Elwood Brehmer

Year in Review: Donlin, WOTUS, Ambler and Fort Knox

In August, after nearly 25 years of work, Donlin Gold LLC got one thing every major project developer in the country desires: a favorable record of decision from the federal government. In this instance, it came as a first-of-its-kind joint ROD issued by the U.S. Army Corps of Engineers for the environmental impact statement and by the Bureau of Land Management for the project’s natural gas pipeline right-of-way authorization across federal land. Donlin’s final EIS was published in April; the Corps of Engineers recommended the company’s preferred project plan for approval in its ROD. Later in August the Alaska Department of Fish and Game approved a slew of Title 16 permits for development activity in salmon habitat. Donlin Gold was also one of the primary players in the successful effort to defeat Ballot Measure 1, which would have greatly increased the state’s requirements for obtaining a Title 16 permit and would have seriously challenged development of the mine, especially under its current plan. As envisioned, Donlin would be one of the world’s largest open-pit gold mines, extracting about 33 million ounces of gold over an initial 27-year life. The company is open to partnerships to help build out much of its support infrastructure — including 30 miles of road, ports and a 315-mile gas pipeline from west Cook Inlet to the Kuskokwim River mine site — which could help mitigate some of the high fixed costs the project faces, according to spokesman Kurt Parkan. A 50-50 joint venture between Canadian companies Barrick Gold Corp., the world’s largest gold producer, and NovaGold, Donlin Gold LLC has spent roughly $500 million exploring and permitting the open-pit gold project over nearly 25 years, Parkan said to the Alaska Miners Association in November. Still, that money is not factored into the $6.7 billion estimated construction cost calculated during a 2011 economic study of the project. Parkan said in an interview that the seven-year-old figure is what the company continues to work from; the focus now is on bringing it down. As a result, Donlin’s owners are resistant to putting a definitive timeline on the project, according to Parkan. While Donlin has its federal Clean Water Act Section 404 wetlands permit, the BLM right-of-way and a special permit from the Pipeline and Hazardous Materials Safety Administration, it still needs state approvals that will take several more years to acquire. 2. WOTUS revamped President Donald Trump administration took a big step towards limiting which waters and wetlands the federal government has authority over Dec. 11 when a new, draft version of the waters of the U.S. rule was released. The move is the final step in the Trump administration’s nearly two-year effort to replace an Obama-era version of the rule, oft referred to as WOTUS, finalized in 2015 but challenged in court by 12 states including Alaska. Acting Environmental Protection Agency Administrator Andrew Wheeler and Assistant Secretary of the Army R.D. James signed the proposed rule Dec. 11. The Corps of Engineers adjudicates applications for development permits in navigable waterways across the country on behalf of the EPA. The EPA has the final say over regulating development in and around navigable waters through is Clean Water Act authority. The new WOTUS rule covers traditional, large navigable waters and their tributaries that contribute year-round or intermittent flow and wetlands adjacent to other jurisdictional waters. It focuses on wetlands and other areas with surface water connections as falling under federal jurisdiction. The 2015 rule had a broader scope, including areas with subsurface water flow. Development in waters that fall under the Clean Water Act typically require some sort of mitigation or offset to the impacts of the activity, which development proponents often lament as being very costly. The members of Alaska’s congressional delegation welcomed the announcement in statements from their offices. In February 2017 President Donald Trump issued an executive order titled, “Restoring the Rule of Law, Federalism, and Economic Growth by Reviewing the ‘Waters of the United States’ Rule.” That order led to a lengthy public process to repeal the 2015 rule, which concluded earlier this year. The rule had been suspended from taking effect by the 6th Circuit Court of Appeals in Alaska and the other mostly western states that sued to stop it in 2015. 3. Ambler cost drops; permitting on horizon as road advances Early in the year Trilogy Metals CEO Rick Van Nieuwenhuyse said the overall cost to build and operate the company’s proposed copper, zinc and precious metal mine in the Ambler mining district was coming down. By the end of the year Van Nieuwenhuyse was saying the company plans to start permitting the mine in the first half of 2019. The pre-feasibility study for Trilogy’s Arctic deposit was released Feb. 20 with a development cost of $780 million, up about 9 percent from a 2013 estimate. However, a 60 percent drop in expected annual operating and 20 percent decrease in closure and reclamation costs — to about $65 million each — cut the all-in cost for the initial 12-year mine by 5.5 percent from $964 million in 2013 to $911 million today. Trilogy executives said during a call with investors that the drastic drop in operating costs is due to changes in the plan for waste rock and tailings management, fuel and federal tax reform. The Alaska Industrial Development and Export Authority is leading development of a 211-mile industrial road to access the mining district. The Bureau of Land Management is writing a separate EIS for the road and the first draft of that document is expected in March 2019, with a final EIS following late next year, based on the current schedule. The National Park Service is also preparing an environmental and economic analysis that is also expected to be finished next spring. At its core, the Arctic prospect is about as good as undeveloped metal deposits come these days, according to Van Nieuwenhuyse. With just more than 43 million metric tons of probable reserves averaging 2.3 percent copper, 3.2 percent zinc and smaller amounts of lead, gold and silver, it’s “about 10 times the average grade being mined in open pit copper mines today,” he said in October. The Clean Water Act Section 404 wetlands fill permit from the Corps — large enough to trigger an EIS — is likely the only federal permit the mine will need, according to Van Nieuwenhuyse, noting the Environmental Protection Agency has oversight of the water and air quality permits issued by the State of Alaska. 4. Fort Knox expands Interior business interests got welcome news in June when they heard one of the largest employers in the region should be open for 10 years longer than originally planned. Kinross Gold Corp. announced June 12 that it has decided to move forward with a $100 million expansion to the Fort Knox gold mine about 25 miles northeast of Fairbanks. A feasibility the Toronto-based Kinross conducted on the prospect, known as the Gilmore project, indicates it could yield 1.5 million ounces of gold and initially extend operations at Fort Knox to 2030. Milling at the mine is expected to stop in late 2020 without it, according to Kinross. Now, mining is expected to continue into 2027 with ore processing running to 2030. The mine opened in 1996. Gilmore also increased the proven and probable gold reserves at Fort Knox by 2.1 million ounces to 3.4 million ounces overall, according to a company statement.] CEO J. Paul Robinson said the company will likely be able to fund the $100 million expansion with Fort Knox’s existing cash flow, which will help Kinross maintain financial flexibility. Fort Knox is on land owned by the state Alaska Mental Health Trust Authority; the expansion, known as the Gilmore project, is on a recently acquired 709-acre parcel of state land just to the west of the existing mine pit that was previously held by the federal National Oceanic and Atmospheric Administration. First gold from the Gilmore project is expected in early 2020.

Draft EIS released for ANWR lease sale

Alaskans got their first look at what oil development in the Arctic National Wildlife Refuge might look like exactly one year to the day after Congress ordered the Trump administration to start leasing portions of its coastal plain. On Dec. 20 the Bureau of Land Management released the draft version of the environmental impact statement that will inform what areas of the roughly 1.5 million-acre coastal plain are open to oil and gas leasing and what other sideboards that should be put on oil exploration in the area. The ANWR rider to the Tax Cut and Jobs Act passed last December directs the Interior Department to hold two oil and gas lease sales, each covering at least 400,000 acres of the coastal plain before 2025. It limits permanent development to 2,000 acres of federal land. The Alaska Native village corporation Kaktovik Inupiat Corp. also owns about 92,000 acres around the coastal village of Kaktovik within the refuge, land that would also be open to development. The draft EIS offers three leasing scenarios with varying limitations on available acreage and activity timing intended to account for wildlife migrations and local subsistence activities. The 756-page, two-volume document also includes a “no action” alternative — a part of all environmental impact statements — as a baseline to compare other options against but Assistant Interior Secretary Joe Balash noted in a call with reporters the no action option won’t be chosen because the law mandates lease sales be held. Balash stressed that the input of residents from villages that use the refuge played a big role in how the leasing alternatives were formed, including input from Gwich’in Tribe members who rely on the Porcupine caribou herd as a primary food source and strongly oppose the industry activity. The eastern Alaska-western Canada caribou use large swaths of the coastal plain as calving grounds and what impact oil development could have on the herd has been a primary debate point in the battle over ANWR oil exploration. Exactly how long it will take to finalize the coastal plain EIS is unclear; however, Interior leaders expect to hold the first lease sale sometime in 2019. A 45-day public comment period on the draft is scheduled to commence Dec. 28 when the document is published in the Federal Register. The members of Alaska’s congressional delegation and Gov. Michael J. Dunleavy praised BLM’s work in formal statements. Sens. Lisa Murkowski and Dan Sullivan said they appreciate the diligence with which the agency built the first draft of the Coastal Plain Oil and Gas Leasing Program EIS. “I am particularly pleased to see the serious and necessary considerations for the Porcupine caribou that migrate through the region, as well as the abundant level of stakeholder input — including from the Alaska Natives in the area, the vast majority of whom support responsible drilling in the 1002 (coastal plain),” Sullivan said. “This draft EIS brings us that much closer to unleashing America’s energy potential, filling up the Trans-Alaska Pipeline, boosting our economy, and providing good jobs for Alaskans, all while protecting the ecosystem in ANWR’s 1002 as we’ve done on the rest of Alaska’s North Slope for over 40 years.” The coastal plain has also been dubbed the “1002 area” for Section 1002 of the 1980 Alaska National Interest Lands Conservation Act, which carved out the potential for industry development in the otherwise off-limits 19 million-acre refuge. Dunleavy said the document “is a significant milestone in Alaska’s long journey to responsibly explore and develop the 1002 area in ANWR. The potential oil discovered will spur new jobs and investments for generations to come, extending the life of the Trans-Alaska Pipeline.” The least restrictive to development, Alternative B would open the entire 1.5 million acres to leasing. Industry activity restrictions during the Porcupine herd’s May-June calving season would apply to about 585,000 acres mostly in the eastern portion of the coastal plain. Another 360,000 acres — mostly along the coast and major river corridors — would be leasable but with a “no surface occupancy” stipulation prohibiting construction of permanent facilities there. Activity restrictions along the rivers and coast are a theme in all the leasing scenarios. The remaining 618,000 acres would be open to leasing under the program’s general conditions. The Central Arctic caribou typically migrates into the western half of the coastal plain in July and August but calving takes place mostly on state land just to the west of the refuge, according to the EIS. Alternative C would also open the entirety of the coastal plain for leasing but place the no surface occupancy restriction over more than 930,000 acres including the caribou calving area and major river corridors. Timing limitations on industrial activity would be put on another 317,000 acres and about 314,000 acres would be open with general conditions. Finally, Alternative D would place the most restrictions on development activity in order to protect biological and ecological resources, the EIS states. A little more than 1 million acres would be available for leasing; however, permanent oil and gas facilities would be prohibited over 708,000 acres and another 124,000 acres would have other use restrictions. Sub-options to Alternative D would have the remaining roughly 204,000 acres either be open with general conditions or open with timing limitations. Approximately 530,000 acres of primarily Porcupine herd calving grounds would be off-limits to leasing under Alternative D. Exactly what level of interest industry will have in the coastal plain leases is also unknown. The most recent U.S. Geological Survey assessment of the oil and gas underneath the coastal plain, done in 1998, put the mean oil estimate at 7.6 billion barrels for the coastal plain-1002 area. The USGS additionally estimated there is a 5 percent probability the area holds nearly 12 billion barrels of technically recoverable oil, which says noting of the economics of extracting it. SAExploration Inc. has a 3-D seismic survey plan for the coastal plain before Interior officials, but whether or not the plan will be approved in time for work this winter is up in the air. Balash said the U.S. Fish and Wildlife Service is reviewing the seismic plan for how the work could impact denning polar bears. Elwood Brehmer can be reached at [email protected]

Year in Review: Shakeups lead top stories of 2018

Several analogies can be drawn between the Nov. 30 Southcentral earthquake and the year in Alaska politics even without stretching them too far. Earthquakes, even large ones, are an accepted and to a point expected part of life in Alaska. Admittedly, the lead up to the election in the governor’s race was highly unusual. What was for months a three-way race between incumbent Gov. Bill Walker, Mark Begich and Michael J. Dunleavy suddenly shifted to a head-to-head matchup when Walker dropped out of the race with less than three weeks to go following the sudden resignation of Lt. Gov. Byron Mallott for unspecified inappropriate comments to a woman. Similarly, even many of Alaska’s most ardent Democrats understand the demographic reality that their state’s politics generally lean red. To that point, Republicans retained a majority of seats in the Legislature as they have for years and Dunleavy’s Election Night victory over Begich — built on a broadly popular campaign of being tough on crime and larger Permanent Fund dividends — was widely predicted. And while the earthquake struck just three days before Dunleavy’s administration was set to take over, the work of former Gov. Walker’s team in concert with Dunleavy’s people made for a smooth transition of power in the midst of a natural disaster. One caveat to that was a request by Dunleavy Chief of Staff Tuckerman Babcock that upwards of 800 non-union executive branch employees tender their resignations and reapply for jobs with an expressed desire to work in a Dunleavy administration. Such a resignation request is standard procedure for political appointees during an administration change, but the broader scope of Babcock’s demand was met with vocal disdain among many inside and out of government who felt it was a demand for a loyalty pledge. Still, the largely smooth transition under difficult circumstances was a general reflection of how well Alaskans — from well-trained school kids to on-the-ground Department of Transportation personnel — handled the earthquake. Miraculously no one was seriously hurt or killed in the shaking, and damaged roads were repaired with amazing efficiency. However, there is still much left unfinished in the aftermaths of Election and Earthquake day even though life for most Southcentral residents has returned to normal. Severely damaged schools in Eagle River and the Mat-Su Borough remain closed, as to many businesses in Eagle River. Countless homeowners across the region also still face daunting repairs. On the political front, much is still unresolved as well more than six weeks after the election. While Republicans have regained their usual position at the helm of state government, the state House is in disarray. House Republican leaders quickly formed a 21-member majority caucus a day after the election. However, that slim majority fell apart even before it had a chance to take office. For starters, it relied on House District 1 Republican candidate Bart LeBon maintaining his 79-vote Election Night lead over Democrat Kathryn Dodge — which after counting absentee ballots, questioned ballot reviews and a recount has shrunk to a single vote. Dodge, unsurprisingly, is challenging those results in the Alaska Supreme Court. Additionally, Kenai Republican Rep. Gary Knopp said Dec. 8 that he would be withdrawing from the caucus because the tenuous one-vote majority could be held hostage by the whims of any single member and as such was doomed to fail eventually. Knopp instead has proposed a bipartisan House majority caucus comprised evenly of Democrats and Republicans. At the time of this writing, who will be leading the House when the Legislature convenes Jan. 15 is anyone’s guess. Things are more settled on the Senate side, at least structurally. Republicans retained control of the body, despite taking a blow in Republican Senate President Pete Kelly’s defeat to Democrat challenger Rep. Scott Kawasaki for his Fairbanks Senate seat. Senate Republicans are aligned with Dunleavy on many policy items, but the size of future PFDs, at this point, is not one of them. Along with Walker, Senate Majority leaders last year led the charge to utilize Permanent Fund income to pay for government services and greatly reduce the state’s ongoing budget deficits in-lieu of new taxes; however, the consequence was likely reducing the size of future dividends. Dunleavy used the historical dividend formula in his first budget proposal released Dec. 14, but he refrained as yet from requesting “back payments” from three prior years of reduced dividends at least initially, which was one of his campaign pledges. On the surface both politically and physically, much has returned to normal, but many of the all-important underlying details remain unresolved. 2. Voters reject Ballot Measure 1 The intense statewide debate over whether Alaska should enact sweeping changes to its salmon habitat protection laws came to an abrupt end on Election Night, when voters rejected Ballot Measure 1 by nearly a 25-point margin. What started as a promising year for measure backers, who in January submitted more than 42,000 signatures to the Division of Elections from Alaskans supporting the initiative, ended in disappointment. The business-backed campaign group Stand for Alaska drummed up more than $10 million of support, led by contributions from Alaska’s “big three” oil producers as well as Donlin Gold LLC, which is planning a large gold mine in Southwest Alaska. Stand for Alaska painted the issue as an attack on responsible development in the state. Yes for Salmon backers insisted it was a way to update nearly 60-year old anadromous fish habitat permitting laws and prevent politics from influencing permitting decisions that could degrade salmon habitat over time and leave Alaska trying to restore lost habitat at great expense as other Pacific Northwest states are now doing. Each side argued the other was driven by Outside interests; either activists wanting to “lock up” Alaska or corporate interests wanting nothing more than to fleece the state of its resources and leave. In reality, the eight-page measure would have put strict sideboards on impact mitigation requirements for developments in salmon habitat, while establishing a public input process for the permitting decisions and provided Fish and Game officials with more authority to penalize permit violators. Opponents argued the state permitting regime is already sound and that while adjustments may be needed, the initiative was overly broad and would threaten development. In August the Supreme Court struck a key provision of the initiative as unconstitutional that would have mandated the ADFG commissioner reject any permit for which “major” impacts could not be mitigated on site. Ballot Measure 1 proponents, who raised less than $3 million, or about 25 percent of what Stand for Alaska had to spend, said after the election that the funding disparity made it impossible for them to overcome Stand for Alaska’s messaging that included a barrage of television ads. The opponents countered that they had the better message regardless of the funding disparity. 3. North Slope enjoys “renaissance” ConocoPhillips started 2018 by going “six for six” with its exploration drilling program last winter. The company hit commercial quantities of oil in each of the greenfield wells it drilled, drastically adding to what was already a feeling of optimism among those in the oil industry. Three wells were drilled to better delineate its $4 billion to $6 billion Willow discovery — another Nanushuk prospect — which was first announced in January 2017. Preliminary estimates from the company put Willow at about 300 million barrels of recoverable oil, with production potential reaching 100,000 barrels per day. Alaska oil experts believe the Nanushuk formation, which for decades hid in plain sight, is largely a western Slope phenomenon; it quickly peters out to the east of the Colville Delta. ConocoPhillips’ westward push on the North Slope took reached another milestone Aug. 7 when the Bureau of Land Management began asking for public input as it drafts permitting documents for the company’s proposed multibillion-dollar Willow oil development. The remote Willow prospect is west of the existing North Slope oil fields in the National Petroleum Reserve-Alaska. ConocoPhillips’ initial development plan calls for a central processing facility and pad, up to five drilling pads with up to 50 wells each, access roads, an airstrip and a gravel mine within the NPR-A, according to BLM. The proposal also contemplates a temporary island in state waters to facilitate module deliveries via sealift barges. The company sent BLM a letter in May requesting authorization for the development, a BLM release states. In October, oil production commenced from the company’s Greater Mooses Tooth-1 project in the NPR-A. ConocoPhillips also sanctioned GMT-2 and increased the peak production estimate to 38,000 barrels per day. ConocoPhillips has been busy in Alaska — also trading its interest in a North Sea field for BP’s share of the large North Slope Kuparuk River field — but its activity is in addition to several other large developments that are underway. Oil Search’s Nanushuk project, with the potential for 120,000 barrels per day, received a final EIS from the Army Corps of Engineers in November. Hilcorp Energy’s manmade island Liberty project was also approved by the Bureau of Ocean Energy Management. It is a 60,000 barrels per day development, although environmental groups sued to stop it on Dec. 17. Rough estimates put the cumulative potential production from these and smaller projects — with $13 billion of investment — at upwards of 400,000 thousand barrels per day. 4. POMV passes Gov. Walker saw his signature piece of legislation passed May 8 when legislators approved an endowment-style formula to draw from the Permanent Fund Earnings Reserve with most of the money going to support government. Hailed as a victory for drastically reducing the state’s multibillion-dollar budget deficits while maintaining the long-term value of the $63 billion Permanent Fund by proponents and as a “raid” on the fund by others, the Legislature’s vote on SB 26 cut across all party and caucus lines. At the time, Senate Bill 26 was expected to cut the fiscal 2019 deficit from roughly $2.5 billion to $700 million. Oil prices and production will determine the final budget gap. While each body passed a version of SB 26 in 2017, it languished on the sideline of budget debates for more than a year as the contrasting contingencies put on a POMV draw by the House and Senate made it a particularly touchy subject. SB 26 was the culmination of three years of work by the Walker administration and a handful of legislators, most notably retiring Eagle River Sen. Anna MacKinnon who often sparred with administration officials on other budget issues, but helped shepherd the bill through the Legislature. 5. Oil tax credit resolution faces legal challenge Gov. Walker’s other big legislative victory was supposed to be resolving the state’s $800 million-plus oil and gas tax credit obligation. After contentious debate, the Legislature approved his administration’s unique but untested plan to sell bonds allowing the state to pay them up front while managing cash flow into the future, which is expected to require shoestring budgets for several years. The plan relies on tax credit holders — small oil companies and banks — taking up to a 10 percent discount on the value of their credits to get them paid quicker. The state would turn around and use the discount to cover the cost of borrowing the money. However, questions about the constitutionality of the scheme started early in the session when a Legislative Legal Services attorney issued an opinion suggesting it may fall outside the Alaska Constitution’s tight restrictions on allowing the state to contract debt. Former University of Alaska Regent Eric Forrer put turned legality questions into action shortly after the Legislature passed the plan in House Bill 331 by suing the administration over it. Forrer actually sued before the bill was signed into law, but state attorneys declined to have it dismissed based on the timing issue, acknowledging that Forrer could just re-file the suit. The Superior Court case that many wanted resolved quickly has been slow and winding. A ruling on the state’s initial dismissal motion was expected in early November; however, none has been issued as of this writing. 6. Pebble applies for permits Pebble Limited Partnership finally made good on a long held promise to start the permitting process, which is seen by many as a way to settle the fight over the massive and divisive mining project. The Army Corps of Engineers kicked of the Pebble mine environmental impact statement scoping process last January. Pebble leaders have touted a much smaller mine plan without the use of cyanide for gold recovery, a new transportation plan and revenue sharing payments for area village corporations and tribes as reasons for opponents to reconsider their stance. Bristol Bay Native Corp. and other area opposition groups have been critical of the Corps’ handling of the EIS, which is being done on a two-year timeline for the huge and complex development. In June, Gov. Walker’s administration called for the Corps to suspend the EIS until Pebble offered an economic review of their plan. CEO Tom Collier told the Journal in April that the company was working to develop a preliminary economic assessment on the project by the end of the year, but one has not been published to this point. Pebble backers scored a two-part victory on Election Night when Ballot Measure 1, the salmon habitat initiative, was roundly rejected by Alaska voters and staunchly pro-development Gov. Dunleavy beat former Begich, who has long opposed the mine. 7. Tourism keeps booming More and more people continue to want to come to Alaska. Alaska’s tourism industry continues to record visitor numbers to the state — and more are predicted for 2019. It’s also been one of very few growth sectors in the state’s economy over the past three years. Final numbers for the year are still being tallied, but the total of cruise passengers visiting Alaska was expected to be up 7 percent from the more than 1 million who came to the state in 2017, according to CLIA Alaska. More cruise ships and bringing more people are coming in 2019 as well. According to Travel Alaska, 37 cruise ships will traverse the state’s waters next year. CLIA Alaska says those vessels will carry nearly 1.2 million passengers. Passenger traffic at Ted Stevens Anchorage International Airport was up 3.1 percent through October, according to airport officials. The growth was 5.3 percent year-over-year in the third quarter. In October, Gov. Bill Walker announced direct passenger service between mainland China and Alaska will begin in 2019. TSAIA Manager Jim Szczesniak said in November that the outlook for 2019 is good as well with daily summer service to New York from United. 8. Roadless Rule reopened Gov. Walker’s administration cracked the Roadless Rule code Alaska loggers and other development interests had been working on for years over the course of 2018. In August, former DNR Commissioner Andy Mack and Interim Forest Service Chief Victoria Christensen signed in a working agreement that laid the foundation for the agencies to revise the Roadless Rule on the likely prospect of reopening more Tongass National Forest land to development of some kind. The August agreement was borne out of a petition sent in January from former Walker’s administration to Agriculture Secretary Sonny Perdue requesting a full exemption from the sweeping Clinton-era Roadless Rule that timber companies in the state blame for crippling their industry. By late November the 13-member Alaska Roadless Rule Citizen Advisory Committee picked by Walker had drafted four general options for revising the conservation measure and a list of recommendations for Forest Service officials to consider in their rewrite of the Tongass Management Plan. Several committee members said they felt their work went well and incorporated input from members who spanned the various Tongass stakeholder groups. The four proposed Roadless Rule options include maintaining all existing inventoried roadless areas, or IRAs, except for those with roads that pre-date the rule; removing previously roaded areas as well as areas identified in the management plan for timber production and others where a modified landscape has been deemed acceptable; removing areas in timber production and modified landscape IRAs identified by conservation groups as critical salmon habitat conservation areas in addition to the other exemptions; and, most broadly, removing all IRAs that are not currently designated with a non-development land-use priority, according to the committee’s report. 9. Rural health care funding fight In May, the Cordova Community Medical Center received a shut-off notice from Alaska Communications for its broadband services unless a balance of nearly $1 million was paid by June 30. Federal Communication Commission Chairman Ajit V. Pai stepped into the dispute and warned the Anchorage-based telecom provider that it’s against the Communications Act to shut down services. However, the Cordova Hospital wasn’t the entity not paying its bill. At that time, Alaska Communications hadn’t received funding for going on 11 months through an FCC that bridges the high cost of bringing broadband service to rural Alaska, called Rural Health Care, or RHC. The Cordova hospital is just one of about 40 rural health care facilities that Alaska Communications supplies broadband services. Alaska Communications and fellow in-state telecom GCI Liberty were owed millions from the RHC program through the first half of the year. By law, Internet service providers have to serve rural health care clinics at the same cost they give to urban health care clinics, and to make up the difference, they can apply for funding through the RHC program. The catch is that they have to justify the rates they’re charging for rural connections. After an investigation, the FCC found that two non-Alaska carriers were inflating their rural rates to increase their payments from the program in 2017 and fined the companies about $40 million. The agency then requested more information from the participating companies to justify the rural rates they charged. That proved to be an issue for Alaska telecom providers, where Internet connections are notoriously expensive and limited outside urban centers. The FCC announced Oct. 10 that GCI would receive $77.8 million in funding through the program. That’s about $28 million less than the company requested in its cost estimates. GCI objected, saying in an Oct. 12 press release that the reduction from the funding request essentially forces the company to swallow $28 million in services that had already been provided. The FCC emphasized the “fiscal responsibility” of the decision to reduce the funding to GCI in a prepared statement. Alaska Communications previously outlined the difficulties in meeting the information request specifications for the FCC to approve its rural rates. As of mid-October, most of the requests from the providers the company served in 2017 had been approved, but a handful had not yet been approved and therefore not funded, according to an Alaska Communications spokeswoman. In June 2018, the FCC increased the available funding from $400 million to $571 million, which has since been scaled to $581 million for inflation, according to an FCC spokesman. 10. NPR-A plan revisions Led by former Alaska Department of Natural Resources commissioner Joe Balash, in November Bureau of Land Management officials began the process of reopening the National Petroleum Reserve-Alaska Integrated Activity Plan on the prospect of opening more areas to oil exploration. Now an assistant Department of Interior secretary, Balash said in a call with reporters that the emergence of the Nanushuk geologic formation since the last plan was written — the primary source for two discoveries with the potential to produce upward of 100,000 barrels per day each — as well as advances in drilling technology make it an appropriate time to rewrite the federal land-use plan. One of those discoveries, ConocoPhillips’ Willow prospect, is in the eastern part of the NPR-A. BLM is in the early stages of an EIS for the $4 billion to $6 billion Willow project. The most prospective Nanushuk area, according to the U.S. Geological Survey, is in the northeast portion of the NPR-A around Teshekpuk Lake that was made off-limits to oil and gas leasing in the 2013 plan. Last December the USGS dramatically increased its mean recoverable oil estimate for the reserve to nearly 8.7 billion barrels. The Bureau of Land Management started a 45-day scoping period Nov. 20 to seek input on what should be considered in drafting the environmental impact statement, or EIS, that will drive the work. State and local officials have also pushed BLM to reconsider the current land use plan for the reserve. The North Slope Borough is a major financial benefactor of oil development in the NPR-A as the local government, by federal law, is eligible to use up to half of the federal royalty revenue from oil production in the NPR-A for capital grant projects. On Dec. 12 the agency held its annual NPR-A oil and gas lease sale. BLM received 16 bids over 16 oil and gas leases covering 174,044 acres, which netted a total of $1.13 million. Balash concluded that the relative lack of bidding compared to what has happened recently on nearby state lands “underscores the need for us to take a look at the NPR-A Integrated Activity Plan.”

Finally? First Mustang oil targeted for April

If the Arctic winter allows, Alaska will have a new producing oil field by spring, according to Brooks Range Petroleum CEO Bart Armfield. The Mustang oil project Armfield’s company has been plugging away at for more than six years is finally ready to come together after years of challenges, he said. The progress on the Slope coincides with changes to the company structure. The leaders of Brooks Range’s parent companies, Thyssen Petroleum Inc. and Alpha Energy Holdings Ltd., are in the process of finalizing a merger to become a single, publicly traded entity on the Singapore exchange, Armfield said. What the resulting company will be called is still being decided, but the merger is expected to be finalized in mid-January. As for the work on the North Slope, “We plan to have a drilling rig on location after the first of the year. We plan to drill a Mustang lateral (well) and we plan to have facilities on site and production in April,” Armfield said in a Dec. 11 interview. “At that point we go from working interest owners to shareholders.” The Mustang project is in the small Southern Miluveach Unit on the southwest edge of the large Kuparuk River Unit. It’s estimated to hold 22 million barrels of proven reserves, according Brooks Range. Peak production estimates for the field have been in the range of 12,000 barrels per day. However, initial plans are to install a modular early production facility, or EPF, capable of processing up to about 6,000 barrels per day to begin producing oil without the larger expenses of permanent facilities. “Parts of it are here; parts of it are in Houston and parts of it are in Calgary,” Armfield said of the EPF, which should arrive on the Slope early next year. Brooks Range has been working on Mustang for years, though the project has gone through fits and starts since oil prices collapsed starting in late 2014. “The twice veto of the tax credits as well as oil going from $120 to $30 — it has created significant difficulties in shareholder confidence and working interest owner confidence relative to funding,” he said. Brooks Range is owed roughly $22 million in refundable oil and gas tax credits, according to Armfield. The state Department of Revenue gave a unique loan of roughly that amount in 2015 to the entity controlling the Mustang Operations Center-1, mostly owned by the Alaska Industrial Development and Export Authority, to keep advancing the project. The company also partnered with AIDEA on the $70 million of early investments in the pad infrastructure and a larger, permanent processing facility in 2012 and 2014. AIDEA transferred those investments to Brooks Range’s parent companies earlier this year through an owner-financed sale of its equity in Mustang. Whether oil will begin flowing from Mustang in April will largely be decided by what kind of winter it is on the North Slope. Brooks Range needs to install a roughly 1,100-foot pipeline to tie Mustang to ConocoPhillips’ larger Alpine transport line. Getting that work done is dependent upon being able to build an ice road along the pipeline route, which so far has been delayed by a warm and late-arriving winter, Armfield said. An earlier plan to truck oil for a short time until the Mustang pipeline is finished was nixed by the company to maximize the economics of that first production instead of pressing to get to first oil as soon as possible. Armfield said that decision was made in conjunction with Alaska Division of Oil and Gas officials who have been closely monitoring the slowly advancing project with a critical eye. The lateral well Brooks Range plans to drill this winter in addition to the pipeline work will ready the MO-1 well for production. “MO-1 is a well that we have right on top of the Kuparuk (formation) that we plan to drill the 6,000-foot horizontal in so that will give us three wells,” Armfield said. Initial production should be “at least a couple thousand barrels a day,” he added, with more oil coming after four new wells are drilled later this year. The hope is those additional wells will max out the 6,000 barrels per day EPF. “If that’s achieved then we make the decision on the larger, 15,000 barrels per day facility or do we just expand the existing EPF,” he said. Elwood Brehmer can be reached at [email protected]

NPR-A sale draws limited interest, but one new company

Interest in National Petroleum Reserve-Alaska oil and gas acreage was tempered again this year, with federal officials citing a lack of access to the most prospective areas as a reason for the modest bidding. Overall, the Bureau of Land Management received 16 bids over 16 oil and gas leases covering 174,044 acres, Acting BLM Alaska Director Ted Murphy said during the Wednesday morning bid opening in Anchorage. The bids, ranging from $57,000 to $216,000 per lease, netted a total of $1.13 million, half of which will go to the State of Alaska through revenue sharing. The state lease revenue from the federal reserve is then first available for allocation to a grant program aimed at reducing the impacts of development on North Slope communities. Assistant Interior Secretary Joe Balash said in a call with reporters that the results are encouraging — BLM got 7 bids for NPR-A leases last year — but the lack of bidding compared to what has happened recently on nearby state lands “underscores the need for us to take a look at the NPR-A Integrated Activity Plan.” The state North Slope sale on Nov. 15 netted $28.1 million in bids, the third-highest since 1998. BLM made 254 tracts over 2.8 million acres available for leasing this year in the 22 million-acre reserve based on industry nominations, according to Balash. He announced Nov. 20 that BLM would be starting the process to revise the NPR-A land use plan with the goal of opening additional areas of the reserve for oil and gas leasing. The most prospective areas based on recent Nanushuk formation discoveries, according to the U.S. Geological Survey, are in the northeast portion of the NPR-A around Teshekpuk Lake that was made off-limits to oil and gas leasing in the 2013 plan. Last December the USGS dramatically increased its mean recoverable oil estimate for the reserve to nearly 8.7 billion barrels. “We think that the Petroleum Reserve itself has much more potential,” Balash said, despite the relatively low number of lease bids. Oil companies and some North Slope communities have also pushed for new roads in the reserve to make resident travel and commercial development cheaper and easier. Emerald House LLC, a new player to Alaska, secured 10 of the leases; ConocoPhillips picked up five and Anchorage-based Nordaq Energy Inc. won one. Emerald House is wholly-owned by Elixir Petroleum Inc., according to the state Division of Corporations, Business and Professional licensing. Elixir, an Australian company, holds a several leases covering about 35,000 acres in the southern portion of the NPR-A, according to the company’s website. Most of the leases sold in Wednesday’s sale are near areas ConocoPhillips — the dominant player in the NPR-A — is exploring and developing in its Greater Mooses Tooth oil projects and its large Willow oil prospect. Elwood Brehmer can be reached at [email protected]

DOT shines in quake response

Alaska’s initial earthquake response was been so swift and comprehensive it left some wondering if it was actually true. Those behind the fact-checking website Snopes.com felt compelled to verify the speediness of the Minnesota Drive off-ramp reconstruction photographs and claims for Outsiders. It was reopened before noon on the fourth day after the Nov. 30 morning earthquake. The northbound section of the Glenn Highway that collapsed near Eklutna was reopened early the next morning. By all counts, the Department of Transportation and Public Facilities handling of a disaster that damaged infrastructure across Southcentral was one of numerous examples of remarkable emergency preparedness in many facets of life. “The whole group in Central Region, whether it was design, construction, (maintenance and operations), they all performed as you would expect to,” DOT Commissioner John MacKinnon said in an interview. “They performed incredibly well and as a team.” DOT officials said a March incident in which an overheight semi-trailer load struck and significantly damaged a Glenn Highway overpass in Eagle River — shutting down traffic on the only northerly route in and out of Anchorage — encouraged them to look critically at their response plans. “We had those plans fresh” when the earthquake struck, spokeswoman Shannon McCarthy said. MacKinnon added, “The other thing that helped is that in instances like this you don’t have to ask for permission to do certain sorts of things — the permits to get — you just respond.” When MacKinnon, appointed by Gov. Michael J. Dunleavy, reported to the Central Region office early Dec. 3 to take over DOT from outgoing commissioner Marc Luiken, much of the response and repair work had already progressed to the point where officials were ready to stand down the incident command center. “They intended it to be a smooth transition and it worked very well,” he said. However, many of the repairs, particularly to roads and bridges — as impressive as they’ve been in the days immediately following the quake — are temporary. Permanent road repairs meant to withstand up to 20 years of use will be commence next spring when conditions are more favorable, according to DOT officials. Roughly a week after the quake struck DOT had identified 50 instances of damage to state roads, with eight considered “major” damage. The Federal Highway Administration released $5 million in Emergency Relief funds to the Alaska DOT Dec. 1 at the request of then-Gov. Bill Walker and DOT officials. FHWA considers that initial $5 million to be a “down payment on the costs of short-term repairs while the state continues damage assessments for long-term repairs,” an agency release states. A large portion of the cost of the permanent fixes is expected to be covered by federal disaster aid funding, which Alaska’s senators said Congress is likely to take up in January. Exactly how much those permanent repairs will cost is still unclear, according to MacKinnon. However, the Dunleavy administration will likely ask for funding from the Legislature for repairs to Vine Road in the Matanuska-Susitna Borough and similar projects. The state took over work on the completely destroyed section of the borough road to allow borough officials to manage other earthquake-related issues, such as several badly damaged schools, MacKinnon said. He also commended the contractor road crews that immediately went to work long after they were supposed to be done for the season. “It’s not easy to get an asphalt batch plant going when it’s 30 degrees because that asphalt, it’s produced at over 400 degrees. That oil, it’s solid like tar and it’s got to be heated slowly. The aggregate has got water in it — it’s frozen — and it’s got to be broken up and warmed up,” said MacKinnon, who led the Associated General Contractors of Alaska for 11 years. “And again, everyone worked together so well on this thing — the folks at DOT and the industry. “The saying I’ve heard is the worst brings out the best in people and it certainly did in this case.” ^ Elwood Brehmer can be reached at [email protected]

Revised version of Clean Water Act rule released

To the delight of development stakeholders and the Alaska congressional delegation, federal authorities in charge of regulating the nation’s waters released their latest proposal to define which ones they have jurisdiction over on Dec. 11. The Environmental Protection Agency and the U.S. Army Corps of Engineers are jointly planning to scale back the waters over which they can claim jurisdictional authority. Acting EPA Administrator Andrew Wheeler and Assistant Secretary of the Army R.D. James signed the proposed rule Dec. 11; the EPA is subsequently expected to submit it for publication in the Federal Register, which will trigger a 60-day public comment period, according to a pre-publication version of the rule. The move is the final step in the Trump administration’s nearly two-year effort to replace an Obama-era version of the “waters of the U.S.” rule, oft referred to as WOTUS, finalized in 2015. The Corps of Engineers adjudicates applications for development permits in navigable waterways across the country on behalf of the EPA. The EPA has the final say over regulating development in and around navigable waters through is Clean Water Act authority. “This proposed rule is intended to increase (Clean Water Act) program predictability and consistency by increasing clarity as to the scope of ‘waters of the United States’ federally regulated under the Act. Today’s proposed definition is also intended to clearly implement the overall objective of the CWA to restore and maintain the quality of the nation’s waters while respecting State and tribal authority over their own land and water resources,” an Army-EPA summary of the rule states. In February 2017 President Donald Trump issued an executive order titled, “Restoring the Rule of Law, Federalism, and Economic Growth by Reviewing the ‘Waters of the United States’ Rule.” That order led to a lengthy public process to repeal the 2015 rule, which concluded earlier this year. On Oct. 9, 2015, the 6th U.S. Circuit Court of Appeals in Ohio stayed implementation nationwide of the Clean Water Rule in a 2-1 decision. Judges Richard Allen Griffin and David McKeague found enough evidence to suspend it based on key parameters in the final rule that are not substantiated by adequate scientific conclusions and that the same parameters may not have been added to the Clean Water Rule in accordance with public comment regulations. Specifically, the new WOTUS rule covers traditional, large navigable waters and their tributaries that contribute year-round or intermittent flow and wetlands adjacent to other jurisdictional waters. “Adjacent wetlands” are defined as wetland areas that abut or have a surface water connection to other jurisdictional waters in a normal year, according to the agencies. “Wetlands physically separated from other waters of the United States by upland or by dikes, barriers, or similar structures and also lacking a direct hydrologic surface connection to such waters are not adjacent under today’s proposal,” according to the draft rule issued Dec. 11. Development in waters that fall under the Clean Water Act typically require some sort of mitigation or offset to the impacts of the activity, which development proponents often lament as being very costly. The members of Alaska’s congressional delegation welcomed the announcement in statements from their offices. Sen. Dan Sullivan called the previous version of WOTUS “confusing and burdensome federal overreach.” “If a landowner or farmer has to hire a lawyer for months of work against an impenetrable and glacial bureaucracy — at the cost of thousands of dollars — just to understand whether they can fill a ditch or build a structure, it doesn’t take a genius to figure out that doesn’t work, especially in Alaska,” Sullivan said. “The EPA’s proposal offers a path to a more reasonable, statutory-based interpretation of the Clean Water Act. I hope we can continue this progress and finalize a rule that clearly allocates state and federal authority to adequately protect our watersheds and resources, without unnecessarily burdening Alaskans and our economy.” Sullivan serves on the Senate Environment and Public Works Committee. Opponents argued the old rule placed many manmade water bodies, such as irrigation ditches, under the purview of the Clean Water Act. Sen. Lisa Murkowski, chair of the Energy and Natural Resources Committee, also said the new rule should restore balance in the state and federal relationship over water and “help end years of concern, frustration, and uncertainty over a costly regulation that would have halted construction projects and other economic opportunities.” Under the previous rule promulgated by the Obama administration, waters adjacent to traditionally jurisdictional waters that are within the 100-year floodplain to a maximum of 1,500 feet were subject to the Clean Water Act and thus were jurisdictional waters under federal authority. Additionally, isolated water bodies with a “significant nexus” to navigable waters fell under the Clean Water Act in the 2015 rule. The State of Alaska initially sued the EPA over the 2015 rule along with 12 other, mostly western states. Obama administration officials argued the previous rule was meant to formalize and clarify the jurisdiction the agencies had operated under for years. Conservation groups contend the prior WOTUS rule was based on science that proves the importance intermittent streams and subsurface water connections in maintaining clean water and healthy aquatic ecosystems. “This (Dec. 11) proposal is fundamentally flawed for one simple reason: It focuses on the wrong criteria — continuous flow of water — rather than protecting water quality in our rivers, lakes, and drinking water reservoirs,” Izaak Walton League of America Executive Director Scott Kovarovics said in a formal statement. “This misguided approach is completely unsupported by science and common sense and it not only jeopardizes public health, it will undermine the $887 billion outdoor recreation economy.” Proponents of the old rule also insist it better protected headwater the streams and wetlands that are the foundation of larger downstream water bodies. Elwood Brehmer can be reached at [email protected]

Federal earthquake relief to be addressed by next Congress

Additional federal aid is undoubtedly on its way north after the Nov. 30 earthquake, but Alaska will have to wait its turn. Members of the Alaska congressional delegation and their staffs said in the week following the 7.0 magnitude earthquake that disaster relief appropriations would likely first go towards hurricane recovery in the Carolinas and Gulf Coast. The Federal Highway Administration released $5 million in Emergency Relief funds to the Alaska Department of Transportation Dec. 1 at the request of then-Gov. Bill Walker and DOT officials. FHWA considers that initial $5 million to be a “down payment on the costs of short-term repairs while the state continues damage assessments for long-term repairs,” an agency release states. Sen. Lisa Murkowski, who serves on the Senate Appropriations Committee, said Dec. 3 after touring some of the damage across Southcentral with Sen. Dan Sullivan that Congress would likely approve hurricane relief funding before breaking for the holidays. She forecasted a separate disaster supplemental spending bill addressing California’s wildfires and the Alaska earthquake sometime shortly after the new Congress convenes in January. The primary reason for not simply tacking on to the hurricane relief, which staffers noted has been in the works for months, is to get a better understanding as to just how much damage, in monetary terms, was done. “We don’t need to hurry up quick and throw a number out there just to throw a number out there because Congress is ending,” Murkowski said. “We do have time. We do need to take the time to do a fair and accurate assessment.” Sullivan added that it could take significant time for state officials to determine exactly what amount of federal assistance is needed. “Our message (to those reviewing damage) was take your time to get it right, to get it accurate because we’ll probably have one shot, a good shot, to do it. We certainly don’t want to lowball any estimates right off the bat,” Sullivan said. The senators said they received a call from Vice President Mike Pence in the hours following the earthquake and have heard from other high-ranking federal officials and members of Congress that Alaska will be afforded all of the resources needed to fully recover. A FEMA spokesman said the agency is still assessing damage. On Friday President Donald Trump signed a two-week funding bill that avoids a partial federal government shutdown until Dec. 21. Murkowski said the hurricane relief bill would move through Congress ahead of a budget resolution to make sure the priority appropriation is taken care of. In October, Congress attached nearly a nearly $1.7 billion appropriation for the Carolinas to the Federal Aviation Administration reauthorization bill, which Sens. Richard Burr and Thom Tillis referred to in a release as a “down payment” on Hurricane Florence relief work. Sullivan estimated the toll of the earthquake to be “at least hundreds of millions of damage that we saw” during a Thursday speech on the Senate floor. “I know people are scared and nervous wondering how they’re going to pay for all the damage, but we’re going to work together through that,” he added Thursday. Murkowski spokeswoman Karina Borger said via email that federal aid would likely be channeled through relevant agencies, such as Housing and Urban Development, for qualifying residential damage. Earthquake damage is spread from the Kenai Peninsula north to Anchorage and the Matanuska-Susitna Borough. The most widespread destruction occurred in Eagle River, just east of the epicenter and in the areas of the Mat-Su immediately surrounding the epicenter at Point MacKenzie. “Some of these schools look like someone has completely exploded them inside,” Sullivan described. Eagle River Elementary and Gruening Middle School in Eagle River sustained major damage and will be closed for the rest of the school year. Houston Middle School in the Mat-Su will be closed the rest of the year as well and school officials have questioned whether or not it is repairable. Roughly a week after the quake struck DOT had identified 50 instances of damage to state roads, with eight considered “major” damage, according to spokeswoman Shannon McCarthy said. Temporary repairs to sections of the Glenn and Seward highways, as well as the Minnesota Blvd.-International Airport Road interchange were complete within a few days. However, road crews will to return to the once-buckled sections in spring to make permanent fixes. How much those permanent repairs will cost is still unclear, McCarthy said. Look for updates to this story in an upcoming issue of the Journal. Elwood Brehmer can be reached at [email protected]

Alaskans make ‘Roadless Rule’ revision recommendations

Alaskans had their say and it’s in the feds hands now. The Alaska Roadless Rule Citizen Advisory Committee has submitted 14 pages of recommendations to the U.S. Forest Service as the federal agency works to draft an Alaska-specific Roadless Rule for the roughly 17 million-acre Tongass National Forest that dominates the Southeast landscape. The aim of the committee’s work and for the tailored rule is to establish “a land classification system designed to conserve Roadless Area characteristics in the Tongass National Forest while accommodating timber harvesting and road construction/reconstruction activities that are determined by the state to be necessary for forest management, economic development opportunities, such as recreation, tourism, energy, and mining, among others, and the exercise of valid existing rights or other non-discretionary legal authorities,” the committee’s report states. It was borne out of a petition sent in January from former Gov. Bill Walker’s administration to Agriculture Secretary Sonny Perdue requesting a full exemption from the sweeping Clinton-era Roadless Rule that timber interests in the state blame for crippling their industry. That request spawned an agreement between former DNR Commissioner Andy Mack and Interim Forest Service Chief Victoria Christensen signed in early August that laid the foundation for the agencies to reopen the Roadless Rule on the likely prospect of reopening more Tongass land to development of some kind. The 13-member committee selected by Walker — plus a Forest Service technical expert — drafted four new rule options along with a long list of specific exemptions for the Forest Service to consider in its likely rewrite of the 2016 Tongass Management Plan. The four proposed Roadless Rule options include maintaining all existing inventoried roadless areas, or IRAs, except for those with roads that pre-date the rule; removing previously roaded areas as well as areas identified in the management plan for timber production and others where a modified landscape has been deemed acceptable; removing areas in timber production and modified landscape IRAs identified by conservation groups as critical salmon habitat conservation areas in addition to the other exemptions; and, most broadly, removing all IRAs that are not currently designated with a non-development land-use priority, according to the report. The additional list of Roadless Rule exemptions for Forest Service officials to consider includes road projects to improve public safety; those for federal mineral leases that pre-date the 2001 implementation of the rule and operating mines; access to hydropower or other renewable energy and utility transmission projects; and roads for accessing fishery research, management and enhancement projects among others. The 2016 Tongass plan emphasizes a shift to young-growth timber harvest in the forest, which Alaska timber industry representatives say they are not opposed to, but they contend it attempts to make the change too quickly before an adequate supply of second-growth stands will be mature enough for viable harvests. Other development interests, such as utilities and mineral explorers, argue the Roadless Rule has ostensibly shut them out of new projects in the Tongass as well. Advisory committee members were generally positive regarding the committee process, which included a series of three, multi-day public meetings held in Ketchikan, Juneau and Sitka in October and November. Robert Venables, executive director of the Southeast Conference, a nonprofit regional development organization and an advisory committee member, said he thought everyone on the committee — from conservation-focused individuals to timber and mining representatives — participated with open minds with the goal of finding pragmatic solutions. “For communities that are constrained economically and have transportation challenges (and) high energy costs being able to have access to the resources is really a consideration that needs to be made,” Venables said in an interview. The Southeast Conference has previously advocated for an Alaska exemption to the Roadless Rule, but that was when it was an all-or-nothing choice, he noted. The organization is withholding an opinion now as the new rule is drafted. Fighting solely for keeping the Roadless Rule in place as-is or a full repeal — options the Forest Service will also consider — isn’t very productive, Venables contends. Sitka Conservation Society Executive Director Andrew Thoms, another committee participant, said he thought the process was productive as well and suggested a similar approach could be used in other longstanding resource management debates. Specifically to logging, Thoms stressed that market forces have played a significant role in the downturn of the industry in Southeast since its heyday of the 1980s and early 1990s. “The areas where there is economical timber are now very limited because of that logging that took place in the past. We have much fewer options now than were available in the past for logging as an economic driver and we’re going to have to work together and really figure out how to do logging in the best way if logging businesses are going to survive in Southeast Alaska because there are such few, limited options because of what was logged in the past,” he said. “Roadless is one factor amongst many that are putting constraints upon the timber sector in Southeast Alaska.” While the Roadless Rule did not explicitly ban timber harvest in many IRAs, it now requires helicopter logging and other less invasive but more expensive methods that often don’t pencil out. Other committee members declined to comment further, opting to let the report speak for itself. Alaska Forest Association Executive Director Owen Graham followed the committee process though he was not on the committee. He said he will continue to advocate for a full repeal of the rule because it’s unclear how much more timber would be available for easier harvest under the proposed options. Those specifics are the types of details that could come later in the process of amending the Tongass Management Plan. Forest Service officials have said they expect to have the amended plan complete near the end of 2019 or early 2020. Graham said he could support committee “Option D,” which would open the most acreage to development, if an acceptable amount of timber opportunity is provided. Venables said there was “healthy conversation about watersheds and fisheries” and protecting the tourism sector that has grown in the region as the timber industry has shrunk. He emphasized that Southeast’s timber industry is not likely to return to what it once was, but at least sustaining its current niche of specialty products and export timber should be a priority. “We didn’t finish a project. We started, I think, one of the most meaningful conversations that we can have with a group of individuals that could see a balanced solution and have well-reasoned conversations between developers and conservationists and folks that are just trying to make sustainable communities in the region,” Venables added. Elwood Brehmer can be reached at [email protected]

Tariff pause doesn’t change talks with China on AK LNG

Alaska Gasline Development Corp. officials believe the recent announcement of a 90-day pause on new tariffs between the U.S. and China is a positive development, but it has not changed their broader approach to reaching firm agreements with their Chinese counterparts. AGDC spokesman Jesse Carlstrom said the leaders of the state agency have continued to monitor what they refer to as the “trade friction” between the companies, which they view as short-term while Alaska LNG is a generational project. They have remained consistent in their view of the U.S.-China trade dispute while working to finalize deals to underpin the Alaska LNG Project with three of China’s largest companies. President Donald Trump said in a Dec. 1 statement from the White House that he and China President Xi Jinping agreed to a 90-day pause on new or steeper tariffs on goods traded between the countries. That means a previously discussed tariff increase from 10 percent to 25 percent on roughly $200 billion of Chinese imports will not happen Jan. 1. China has instituted a 10 percent tariff on U.S. LNG imports in response to initial tariffs imposed by the Trump administration on Chinese goods. China originally contemplated a 25 percent tariff on U.S. LNG imports. State-owned Chinese oil and gas giant Sinopec is a potential anchor customer for the project after it signed a nonbinding joint development agreement with AGDC to purchase up to 75 percent of Alaska LNG’s expected 20 million tons per year of production capacity in November 2017. That agreement, or JDA, also detailed the prospect of the Bank of China and China Investment Corp. correspondingly financing up to 75 percent of project development costs with a mix of debt and equity. “All parties, AGDC and the JDA parties, have proceeded through 2018 on the work to advance the project,” Carlstrom said. AGDC President Keith Meyer has said there are no signs from the Chinese negotiating team that the tariffs have slowed progress on the Alaska LNG deals. Meyer stresses that the project would be a major step towards balancing trade between the countries and thus should be part of resolving the economic tensions. The Chinese consortium and AGDC signed a supplemental agreement Sept. 29 to collectively reaffirm their desire to reach a firm deal by the end of this year. The JDA has a Dec. 31 deadline for final agreements; however, former Gov. Bill Walker said in a late November interview with the Journal that he thought the deadline might need to be adjusted in light of a new state administration taking over. Former Gov. Sean Parnell, who initiated the current Alaska LNG Project iteration at the time led by the major North Slope producers, is advising new Gov. Mike Dunleavy on the state-led effort. Carlstrom said AGDC and the JDA parties continue to advance negotiations on all fronts. “We’re still on track and still aiming for that Dec. 31 target,” he said. “We’re also advancing agreements across the entire Asia-Pacific region.” AGDC officials have touted receiving 15 letters of interest from potential LNG customers in Asia over the past two years, but most of them — including even the names of the interested parties — have been kept confidential. Carlstrom noted that if the JDA deadline passes without firm LNG sale and financing deals in place the negotiations can continue if all the parties agree. ^ Elwood Brehmer can be reached at [email protected]

Railroad back on track three days after quake

The first Alaska Railroad trains were back traveling between Anchorage and Fairbanks late Dec. 3 following the 7.0 magnitude earthquake that damaged the tracks running between Alaska’s largest cities Nov. 30. Alaska Railroad Corp. spokesman Tim Sullivan said afternoon Dec. 3 that service on the railroad’s northern route was expected to resume later that day “due to the hard work of a hell of a lot of people.” A day-and-a-half after the quake it was unclear when the tracks would be reopened as the quake had rendered at least three areas “impassable,” Sullivan told the Anchorage Daily News at the time, as inspections were ongoing. Dec. 3 he said at least a half-dozen areas of damage were identified including the three that required immediate repairs to reopen the route. “Those three are now passable,” Sullivan said. “They will be slow orders. There will be folks going over them beforehand to make sure that they’re in good shape; folks will be going over them after the trains to make sure they’re still in good shape — that we don’t see any difference in them after the trains go through and that will be the case for quite some time.” In addition to areas where the gravel bed subsided, there were other areas where the tracks shifted but can still be used with caution at slower than normal speeds, he added. As is the case with many construction projects in Alaska, there is a lot the railroad can’t do to repair its tracks in the winter so some of the work will have to wait until spring, according to Sullivan. The tracks south of Anchorage to Whittier and Seward did not sustain as much damage. The railroad issued a subsequent release Dec. 4 stating that it was set to resume regularly scheduled passenger and freight service along the entirety of its routes. “We could not be more pleased with the work our crews have done to get the Alaska Railroad back up and running in just over 72 hours,” Vice President of Marketing Dale Wade said in a formal statement. “This incredible effort from railroaders speaks to the grit and perseverence of Alaska and its people. We are happy to be able to return to serving our passengers and freight customers so quickly.” Summer is the busy season for passenger service, but the Alaska Railroad has increased its winter ridership in recent years by offering offseason fare discounts along with holiday, aurora-viewing and other themed trains. In all, the railroad has passenger service on 482 miles of track from Fairbanks to Whittier and Seward. The railroad has also been a primary supplier of fuel to the Interior since Flint Hills Resources closed its North Pole refinery in the spring of 2014. The earthquake also caused a pipe to burst in the railroad’s Anchorage Operations Center, which will require significant work to repair, but the railroad’s other facilities in Anchorage sustained only minor damage. Elwood Brehmer can be reached at [email protected]

Preliminary revenue forecast out, but per barrel price headed lower

Amid a transition of power at the highest levels of state government and ongoing earthquake rebuilding and recovery in Southcentral, Department of Revenue officials released an early version of the state’s annual Fall Revenue Forecast on Dec. 3 with a major “subject to change” disclaimer. The Preliminary Fall 2018 Revenue Forecast projects the State of Alaska will collect more than $6.2 billion of unrestricted revenue available for appropriation in the current 2019 fiscal year, which would lead to the state’s first balanced budget since 2012, outgoing Gov. Bill Walker said in a speech to the Anchorage Chamber of Commerce Nov. 26. Slightly more than $3 billion of that would be petroleum-derived tax and royalty revenue, while another nearly $500 million would come from non-petroleum sources; the remaining $2.7 billion would be drawn from the Earnings Reserve Account of the Permanent Fund based on a 5.25 percent of market value, or POMV, calculation. However, the big caveat in those numbers is an assumption that Alaska North Slope crude oil will hold an average price of $76 per barrel for the remaining roughly seven months of fiscal 2019. That figure was arrived at late October, according to a Revenue Department release, when daily Alaska oil prices were hovering between $75 and $79 per barrel. The department is delaying slightly the release of the 2018 Revenue Sources Book to allow the oil price forecast to be reviewed and possibly revised. The final book will still be published ahead of the mandated Dec. 15 deadline of Gov. Mike Dunleavy’s first proposed budget, according to a department release. As of Nov. 29, Alaska crude sold for $60.46 cents per barrel, according to the state Tax Division. The forecast anticipates an average Alaska oil price of $75 per barrel for fiscal year 2020, which starts July 1 and prices slowly climbing to average $84 per barrel by 2027. “Once again, Alaska is experiencing unexpected oil price volatility. As has been our practice for the past 15 years, through the month of October, the department worked with staff from Revenue, Natural Resources, Labor, the University of Alaska, (the office of Management and Budget), and Legislative Finance, as well as private economics firms and financial analysts to develop an oil price forecast,” Revenue Commissioner Sheldon Fisher said in a formal statement. “During November, however, the oil markets have experienced the largest monthly price decline, in percentage terms, in a decade.” Fisher continued to say that oil markets currently appear to be oversupplied as U.S. oil sanctions on Iran that took effect last month did not slow the supply of oil from the major producing country as expected. That resulted in increased Saudi production — intended to only offset production losses from Iran — oversupplying global oil markets in the short term and leading to the dip in prices, according to Fisher and other analysts. President Donald Trump has said he wants Saudi Arabia to continue ramped-up production to keep oil prices low, which generally benefits U.S. consumers. The route the Saudis will take is unclear. Alaska economist Ed King, who previously worked as an economic advisor in Walker’s administration and now manages private firm King Economics, suggested incoming Revenue Commissioner Bruce Tangeman and his team should look at reverting back to prior predictions when adjusting the state’s official oil price forecast for the final 2018 Revenue Sources Book that will be published later this month. “It’s probably good to assume that the $60-$65 range is a better number to budget on and if we beat that number, then great, and if we don’t then we’ll have to adjust accordingly,” King said. The Spring 2018 Revenue Forecast, which is an annual update during the legislative session to the fall Revenue Sources Book, anticipated $63 per barrel oil for fiscal 2019 with oil prices expected “to stabilize in the low $60s in real terms,” Fisher wrote to Walker in a letter accompanying the spring forecast. At the time, administration officials said $63 per barrel oil would leave the state with roughly a $700 million budget deficit for the 2019. King participated in Revenue’s October oil price forecasting session and also noted how much the oil market landscape has changed since then. “That’s one of the challenges with the annual forecast rather than a continuously updated one. That number is probably outdated and probably needs to be revised before the Legislature’s budget is based on it,” he added. Elwood Brehmer can be reached at [email protected]

British Columbia seeks bids to remidate Tulsequah Chief mine

British Columbia mining regulators have taken the first step toward paying to clean up an abandoned mine that has been leaking acid runoff into Alaska waters for decades. The British Columbia Ministry of Energy, Mines and Petroleum Resources issued a request for proposals Nov. 6 soliciting bids to remediate the Tulsequah Chief mine located in the Taku River drainage about 10 miles upstream from the Alaska-British Columbia border. State officials contend the multi-metal mine that operated for just six years has been leaking acid wastewater into the Tulsequah River, which feeds the Taku, since it was closed in 1957. The Taku River empties into the Pacific near Juneau and is one of the largest salmon-bearing rivers in Southeast Alaska. The Alaska congressional delegation and Gov. Bill Walker’s administration have stepped up their demands for provincial officials to address the situation in recent years — largely at the behest of Southeast commercial fishing and Native groups — after the mine’s latest owners, Toronto-based Chieftain Metals Ltd., began bankruptcy proceedings in 2016. Sen. Dan Sullivan and former Lt. Gov. Byron Mallott traveled to Ottawa to meet with Canadian officials in February to discuss their environmental and fishery concerns about government oversight of mining activity within transboundary watersheds in the province that flow into Alaska. A burst of mining activity in the remote northern region of the province has led to numerous new mines and mine proposals in transboundary watersheds. At the same time, the Energy, Mines and Petroleum Ministry has come under scrutiny for its regulatory requirements of mines after a British Columbia auditor general report concluded the 2014 Mount Polley mine tailings dam breach was the result of inadequate engineering. The Mount Polley copper and gold mine is in the upper reaches of the large Fraser River watershed. Alaska officials have also requested their provincial counterparts assist in conducting baseline environmental studies in the lower reaches of transboundary watersheds to monitor things such as water quality in advance of upstream mine development. Sullivan said in a Nov. 19 statement from his office that he is encouraged the provincial government has finally taken a more active role in cleaning up the troubled and abandoned mine. “The announcement that the government intends to move forward and develop a remediation plan is a step in the right direction. As voices on both sides of the border have been asking for years, it’s time for the B.C. government, the state of Alaska, Alaska Native and First Nations communities to work together to remove this and other looming threats over our rivers, fisheries, communities’ health and wellbeing,” Sullivan said. Gov. Walker wrote to British Columbia Premier John Horgan Oct. 31 thanking him for the work the state and province have done on transboundary issues but reiterated an ongoing worry about whether the financial assurances the province requires of mining companies are adequate to protect such rivers. “These concerns arise, in significant part, because statutory decision-makers in British Columbia may accept less than full security based on a company’s financial strength, and the public has less access to the data and analyses used to set the amount of financial assurances in British Columbia,” Walker wrote. He continued to stress that the decades-old problems with the Tulsequah Chief mine do not inspire confidence in the province’s oversight of its mines. “As long as contaminants from the site continue to drain into the Tulsequah River and downstream to the Taku River, people on our side of the border will worry about the health of the fish and other marine life in Alaska that depend on the quality of these waters,” Walker wrote. “Alaskans will also continue to question the ability of Canada and the province to assure mineral development is done without sacrificing environmental values.” Chris Zimmer, an Alaska director for the Juneau-based transboundary watershed conservation advocacy group Rivers Without Borders said Nov. 13 that since two companies have gone bankrupt after attempting to re-open the mine, “Permanent mine closure with full reclamation would be the best and most cost-effective solution to the Tulsequah Chief issue and we urge the B.C. government to adopt such a plan, as opposed to partial interim measures such as on-site water treatment.” Chieftain Metals acquired the underground mine in 2010 with plans to re-open it. The company installed a water treatment plant to resolve the acid drainage problem in 2011 but the plant was shut down in June 2012 after just nine months because it did not perform up to expectations. Chieftain stopped permitting efforts to resume mining in 2015, according to provincial regulators. Proposals to clean up Tulsequah Chief are due by Dec. 13. It’s unclear how much the effort will cost.

Clock ticks on ANWR seismic survey plan

If the Bureau of Land Management is going to lease parts of the Arctic National Wildlife Refuge for oil exploration next year, it may have to do so with very limited information available for bidders. Assistant Interior Secretary Joe Balash said officials from the U.S. Fish and Wildlife Service continue to work with SAExploration Inc. on issues pertaining to the Endangered Species Act and the Marine Mammal Protection Act for the company’s application to conduct a 3-D seismic survey over the ANWR coastal plain this winter. However, he acknowledged that the schedule for such a survey — which can only be done while the tundra is frozen and snow-covered — is starting to be squeezed as BLM is required to issue a public notice and hold a comment period before the seismic survey plan is officially approved. “At this point it is getting very tight if their activities are going to begin in January,” Balash said during a Nov. 19 call with reporters conducted to discuss BLM’s work to revise the land-use plan for the National Petroleum Reserve-Alaska. SAExploration submitted the original Marsh Creek 3-D seismic survey plan to Interior last spring in partnership with Alaska Native corporations Kuukpik Corp., Kaktovik Inupiat Corp. and Arctic Slope Regional Corp. ASRC and Kaktovik Inupiat Corp., commonly known as KIC, hold surface and subsurface mineral rights to significant portions of the roughly 1.6 million-acre ANWR coastal plain — the area of the refuge opened for oil and gas exploration in the tax cut package that Congress passed about a year ago. The Marsh Creek plan called for SAE to conduct a seismic program covering 2,602 square miles over two winters, with initial work starting Dec. 10 of this year. In late May the Washington Post reported that the Fish and Wildlife Service deemed the 34-page plan application incomplete because it didn’t evaluate potential impacts to wildlife the large seismic shoot could have. Balash said it was too soon to tell if the agencies and the companies would be able to work something out for work to now start in January. “It all depends on the schedule that A, can be authorized, and B, that the applicant would be able to complete the activities that would be of value to them and their potential customers,” he said. Balash is a former Alaska Department of Natural Resources commissioner. President Barack Obama’s Interior Secretary Sally Jewell rejected a similar seismic survey plan submitted by the State of Alaska when Balash led DNR in 2013, contending her authority to approve the activity expired in 1987 based on an interpretation of the 1980 Alaska National Interest Lands Conservation Act. The state lost a subsequent U.S. District Court appeal. The state’s plan was estimated to cost roughly $50 million; it’s unclear how much the private consortium expects to spend. Last year outgoing Gov. Bill Walker proposed spending $10 million of state funds to support such work but that appropriation was later removed from his budget plan. A new seismic survey would likely be very valuable to oil and gas companies interested in bidding on ANWR leases, as the only resource estimates the U.S. Geological survey has done are based on old information compiled with old, 2-D technology. How many companies will want to explore the area is uncertain given the associated political controversy and the fact that it would be a very expensive greenfield mission while long-term oil prices are very uncertain. Additionally, new Nanushuk and Torok geologic formation discoveries in and around the NPR-A on the western North Slope have drawn major interest from the industry and development in the NPR-A is already underway. Interior officials have said they want to hold the first ANWR lease sale sometime in 2019. The most informed estimate on ANWR’s coastal plain area came from the U.S. Geological Survey in 1998, which made a “mean” estimate of 7.7 billion barrels of recoverable oil that could be discovered. “Mean” is basically the midpoint between high and low estimates. Whether oil is really there isn’t known for sure. The USGS worked with data from 1,180 miles of 2-D seismic program conducted between 1983 and 1985, plus what is known about the regional geology. The only exploration well drilled in ANWR, in a 91,000-acre in-holding of private lands owned by Kaktovik Inupiat Corp. and Arctic Slope Regional Corp., was drilled in the early 1980s by BP and Chevron Corp., and the results are still secret. BLM is also working on the first draft of an environmental impact statement required before a lease sale can be held. Balash said the draft is “very, very close” but the agency isn’t quite ready to publish it. It should be available in the coming weeks, he added. On Nov. 14, Energy Information Administration Assistant Administrator Ian Mead said in a presentation to the Resource Development Council for Alaska that the agency base estimate is oil production from ANWR could peak at 880,000 barrels per day in 2041. That assumes oil would begin to flow in 2030, but is also based on the now 20-year old USGS resource assessment. State DNR and Revenue officials told legislators in 2015 that ANWR oil development could net the state $150 billion of revenue if production goes through 2075, but that was also based on an average price of $110 per barrel.

Walker reflects on gasline effort as term winds down

Bringing all of Alaska the benefits of lower cost natural gas has been Gov. Bill Walker’s career mission. He often recalls being told as a young carpenter wrapping up work on the Trans-Alaska Pipeline System to get ready for work on a gas project. That was more than 40 years ago. And while he won’t be in office to shepherd it across the finish line, during his four years as governor Walker has helped Alaska get closer than ever before to finally building “the gasline.” “Obviously we’d like to be laying pipe, but that’s not realistic,” Walker said during an interview in his Anchorage office. “I think some very significant things happened during our four years. Most significant is the producers recognized that they would be in better alignment if they were selling gas or shipping gas rather than owning a piece of pipe. That’s more typical; that’s the norm.” In its current form, “the gasline” is the $43 billion Alaska LNG Project, initiated by his predecessor, Gov. Sean Parnell and transformed by Walker’s administration. The original Alaska LNG plan, similar to several gasline proposals before it, positioned the “big three” producers — BP, ConocoPhillips and ExxonMobil — to own much of the project and invest heavily in it while the State of Alaska took a minority role both in project ownership and development. That was less than five years ago, but the global LNG business has changed drastically since. Lower 48 shale-sourced oil and natural gas flooded markets and changed energy economics. Once a high-value, niche market, the LNG trade is suddenly a booming but intensely competitive realm. Walker and his hand-picked choice to lead Alaska LNG, Alaska Gasline Development Corp. President Keith Meyer, have continually stressed that the project is not the proper space for the producers as the economics simply don’t add up to the high rates of return large oil companies typically demand for their investments. Then, in early 2016, when oil prices were bottoming out at less than $30 per barrel and the companies and the state alike were just trying to stay afloat, they presented Walker with an opportunity. The State of Alaska could take over the project or allow the producers to shelve it on the hope markets would eventually rebound to meet their return requirements. For the governor it was a beacon of light during one of the worst storms the state had ever seen. “When they came to me on their very own and made that proposal I — man, I get chills just thinking about that moment when they made that request and I was so happy to accept,” he recalled. “That was the game-changer by far when they made that proposal.” Walker’s team has been in overdrive since. The state has received letters of interest from 15 potential gas buyers, AGDC officials repeatedly tout, although they won’t discuss most of them. “That really allowed us to represent Alaska in a very different way with this project,” he says of the change in structure. “Because of that we went from a regional project to a statewide project to a national project to a world project. We went on the world stage.” While many Alaskans disagree with Walker’s state-led approach to the gasline, on that point there is little debate. On Nov. 9 of last year Walker and Meyer signed a joint development agreement with Chinese oil and gas giant Sinopec Corp., a potential anchor Alaska LNG customer, and the Bank of China and China Investment Corp. as potential financiers. The JDA, as it is known, was far from a firm contract — those negotiations are ongoing — but the fact that it was one of a select group of trade agreements signed in Beijing in front of President Donald Trump and China President Xi Jinping proved up the legitimacy of the Alaska project on the world stage. Walker added that it was a personal honor for him to host BP’s Bob Dudley and ConocoPhillips’ Ryan Lance in Juneau for lengthy gasline discussions following the JDA signing. He later met with ExxonMobil CEO Darren Woods in Washington, D.C. The JDA also gave Walker and AGDC cabinet-level contacts in the Trump administration, which sees the project as a major step towards balancing the country’s trade deficit with China. He said Treasury Secretary Steven Mnuchin recently called him wanting to discuss the project and asked the governor “Where should I land?” on a trip back to Washington, D.C. Walker agreed to meet him in Fairbanks. “That’s the kind of attention this project now has. It is a world-class project,” Walker said. Under Walker, AGDC also began the permitting process for the Alaska LNG Project in April 2017, another major gasline first. The Federal Energy Regulatory Commission is expected to publish the first draft of the project’s environmental impact statement in February of next year. A record of decision is expected soon on the smaller, in-state Alaska Standalone Pipeline, or ASAP, project from the U.S. Army Corps of Engineers, but the economics of that project are highly questionable, officials acknowledge, given it does not have the export sales component. Instead, ASAP is generally seen as permitting support for Alaska LNG given it follows about 80 percent of the big project’s route bisecting Alaska from Prudhoe Bay to Nikiski. Walker highlighted that his administration has done this on a shoestring budget while also trying to pull the state out of multibillion-dollar budget deficits. “We never asked for any money from the Legislature over these four years. (We used) the money that came with the project,” he said. Going forward, he wants Alaskans to focus on the benefits lower cost energy could bring to Alaska and not solely what the project returns to the state’s coffers. Early estimates suggested Alaska LNG could be a yield upwards of $2 billion per year for the state; however, under the new, more realistic, according to Walker, project structure AGDC estimates it will generate roughly $250 million per year in revenue at least until the financing is paid off. “It’s an absolute game-changer for our future. Plan B is so far down the hill from what this would do for Alaska, especially on the mining side — my goodness. Classic example is Red Dog (a lead and zinc mine in Northwest Alaska). They burn 40,000 gallons of diesel a day and I asked them what would happen if they had a six-inch gasline coming over to their facility,” Walker said, adding fuel is currently barged and then trucked 54 miles to the mine site. “They just pointed to every mountain and said ‘we’d mine that mountain, we’d mine that mountain, we’d mine that mountain.’ So the mining industry has the most to gain from this project with what I call collateral benefits. “That’s what has really driven me over the years. It’s not just shiploads of LNG over to Asia; it’s really what happens on the way. I think that pipeline should look like a centipede when it comes down through Alaska with as many offtakes as possible so every community, every village, every industry, every mine has the opportunity for low-cost energy.” He continued to note that Alaska’s state ferries, which operate at a significant cost to the state, burn diesel, while British Columbia burns LNG in its ferries. “The list goes on and on as far as the collateral benefits; so that‘s what really has gotten me and kept me excited with this opportunity,” he said. Walker said he hopes the incoming administration of Gov.-elect Mike Dunleavy will continue to accelerate the project — with the acknowledgement it will soon need funding either from the Legislature or outside investors — and he’s ready to do whatever it takes to help in that effort. Walker said he wants to introduce Dunleavy to many of the LNG industry and world leaders he has met through the Alaska LNG work. “It’s not just all about number crunching; that’s important, but it’s also about relationships,” he said. “In this world, of this kind of volume of financial commitment, relationships are important and I want to make sure that they have every opportunity to pick up where we’ve left off and move forward. Whether they’re interested in that is up to them but I’m certainly going to extend that offer.” Dunleavy, for his part, is consumed with everything that’s needed to prepare a new governor to take the helm of a state and he’s chosen former Gov. Parnell to advise him on the gasline during the transition. Dunleavy takes office Dec. 3. Parnell wrote via email that he has had several meetings lasting three-plus hours each with AGDC officials. He said the corporation officials have been very helpful in providing information and materials under a confidentiality agreement. Additionally, Parnell said others with ideas for the gasline such as legislators and representatives from the producer companies have asked to speak with him. As of Nov. 20, Parnell was still working to compile and summarize the initial information Dunleavy asked him to gather, so the governor-elect and his leadership team had not yet been briefed. Walker said some of the pessimism from legislators and other industry experts regarding the prospects of the Alaska LNG Project has likely been an unfortunate result of his involvement and well-publicized enthusiasm for a gasline. “We’ll see what happens this session but I certainly hope they stay the course on the permitting, that we’re able to sort of expedite a bit with the help of the small line,” he said. “I think there’s reason to be optimistic, absolutely.” Elwood Brehmer can be reached at [email protected]

Tax credit-backed loan from state to Mustang owners scrutinized

In October 2015, Alaska Department of Revenue officials lent $22.5 million to support a small but challenged North Slope oil project. The loan was unique among the department’s investments not for the fact that the state was participating in a private sector project, but for the other circumstances that spurred it and who it was made to. On Oct. 1 of that year the Department of Revenue finalized a $22.5 million line of credit agreement with Mustang Operations Center-1, or MOC1 LLC, to provide the company with capital to continue advancing the Mustang oil project. Located in the Southern Miluveach Unit adjacent to the large Kuparuk River field on the central North Slope, Mustang could produce upward of 12,000 barrels of oil per day from a resource of about 22 million barrels when the project is complete, according to estimates from Brooks Range Petroleum Corp. Brooks Range has been working on Mustang for years, though the project has gone through fits and starts since oil prices collapsed starting in late 2014. The loan was made to MOC1 and not Brooks Range because of a partnership the operating company had with the Alaska Industrial Development and Export Authority, the state-owed development bank. In December 2012, AIDEA invested $20 million of the $27 million needed to build a five-mile road to Mustang and a 19-acre pad for production and processing facilities. The gravel road and pad — in which AIDEA was an 80 percent owner — were finished in April 2013. The gravel road and pad have since been used by other oil companies as an access route and staging area for winter exploration drilling programs. At the time, Brooks Range leaders said they wanted to have the field in production by fall 2014 and credited incentives in the just-passed and industry-supported oil production tax structure under Senate Bill 21 for improving the economics of the project and spurring it forward. In April 2014, AIDEA committed another $50 million equity investment in the $225 million Mustang oil processing facility through MOC1. AIDEA held a 96 percent stake in the holding company as Brooks Range’s owners matched the authority’s equity with a $1 million investment of their own. Brooks Range Chief Operating Officer Bart Armfield said at the time that the project would start production in late 2015 and likely hit peak production in 2017. Full development of the field was estimated to cost about $580 million and included drilling 11 production and 20 more gas and water injection wells, but now is estimated at greater than $750 million, according to AIDEA. AIDEA’s $50 million was to be repaid with 10 percent annual interest within seven years after the start of oil production from Mustang, or by the end of 2022, according to a memo from AIDEA staff to the board of directors when the investment was approved. AIDEA’s equity was also key to Brooks Range’s ability to secure loans to finance the remainder of the project, authority and company officials said when the deal was made. Much of the payback to the authority was to come in the form of refundable oil and gas tax credit payments Brooks Range was set to receive from the Department of Revenue for the tax credit-eligible work the company would perform on the project. Now the president of Brooks Range, Armfield wrote in a December 2015 letter to then-Natural Resources Commissioner Mark Myers that the company had spent $145 million on facility engineering, reservoir evaluation, permitting, drilling and other expenses to move Mustang forward. That ended up being a problem for the project because — in addition to low oil prices challenging its economics — Gov. Bill Walker in June 2015 vetoed $200 million in tax credit payments from an overall $700 million tax credit appropriation that was to be spread amongst numerous credit holders. Limiting the 2015 tax credit payment was Walker’s first step towards ending the program, which he and others saw as unsustainable given the oil price decline had pushed the state into several years of budget deficits in the range of $3 billion or more. He vetoed another $430 million in tax credit payments in 2016 and the state Legislature has since further limited its tax credit appropriations in subsequent state budgets. Paying off the tax credits quickly became a large piece of negotiations between the Walker administration and legislators over a long-term fiscal plan to resolve the structural budget deficits. ‘Skin in the game’ That’s where the loan comes in. Then-Revenue Commissioner Randy Hoffbeck said in an interview that the loan was made because the state “already had skin in the game through AIDEA” and officials did not want to see the authority’s investment lost. While loans were not offered to other companies holding tax credit certificates, it was determined the loan to MOC1 could be made under the department’s investment policies, according to Hoffbeck. “We had our investment guys look at it and say, ‘yeah, we could fit that in with our portfolio,’” he recalled. “Not a large amount but the amount that we did was reasonable within our portfolio with a guaranteed 7 percent rate of return at a time when the markets looked kind of frothy and we didn’t know really which way they were going to go.” Hoffbeck retired from the state in August 2017. The $22.5 million originally came with 7 percent simple interest and a maturity date of Dec. 31, 2016. However, Walker’s second credit payment veto, on top of oil prices that made Brooks Range’s owners hesitant to advance the project, made repayment difficult. “It was supposed to be a one-year loan and then like everybody else that had loans against tax credits we were in the same position. We all had to get in line and wait for the credits to be paid,” Hoffbeck said, noting the loan continued to accrue 7 percent interest while it went unpaid. According to an April 6 report regarding the loan from newly appointed Deputy Revenue Commissioner Mike Barnhill to the Legislative Budget and Audit Committee, $19.7 million remained to be repaid as of last spring. A $1.6 million interest payment was made on Feb. 2. Hoffbeck said discussions before the loan was made were primarily between Revenue officials and Brooks Range representatives; AIDEA officials were kept “in the loop,” he said. Hoffbeck remembers a suggestion to make the loan coming from Walker’s then-chief of staff Jim Whitaker, but said he wasn’t sure if the governor was involved in those discussions. Whitaker said he remembers Hoffbeck initially balking at the idea because it had never been done before and the commissioner said he would have to evaluate it against the department’s investment criteria. The Department of Revenue continually invests state money, including that in state savings accounts, which are invested conservatively in things that can be liquidated quickly for cash management purposes. “Understand the Department of Revenue has a significant investment portfolio. Most of that portfolio, if not all of it, is invested outside of Alaska and when we put all of that in context there was a question raised: ‘Given the situation we’re in shouldn’t we take a look at (the loan)?’” Whitaker said. “That decision was made within the context of investments coming out of the Department of Revenue.” There were a number of “brainstorming sessions” among folks within the administration on various ways to see the state through the severe financial situation Alaska was suddenly facing, Whitaker said, adding that he didn’t remember who first spawned the idea for the loan to MOC1. In fact, he was surprised a couple months later when he heard the loan had been made given Hoffbeck’s initial response. AIDEA board briefed AIDEA board of directors chairman Dana Pruhs said someone on the board at some point in late 2015 or early 2016 asked about the status of the deal with Brooks Range given Walker had vetoed part of the tax credit payments, which was generally a popular topic in Alaska business circles at the time. It was around then that the board was made aware of the loan to MOC1, according to Pruhs. To his knowledge, the loan concept did not come from anyone at the authority; he surmised it originated from within Revenue or Brooks Range. “We didn’t really dive into who, what, when there. We just thought it was a matter of course,” Pruhs said in an interview. “They made a loan against their own tax credits — ok, next.” Others said they were informed of the loan earlier in 2018. The April report from Revenue’s Barnhill includes 2015 loan documents signed by now-retired AIDEA project manager Jim Hemsath and Brooks Range representatives as directors of MOC1 LLC. Whitaker did stress that AIDEA leaders did not come up with the plan and were generally ambivalent to the idea when it was brought up to them. “AIDEA didn’t come knocking on the door and say, ‘hey, we’ve got exposure. We’d essentially like to provide a bridge loan to these guys,’” he said. Walker said in an interview that he was generally aware of AIDEA’s partnership with Brooks Range made under Gov. Sean Parnell’s administration, but he was not at all focused on the specifics of the issue. The loan was not made because of a directive from his office, Walker said. In hindsight, Whitaker said the loan was still a “pretty safe bet” in that the state was collateralizing itself with tax credits that will eventually be repaid. The Walker administration’s plan to sell bonds to pay for the more than $800 million in outstanding tax credits — championed by current Revenue Commissioner Sheldon Fisher — is being challenged in state Superior Court on constitutionality grounds. Revenue audit The loan largely flew under the radar until late May when Legislative Budget and Audit Committee chair Sen. Bert Stedman requested an audit of Revenue’s Tax Credit Loan Program. Stedman wrote in a May 28 memo to fellow committee members that he wanted an audit of Revenue “in response to recent allegations and concerns that the DOR is not managing or investing funds from the GeFONSI (General Fund and Other Non-segregated Investments) Pool in compliance with state statutes, regulations, DOR policies and procedures.” Specifically, Stedman asked for auditors to evaluate whether the loan was accurately reported for the state’s financial statements; how broadly the program was used and whether or not loans were offered to other credit holders; whether any conflicts of interest existed amongst state personnel; and how it might relate to the Legislature’s appropriation authority. A committee staffer said Stedman couldn’t comment on the matter because the audit is ongoing. Records provided to the Journal by Revenue officials indicate the loan was reported in the state's accounting system. A version of the Treasury Division’s Investment Policies and Procedures dated Nov. 3, 2014, does not list tax credit-backed loans as approved GeFONSI Pool investments. However, an updated issuance of the exhaustive document dated Jan. 23, 2018, states that as of July 1, 2017, up to 2 percent of the GeFONSI Pool investments could be made in tax credit loans. Barnhill’s report says the policy change was made in July 2016. Hoffbeck said he didn’t remember signing off on the change in investment policy. “It was a straight up deal, one of those that didn’t play out quite the way we intended but it was certainly something that made sense at the time,” he said. Barnhill’s report also states that Revenue asked the AIDEA board to assume the $19.7 million outstanding debt and that the authority had asked for further forbearance as it sought to sell MOC1 to Brooks Range. On Sept. 19, AIDEA did just that. The authority board unanimously approved a deal to sell MOC1 and the similar Mustang Road LLC to Brooks Range’s parent company, Caracol Petroleum for $64 million in the form of a seller-financed loan with 8 percent interest. The loan is scheduled to mature April 1, 2026, and quarterly payments are set to commence May 1, 2019, which would be about the time Brooks Range now expects to start oil production at Mustang. Division of Oil and Gas Deputy Director Jim Beckham approved Brooks Range’s 2019 plan of development — the sixth for the project — Oct. 31. Division officials have approved the company’s plans for the Southern Miluveach Unit in recent years while also expressing concern that the company has consistently missed promised timelines in developing the Mustang project. Beckham wrote that the company “has been on notice since well before its fifth POD was approved that regulation requires that ‘operations are being conducted.’ This means BRPC must conduct operations on a continual, sustained basis.” The company currently expects to start production in the first or second quarter of 2019 from a modular “early production facility” with capacity to handle up to about 6,000 barrels of oil per day. Subsequent drilling development drilling could occur later this year, according to the company’s filings with the state. Brooks Range’s Armfield was unavailable for comment on the company’s progress in time for this story. Pruhs said he feels the investment environment surrounding oil and gas projects has improved and the oil is still there for the taking. “I’m confident in the prospect and I’m confident that at the end of the day it’s best for the state, for the taxes they’ll collect and the revenues off the field once it’s in production,” he said. “From an AIDEA perspective, we’re investing in the state and I think that’s a good thing.” Whitaker said he’s comfortable with the loan and suggested Stedman should’ve discussed the situation with administration officials before requesting the audit. “I have no concerns about it now or then,” Whitaker emphasized. "Hells bells, when you’ve got that kind of a (deficit) problem and you’re not looking for a solution — that’s indicative of a much larger problem and had Sen. Stedman come to me or anyone else we’d have said, ‘here, this is what we’re doing; this is why we’re doing it. Do you have a better idea?’” Elwood Brehmer can be reached at [email protected]

Nanushuk discoveries prompt Interior to reopen NPR-A plan

Interior Department leaders in President Donald Trump’s administration are aiming to boost oil and gas activity over a 22 million-acre swath of the North Slope by rolling back some of the leasing restrictions put in place by their predecessors. Assistant Interior Secretary Joe Balash said in a Nov. 19 call with reporters that Interior will soon begin evaluating where the 2013 Integrated Activity Plan for the National Petroleum Reserve-Alaska can be revised. The Bureau of Land Management was scheduled to start a 45-day scoping period Nov. 20 to seek input on what should be considered in drafting the environmental impact statement, or EIS, that will drive the work. Balash indicated that the emergence of the Nanushuk geologic formation since the last plan was written — the primary source for two discoveries with the potential to produce upward of 100,000 barrels per day each — as well as advances in drilling technology make it an appropriate time to rewrite the federal land-use plan. One of those discoveries, ConocoPhillips’ Willow prospect, is in the eastern part of the NPR-A. BLM is in the early stages of an EIS for the $4 billion to $6 billion Willow project. Balash said rewriting the NPR-A Integrated Activity Plan should take about a year or a little longer. “We’ll let the information that comes in and the comments we get from our stakeholders and cooperators help guide our decisions but we’re pretty excited about this,” he said. The most prospective Nanushuk area, according to the U.S. Geological Survey, is in the northeast portion of the NPR-A around Teshekpuk Lake that was made off-limits to oil and gas leasing in the 2013 plan. Last December the USGS dramatically increased its mean recoverable oil estimate for the reserve to nearly 8.7 billion barrels. Conservation groups urged caution when ConocoPhillips submitted its Willow plan to BLM, stressing the importance of the nearby Teshekpuk Lake area as waterfowl and caribou habitat and subsistence harvest areas. Audubon Alaska Policy Director Susan Culliney said in response to the land-use revisions that the current plan already allows for development in some areas while protecting others, such as Teshekpuk Lake. "Despite it's industrial name, wildlife abound in the NPR-A," Culliney said in a formal statement. "We have significant data that shows how important this area is for molting geese, half a million shorebirds, all for speicies of eider, tens of thousands of caribous, and denning polar bears. Any new plan must protect this vital habitat." Balash said Interior acknowledges that tension. “Geologists believe that the area is extremely prospective. Now, that said, the lake is also home to a tremendous collection of waterfowl that migrate through there,” he said, adding that he’s fortunate to be quite familiar with the communities and the terrain. “It’s one of the key sensitivities that we’ll be working to identify in the plan and any associated stipulations that might attract.” Balash, a former Alaska Department of Natural Resources Commissioner, cited a Nov. 2 letter sent to him by current DNR Commissioner Andy Mack and North Slope Borough Mayor Harry Brower in which they asked him to consider the state’s and borough’s desires to develop a North Slope road network and possibly gas utility infrastructure but with considerations for subsistence activities. The North Slope Borough is a major financial benefactor of oil development in the NPR-A as the local government, by federal law, is eligible to use up to half of the federal royalty revenue from oil production in the NPR-A for capital grant projects. BLM is offering 254 tracts covering roughly 2.8 million acres in its annual NPR-A lease sale. Balash said heightened interest from industry is expected given excitement surrounding the Nanushuk prospects and improved oil prices. This year, the agency offered only the tracts industry suggested, he said. The bids will be opened Dec. 12.   Elwood Brehmer can be reached at [email protected]

State nets $28.1 million in Slope, Beaufort Sea lease sales

Exploration interest remained high in the state’s North Slope and Beaufort Sea annual lease sales held Thursday morning, which netted $28.1 million for the state treasury. Winning bids for the North Slope portion of the sale totaled about $27.3 million, the third highest amount since 1998, according to Division of Oil and Gas Director Chantal Walsh. Successful bidders spent about $848,000 for near shore Beaufort Sea leases, which is in line with historical averages, Walsh said. The state received bids on 133 tracts covering 223,680 onshore North Slope acres and eight Beaufort Sea tracts totaling 20,270 acres garnered bids, according to division officials. “We have a lot to be happy about — a very good lease sale,” Walsh said. A new player to Alaska, Lagniappe Alaska LLC, dominated the sealed-bid sale by winning rights to 120 leases over a large area south of Deadhorse along the Dalton Highway. State officials present at the sale knew little about Lagniappe and audience members speculated amongst themselves how to spell it (pronounced lan-yap) as the bids were read aloud. Lagniappe Alaska LLC was formed in the state on Nov. 7 and is based in Lafayette, Louisiana, according to filings with the state Division of Corporations, Business and Professional Licensing. No one came forward when Deputy Oil and Gas Director Jim Beckham asked if a Lagniappe representative was present at the bid opening. “We appreciate our new player,” Walsh said. Overall, Lagniappe spent $14.1 million to secure rights to 195,200 acres of state land, according to a division report of the North Slope sale. Not to be outdone, Spanish major Repsol, which along with Armstrong Energy discovered the large Pikka prospect, spent between $175 and $586 per acre on the few remaining available leases just to the south and east of the Pikka Unit. “Repsol is definitely here to play,” Walsh commented. Repsol committed just more than $13 million for 12 leases covering 26,560 acres, according to the lease sale summary. Caracol Petroleum and ASRC Exploration also bid on several of the dozen leases Repsol won. Australian-based Oil Search, which recently took over as operator of the Pikka Unit and is advancing the Nanushuk project, won several Beaufort Sea leases just offshore from Pikka. "The interest in unexplored areas and in the Nanushuk formation are both positive trends for the state," DNR Commissioner Andy Mack said in a formal statement. The one minor disappointment for state officials was a lack of interest in the three Special Alaska Lease Sale Areas, or SALSAs, the Division of Oil and Gas put up for bid for the first time. Despite coming with publicly available geologic data, the SALSAs — each covering multiple lease tracts — garnered no bids. Walsh said she is still happy the division took the time to compile and advertise the areas as it directed more traffic to the division’s website than ever before and gave officials insight into how to better direct interested parties to publicly available oil and gas geologic and well data. She added the concept of selling multiple leases in blocks is something the state will continue to evaluate but it’s too soon to tell if the current SALSAs will be put up for bid again in their current form. The Bureau of Land Management’s annual lease sale for the National Petroleum Reserve-Alaska is scheduled for Dec. 12 and will cover 2.8 million acres, according to a BLM release. Additionally, the Bureau of Ocean Energy Management issued a notice of intent Nov. 15 laying out the agency's plans to draft an environmental impact statement ahead of a potential lease sale for federal outer continental shelf, or OCS, areas of the Beaufort Sea in late 2019. However, BOEM Alaska spokesman John Callahan noted that starting the EIS process does not assure a lease sale will be held as there are still numerous reasons the Interior Department could cancel the plan. The agency is taking public comment on the Beaufort OCS leasing proposal through Dec. 17. In late 2016 President Barack Obama's administration withdrew 115 million federally-controlled acres of Arctic OCS waters from leasing over concerns about the impacts oil and gas activity could have on the area's senstive ecosystem. President Donald Trump, in April 2017, issued an executive order to modify the language of the Obama administration's actions and deleted references to the Arctic OCS withdrawals. A coalition of environmental groups, led by Earthjustice, subsequently sued the Trump administration in federal Alaska District Court alleging the president exceeded his authority in his April 2017 order. A ruling on the case is pending and could prevent a 2019 Beaufort OCS sale. Editor's note: The original version of this story listed the net proceeds at $28.9 million, with $28.1 million of that from the North Slope portion. The headline and story have been updated to reflect the correct totals of $28.1 million total and $27.3 million from the Slope portion. Elwood Brehmer can be reached at [email protected]

Dunleavy calls on former Oil and Gas lead Feige for DNR commish

Gov.-elect Mike Dunleavy has made former state Division of Oil and Gas Director Corri Feige his pick for Department of Natural Resources commissioner Wednesday afternoon. He announced the decision Wednesday afternoon during a brief speech at the Resource Development Council for Alaska’s annual conference in Anchorage. Dunleavy called DNR one of the most important agencies in the State of Alaska and said Feige is “the perfect choice to lead it, especially given our shared vision to revitalize our natural resource sector,” in a formal statement. “She has a proven track record,” he said when talking with reporters. Her experience and her knowledge is phenomenal.” Feige led the Division of Oil and Gas within DNR for a little more than a year under outgoing Gov. Bill Walker. She resigned abruptly shortly after Walker’s administration settled a months-long stalemate with BP over the information the company would provide state officials regarding its plans to prepare the Prudhoe Bay field for a potential gasline project. For her part, Feige said Wednesday that “maximizing our resources and getting the state’s economy back on track” will be a primary objective for DNR under her leadership. “When our resource partners are doing well Alaska is doing well,” she added. As DNR commissioner, Feige will oversee the roughly 103 million acres of state-owned land as well as the energy, mineral and timber resources that are owned by the state. Dunleavy has hinted at a plan he's said will be unveiled soon to transfer more state acres into private ownership as a way to spur development. Most recently, Feige worked as president of The Castle Mountain Group Inc., an Alaska-based oil and gas consulting firm. Feige is a geophysicist and engineer by training and has held numerous other oil and gas related positions in Alaska government and the private sector. Her appointment is subject to confirmation by the Legislature, but Feige is generally well respected by individuals familiar with her work in state government. Last week Dunleavy announced former Gov. Sean Parnell would advise him on the $43 billion Alaska LNG Project during the administration transition. Dunleavy also said Wednesday that he has asked the Walker administration to "freeze" the implementation of new regulations until his team has a chance to review them. “Our goal is to pause any new regulations before our team has had the opportunity to assess whether they are needed or will hurt the economy,” he said.   Elwood Brehmer can be reached at [email protected]

Gasline board approves formation of holding companies

Alaska Gasline Development Corp. leaders have approved the formation of a subsidiary firm to manage funding for the $43 billion Alaska LNG Project as they look towards what will be a critical year for the massive natural gas export plan. Unanimously approved by the AGDC board of directors at its Nov. 8 meeting, 8-Star Alaska LLC provides the state-owned parent corporation with a place to hold equity investments in the project while maintaining the benefits of the federal tax-exempt status as a government entity, according to AGDC President Keith Meyer. 8-Star is where equity contributions from general third-party investment companies, groups or individual Alaskans would be placed, while strategic investors with experience in the LNG realm or technical expertise would put their money into another tax pass-through. That second company, Alaska LNG LLC, would build, own and operate the gas pipeline and liquefaction system, Meyer said. AGDC would have to transfer project authorizations, permits and data to Alaska LNG or enter into use agreements that would allow the operations subsidiary access to what it needs to do its work. “This is all part of getting ready for the equity road shows and equity offering that we’ll really put in high gear next year,” he said at the meeting. He stressed that the tiered companies are necessary because AGDC won’t sell shares in itself; it will remain completely state-owned. As the Alaska LNG Project funding is currently envisioned, 75 percent of the estimated $43 billion construction cost, which includes $9 billion in contingencies, would be debt-financed through the Bank of China in exchange for selling Chinese oil and gas giant Sinopec Corp. rights to three-quarters of the project’s 20 million tons per year of LNG production capacity. The remaining roughly $11 billion would be raised through equity investments going to 8-Star and Alaska LNG LLC. “This nested structure does give us a little bit of a leverage advantage in that because of the way this is contemplated 8-Star would own a controlling interest in the project — 51 percent let’s say — by providing 51 percent of the $11 billion. But then we, AGDC, could have a controlling interesting in 8-Star, which could be a little more than half of 8-Star,” Meyer described. “So, if you do that math you could actually control the project company for about $3 billion.” The name 8-Star references the eight gold stars on the Alaska flag, but Meyer also noted that Article 8 is the portion of the Alaska Constitution that places the state’s natural resource wealth in public ownership and the number eight is considered lucky in some Asian cultures — and places AGDC hopes to sell into. In concurrence with setting itself up to move into the financing and contracting stage of developing the Alaska LNG Project, AGDC is in the process of finalizing the commercial agreements that will underpin the project financing. “We’ve now got the banks fully engaged. We’ve got Goldman Sachs fully engaged on the equity side; so now it’s shepherding a lot of paperwork and we want to start to get into what I call preconstruction activities,” Meyer said, adding that corporation officials need to start making decisions regarding where they will get the 800 miles of 42-inch steel pipe and placing other orders with material manufacturers in the near future. In March, AGDC contracted with Goldman Sachs to assist in soliciting equity investments in the project. The nationalized Bank of China is leading the debt roundup. On the commercial side, Meyer said President Donald Trump’s trade dispute with China has not slowed down negotiations with Sinopec, although China’s 10 percent tariff on U.S. LNG imports still applies for now. A team of negotiators from Sinopec and Bank of China traveled to Anchorage in late October, and experts from Sinopec also met with BP and ExxonMobil officials for confidential, technical briefings on the Prudhoe Bay and Point Thomson field gas resources that the companies operate and would feed the Alaska LNG Project, according to Meyer. The two companies have signed preliminary gas sales agreements with AGDC. “That gave them a pretty good check in the box that, ‘ok, the resource is actually there.’ Up until that point we’d been providing them studies but they really wanted to look at the underlying data,” he said. Additionally, a delegation from Vietnam including the country’s vice minister of industry and trade and PetroVietnam Gas CEO Duong Manh Son was in Anchorage Oct. 22 to further LNG supply talks between the government-owned corporations. PetroVietnam Gas is one of several potential smaller LNG customers that could augment sales to Sinopec as an anchor customer. Meyer said PetroVietnam Gas would likely start as a 1 million tons per year LNG customer with the opportunity to increase sales as the country grows its textile and manufacturing sectors. Parnell to review project for Dunleavy Meyer has long acknowledged that AGDC’s schedule to have the Alaska LNG Project in service by as early as 2024 is aggressive, but he said Nov. 8 that now-tightening global LNG markets mean Alaska needs to continue moving quickly to keep up with the competition. “Acceleration is sort of the word I’ve picked for 2019,” he said. Ever-growing demand from China for LNG has pushed the expected global market equilibrium point from about 2025 closer to 2022, according to Meyer. That has pushed potential sellers in other countries to advance their projects while taking shots at U.S. competitors. In early October, a Shell-led consortium formally approved LNG Canada, a $40 billion, 14 million tons per year export project ending in Kitimat, British Columbia, just south of Alaska. The future of that long-discussed project had been up in the air previously. “Canada pulled out all the stops. They dropped the tariffs; they’ve given tax breaks and then just two weeks ago the head of that project, LNG Canada, in Japan slammed the U.S. supply. Because of the trade war they’ve sort of said, ‘Look, the U.S. is not going to be a big contender but don’t worry there’s Canada,’” Meyer said to highlight the global LNG picture. He also said that Russian officials have specifically targeted Alaska LNG as a casualty of the trade issues between the U.S. and China in state-run news reports to promote their own LNG projects. “We’ve got some pretty good competition out there globally,” Meyer added. Finally, he emphasized that state leaders need to be unified behind advancing the Alaska LNG Project to maintain the momentum the project has now. Gov.-elect Mike Dunleavy, a Republican, and many Republicans in the Legislature — who may take back control of the House pending the final outcome the Fairbanks District 1 race — have been highly skeptical of Gov. Bill Walker’s state-led plan for the project. “I’m hoping that under the new leadership and under the changes in the Legislature that government and AGDC are working in great harmony. I’ve sort of said to the AGDC people here that there’s just a whole new level of alignment and harmony here that will help us focus on the fight out there and not the fight in here,” Meyer said. “The fight is with the Russians and the Canadians and the Qataris and a couple others I won’t mention but we’ve really got to be focused on that broader perspective.” Meyer said he does not think he needs to “sell” the project to Dunleavy’s incoming administration. “I’m hoping that our actions and results will sell the project on their own,” he said in an interview. Former Gov. Sean Parnell, who now practices business law at the national firm Holland and Hart, will advise Dunleavy on the gasline project during the transition of administrations. Parnell emphasized in a brief interview Nov. 13 that he is volunteering on Dunleavy’s transition team and is not part his administration. Parnell had not yet signed any agreements with AGDC to review confidential documents, he said, as he was in the early stages of the work. Under Parnell’s leadership in 2014 the state partnered with BP, ConocoPhillips and ExxonMobil to advance the Alaska LNG Project with the companies collectively owning a 75 percent equity stake in the venture and the state taking a minority role along with TransCanada, a pipeline company. The Legislature bought out TransCanada’s interest during a special session in 2015. Walker chose to put the state in the lead in early 2016 when the companies decided to slow the project as a result of depressed global energy markets at the time.

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