrison, who said the premium revenue will continue to grow as Alaska Airlines’ fleet of formerly Virgin America Airbus aircraft are reconfigured to offer premium seating. The per unit revenue from premium and first class seats is 54 percent better than main cabin seats, he said. “We’re intentional with how we manage our premium product business,” Harrison said. “Our goal is to keep our premium cabins affordable and provide generous benefits to our loyalty members while competing effectively against our peers.” Overall, Air Group’s per-unit revenue was up 4.2 percent for 2019, which was 200 points above the industry average and helped mark the company’s best per-unit revenue since 2011, according to Harrison. “It’s imperative that we carry the momentum we built in 2019 forward,” he said. Current Executive Vice President of Planning and Strategy Shane Tackett, who will take over as CFO in March following Pedersen’s retirement, said Air Group expects to grow its capacity 3 to 4 percent on 2 percent cost growth in 2020 presuming Boeing’s 737 MAX aircraft are cleared to return to service mid-year. Alaska Airlines has not flown the MAX-series yet but is scheduled to receive 10 of the aircraft at some point this year, according to Tackett. He said Alaska Airlines also has the opportunity to replace 61 Airbus A319 and A320 aircraft with newer, larger and more efficient planes this year. Deciding whether Alaska will continue flying Airbus planes or make a return to a fleet comprised strictly of Boeing 737s is a primary operational objective for the year, according to Tackett. Alaska Airlines’ longstanding practice of only flying Boeing 737 aircraft prior to its purchase of Virgin America helped the airline generate efficiencies on multiple fronts. Elwood Brehmer can be reached at [email protected]

AIDEA modifies loan for struggling Mustang project

Alaska Industrial Development and Export Authority officials are trying yet another way to recoup their $70 million investment in a small and struggling North Slope oil project. The AIDEA board of directors unanimously approved a modification to the state-owned investment authority’s loan to Singapore-based Caracol Petroleum Jan. 16, which owns Brooks Range Petroleum Corp. and the Mustang oil project, in an effort to spur the requisite investment from Caracol’s shareholders to advance the project. The move comes after Caracol failed to make its first two $3.1 million quarterly payments to AIDEA on a $64 million loan to Caracol that the authority approved last May. The loan was a modification of AIDEA’s $70 million total investment made in two tranches in 2012 and 2014 in the holding companies set up for the Mustang project’s infrastructure development. The loan payments were due Oct. 1 and Jan. 1, according to AIDEA spokesman Karsten Rodvik. Brooks Range, which operates the field, began producing oil from Mustang in early November through temporary modular facilities after years of delays brought on by collapsed oil prices and other financing challenges. Majid Jourabchi, CEO of Brooks Range’s parent company Houston-based Thyssen Petroleum, said at the time that Brooks Range was producing about 620 barrels of oil per day from the North Tarn 1-A well. Alaska Oil and Gas Conservation Commission records show Brooks Range produced an average of 478 barrels of oil over 23 days from the well in November. However, records for December indicate Mustang did not produce oil during the month. The amended loan agreement calls for Caracol’s parent company, Singapore-based Alpha Energy Holdings to commit $60 million for project development by April 15. Alpha is also required to repay a $10.5 million allowance AIDEA made to the project last year when Brooks Range failed to meet development targets. In exchange, AIDEA agreed to relax the terms of the loan and push principal payments back while Alpha injects money directly into the project. The new loan terms call for 6 interest-only quarterly loan payments, followed by seven $1 million quarterly principal payments plus interest and then $4.5 million principal payments until the loan is repaid, according to the board resolution. The interest rate on the loan is also reduced from 8 percent to 6 percent. AIDEA board chair Dana Pruhs said in a formal statement that meeting the authority’s mission of advancing economic development in the state can sometimes be a challenge, as has been the case with Mustang. “With the increasingly favorable state business climate, together with oil price and tax stability, Brooks Range owners and creditors took another look at Mustang,” Pruhs said. “So here we go, and I hope the equity holders can obtain buy-in from the entire list of creditors.” At the time AIDEA made its first investment in Mustang, Brooks Range leaders said they hoped to start producing oil by 2015. Progress towards first oil slowed greatly when oil prices started falling in late 2014 and investment from AIDEA’s partners became hard to come by. By February 2016, management for the authority and Brooks Range agreed to put Mustang in “warm standby” as oil prices in the $30 per barrel range hampered the ability to secure other financing options. The Mustang field is adjacent to the southern portion of ConocoPhillips’ large Kuparuk River field and also near the Nanushuk oil project being developed by Oil Search. The field is estimated to hold about 22 million barrels of oil and could peak at production rates of about 12,000 barrels per day when fully developed. Making the new loan arrangement work will require Brooks Range other creditors making similar compromises over the coming weeks, according to a statement from the authority. New Brooks Range CEO Majid Jourabchi thanked AIDEA and the Dunleavy administration for prioritizing a fix to the Mustang situation in the authority’s statement. “Brooks Range and our contractors on the North Slope are completely aligned in what needs to be done, and the urgency to have it be so,” Jourabchi said. He could not be reached for further comment. AIDEA’s Rodvik wrote via email that the authority retains “options commonly available to a senior secured creditor” if Alpha-Caracol again fails to make good on its commitments. Elwood Brehmer can be reached at [email protected]

Reshaping report highlights few good options for ferry system

A much-anticipated draft report outlining ways the State of Alaska could overhaul its ferry system largely confirms what many stakeholders have long suspected: some combination of deep service cuts and fare hikes is the only way to drastically reduce the annual subsidy the system needs to operate. The draft Alaska Marine Highway System reshaping study released by the state Department of Transportation Jan. 15 concludes that full privatization of the system is not feasible because private entities could not generate the return needed to offset the inherent risks of taking over a complex network of large, aging vessels that must adhere to strict federal safety requirements. “The only buyer that might be willing to accept the assets would do so with the intent of reselling them for a profit (such as for scrap) rather than providing ferry service to AMHS communities,” the report states. At the same time, shifting management of the ferries to a single public corporation that would not require certain investment returns or profits is not likely to change the system’s near-term financial situation either. According to the report, providing ferry service at roughly 2018 levels would still require a $68 million state General Fund contribution that is 40 percent greater than the current budget combined with an overall 25 percent increase in fares over 2018 rates. Operationally, a move to a public corporation under the contemplated funding scenario would also necessitate system managers to focus on “day-boat” operations to reduce vessel staffing requirements and less service to small Southeast “feeder” communities. The ferry system currently operates as a sub-agency of the Department of Transportation. Former Gov. Bill Walker’s administration partnered with the nonprofit Southeast Conference on a two-year ferry reform study effort ending in early 2018 that recommended the system be shifted to a public corporation with a board of industry experts mirroring the Alaska Railroad Corp. Transforming from an agency to a public corporation would allow the ferry board to make long-term decisions — on major issues such as fleet size and composition and service levels — that would translate eventually into much more efficient system operations. The move would also help insulate the system from the annual budget debates it is subject to as a state agency, according to the first ferry reform study. Former Gov. Frank Murkowski, who Gov. Mike Dunleavy appointed to the Marine Transportation Advisory Board in August, is a strong supporter of the public corporation model. Murkowski established the board in 2003 through an administrative order. DOT Commissioner John MacKinnon generally dismissed the public corporation concept in a prior interview with the Journal, contending it would help with long-term planning but would not change the more immediate budget problems facing system officials. Changing the system’s operating structure in other ways, such as dividing it into multiple corporations, or local ferry authorities, or focusing service on the highest volume routes would also require a significant state subsidy above current levels in combination with some level of fare increase to maintain service, according to the report. MacKinnon said during a Jan. 15 Marine Transportation Advisory Board meeting that DOT and ferry leaders need to examine all aspects of the system, including labor contracts, in order to reduce its annual subsidy to a sustainable level. “We’re all working very hard to try and come up with a system that works well for everyone as best we can with the budget that’s there. We can sit back and point fingers and lay blame on all the things that have been done wrong in the past or we can learn from those mistakes; consider the current and the past service levels, demand, costs, the regional economic importance — all things to consider,” MacKinnon said, recognizing the sharp disagreements spawned by debates over the ferry system budget while the state is mired in $1 billion-plus annual deficits. The Dunleavy administration commissioned the report conducted by the Anchorage research firm Northern Economics last spring following an initial proposal to cut the system’s General Fund subsidy by $64 million, or 75 percent, from 2019 levels. That cut would have shut the system down in October based on the Dunleavy’s original budget plan. Administration officials eventually agreed to a $46 million General Fund budget for the ferry system after negotiating with legislative leaders who strongly objected to shutting down the system entirely without immediate alternative transportation services for impacted communities. MacKinnon has said he hopes the reshaping study will serve as a template for system reforms that can be approved by the Legislature this session and implemented over the next couple of years. Dunleavy has proposed a $50 million General Fund budget for the system in fiscal year 2021 to allow that process to play out without additional service disruptions. On Jan. 17, Dunleavy issued an administrative order to establish the nine-member Alaska Marine Highway Reshaping Work Group with the aim of reducing the cost of the system to the state. The working group will consist of one member from each of the state’s Marine, Aviation and Highway advisory boards; a ferry union representative; two legislators; and three public members. The governor is expected to announce the group members by mid-February and it will deliver recommendations to state officials by Sept. 30, according to a statement from DOT. In recent years, the ferries have been operated on a roughly $140 million to $150 million all-in budget that is mostly a combination of state funding and operating revenue. Formula-driven federal funds are used for ferry and port maintenance. Fare box revenue has provided for about 35 percent of the system’s overall budget of late, which most stakeholders acknowledge needs to be improved. Numerous legislators have said state officials should shoot for recovering at least 50 percent of the overall Alaska Marine Highway System budget from operations; that would be in line with historical rates prior to the mid-2000s when new vessels were added to the fleet service levels and correspondingly increased. Deputy DOT Commissioner Mary Siroky characterized the roughly 50 percent cut to the state portion of the system budget this year as being a reduction the Legislature settled on during the MTAB meeting. “That’s huge. That’s huge for any organization, any corporation, any business to sustain in a very short amount of time,” Siroky said. That budget resulted in many of the 35 communities the system serves going without service for months or all winter, as is the case with Prince William Sound communities. DOT on Jan. 21 published the first draft of the summer 2020 ferry schedule, which covers May through September. The proposed schedule is partially based on anticipated funding levels for the 2021 state fiscal year that begins July 1, according to DOT. A public comment period is set to end Feb. 3. The draft summer ferry schedule had been published in fall in prior years. Siroky’s recollection of how lawmakers arrived at the current ferry budget did not sit well with Southeast Republican Sen. Bert Stedman, who co-chairs the Senate Finance Committee and has long advocated for a strong ferry system. Stedman said it was disappointing to here Siroky try to “pass the blame” for the system’s current problems — that include a lack of funding for vessel repairs in addition to service cuts — to the Legislature. “The administration’s proposed budget for the current fiscal year would have stopped all service on Sept. 30, 2019,” Stedman said in a statement from his office. “This was an elimination budget that would have led to the system’s demise.” MTAB chair and Southeast Conference Executive Director Robert Venables said in a brief interview that he hoped to see the study analyze more “creative” ways to generate revenue while passengers are on the ferries, rather than simply focusing on fares increases for passenger and vehicle transport. Last spring DOT implemented a “dynamic pricing” system that increases ferry ticket rates as capacity is filled and a sailing date approaches. It’s unclear at this point exactly how much additional revenue has been generated by the change. Elwood Brehmer can be reached at [email protected]

From Alberta to Alpine, ‘The Beast’ is almost complete

With the help of an Alaska Native corporation and state logistics experts, ConocoPhillips is about to employ a piece of equipment on the North Slope that should be the envy of oil drillers everywhere. ConocoPhillips and Doyon Drilling Inc. are in the final stages of more than three years of work to employ Doyon’s Rig 26 on the North Slope. ConocoPhillips Alaska leaders have said that it would help transform oil development in Alaska since October 2016 when a contract between the companies to build the extended reach drilling rig was announced. That’s because Rig 26, a.k.a. “The Beast” inside the oil company, is simply bigger and more powerful than any other mobile land-based drilling rig on the continent, according to ConocoPhillips. The company says Rig 26 will be able drill up to 37,000 feet, or more than seven miles, out from the pad it sits on when it goes to work in a few months. Current North Slope rigs, which have advanced dramatically in recent years, have a maximum reach of about 22,000 feet, according to ConocoPhillips. Looked at another way, Rig 26 will have a reach of 154 square miles from a 14-acre drilling pad, compared to existing rigs that generally have a reach of about 55 square miles, according to ConocoPhillips. That extended reach will allow the producer to reach pockets of oil that previously would have required substantial new infrastructure from existing pads, reducing development costs and timelines. “In a nutshell, it’s more powerful. In terms of just the amount of pump power that it has and hoisting capacity that it has — just much more powerful than the other rigs and that’s what allows us to drill much longer depths of wells,” ConocoPhillips Rig 26 Project Director Paul McGrath said in an interview. “In terms of the rig itself, with it being brand new it also comes available with some of the latest and greatest technologies for rig automation to help us make the operation safer and also automate some of the more mundane tasks that go into constructing a well, too.” Rig 26 is approximately 9.5 million pounds and has four mud pumps each rated to 2,200 horsepower; pumps of that size are typically reserved for large offshore drilling rigs, McGrath said. He additionally noted that ConocoPhillips has invested in multi-fuel capability for Rig 26, meaning it will be able to burn a mix of processed field gas and diesel, and that also carries multiple benefits. “It’s got the potential to displace about 50 percent of the diesel required to operate the rig, which will be a big savings for us in terms of emissions as well as cost throughout the program,” McGrath said. It’s the rig’s ability to mitigate surface development footprints that spurred its development in the first place; not for cost or time, but rather for the environment. In 2015, ConocoPhillips agreed with the Alaska Department of Natural Resources to commission a rig that could pull oil from the Fiord West prospect in the company’s Alpine oil field without needing additional pads, roads and pipelines. Committing to the new drilling rig gave ConocoPhillips the opportunity to extend its leases for Fiord West. The oil underneath the Fiord West leases was no secret — Atlantic Richfield Co. discovered it in 1996 — but given its location under the environmentally sensitive Colville River delta, no one had been able to reach it economically and in an environmentally responsible manner. Enter Doyon Rig 26. The companies currently have the rig about 90 percent assembled at Doyon’s facilities in Deadhorse, ConocoPhillips spokeswoman Patty Sullivan wrote via email. McGrath characterized the many rig modules as going together “like a big Lego set,” that will be taken down only to be put together again. Once it is commissioned and tested at Deadhorse, it will be broken down and hauled, in pieces, 82 miles to the CD2 drill site where it will be reassembled and be ready to drill in April, according to Sullivan. From CD2 it will be able to access Fiord West. ConocoPhillips expects to eventually produce up to 20,000 barrels per day from the Fiord West oil pool. Company leaders say they have at least 10 years of work lined up for Rig 26, which could include drilling at some of the company’s numerous other North Slope oil projects. However, the work Rig 26 will be able to accomplish is only part of the story. Building it and getting it to the Slope was also an undertaking of Alaska-scale proportions. According to Doyon spokeswoman Sunny Guerin, the 3.5-year construction period for the rig was nearly twice the construction time needed for the company’s more traditional-sized North Slope rigs. With the aid of Lynden Transport, it also required approximately 270 tractor-trailer loads to get Rig 26 from its birthplace in Nisku, Alberta, a suburb of Edmonton, 2,400 miles north and west to Alaska’s Arctic coast. McGrath said traditional rigs require about 140 truckloads that also are individually smaller than the pieces of Rig 26. Aaron Schutt, CEO of Interior regional corporation Doyon Ltd., the drilling company’s parent, said in a statement for the Journal that managing the Rig 26 project has been the Doyon’s top priority since the contract was signed in 2016. “Doyon is very pleased to see the rig finally on Alaska’s North Slope and we look forward to it going to work in spring 2020. Doyon Drilling is a company that has made every effort to build a brand based on innovation and excellence in Arctic drilling and Rig 26 is a testament to our brand,” Schutt said with a nod to Doyon’s Canadian partners. “We are very proud of our employees and our relationship with our rig builder, NOV, for making a bold concept become a reality.” Doyon expects about 65 of its employees will be working on Rig 26 when it is deployed and additional help will be needed for support operations such as work camps, truck drivers and other needs, McGrath added. Elwood Brehmer can be reached at [email protected]

Oil regulators consider relief for new bond requirements

State regulators in charge of subsurface oversight of the oil and gas industry are giving a series of mostly small operators the opportunity to make their case for special treatment under recently strengthened financial assurance requirements. The Alaska Oil and Gas Conservation Commission on Jan. 16 heard Malamute Energy Inc.’s appeal to updated bonding requirements for entities holding active or unplugged wells in the state. The hearing for Malamute Energy was the fourth of nine reconsideration requests the three-member commission is scheduled to hear through Feb. 18. Last May, the commission, or AOGCC, approved regulations that greatly increased the bond amounts companies with wells are required to post. Former AOGCC chair Hollis French said the new bonding requirements were approved after nearly two years of work and it was one issue the commissioners all agreed needed to be addressed. When the minimum bonds were being considered, French and the other commissioners noted the amount the state requires well holders to hold for well plugging and abandonment costs hadn’t been updated for decades. They cited a 1991 Legislative Budget and Audit report that said the State of Alaska should update its minimum well bonding requirements then. At that time, the bonding requirements were $100,000 for one well and a minimum of $200,000 for multiple wells and a “statewide blanket bond,” which were the required amounts until the May 2019 change. The 1991 report concluded that an operator with a $200,000 bond then likely wouldn’t be able to cover plugging and abandonment costs. The new five-tier bond schedule requires those holding up to 10 wells to post $400,000 per well. Operators with between 11 and 40 wells must post a cumulative $6 million bond and the amounts gradually increase to $30 million for operators with more than 1,000 wells. Alaska’s largest fields, Prudhoe Bay and Kuparuk River, each contain more than 1,100 well bores. A handful of small operators, the Alaska Oil and Gas Association and individual leaseholders objected to a 23-tier bond schedule that was proposed during the revision process for being overly complex and excessive increases compared to what was long required. While the tiered bond schedule was simplified, the amounts required for operators with more than 10 or more wells were ultimately increased from the proposal vetted during public hearings in 2018. French said the effort to update the bond amounts was aimed particularly at small oil and gas companies after bankruptcies in the industry following the collapse of oil prices in 2014-15. “The small companies are exactly where the problem is,” he said, adding that he would be very skeptical of any attempt to reduce the bonds from the levels the commission settled on last year. Commissioner Dan Seamount, the lone commissioner left on the panel from when much of the bond revision work was done, said in an interview that the current hearings are not part of a plan to overhaul the new bond levels, but rather they are specific, one-off requests for exemptions from the regulations that he otherwise sees as a prudent step towards protecting the state from potentially expensive liabilities. “It has nothing to do with changing the regulations,” Seamount said, noting that the commission also has the authority to reduce or increase the requirements for operators on a case-by-case basis. “The operators that produce 99 percent of the production (in Alaska) are in compliance and we’ve gotten nine requests for reconsideration,” Seamount said. He added that two requests were for holders of geothermal wells, which the AOGCC regulates but are usually much cheaper to plug and abandon than oil and gas wells. Current AOGCC chair Jeremy Price said in a brief interview that state law says the financial requirements should be “reasonable” and he simply wants to give the companies a chance to make their case. Gov. Mike Dunleavy’s administration has sought to relax or repeal business and environmental regulations in many realms the state oversees, including the oil and gas industry. Price was Dunleavy’s deputy chief of staff before being appointed to the AOGCC by the governor last October. Malamute’s situation is rather unique in Alaska; company President Leonard Sojka said in his testimony to the commission that the company holds two wells in the federal Umiat Unit just inside the National Petroleum Reserve-Alaska and the Bureau of Land Management recently increased its bond requirement for the unit from $200,000 to $1.25 million. Malamute is to post the first $525,000 of that by early March, according to Sojka. The AOGCC bonding regulations required operators to post the first $500,000, or at least 25 percent of the difference between the old and new amounts, by mid-August 2019. A second, similar installment is due in August 2020. The regulations mandate that operators post the full amount by August 16, 2022. Sojka noted that the BLM bonds exceed the $800,000 Malamute is eventually required to hold for the state and said neither of the Umiat wells pose an environmental risk. He said he doesn’t object to the state bonds in concept, but called them “redundant.” According to Sojka, Malamute Energy was formed by a group of creditors to Linc Energy who took over the Australian company’s Alaska holdings after Linc went bankrupt in 2016. Linc drilled the two oil exploration wells in 2013 and 2014, but neither produced viable quantities of crude. An analysis found plugging and abandoning the wells would cost nearly $3 million, but Sojka said roughly two-thirds of that cost would be for ice roads and other costs to access the wells, as they were drilled during the winter and there is no gravel infrastructure available to access them year-round. He suggested the work could be done for much less than $3 million by utilizing new modular equipment flown in to a nearby airstrip if need be. However, Sojka said Malamute doesn’t expect to plug the wells at this point because it plans to continue exploring the area. BLM Alaska Oil and Gas Section Chief Rob Brumbaugh said the agency would only use the federal bonds if it were saddled with plugging and abandoning the suspended wells. “I honestly don’t know of any mechanism that makes it possible for the feds to go after the state money,” Brumbaugh said, adding that Hilcorp and ConocoPhillips are the only two other companies with duplicative bonds and they are large companies with the financial wherewithal to deal with them. Seamount said the AOGCC had not made a decision on Malamute’s situation as of Jan. 21 but stressed that “orphaned” wells are a serious problem in the Lower 48 and Canada that the commission wants to prevent in Alaska. “A lot of states have over 10,000 orphaned wells that have nobody to plug them,” Seamount said. He added that he’s considering sending a questionnaire to officials in other states and provinces inquiring about their bonding levels and if they feel their requirements are adequate. According to a 2019 report from the Interstate Oil and Gas Compact Commission, there are more than 56,000 documented orphan wells across the country — Alaska has 15 — and hundreds of thousands more undocumented wells are estimated to exist. The Alberta Liabilities Disclosure Project, a coalition of conservation groups, financiers and current and former oil and gas industry players contends provincial government data shows that the cost of cleaning up Alberta’s more than 300,000 problem wells is between $40 billion and $70 billion, while the government has published an $18.5 billion total cleanup cost. ^ Elwood Brehmer can be reached at [email protected]

Dunleavy to pitch Alaska mining at B.C. conference

Gov. Mike Dunleavy will be spending part of the first week of the legislative session in Canada to tout Alaska’s mining potential and hear from investors what the state can do to help grow the legacy industry. The governor will be attending the Association for Mineral Exploration Roundup conference in Vancouver Jan. 22-23, according to his spokesman Jeff Turner. Dunleavy’s commissioners of Natural Resources, Environmental Conservation and Fish and Game will accompany him on the trip as well. Turner said the governor would be in Juneau for the first day of the legislative session Jan. 21. In an interview Friday Dunleavy characterized the trip as a continuation of what he has been doing periodically through the first year-plus of his administration — meeting with key players in a host of industries to discuss investing in Alaska. “We want to highlight Alaska and be able to answer any questions investors may have about our regulatory regime and just make a pitch that Alaska’s got some tremendous opportunities because we’re trying to capitalize on our resource wealth and have it developed responsibly so we can create jobs for Alaskans and wealth and potentially revenue for local communities as well,” Dunleavy said. The conference will also give the governor and his cabinet officials a chance to clear up any misconceptions investors might have about Alaska’s mining industry and learn what under-the-radar impediments there might be to pursuing exploration projects in the state, he emphasized. “This visit for me and my team will show us what the perception (of Alaska) is for investors,” Dunleavy said. He compared it to going to the large CERAWeek oil and gas conference last March in Houston, where he and other administration officials were able to learn directly from industry players about their perception of Alaska. In recent years the state had sent geologists and economic development staff to the AME Roundup, but having the governor and three of his cabinet members attend the conference sends an important message about the state’s view of the mining industry, Alaska Miners Association Executive Director Deantha Crockett said. Former Gov. Sean Parnell was the last Alaska governor to attend the conference, she said. AME Roundup aims to pitch exploration projects in western provinces and states to regional mining investors. According to the conference website, it is attended by more than 6,500 people each year. According to industry analysts, there has been a resurgence in mining exploration in Alaska, with roughly $150 million spent on prospecting projects in the state the past two years. That is a sharp increase from the several years prior when just more than $50 million per year was spent searching for metals and minerals across Alaska. “There are lots of different mining conferences around the world but this is the one where companies are looking at where they are going to spend significant dollars exploring projects, which for us means new mining companies in the state of Alaska, new mining opportunities,” Crockett said. Dunleavy made his first public appearance the morning after his November 2018 election at the Alaska Miners Association trade show in Anchorage, which was also where he first proclaimed Alaska as being “open for business” under his leadership. Crockett described Dunleavy’s presence at the mining conference as a “huge deal” for an industry that regularly requires upwards of a billion dollars of investment to see a project through development. “To have the leader of our state say, ‘We want to make sure that you are comfortable making an investment decision in our state’ is a really big deal,” Crockett said. “Next week it’s a big deal, but it’s going to be a big deal for a long time after that.” The Alaska Miners Association is hosting an “Alaska Night” reception Jan. 22 in Vancouver to highlight exploration projects in the state to prospective investors that Dunleavy will be attending as well, according to Turner. Dunleavy added that the information he gathers in Vancouver should be helpful in policy discussions with federal officials. Dunleavy said he will be going back to Washington, D.C., in early February and he will taking what he learns at the conference back to the nation’s capital where he will continue to promote Alaska’s resources. He noted that a large graphite prospect near Nome and rare earth element prospects across the state could greatly help the U.S. reduce its dependence on other countries, namely China, for minerals critical to defense and clean energy technologies, among other uses. “We want to market ourselves as — this may sound strange — but as clean zinc and clean gold and clean rare earth (minerals); what that means is we want to produce these elements, these minerals, these metals in the safest way possible for the environment,” Dunleavy said. In addition to attending the mining conference, the governor will be meeting with British Columbia Premier John Horgan and Northwest Territories Premier Caroline Cochrane, he said, to hear their views in resource-related issues and discuss possible economic partnerships. Fish and Game Commissioner Doug Vincent-Lang is traveling to Vancouver specifically to discuss the concerns many Southeast Alaska commercial fishing and conservation groups have with British Columbia mining operations with the watersheds of large, “transboundary” rivers that flow from the province through Alaska, according to Dunleavy. The downstream impacts some Canadian mines could have on Alaska salmon fisheries has been one Alaska’s congressional delegation and former Gov. Bill Walker’s administration highlighted for years with British Columbia officials. Elwood Brehmer can be reached at [email protected]


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