Valdez, Trustees for Alaska seek comment extension for AK LNG

The City of Valdez, which wants to see the Alaska LNG Project terminal built in its community rather than Nikiski, and an environmental legal organization have filed separate requests with federal regulators asking additional time to comment on the draft environmental impact statement for the project. Unless the Federal Energy Regulatory Commission changes the deadline, public comments on the draft EIS are due Oct. 3. The 3,800-page environmental review was issued June 28, and FERC held public meetings Sept. 9-12 in eight communities across Alaska to accept comments on the draft. Valdez and Trustees for Alaska, an Anchorage-based environmental law group reviewing the EIS for several clients, asked in separate filings that FERC extend the comment deadline 30 days past the closing date or 30 days after the state project team submits the last of detailed information requested by FERC, whichever is later. “Given the complexity of the issues involved in this massive project, the impacts that could occur to many public resources, and the key information that is still not available to the public, I am requesting that FERC extend the comment period for an additional 30 days after the applicant has provided the needed information,” Valerie Brown, legal director at Trustees for Alaska, wrote in an Aug. 29 filing with the commission. “The City (of Valdez) joins the Trustees for Alaska in their request for an extension of time,” the law firm of Brena, Bell &Walker, which represents the city, wrote in a Sept. 16 filing with FERC. “In order for the city and the public to provide meaningful comments on the DEIS (draft EIS), additional time is required for sufficient review of both recently filed information and additional information expected to be made available in the near future,” the Valdez letter stated. Trustees for Alaska, which did not identify its clients in its Aug. 29 letter to FERC, listed more than a dozen updates, reports, data sets, calculations and other items that the state project team had not submitted to FERC as of Aug. 28. The Alaska Gasline Development Corp. (AGDC), the 9-year-old state agency given the job of finishing the EIS even though there are no customers or investors for the $43 billion project, submitted hundreds of pages of additional information to FERC on Sept. 18. The filing covered many of the topics raised in the Trustees for Alaska letter, including an updated construction blasting plan, calculations of air emissions during construction, and temporary and permanent impacts to polar bear habitat. In requesting more time for public comments, the Trustees also noted that FERC on July 11 asked the National Marine Fisheries Service and U.S. Fish and Wildlife Service to consult on possible damage to essential habitat for several endangered or threatened species, including Cook Inlet Beluga whales and polar bears. “Ideally,” the Trustees wrote, the agencies’ opinions and assessments “would be available before public comments on the potential impacts of the project are due to FERC.” Under the commission’s current schedule, it would issue the final EIS in March 2020 for the state-led project to move Alaska North Slope natural gas through an 807-mile pipeline to Nikiski, on the east side of Cook Inlet, where the gas would be liquefied and loaded aboard ships for delivery to buyers in Asia. Valdez has promoted its community as a better location for the gas liquefaction plant and marine terminal, and the city’s Sept. 16 filing with FERC is one of several statements it has made on the project over the past couple of years. “It is apparent that the draft EIS fails to rigorously explore and objectively evaluate” the pipeline route and LNG terminal Valdez, the city said in a statement issued July 8. The draft “ignores the substantial advantages associated with the Valdez alternative,” the city said. The draft EIS review found insufficient reason to endorse either Valdez or the Matanuska-Susitna Borough’s Port MacKenzie over Nikiski, citing a range of factors that supported the project’s preferred site. “FERC did what they’re supposed to do, and I thought they did a fine job,” Matanuska-Susitna Borough Manager John Moosey told the Alaska Journal of Commerce in July. He said the borough accepted the outcome. The two requests to extend the public comment period were the only such filings in the FERC docket as of Sept. 23. General comments in support or opposition to the natural gas project were minimal. Several residents of Eugene, Ore., filed statements in opposition to the Alaska LNG project, arguing that methane emissions would add to greenhouse gas-induced climate change. “Please oppose this dangerous project,” one of the letters said. One letter came from Nikiski, supporting a variation of the route for the final miles of the pipeline passing through their community to the LNG plant. A few letters had come in as of Sept. 23 from Anchorage and Fairbanks residents in support of the project, economic development, and improved air quality in Fairbanks from burning gas instead of dirtier fuels. “The Alaska LNG Project will also be a new source of revenue to the state of Alaska, thus helping to provide long-term support for services to Alaskans, including our most disadvantaged,” said a letter from an Anchorage resident. John Shively, state Natural Resources commissioner from 1995-2000, also cited the economic benefits to the state and the advantages of gas as a cleaner energy for Alaskans in his letter supporting the project. The draft EIS, Shively said in his Sept. 18 letter, “concludes most project impacts would not be significant and would be reduced to minor impacts with the implementation of proposed avoidance, minimization and mitigation measures.” He also commented that “establishment of local subsistence implementation councils to identify community issues and concerns will help to ensure impacts to subsistence activities are minimal.” The draft EIS determined the North Slope-to-Cook Inlet project would damage some permafrost, wetlands and forest, but many of the effects could be reduced or eliminated if the right steps are taken during construction and operation to avoid, minimize or repair the damage. “With the implementation of various best management practices and our recommendations, most impacts on wildlife would be less than significant, but adverse impacts on some species, including caribou (Central Arctic herds) and federally listed threatened and endangered species, would occur,” the report said. Not unexpected for a project of this size, the draft listed pluses and minuses in the same sentence: “The project would result in positive impacts on the state and local economies, but adverse impacts on housing, population, and public services could occur in some areas.” In addition to the dwindling list of reports, engineering plans and other items the state project team still owed to federal regulators as of mid-September, FERC on Sept. 17 sent the state corporation a 35-page request for more information on the project’s hazard mitigation design, such as ventilation, spill containment, hazard detection, emergency response and shutdown at the gas treatment plant at Prudhoe Bay and gas liquefaction plant at Nikiski. The requests were based on reviews by FERC staff and a third-party contractor hired to specifically look at such issues. The request for additional details was expected and is common for all federally approved LNG projects. The state gasline corporation’s responses to the engineering and design questions are not due until after the close of public comment on the draft EIS but can be submitted early.

Alaska Railroad seeks to overhaul Seward cruise terminal

The Alaska Railroad is looking for a partner to help it update and expand its cruise ship facilities in Seward in order to meet ever-increasing demand in the state’s tourism industry. Railroad officials issued a request for qualifications, or RFQ, on Sept. 16 to start the process of searching for a project developer for what is estimated to be an approximately $60 million to $70 million undertaking. Specifically, the state-owned railroad wants to replace its current passenger vessel, pile-supported dock in Seward, which is 736 feet long and was built in 1966, with a floating dock capable of accommodating two vessels up to 1,080 feet in length. The plan also calls for building a new cruise passenger terminal building with space to accommodate up to 1,500 people. It’s all intended to meet the railroad’s needs for moving cruise passengers from port at the head of Resurrection Bay to other Southcentral destinations for the next 50 years. Railroad officials expect construction to begin in late 2021 and continue into the fall of 2023. However, the current facilities would need to be available for use while construction was ongoing during the May-September cruise season, according to the railroad’s project schedule. Seward is the most popular Southcentral cruise destination; cruise ships called on the small town 95 times in 2019, according to the Alaska chapter of the Cruise Lines International Association. That’s up from 2015 when 11 ships made 64 calls on Seward, according to a railroad passenger report drafted in 2017. More broadly, Alaska’s tourism industry has boomed since visitor numbers bottomed out following the Great Recession roughly a decade ago. Overall railroad passenger ridership — driven largely by visitors arriving or leaving Alaska’s Railbelt by cruise ship — increased 5 percent in 2018, according to the Alaska Railroad’s annual report. The total number of train passengers has grown steadily each year for a 13 percent increase since 2014. Statewide, leaders of the Southeast Conference, a regional economic development organization, reported that more than 1.2 million tourists visited Alaska by cruise ship this year, for 7 percent year-over-year growth. The number of cruise passengers traveling through Seward has grown in recent years as well, from 122,000 in 2013 to nearly 185,000 in 2016, according to the 2017 passenger report. Cruise passengers regularly disembark vessels in Seward, Whittier or Anchorage and board the train to Anchorage or Fairbanks where they take flights back to their home destinations. The railroad frequently contracts to pull passenger cars owned by cruise companies on those routes. What the cruise passenger facility overhaul means for the railroad’s adjacent and idled coal terminal is unclear; railroad officials could not be reached with questions in time for this story, but the need to upgrade passenger infrastructure that sits alongside now unused freight facilities is indicative of a gradual shift in the railroad’s business and Alaska’s economy as a whole. The railroad’s freight business, which is still its primary revenue line, has been on a general downward trajectory while its passenger service continues to grow. Responses to the railroad RFQ are due by Oct. 30. The project is expected to start in May 2020. Elwood Brehmer can be reached at [email protected]

New Permian pipelines will add to oversupplied gas market

U.S. natural gas supply is outstripping demand, holding down prices and prompting speculation over just how low and how long the slide will continue; one research firm predicts prices next year will be the lowest in 22 years. “It is simply too much too fast,” said Sam Andrus, IHS Markit executive director, who covers North American gas markets for the global energy analytics and research company. “Drillers are now able to increase supply faster than domestic or global markets can consume it.” Taken by itself, the U.S. production gain the past two years alone would equal the fourth-largest gas producer in the world. Though U.S. liquefied natural gas and pipeline gas exports have climbed to record highs and power plants nationwide are burning more of the fuel than ever before, even that strong growth in domestic and international demand cannot keep pace with record U.S. gas production. There was a point in August when the U.S. Henry Hub benchmark price was flirting with $2 per million Btu before moving back into the $2.50 range on Sept. 20. But that seasonal price relief for producers in advance of winter looks to be temporary, according to a Sept. 12 report from IHS Markit. Rising production and growing gas stockpiles will work together to knock down prices to an average $1.92 per million Btu in 2020, IHS Markit said. U.S. gas hasn’t averaged below $2 since 1998, according to federal data. Prices averaged almost $3.20 in 2018, dropping to an average of about $2.60 so far this year. New pipelines delivering even more Permian shale gas to market will exacerbate an already oversupplied market, the IHS report said. Permian gas output is expected to average almost 15 billion cubic feet per day in September, double of just two years ago and triple from 2010 levels, according to the U.S. Energy Information Administration, or EIA. Eventually, low prices will push companies to cut back on drilling, bringing supply and demand back into balance, IHS Markit said, forecasting a slight rebound to $2.25 for 2021. “Rising prices stimulate supply and falling prices curtail it. What is unique here is the extent of reduction required,” said Shankari Srinivasan, IHS Markit vice president of energy. The EIA predicts that U.S. dry gas production will average more than 93 bcf per day from September through the end of this year. That’s after August set a new record at more than 91 billion cubic feet, or bcf, per day. The numbers are about double what the nation produced in the mid-1980s. Part of the problem, IHS Markit explained, is that additional oil pipeline capacity out of the Permian is allowing producers there to continue expanding their oil output, adding even more associated gas to an already oversupplied market. New gas pipelines out of the Permian could add an additional 6 bcf per day to the nation’s gas supply. U.S. gas production has grown by 14 bcf per day, about 15 percent, since January 2018, outpacing the strong growth in domestic and export demand. The U.S. is now the world’s third-largest exporter of liquefied natural gas, with four LNG terminals in operation, three more under construction, and six more with regulatory permits in hand and waiting to sign up customers and line up financing before taking final investment decisions. However, through LNG exports and domestic industrial demand, U.S. gas pricing is exposed to the world economy, and a recession would make it worse, S&P Global Platts said. If the global economy goes into a recession next year, demand from U.S. power and industrial sectors would likely decline a combined 2 bcf a day — 2 percent of total U.S. demand — further knocking down prices, Platts said. “A global economic recession remains a distinct possibility next year.” S&P Global Platts Analytics sees low prices hanging around for the next five years. “This is in response to softening global market conditions, increased associated gas production and muted domestic demand-side gains,” the company’s Sept. 9 report read. Without a recession and with some market rebalancing, prices could average $2.66 over the next five years, S&P Global Platts said. It’s not just the U.S. — gas prices are down worldwide. Among the biggest drivers of low prices in Asia and Europe has been the increasing volume of U.S. gas flowing into global markets as LNG, The Wall Street Journal reported Aug. 27. Analysts expect demand from U.S. LNG export facilities to take about 12 percent of the nation’s total gas production by next summer as new facilities start up and existing plants boost their capacity. “It was inevitable,” Ira Joseph, head of gas and power analytics at S&P Global Platts, was quoted in the Journal. “There is simply too much supply coming into the market,” and exports are a way to sell the gas. The pain of low prices is hurting more than just U.S. producers. It has pushed the city of Medicine Hat, Alberta, to abandon 2,000 of its 2,600 municipally owned wells over the next three years. The town of 62,000, known as Gas City, has been losing about $2 per million Btu on the gas it produces, according to a report in the Calgary Herald. Medicine Hat has owned the wells for about a century, and this month was producing about 6,500 barrels of oil equivalent per day from shallow natural gas and oil fields in southern Alberta and Saskatchewan. The average cost of its gas production is about $2.78 per million Btu, and the spot price for gas at Alberta’s AECO hub closed Sept. 12 at 80 cents. “You don’t need a sophisticated computer model to understand this gap means the city-owned utility has been hemorrhaging money,” said a Calgary Herald columnist. Facing dismal economics — and an expected cash loss of $35 million this year from its gas and petroleum resources division, the columnist reported — the city will shut down most of its producing gas wells. Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide. He is the Atwood Chair of Journalism at the University of Alaska Anchorage School of Journalism and Public Communication.

BBNC nets two fishing companies in one deal

The Alaska Native corporation with a “fish first” principle is making its first foray back into the signature Alaska industry in roughly 40 years. Bristol Bay Native Corp. announced an agreement Sep. 17 for it to purchase Blue North Fisheries and Clipper Seafoods, two Seattle-based longline fishing companies that operate in the large Bering Sea Pacific cod fishery. BBNC CEO Jason Metrokin said in an interview that Blue North and Clipper will be merged into a new subsidiary, Bristol Bay Alaska Seafoods, when the deal closes Sept. 30. Metrokin said BBNC focuses on providing economic value and employment opportunities for its shareholders while being good stewards of the region’s land and resources, and acquiring Blue North and Clipper was an opportunity to check all of those boxes. “They’ve got experienced management and executives; they have a quality brand and they’re known for safe fishing and quality products,” he said of the fishing companies. “You add all of those things up at a time when BBNC was looking for an investment in seafood and it made tremendous sense for us to start here.” Bringing ownership of the seafood resource back to Alaska — through the Pacific cod fishing quota held by the companies — was very important to BBNC, Metrokin added. BBNC owned Peter Pan Seafoods in the late 1970s and has been out of the seafood business since, he said. The company has also formed Bristol Bay Seafood Investments LLC, a holding company for Bristol Bay Alaska Seafoods and any other future seafood forays, according to a Sept. 17 company statement. Clipper Seafoods President David Little, who will manage the merged company, said BBNC is simply a “really good fit” for Blue North and Clipper. “I’ve always believed, and I know Mike Burns, the president of Blue North feels the same way, that the Native corporations or the Native economic development corporations were always going to be the rightful owners of these seafood businesses over time and so we’ve been talking to a number of them over the years and we found that Bristol Bay Native Corp., in our opinion, is the leader of all of them and we’re really impressed with the way they run their operation and their business knowledge,” Little said. He added that senior staff at the companies will remain with Bristol Bay Seafoods. By combining the Blue North and Clipper fleets, Bristol Bay Seafoods will have a fleet of 11 large fishing vessels and it will hold 37.4 percent of the freezer longline sector Bering Sea and Aleutian Islands Pacific cod quota, according to Little. He said the freezer-longline sector holds about half of the overall harvest limit of Bering Sea and Aleutian Islands Pacific cod, which is about 175,000 metric tons this year. Set by the North Pacific Fishery Management Council and approved by National Marine Fisheries Service, or NMFS, the annual total allowable catch for the massive Western Alaska Pacific cod fishery has fallen sharply from its near-term high of 261,000 metric tons in 2012. The freezer longline sector is one of nine gear and fishing type sectors that fish for Pacific cod in Western Alaska waters. However, Little noted that cod stocks can rebound quickly and there is optimism among cod fishery managers and participants that current juvenile recruitment can lead to more harvest opportunity soon. Based on Little’s figures, Bristol Bay Seafoods would hold approximately 33,000 metric tons of Pacific cod harvest quota in 2019. According to the latest data available from NMFS, the first wholesale price for Bering Sea Pacific cod caught by freezer longline vessels averaged $1,665 per metric ton in 2017, which would translate to nearly $55 million of wholesale value for the combined Blue North and Clipper 2019 quota. Additionally, freezer longline vessels averaged $6.4 million of revenue in 2017, according to NMFS reports, or $70.4 million total extrapolated to the 11 vessels owned by the two companies. Metrokin declined to disclose a price for the deal, but he did say it “will ultimately be one of BBNC’s largest company acquisitions in our history.” Blue North and Clipper are companies that have recognizable brands, high-quality products and a presence in markets around the world, making them a sound investment despite the current down cycle in Pacific cod stocks, Metrokin said. And while freezer longline vessels cumulatively harvest thousands of tons of cod each year, Little described the freezer longline sector as a “boutique fishery” in that longline vessels can typically harvest only about 10 percent of the volume of fish that a trawl vessel can in a given day. Instead, freezer longline companies focus on quality instead of quantity. “Our fish is primarily destined for white table cloth restaurants around the world whereas a lot of trawl-caught fish is destined for fish and chips,” Little said. The Blue North and Clipper fleets are comprised of relatively new vessels, meaning there are no immediate plans to invest in new vessels or other major infrastructure, according to Little, who also said the companies’ offices are likely to remain Seattle where the fleets are based. The vessels will stay in Seattle when they’re not fishing simply because that’s where the shipyards are and large boats require lots of upkeep. Little noted that the busiest time for a fishing company’s office staff is usually when the vessels are home from the fishing grounds. “It’s important to have an office in Seattle or somewhere close to ship repair and maintenance,” he said. Metrokin said BBNC leadership is enthusiastic about getting back into the fishing industry through a fishery that takes place near the company’s region and aligns with its mission. “Every time we make a business decision we want to know what the benefits or impacts will be to fish and while this investment is outside of the Bristol Bay fishery, it still meets our value, our mantra, of fish first, so it’s very much in alignment with where BBNC is going,” he said. “It may be a stepping stone, a very large stepping stone back into the seafood sector and we’re excited about other opportunities that might present themselves down the road.” Elwood Brehmer can be reached at [email protected]

Manufacturing matters: Momentum in a small but growing sector of Alaska’s economy

When Jennifer Loofbourrow walks through the headquarters of Alpine Fit — currently a 960 square-foot shop and showroom with a lofted office in Midtown Anchorage — she radiates enthusiasm for the eye-catching technical apparel she manufactures. Women’s tops in Bering Sea Blue and Arctic Dusk Purple are carefully folded next to bolts of uncut fabric; sewing machines, many of which are vintage yet functional, line the walls.  Although her energy is contagious, a successful business isn’t built on enthusiasm alone — especially when it comes to manufacturing in Alaska. Fortunately for Alpine Fit’s future, Loofbourrow knows the outdoor products industry well. She previously worked for athletic wear company Lululemon, where she briefed company executives on the properties of different fabrics. Later, she and her husband owned a women’s clothing business in Ireland. Armed with this background, Loofbourrow believes she can carve out a niche in an industry dominated by giants like Patagonia and North Face, and she’s committed to doing it in here. “Establishing a capacity for sewn product manufacturing here in Alaska — the ideal testing grounds for any outdoor product — helps build industry relevant knowledge in our home state, allows us to adapt and develop products efficiently, and function as a modern business in an evolving industry faced with constant growth and change," said Loofbourrow. For those that appreciate the opportunity to see how their products are made and meet the people making them, Alpine Fit is an exciting place to visit, especially considering the rarity of this type of experience in the state. Alaska doesn’t have a high rate of manufacturing — in fact, the state ranks dead last for the amount manufacturing dollars contributed to our Gross Domestic Product, or GDP. Even Hawaii, an island state more than 60 times smaller than Alaska, has a higher contribution. Experts site logistical challenges, small in-state markets, high costs of energy, and labor issues as barriers. Regardless, manufacturing in Alaska has been growing, albeit with a few hiccups along the way. Nationally, manufacturing jobs provide above-average wages, especially for skilled positions that require training but not typically a college degree. Additionally, manufacturing creates value and generates wealth that circulates within the economy at higher rates than most other sectors. This is especially valuable when you consider that much of Alaska’s economy is resource extraction based and Outside economies end up reaping a large share of the profits. Exporting goods made in Alaska also brings outside money into the state.  Alyssa Rodrigues, executive director for the new Alaska Manufacturing Extension Partnership, or MEP, center at UAA’s Business Enterprise Institute, sees a lot of potential for the manufacturing industry in Alaska.  “We assume it can’t work, so apart from the MEPs, no one is putting a lot of time or effort into helping manufacturing grow,” Rodrigues said. “But there’s a lot of potential, even beyond local markets. One of the services the MEP offers is export assistance, and I’m looking forward to connecting with companies who want to sell outside of Alaska.”   Part of Rodrigues’ strategy is to focus on three distinct areas: food and beverage, outdoor recreation products, and military-related manufacturing. Based on a combination of research and discussions with other MEP centers across the country, she thinks each sector can leverage their Alaska-specific strategic advantages into growth opportunities.  Rodrigues points to companies like Triverus, which makes outdoor surface cleaning equipment for military, municipal, and private clients; Bambino’s Baby Food, which uses Alaska-grown ingredients and wild-caught seafood in its products; and Heather’s Choice dehydrated backpacking food which is sold in REI and Amazon, as examples of locally launched companies now selling their products in the Lower 48. “I think others can achieve a similar growth trajectory,” Rodrigues said. Besides exporting and creating well-paying jobs, another facet of manufacturing is supply chain redundancy. The value of producing local food, beverages, and other products is especially apparent in times of disaster. As many Alaskans learned during the 7.1 earthquake in November 2018, food supplies that arrive in Anchorage by barge or plane and then trucked throughout the state quickly disappear when they aren’t regularly replenished. Considering that 95% of food purchased in Alaska is imported, creating redundancy so that Alaskans have access to food in the event of a supply chain disruption increases economic and community resilience.  Manufacturing also offers opportunities for import substitution, which encourages local production for local use instead of importing products. Alaskans spend $2 billion on food each year, but $1.9 billion of that spending leaves the state. Keeping more of that money in state would generate employment and keeps local dollars circulating throughout the economy. Rodrigues especially enjoys doing her part. “I buy a lot of ice cream, probably nine pints a quarter. It used to be all Häagen-Dazs; now it’s one pint of Häagen-Dazs, and eight pints of Wild Scoops (an artisanal ice cream shop in Anchorage),” Rodrigues said. “It’s way more delicious and I’m happy to pay extra to support a local business.” Import substitution at its most enjoyable! Gretchen Fauske is marketing-minded economic developer fueled by a passion for entrepreneurship, innovation, and small business. She is the associate director for the University of Alaska Center for Economic Development, Board President for Launch Alaska, and a Gallup-certified CliftonStrengths coach.

ConocoPhillips announces busy plans for winter drilling

ConocoPhillips is continuing its series of active North Slope work seasons with seven more exploration wells in the National Petroleum Reserve-Alaska this coming winter. While the drilling will slightly delay one of its prized projects, the Houston-based major is also jumpstarting a recently acquired stalled Slope development. ConocoPhillips Alaska Vice President Scott Jepsen said to during a Sept. 12 presentation to the Alaska Support Industry Alliance trade group that the wells will be focused on the prospective Harpoon area southwest of its existing NPR-A projects and better delineating the large Willow prospect. “We want to get more confidence around the geology and reservoir characteristics of the field, so that’s one of the reasons we pushed back our startup date to around 2025-2026 now for the Willow development,” Jepsen said. The draft environmental impact statement for the project released Aug. 23 cites a late 2024 expected startup. ConocoPhillips announced the Willow discovery in early 2017 and has steadily advanced it since. The company estimates it could produce 130,000 barrels per day at its peak. It will additionally be shooting 3-D seismic data south of Oil Search’s Pikka Unit around the Putu prospect near the village of Nuiqsut. The work will require roughly 165 miles of ice roads, according to Jepsen. “Hopefully the weather will cooperate and we’ll be able to accomplish all this,” he said. ConocoPhillips also announced in June it had purchased the Nuna project from Dallas-based independent Caelus Energy. Caelus held the estimated $1.5 billion oil prospect for years but did not develop it beyond a gravel pad in part because of lower-than-expected tax credit refunds from the state. When Caelus sanctioned Nuna in March 2105 the company indicated in a letter to Department of Natural Resources officials that it had authorized $480 million of expenditures on the project to that point. ConocoPhillips North America and Europe President Michael Hatfield during a July 30 conference call the referred to Nuna as “$100 million for 100 million barrels.” “It’s something we’re very pleased about,” Hatfield said. According to Jepsen, Nuna has been made part of the Kuparuk River Unit and its oil — Caelus estimated up to 20,000 barrels per day — will be processed through Kuparuk facilities, significantly lowering development cost. Drilling will be done from the Nuna pad and a Kuparuk pad to minimize new infrastructure costs, Jepsen said. The company expects 400 laborers over one winter construction season will be able to prep the project for first production, with is expected in 2022. ConocoPhillips is also building the eight-mile gravel road between its completed Greater Mooses Tooth-1 and in-progress Greater Mooses Tooth-2 projects in the NPR-A, Jepsen said. First oil is expected from GMT-2 in late 2021 at a projected peak production of up to 40,000 barrels per day. Finally, the largest mobile drilling rig in North America, which ConocoPhillips contracted with Doyon Drilling for in 2016, the Doyon 26, is on its way through Canada to the North Slope, Jepsen said. “We call it the beast and it’s going to be a beast,” Jepsen said. The extended reach drilling rig will enable the company to develop the Fiord West pool from an Alpine drill site, which could generate up to 20,000 barrels per day, he added. It’s scheduled to start drilling next spring. Elwood Brehmer can be reached at [email protected]

FISH FACTOR: Second-best sockeye season highlights salmon harvest

“Unpredictable” is the way salmon managers describe Alaska’s 2019 salmon season, with “very, very interesting” as an aside. The salmon fishery is near its end, and a statewide catch of nearly 200 million salmon is only 6 percent off what the Alaska Department of Fish and Game number crunchers predicted, and it is on track to be the eighth-largest since 1975. The brightest spot of the season was the strong returns of sockeye salmon that produced a catch of more than 55 million fish, the largest since 1995 and the fifth consecutive year of harvests topping 50 million reds. The bulk of the sockeye catch – 43.2 million – came from Bristol Bay, the second-largest on record. It was a rollercoaster ride in many regions where unprecedented warm temperatures threw salmon runs off kilter and also killed large numbers of fish that were unable to swim upstream to their spawning grounds. Many salmon that made it to water faced temperatures of 75 degrees or more in some regions. “The hot dry weather for most of the summer resulted in low and warm water conditions in many of the important spawning systems around the state. The salmon had to spend more time in saltwater than they normally would, in the terminal areas near the stream mouths,” said Forrest Bowers, deputy director of the ADFG Commercial Fisheries Division. Despite the heat stress, escapement goals were met in most Alaska regions. “The runs returned in large enough numbers to make that happen. So that’s a bright spot,” said Bowers, a nearly 30-year salmon management veteran. It’s been difficult to get a good census on how many salmon might have perished in the heat wave, Bowers said, but managers are assessing potential impacts on future fish. “We’ve been taking reports from the public and we’ve had staff out in the field trying to collect information on the extent of those die-offs,” Bowers said. “We’re looking at all the data, but from what we’ve seen, the magnitude is relatively small and we don’t believe it has been significant enough to impact escapement.” “Now, whether the warm water and low water conditions will result in reduced viability of offspring from the fish spawning this year or increase overwintering mortality, that remains to be seen. But those are possibilities,” he added. The same environmental conditions are playing out favorably for salmon in westward regions, which adds to the unpredictability. “Particularly north of the Alaska Peninsula and the Bering Sea have been really favorable for salmon production at Bristol Bay, the Yukon, Norton Sound and Kotzebue,” Bowers said. “And we’re starting to see salmon move even further into the Arctic. On the North Slope, we’re seeing sockeye and pink salmon up there.” It’s a sign of the times, Bowers added, and the unpredictability brings new challenges to salmon managers. “It’s difficult to count on traditional run timings,” he explained. “We have so much run timing data for Pacific salmon and Alaska that go back over 100 years for some of the stocks that we rely on for in season management decisions. With a very compressed run such as at Bristol Bay, even a deviation of a few days creates a lot of uncertainty. Does that mean the run is late or not as large as forecast? “So that’s what we’re seeing in the last couple of years, this increased uncertainty in terms of run time and size.” Fish watch As salmon fishing winds down, hundreds of boats of all gear types and sizes are going after cod, rockfish, perch, flounders, Alaska pollock and many other species. Alaska halibut longliners have taken 73 percent of their nearly 18 million-pound catch limit with less than 5 million pounds remaining. Homer leads all ports for halibut landings followed by Seward and Kodiak. So far 58 percent of the nearly 26 million-pound sablefish quota has been caught. Sitka has topped Seward as the usual leading port for sablefish landings, with Kodiak third. Both the Pacific halibut and sablefish fisheries end on Nov. 14. Fall means the start of dive fisheries for pricey sea cucumbers. On Oct. 7 divers will head down for nearly 2 million pounds of cukes in Southeast Alaska. A much smaller sea cucumber fishery of 165,000 pounds opens on Oct. 1 at Kodiak, Chignik and the South Peninsula. Red sea cucumbers last year paid out at more than $4 per pound to fishermen. The Panhandle’s popular spot shrimp fishery also opens Oct. 1. Fishermen using pots can haul up just more than a half-million pounds. Also in Southeast Alaska, the Dungeness crab fishery will reopen Oct. 1 in a year that could be the best in a decade. The catch for the summer fishery that wrapped up last month topped 4 million pounds and managers expect a good catch this fall. Dungies averaged $3.06 per pound making the summer fishery worth nearly $13 million at the docks. Here’s a new one: The Alaska Department of Fish and Game has established a season for the commercial harvest of detached kelp that has washed up on beaches in Lower Cook Inlet. Almanac call Share personal glimpses of your fishing life in photos, songs, stories, art, poems, musings and mischief in the second Alaska Young Fishermen’s Almanac. The call for submissions is going on now. “It’s a window into the lifestyle that so many of us live here in Alaska,” said Jamie O’Connor, a fisherman and head of the Alaska Young Fishermen’s Network, an arm of the Alaska Marine Conservation Council. The almanac is modeled after a publication for farmers that dates back to 1792. Last year’s 141-page inaugural edition featured nearly 60 items from almost every Alaska region. It serves as a “cultural touchstone” for fishermen that reinforces their sense of community, O’Connor said, adding that she’s been pleasantly surprised at how popular the book has been with non-fishing people. Ultimately, the almanac celebrates the culture and builds understanding of the fishing life. The Alaska Young Fishermen’s Almanac will be available in mid-November, just in time for holiday gift giving. The deadline for submissions is Oct. 1. Fish bucks give back American Seafoods Co. is again offering grants for community programs at Kodiak, the Aleutian and Pribilof Islands, Alaska Peninsula, Bristol Bay, Lower Kuskokwim, Lower Yukon, Norton Sound and regions north. The majority of grant awards will range from $1,000 to $7,500 and be based on the need in the community, the number of people who will benefit from the program and the ability to garner matching funding. The deadline to submit applications is Oct. 14 and recipients will be announced by the Western Alaska Community Grant Board on Oct. 30. Apply at www.americanseafoods.com or contact Kim Lynch ([email protected] Laine Welch lives in Kodiak. Visit www.alaskafishradio.com or contact [email protected] for information.

OPINION: Attacks on Saudi Arabia highlight importance of Alaska

Oil markets have collectively yawned over the past few months as tensions in the Persian Gulf intensified with attacks on oil tankers and tit-for-tat drone shootdowns by the U.S. and Iran. Just a decade ago, before the U.S. became the No. 1 producer of oil and natural gas on the planet, such events would have sent oil prices soaring but it wasn’t until more than half of Saudi Arabia’s daily output was taken offline by the Sept. 14 attacks alleged to have been carried out with Iran’s backing that we saw the biggest one-day jump ever recorded on Sept. 16. Brent futures, the benchmark that Alaskan oil is priced to, shot up as much as $12 before settling at a one-day increase of $8.80 per barrel. The spike was short-lived as both Brent and West Texas prices dropped by about $5 each the following day. That short decade ago, some half of the U.S. imports of crude came from OPEC nations that largely surround the Persian Gulf. This past March, imports from those same countries fell to just 1.5 million barrels per day, or about 20 percent of our imports, to hit the lowest levels since 1986. In June, a bit more than half of U.S. imports from OPEC nations were delivered to West Coast refineries totaling about 850,000 barrels per day. Total imports to the West Coast were 1.37 million barrels per day. As is generally known, Alaskan North Slope crude oil almost exclusively travels to West Coast refineries, although this year has seen a few million-barrel tankers head to Korea and even China as sanctions waivers ended for seven of Iran’s biggest customers. The attacks on Saudi Arabia are a serious matter and nobody knows how this is going to play out militarily or economically, but we must pause for a moment and recognize the remarkable achievement of American energy dominance that has prevented oil prices from escalating along with the brewing conflict in the Persian Gulf. House Democrats are still trying in vain to stop the development of the Arctic National Wildlife Refuge coastal plain, and failing to do so will rely on their allies in the environmental activist movement to try to stop it through litigation. The hapless Sen. Ed Markey from Massachusetts suggested we should restore the ban on crude oil exports even though the repeal engineered by Sen. Lisa Murkowski in 2015 is a major factor mitigating the volatile price swings we’ve seen all too often in the past amid similar events. The only estimate we have of the potential oil resource in ANWR dates to the surveys conducted in the 1980s that settled on a mean total of more than 9 billion barrels, or roughly similar to the first guess at nearby Prudhoe Bay, which has now produced more than 13 billion barrels. A field that size could produce 1 million barrels per day. Combined with the projects in permitting at Pikka and Willow, the three fields alone could replace every barrel now being imported by the West Coast with ANWR itself having the ability to erase OPEC shipments entirely. From mocking “Drill, baby, drill” to declaring Alaska at the end of its run as an oil-based economy, Democrats have been wrong at every turn when it comes to energy policy and now is no different. Alaska could make the West Coast import independent and fill our pipeline at the same time. The only problem is that it makes too much sense. Andrew Jensen can be reached at [email protected]

Movers and Shakers for Sept. 22

Darren Franz was appointed Anchorage commercial lending officer and executive vice president at First National Bank Alaska. Franz joins FNBA with 27 years of local banking experience. During his banking career, Franz has successfully overseen the management of retail and business banking in 16 different Alaska communities with broad geographic, economic and cultural diversity. Sherilee Keopuhiwa joins the FNBA Cash Management team as senior business development officer with 23 years of banking experience. Luke Thomas brings a wide-range of banking experience gained throughout Alaska to his new position as a loan officer for FNBA in Anchorage. Sitnasuak Native Corp. announced Richard Strutz is serving as interim CEO effective Sept. 9. Strutz is very familiar with SNC after serving as CEO from April 2015 to May 2017. Strutz had a 43-year career at Wells Fargo and its predecessor, National Bank of Alaska. He spent 20 of those years as the company’s CEO in Alaska. In recognition of his business accomplishments, he was inducted to the Junior Achievement of Alaska’s Business Hall of Fame in 2017. Anchorage-based telecommunications company Quintillion named Jim Voelker, an entrepreneurial veteran in the telecom industry, to its board of directors. Quintillion built and operates a subsea and terrestrial high-speed fiber optic cable system that spans the Alaskan Arctic and connects to the lower 48 and is developing plans to expand to international markets. Voelker has worked with leading companies in telecom, data, fiber optic, internet and cloud industries as chairman, CEO, president or board member. Voelker co-founded and led the development of Lighthouse eDiscovery in 2007 and today serves on the board of directors of a global market leader in this segment of the cloud industry. Before that, he served as chairman and CEO of Infospace, now Blucora. Voelker was also President of Nextlink Communications through their multi-billion dollar IPO. Nextlink is now XO Communications and was recently purchased by Verizon. Voelker previously served in various executive level roles with US Signal and SP Telecom and has served on numerous private equity/venture-backed and public boards over the past 20 years, including 360 Networks, Comdisco and Blucora. Anchorage Fracture &Orthopedic Clinic has recently grown to include 14 providers with the addition of fellowship-trained hand and upper extremity surgeon Dr. Patricia Fox and fellowship-trained foot and ankle orthopedic surgeon Dr. Rabun Fox. Starting Sept. 16, both providers will be available to see patients in Anchorage and in Eagle River. This fall, both providers will also be available at the practice’s new South Anchorage location. As a fellowship-trained hand and upper extremity surgeon, Patricia Fox specializes in treating all injuries and conditions of the hand, wrist, elbow and shoulder. Her surgical expertise includes arthroscopy, nerve repair and reconstruction, wrist and small joint fusion and replacement, fracture care and microsurgery as well as elbow and shoulder replacement. As one of the area’s only fellowship-trained orthopedic foot and ankle surgeons, Rabun Fox provides the highest level of expertise for foot and ankle care, including flatfoot deformity, sports and overuse injuries and fracture management. He offers advanced surgical care utilizing the latest in minimally invasive and arthroscopic techniques. Additionally, he has trained extensively on total ankle replacements and provides the most up-to-date options for his patients with ankle arthritis. Patricia Fox is a graduate of the University of Alabama at Birmingham School of Medicine and completed her residency in orthopedic surgery at the Louisiana State University Health Sciences Center. She later underwent additional specialty training in hand and upper extremity surgery through a fellowship at the Philadelphia Hand to Shoulder Center. Rabun Fox earned his medical degree from the Louisiana State University School of Medicine. He then completed his orthopedic surgery residency at the LSU Health Sciences Center, followed by a foot and ankle surgery fellowship training at the Rothman Institute and Thomas Jefferson University. Credit Union 1 announced the promotion of Maria Boucher to Member Assistance manager. In her new role, Boucher will be responsible for managing the credit union’s collection efforts of both current and charged-off accounts and loans. During her past 12 years with Credit Union 1, Boucher has held various positions within the Member Assistance team, including supervisor, assistant manager and now manager. She has received the credit union’s coveted Zip Zabor Award as well as the Super Volunteer of the Year Award for her philanthropic efforts. Boucher is also a Certified CUNA Financial Counselor. Central Council of Tlingit and Haida Indian Tribes of Alaska announced the promotion of Jodie Gatti to Social Enterprise manager. Gatti will be responsible for the development, implementation, coordination and promotion of the Tribe’s existing social enterprises (Sacred Grounds Café, Sacred Shine Auto Detailing, Smokehouse Catering and the Elizabeth Peratrovich Hall). She’ll also work closely with Tlingit &Haida’s Business &Economic Development department to evaluate self-sustaining business opportunities with a social development impact that can provide employment opportunities to tribal citizens. Gatti previously worked as the Tribe’s Business &Economic Development coordinator. She holds a bachelor’s degree in economics from the University of Alaska Anchorage and has held internships with Department of Revenue and First Alaskans Institute.

Debate over ‘fair share’ of oil makes a comeback

Alaskans, it’s time to dust off your economics textbooks and dig the calculators out of the back of your junk drawers because the arcane issue of oil taxes is again about to be a hotly contested topic going into the 2020 elections. The sponsors of the Fair Share Act all but assured oil taxes will be a central debate point over the coming year when they filed an initiative petition Aug. 19 with the state Division of Elections to put a major production tax change the ballot next year. The aim of the Fair Share Act is to raise the production tax rate on the three largest and generally most profitable North Slope oil fields of Prudhoe Bay, Kuparuk River and Alpine. Initiative sponsor and longtime Alaska oil and gas attorney Robin Brena, who chairs Vote Yes for Alaska’s Fair Share, said during a Sept. 9 press conference to officially kick off the campaign that under the current oil tax system Alaska is “giving away $1.5 (billion) to $2 billion in tax breaks and getting nothing in return.” That system, best known by its legislative title Senate Bill 21, would return Alaska to being a competitive oil region and spur additional investment and eventually reverse the long trend of declining North Slope oil production industry advocates said at the time. However, a host of lawmakers and interested citizens — including many who were not fans of the former oil tax system called ACES — saw SB 21 as swinging the tax pendulum too far towards industry’s side and launched a referendum to repeal it. The referendum made it to the 2014 primary election ballot but ultimately failed by more than 10,000 votes, or a margin of 52.7 percent to 47.3 percent. That loss hasn’t stopped the debate over the system, though. Brena was blunt in his assessment of the way the state calculates its oil production tax. “Senate Bill 21 is an abject failure for Alaska. It’s giving away massive tax breaks for no particular reason,” Brena said Sept. 9. “As an overall matter there’s no better deal for the oil industry than Alaska. They make more money in Alaska than they do anywhere else in the world that matters with significant oil production.” Alaska Oil and Gas Association CEO Kara Moriarty said total oil revenue still accounted for roughly $2.6 billion in fiscal 2019, which ended June 30. The tax would hit 90 percent of North Slope production activity that helps support almost 100,000 jobs, she said. “You’re targeting three of the largest investors in Alaska. I mean, what kind of message does that send? I think it’s punitive; it just doesn’t make sense to me,” Moriarty said. “Why would we want to double or sometimes even triple production taxes on three of the state’s largest investors? To me, it just doesn’t make any kind of sense for the economic well-being of the state.” While the tax increase may bring in additional short-term revenue, it will discourage the investments that translate to oil production, which also generates royalty revenue for the state’s General and Permanent funds, she said. “We want to continue to have a strong partnership and presence in the state of Alaska, but if voters decide that they want another billion dollars-plus from the industry, companies will make a business decision and will start shifting their investments elsewhere,” Moriarty added. Brena contends that Alaska has historically received about 28 percent of the gross value of produced oil, which includes royalty payments, while in the nearly six years since SB 21 took effect the state has received less than 20 percent of the gross value of oil. The gross value is the market price at the time the oil is produced minus the pipeline and tanker transportation costs required to get the oil to West Coast markets. Both are less than the oil revenue split envisioned by oft-invoked former Gov. Jay Hammond, who suggested the oil companies and state and federal governments should each get approximately one-third of the value of the state’s oil. Hammond was governor during the late 1970s when North Slope oil production was just beginning and, for better or worse, Alaska became inextricably linked to the oil industry. Brena also points to a slide from a January 2018 presentation to the House Resources Committee by ConocoPhillips representatives that shows the company’s share of oil at current prices of roughly $65 per barrel is 48 percent, compared to 39 percent for the state and 13 percent for the feds. The state’s share of oil matches ConocoPhillips’ at prices in the $90 when each takes 44 percent, according to the company’s chart. The change in the split of revenue is a result of a decline in the federal government’s share after the corporate income tax rate was cut from 35 percent to 21 percent in the 2017 federal tax overhaul. The state’s share includes royalty, corporate income tax, production tax and oil and gas property taxes. “It doesn’t matter what metric; by any metric you choose Alaskans are giving away our oil and we cant afford for it to continue to give away our oil at substantially less than fair rates,” he said, stressing that the intent of the initiative is to add equality back to the financial relationship between the state and its big oil producers. Those against raising oil taxes regularly cite the need to remain competitive with Lower 48 shale oil basins that are often significantly less expensive to operate in than Alaska. The North Slope’s remote location, harsh weather and sensitive environment mean permitting a large oil project can take years and cost millions of dollars, even before sometimes billions of dollars are spent for development. Brena counters that argument by noting that North Dakota — which has led the shale boom along with Texas and produces about 1.4 million barrels per day, nearly three times the amount Alaska does — levies a 10 percent gross tax on most of its oil. The tax increases to 11 percent at prices greater than $90 per barrel. North Dakota producers also pay an average royalty of 18 percent, according to a May 2017 North Dakota State University report on the industry’s economic contribution to the state. The report authors surveyed companies to obtain the figures, as royalty payments are made to private landowners and generally remain confidential. At current oil prices the major North Slope producers are near the gross-net crossover point of Alaska’s hybrid production tax, meaning they are paying the 4 percent gross minimum tax or just slightly more if they are profitable enough to move into the net tax. SB 21 calls for the companies to pay the larger of the 4 percent gross tax or the 35 percent net profits tax after application of the currently $8 per barrel production credit. Several years ago the crossover point was in the low to mid-$70 per barrel range, but it has fallen as companies have reduced their operating costs, partly through workforce reductions but also through lower cost contracts with service companies, according to industry representatives. The historical average oil price since 1980, adjusted for inflation to today’s dollars is approximately $55 per barrel, according to the Energy Information Administration. Alaska’s 4 percent gross tax combined with a primarily 12.5 royalty on state leases in the legacy fields adds to a state take — less corporate and property taxes — of 16.5 percent. The comparable rate in North Dakota is 28 percent, Brena notes. He also emphasizes that ConocoPhillips 2018 Alaska net income of more than $1.8 translates to $27 per barrel of oil equivalent when spread over its share of oil and gas produced in the state last year. “There isn’t any place in the world that has substantial reserves of oil where you can make the $27 per barrel ConocoPhillips made from our oil in 2018,” Brena said in an interview. He also cited multiple references to Alaska being the company’s “low cost of supply resource base” in reports and investor presentations. Much of the broader oil tax discussion is centered on ConocoPhillips, Alaska’s largest oil producer, as the company is required to break out results of its Alaska operations in its regular financial reporting to the Securities and Exchange Commission because its activities in the state account for significant segment of its worldwide business. Company officials dispute the claim as being overly simplistic. They point out that North Slope production is dominated by oil, which is more profitable on an equivalent basis than the natural gas that is produced and sold alongside oil in many other basins. Additionally, the net income calculation includes deductions for reservoir depletion, facility depreciation and other items that are not cash costs and therefore do not represent cash flow, which is what economic decisions are usually based on. An April 2018 ConocoPhillips investor report says the company had an operating margin of $27 per barrel at $50 per barrel prices to start the year. Texas oil averaged $64 per barrel last year. “That is our competition,” ConocoPhillips Alaska Vice President Scott Jepsen wrote via email. “We continue to invest in Alaska because we have been able to stay competitive on costs, and that includes the production tax framework. If the proposed tax initiative were to become law, it would jeopardize North Slope investments.” According to Brena, the state’s production tax revenue averaged $12 per barrel in 2009 under ACES when oil prices averaged $68 per barrel and fell to about $2 per barrel at $72 oil in 2015. “The Fair Share Act will add $6 to $7 per barrel so we will be back up to $9 to $10 per barrel,” he said, adding that the average tax would still be less than it was under ACES. The Fair Share Act would increase the gross minimum tax to 10 percent at prices less than $50 per barrel. It would continue to increase 1 percent for every $5 bump in oil price until hitting a 15 percent cap at $70 per barrel. The tax change would also repeal the per barrel credit, a key part of SB 21, which is up to $8 per barrel at current oil prices and steps down to zero at very high prices. The per barrel credit is used as a means to increase the effective net tax along with oil prices. When the monthly production tax value of oil is equal to more than $50, an additional tax that would be the difference between the average production tax value and $50 multiplied by 15 percent. The new taxes would only be levied on fields with average production of more than 40,000 per day and cumulative production of more than 400 million barrels, meaning it would apply to the big three fields — Prudhoe Bay, Kuparuk and Alpine — owned by ConocoPhillips, ExxonMobil and BP (soon to be Hilcorp Energy). Brena stressed it would do nothing to companies developing and producing oil from new fields unless they eventually reach those high production thresholds. Therefore, it should not discourage new entrants to the North Slope, which he hopes the state can attract. According to documents provided by Vote Yes for Alaska’s Fair Share, the act would increase the state’s production tax revenue by approximately $1 billion per year. That money could be used to help resolve some of the state’s biggest challenges, Brena said. “We are talking about changing the entire quality of life in Alaska and we haven’t even touched half of the deficit,” he said. “In addition, we’re getting half of our PFDs, and we haven’t had a meaningful capital budget in years.” The state’s production tax revenue went from $2.6 billion in 2014 to $381 million in 2015, the first full year under SB 21, but also at a time when average oil prices also fell by approximately one-third. SB 21 brought in $125 million in 2017 after prices bottomed out at $26 per barrel before somewhat higher prices helped the state bring in $741 million in fiscal 2018. The producers have also lowered their operating costs significantly since oil prices started collapsed in late 2014, which can improve the state’s net tax take. Brena disputes that the Fair Share Act will discourage investment. He contends that the “vast majority” of investment over the history of North Slope oil has occurred when the state’s tax rates were higher. Supporters of SB 21 often pointed out as it was being debated that exploration activity was almost nonexistent in 2012 with just one well drilled over the winter despite prices greater than $100 per barrel. According to a February report by Department of Revenue economists, capital spending within Prudhoe Bay has declined each year since it totaled $877 million in 2014 to $210 million last year. Overall North Slope capital spending has been on a decline as well. According to the report, after hitting a near-term peak of more than $4 billion in 2015 it has fallen to $1.5 billion in 2017 and $1.7 billion in 2018. Brena and others have been critical of the stagnant levels of North Slope oil production despite numerous claims at the time SB 21 was enacted that it would lead to more production. With minor fluctuations, North Slope production has generally declined slightly since 531,000 barrels per day were produced in 2013 when SB 21 was passed; though the overall trend has slowed greatly versus the steady year-over-year declines of 5 percent to 6 percent since production peaked in 1988. Despite the low prices at the time, production increased year-over-year in 2016 and 2017; the year-over-year increases were the first since 2002 when the Alpine field came online. Production averaged approximately 498,000 barrels per day in fiscal 2019, the first fiscal year it was less than 500,000 barrels since North Slope oil started flowing; however, the 2013 state production forecast estimated 2019 production to be about 426,000 barrels per day. ConocoPhillips’ Jepsen noted during a Sept. 12 presentation during a meeting of the Alaska Support Industry Alliance that simply holding production relatively flat means producing more oil to counteract the natural decline of Alaska’s old, large fields. SB 21 backers insist the large North Slope projects in permitting — ConocoPhillips’ Willow and Oil Search’s Pikka developments, each with the potential to generate more than 100,000 barrels per day — along with several other smaller projects are proof the current tax system is working. The Fair Share Act would also reinstitute the mechanism known as “ring fencing” which requires companies pay their production taxes on a per-field basis. Brena said ring fencing would prevent the large producers from reducing their taxes on the three large fields by applying deductions earned through capital expenditures on other not yet producing projects. As it stands now, ConocoPhillips will be able to deduct 35 percent of the $4 billion to $6 billion the company is expected to spend developing Willow over the next 7 to 8 years. That could reduce its production tax obligation on the profitable legacy fields, all of which ConocoPhillips has a significant stake in, by several hundred million dollars per year, Brena said. Act sponsors note that ring fencing was a part of Alaska’s tax system for years until 2006, when the ongoing back-and-forth over oil taxes really began. Producer officials say it was workable in part because the state had a more simple gross system and incorporating net profit tax elements to a tax system fundamentally requires at least a portion capital investments be deductible across fields in a given region. Finally, it would make “all finings and supporting information provided by each producer to the (Revenue) Department relating to the calculation and payment of (production) taxes,” the initiative states. The act would also require the cost, revenue and profits for each company in the legacy fields be made public. He said regulations would determine what specific information is made public, but he doesn’t believe there is a need to see details that could jeopardize competition among producers and service companies on the Slope. Alaskans, who own the oil and gas resources, should be able to know how their partners in the effort to develop those resources are doing, he said. Moriarty said it’s unclear at this point if the provision to make tax records public documents would violate federal SEC laws or not, but she said the concept of making oil tax records public should be cause for concern for everyone in business in the state. “It pretty much blows away every confidentiality statute on the books,” she said. Legislative reaction Anchorage Democrat Sen. Bill Wielechowski has been at the front of the push in the Legislature to change SB 21 and specifically repeal the per barrel credit. He has said the simple change could generate up to $1.2 billion per year and has submitted legislation to do it. The bills have not been considered in the Republican-held Senate. Wielechowski said he supports the Fair Share Act and it might be a better way to deal with oil taxes because it removes the per barrel credit but also addresses the low minimum tax. “If we’re going to fix the tax system, let’s make it durable,” he said. Senate President Cathy Giessel, R-Anchorage, said she thinks the sponsors paint an inaccurate portrayal of SB 21. She stressed that production and the associated state royalty revenue — significantly less for oil from federal lands — is what truly generates revenue for the state and more taxes will simply discourage it. “It will be another battle to defend the reasonable, competitive tax structure we put in place,” Giessel said in an interview. The Legislature could kick the initiative off the ballot, presuming it makes it, by passing a law that is “substantially similar,” but just defining the term is nearly impossible, she said. Lt. Gov. Kevin Meyer has until Oct. 15 to rule on the initiative petition application, a decision usually made via guidance from the Department of Law. If the application is approved the sponsors can begin gathering signatures. A rejection is appealed through the court system. Senate Minority Leader Tom Begich, D-Anchorage, said over the summer that he was discussing modest oil tax changes with lawmakers of both parties. It seems likely the issue will be more of a debate than it was in 2019, which has been consumed by the budget and PFDs. However, Giessel said its difficult to make tax changes with significant implications in just a single session, especially when there are many new House members likely unfamiliar with the highly complex issue as there are this Legislature. Democrat members of the bipartisan House Majority said they are happy the initiative addresses the minimum tax rate, while some said the progressivity it adds to oil at higher prices is fairly aggressive. The House Majority formed last year to counter Gov. Michael J. Dunleavy’s plans for more than $1 billion in budget cuts with far more modest reductions, but part of the deal was also that the issue of oil taxes would be set aside by the caucus. “It’s like Alaska is burning and our political leadership has decided not to talk about water,” Brena said.

Marijuana board considers Outside investment in testing labs

Reversing course on an earlier policy, the state is considering allowing Outside investment in marijuana businesses. The Marijuana Control Board is seeking public comment on a set of regulations that would allow limited investment from outside the state in marijuana testing facilities. The testing facilities are a bottleneck in the state’s industry; all cannabis products bound for the retail market have to pass through a lab first. There are currently three operating testing facilities in the state: one in Anchorage, one in Wasilla and one in Ketchikan. A fourth is approved for Juneau, pending inspection, according to the Alcohol and Marijuana Control Office. One of the problems with getting more testing facilities in the state has always been the high cost of entry. In addition to the license application fee of $2,000, an operating testing facility has to employ a scientific director, who must hold a college degree in chemical or biological sciences and have a number of post-graduate scientific lab experience and conductive a comprehensive array of tests on cannabis products. The fee to renew a testing facility license is currently $2,000, but a separate proposed regulation would raise the fee to $5,000 for renewals. When the Marijuana Control Board began regulation cannabis businesses, one of the lynchpin items was that only Alaska residents could invest in or own them. Part of the reasoning was to keep an already-developed cannabis industry in the Lower 48 from swooping in and taking control of the new industry away from Alaskans. However, with limited capital available because of the state’s small population and lack of access to traditional lending methods due to marijuana’s status as a federally illegal drug, cannabis businesses have struggled to find the money to get off the ground. In 2015, the board passed a regulation allowing anyone who qualified as an Alaska voter to invest in cannabis businesses. However, the board tightened that policy later, requiring investors to qualify for a Permanent Fund dividend, a much stricter requirement. But a new regulation project would open up the opportunity for entrepreneurs applying for cannabis testing facility licenses to seek Outside investment within a number of boundaries. The Marijuana Control Board voted to send the regulations out for public comment at its meeting in Nome Sept. 11-13. The Alaska Department of Law suggested revising some of the language to make it more quantifiable than the original language, boiling it down to five conditions: whether the investor “directly contributes to improvements in the testing facility’s procedures; enables or supports hiring and retention of highly qualified employees; provides expertise not otherwise reasonably available in this state; enables the facility to obtain and maintain state-of-the-art equipment, and any other factor the board deems relevant,” according to the memo attached to the regulations. The last factor drew some attention from the board members. Member Loren Jones said he thought it was too ambiguous, allowing board members to use too much discretion. Board chairman Mark Springer said the ambiguity would provide the breadth board members would need to regulate participation in a new opportunity for investment in the industry. “We do really need the leeway to look at that investor from all sides and say, ‘Eh, maybe not,’” he said. The board also considered whether to change its policy regarding cultivator tax delinquency. During every board meeting, the members receive a packet of notices of violation — NOVs for short — that outline the business owners who have violated conditions of their licenses. Oftentimes, those NOVs have to do with cultivators who are behind on the taxes they owe to the state. Of the packet of notices the board received for the September meeting, about half were because of delinquent taxes. The main debate was whether continuing to issue notices of violation over and over again for tax delinquency is appropriate, or whether the board should look at revoking licenses. Some members suggested switching away from using NOVs for tax delinquency at all, but AMCO Director Erika McConnell said the NOVs are developed from a template and any other form of notification would be just as much or more work for staff. Board member Bruce Schulte suggested a suspension of some privileges, like transferring product, until taxes are paid rather than revoking a license. Springer pointed out that that would interrupt cash flow, which would exacerbate the problem of not being able to meet tax liability. Revoking a license would cut off the cultivator’s ability to grow or sell product to meet that tax liability as well, he said. “Especially for a small cultivator, it’s a very, very competitive marketplace, and some people as you suggested didn’t realize what they were getting into,” Springer said. “Even some standard (cultivation facilities) put a lot of investment—they either realized they couldn’t sell what they thought they could or they had crop issues.” Underlying the debate is the issue of tax structure on the cannabis industry. Cultivation excise taxes are assessed on weight alone in Alaska — as price fluctuates in the market, assessed tax obligations stay the same, cutting into cultivators’ profits. As more people have entered the industry and the prices have become more competitive, industry members have begun advocating for a change in the tax structure. The Marijuana Control Board does not have the authority to change the tax structure; that authority lies with the Legislature. Ultimately, the board agreed to continue to issue NOVs for tax delinquency, but to consider the cases of businesses that amass NOVs over time and consider taking action based on the recommendation of the AMCO director and working with the business to get on a repayment plan if possible. Elizabeth Earl can be reached at [email protected]

Furie, Homer Electric Assn. agree to amended gas deal

Homer Electric Association members could soon see the benefit from a renegotiated natural gas supply contract that will save the Kenai Peninsula power cooperative more than $2.1 million. HEA filed an amendment on Aug. 28 with the Regulatory Commission of Alaska to the gas sales agreement it signed with Cook Inlet producer Furie Operating Alaska in 2015. The two-year contract ended Dec. 31, 2018, but HEA exercised a one-year option to continue the contract through this year. An option for gas in 2020 was not picked up. The amendment, which has an effective date of May 24, calls for HEA to receive credit totaling $1.7 million for gas purchases through May 2019. The utility would see another $462,000 in gas price reductions for the 2.2 billion cubic feet, or bcf, of gas it expects to purchase from Furie through the end of the year. Furie has had a rough 2019. In January the small Texas-based producer started having methane freeze-up problems in the pipelines on the new Julius R platform it operates in the Inlet, which prevented Furie from delivering gas to its customers, HEA and Enstar Natural Gas, for more than a month to each last winter. By late June Furie had resumed gas production, but not at volumes sufficient to meet its commitments. HEA Manager of Fuel Supply and Renewable Energy Mikel Salzetti said the $2.1 million in savings does not correlate to the premium it had to pay to find interim gas when Furie’s supply failed. The additional cost for the short-term supply was less than and unrelated to the $2.1 million credit, Salzetti said. Furie is HEA’s only firm supplier. Furie officials did not respond to requests for comment. HEA’s decision not to pick up the 2020 option on its contract with Furie was made in mid-2018, before the recent supply issues, according to the RCA filing. Salzetti said the utility just put out an RFP to Cook Inlet producers and found enough other supply options to go back out to the market. On Aug. 9 Furie filed for Chapter 11 bankruptcy in a Delaware federal bankruptcy court. The filings claim the company has about $450 million in debt and its assets are valued at between $10 million and $50 million. The company also cited $105 million in tax credits it is still owed by the State of Alaska. Elwood Brehmer can be reached at [email protected]

GUEST COMMENTARY: Many reasons for optimism about future of North Slope oil

Alaskans worried that BP’s sale of its Prudhoe Bay assets to Hilcorp means Alaska’s oil and gas potential is waning can be reassured: Hilcorp’s growing strength is just the beginning of a new wave of investment and activity heralding a more energetic phase in our resource-rich state’s top industry. Here are a few examples. When we faced a potential gas shortage in Cook Inlet in 2012, Houston-based Hilcorp was purchasing mature fields from Chevron and Marathon. Hilcorp then embarked on a vigorous drilling and efficiency program, increasing oil and gas production and ensuring reliable energy supplies for Southcentral Alaska. Hilcorp next took their plan north, buying in to four of BP’s North Slope units in 2014. Most recently they began producing viscous oil from their Moose Pad at Milne Point, increasing field production to levels not seen in years. With declining oil throughput in the Trans-Alaska Pipeline System, Hilcorp’s aggressive strategy is delivering the kind of results Alaskans need, and the jobs critical to our economic security. Oil Search, a Papua-New Guinea independent new to Alaska, is systematically, deliberately and thoughtfully pursuing its Pikka development, aiming to start oil production in less than four years. Pikka will create high-paying jobs and boost state royalty revenue, and could increase pipeline throughput up to 20 percent. Oil Search and its partners Armstrong, a Colorado independent, and Repsol, a Spanish global oil company, have several other North Slope prospects that may not be far behind. U.S. major ConocoPhillips may bring its Willow prospect online about the same time as Pikka, increasing oil production by a similar amount. This expansion of development westward from Alpine and Greater Moose’s Tooth into the National Petroleum Reserve-Alaska will add critical infrastructure, making other western prospects more commercially feasible. London-based newcomer Premier Oil, in partnership with Australian independent 88 Energy and Texas independent Burgundy Xploration, plans to drill this winter to further evaluate a block of leases called Project Icewine, 50 miles southwest of Prudhoe Bay. We’ve known since the 1960s this area holds potential for oil discoveries, and these optimistic independents believe they can bring this prospective area into production. Other veteran and new independents have big exploration and development plans. We saw expressions of interest at CERAWeek last March, and I’m confident we’ll see evidence of that interest at the state’s North Slope areawide lease sale on Dec. 11. Lease sales generate immediate revenue for Alaskans through lease sale bonus bids and rents, and are the third-largest source of revenue generated by the Division of Oil &Gas, after production royalties and net profit shares. Last year, lease sales brought in more than $28 million to support the General Fund, Alaska Permanent Fund, and others. Along with its regular lease offerings, the State plans to offer three Special Alaska Lease Sale Area, or SALSA, blocks. These contiguous lease blocks represent a unique opportunity to acquire lease rights combined with a trove of associated well and seismic data and other information compiled by the State. The intent is to jump-start a company’s understanding of the North Slope and thereby accelerate drilling and development plans. Also in December, the Bureau of Land Management will offer leases in the NPR-A and, for the first time ever and after decades of waiting, tracts in North America’s most prospective onshore prospect: the coastal plain of the Arctic National Wildlife Refuge. Clearly, there are many reasons to be optimistic about the future of oil and gas in Alaska. New technologies, new investments and new players will add more jobs in the industry, more money in the economy and state treasury, and put more oil in the pipeline. Last winter was the North Slope’s busiest in 15 years. That trend continues. ^ James B. Beckham is acting director of the state Division of Oil &Gas.

GUEST COMMENTARY: Attempt to repeal ANWR development an insult to Alaskans

Last week the House of Representatives approved measures that would restrict America’s future energy supply, including one that would block responsible development in northeast Alaska. As the state’s congressional delegation, we are unified in strong opposition and believe passage would be a reckless strategic mistake. The bill in question comes from a California representative and targets the non-wilderness 1002 Area of the Arctic National Wildlife Refuge, which Congress set aside in 1980 for future exploration. After years of debate, Congress agreed in 2017 to allow careful development of just 2,000 acres of the 1.5-million-acre area, itself located within the ANWR’s 19.3 million acres. This developable fraction of a fraction amounts to one ten-thousandth of the refuge. We believe, in fairness to Alaskans, that the leasing program should proceed responsibly, with Congress and the Trump administration ensuring that lands and wildlife are cared for. All of us are working to put the proper guidelines in place. Yet some in Congress still remain eager to repeal the provision, based on misperceptions about what is at stake and what most Alaskans want. Most offensively, the repeal effort ignores the Inupiat people of Kaktovik, the only village located in the ANWR. Most who live there, like a sizable majority of Alaskans, support responsible development of the 1002 Area. Members of Congress seeking a repeal ignore the significant environmental protections that apply to development, as well as the decades-long record of safe operations on Alaska’s northern coast under some of the world’s strictest environmental regulations and oversight. They ignore incredible advances in technology, which have dramatically reduced the surface footprint of development while increasing drillers’ subsurface reach by as much as 40 times. They also overlook the importance of economic vitality in sustaining Alaskan life. Our state wasn’t allowed into the union until 1959 when Washington was finally satisfied we could support ourselves through resource production, and maintaining a strong economy remains essential to all of our goals, including environmental preservation. Alaska is still young and will need to develop its resources long into the future. As recent years have shown, our economy, our state budget and our people suffer when federal restrictions prevent development. But it isn’t only Alaska that stands to lose. According to the Seattle Metropolitan Chamber of Commerce, Alaskan oil supports 12,000 jobs and $780 million in wages in Washington’s Puget Sound region each year. All of that could vanish if the Trans-Alaska Pipeline shuts down. The pipeline is currently only a quarter full and needs new throughput from the 1002 Area to reach capacity. Further south, data from the California Energy Commission shows the state’s imports of foreign oil have risen significantly as Alaska production has declined. California’s answer is that it plans simply to stop using oil—yet it still ranks near the top of the list of oil-refining states. Despite ceaseless rhetoric about a Green New Deal, the reality is that our nation and the world are demanding the resources that will come from the 1002 Area. If Alaska doesn’t supply them, another country will. Global oil demand is rising, not falling. President Trump’s commitment to America’s energy renaissance has helped create thousands of well-paying jobs across America, strengthening families and communities along the way. And while prices have been relatively stable, artificial restrictions can lead to price spikes that cause hardship and unrest. See Paris as a recent example. Careful development of the 1002 Area will help strengthen America’s economy and improve our energy security in the long-term. It will also benefit global energy markets, allowing the U.S. to provide allies with alternatives to resources from unfriendly nations and cartels. Competition for resources in the Arctic is another geopolitical dimension of the ANWR issue. Russia and China are expanding their presence in the region, with billions of dollars of investments in infrastructure. The U.S. is falling behind in icebreakers, deep-draft ports and other Arctic infrastructure needs. Pulling up the stakes on an American energy program that helps build a presence in the region would put us further behind. We understand that Alaska has earned an almost mythological place in the minds of many Americans. But we cannot be treated like a snow globe, to be placed on the shelf for viewing pleasure only. Alaska has tens of millions of acres of national parks, wildlife refuges and federal wilderness. We also have room for the responsible development of a small part of the 1002 Area, and all Americans should recognize this is in our nation’s best interest.

Final EIS released for ANWR lease sale

A federal agency on Thursday recommended a plan to offer the entire coastal plain of the Arctic National Wildlife Refuge in Alaska for lease to oil and gas companies, rejecting more restrictive alternatives and setting the stage for the federal government’s first lease sale there by year’s end. The Bureau of Land Management plan, contained in its final environmental report of leasing in the refuge, could allow the oil industry to nominate tracts from the entire 1.6 million-acre coastal plain, about 8 percent of the refuge. The recommendation offers the most acreage available for petroleum extraction, compared to a list of options the agency proposed in a December draft report. But it would restrict surface use in many areas, such as near rivers and coastal areas, and land used by denning polar bears and caribou. Alaska leaders applauded the plan in a statement from BLM announcing the release. “This is a major step forward in our decades-long efforts to allow for responsible resource development in Alaska’s (coastal plain), and I thank Secretary (David) Bernhardt and his team for their thousands of hours of hard work,” said Sen. Lisa Murkowski, R-Alaska. “I’m hopeful we can now move to a lease sale in the very near future, just as Congress intended, so that we can continue to strengthen our economy, our energy security, and our long-term prosperity.” “Forty years after Congress selected the Arctic Coastal Plain for potential energy development, the Trump Administration is making good on that decades old potential,” Gov. Mike Dunleavy said. “I join with all Alaska governors since 1980 in assuring the nation and the world that we develop our natural resources responsibly. I look forward to the lease sale scheduled for later this year.” The Republican-led Congress in 2017 approved lease sales in the refuge in the tax-reform bill, and directed BLM to oversee them. Congress in 1980 set aside the coastal plain for possible development. The federal agency’s recommendation came as efforts continue in Congress to halt drilling in the ecologically important region in northeast Alaska, home to climate-threatened polar bears, migrating caribou and other important species. Bills to stop the drilling, including one passed in the House on Thursday, aren’t expected to clear the Republican-led Senate. The bigger question may be how much interest industry will show in the politically divisive and costly region near the Canadian border about which little is known by the oil industry. Major oil company BP recently announced it would sell its long-held stake in the only well ever drilled in the refuge, an effort that ended in 1986 under an exception allowed by Congress. The sale was part of BP’s decision to sell its Alaska assets to Hilcorp Alaska. Members of the Gwich’in Steering Committee, a voice for several Gwich’in communities in Alaska and Canada that oppose drilling in the refuge, criticized the BLM report on Thursday. The Gwich’in people live outside the refuge but have hunted caribou in the refuge for eons. “There is nothing final about this (environmental report) except that it demonstrates that this administration and the Alaska delegation will disregard our way of life, our food, and our relationship with the land, the caribou, and future generations to pander to industry greed,” said Bernadette Demientieff, the committee’s executive director. Conservation groups have argued that relatively little money will be generated by the lease sale, based on past sales in Alaska, countering a key rationale by the Trump administration that drilling in ANWR could be a boon for the U.S. and Alaska treasuries. The Defenders of Wildlife said about three-quarters of the coastal plain is designated critical habitat for Beaufort Sea polar bears that increasingly spend time ashore as sea ice melts, and whose numbers are declining. Development will lead to a spiderweb of airstrips, roads and pipelines, plus oil spills and increased pollution, the group said in a statement. “This Arctic National Wildlife Refuge leasing plan is another disgraceful example of the Trump administration’s continued rejection of environmental law, sound science and the wishes of the American people in protecting wildlife and wild lands," said Jamie Rappaport Clark, president of Defenders. “Selling off the entire coastal plain for oil development presents an existential threat to threatened polar bears and is opposed by 70% of Americans.” Members of the Alaska congressional delegation say that most Alaskans support development in the coastal plain. The report’s release marks the “culmination of decades of work,” said Rep. Don Young, R-Alaska. “I have fought for responsible oil and gas development on the coastal plain since ANWR was created, and I am immensely pleased that we have reached this stage.” “For decades, Alaskans have been urging their federal government to open the (coastal area) of ANWR for exploration,” said Sen. Dan Sullivan, R-Alaska. “At long last, Congress voted to allow it. Now, the administration is working diligently to fulfill Congress’ directions in a transparent and responsible process.” Chad Padgett, Alaska director of the Bureau of Land Management, said precautions under the recommended plan include areas along rivers where the surface would be off limits for use. The plan could allow rare exceptions, such as for a pipeline that must cross a stream. “For all the waterways, we have setbacks to provide for no surface occupancy to allow caribou to get away from insects,” he said. He said a strong leasing program could create as many as 2,500 direct jobs during peak years and generate hundreds of millions of dollars annually in federal and state royalties. The federal Energy Information Administration has estimated that about 3.4 billion barrels of oil would be produced in the refuge by 2050. The first drops of oil, if enough is discovered, aren’t expected to flow until at least 2027. The Interior Department could approve a final leasing plan next month. The BLM hopes to hold a lease sale before the end of this year, Padgett said.

Supreme Court hears arguments over bill to pay off credits through bonds

Justices on the Alaska Supreme Court heard oral arguments Thursday morning in the lawsuit over oil and gas tax credit bonds that could have major ramifications for the state’s financial future. Longtime Juneau attorney Joe Geldhof argued on behalf of former University of Alaska Regent Eric Forrer that House Bill 33 — a law passed in May 2018 allowing the state Department of Revenue to sell up to $1 billion in bonds to pay off outstanding oil and gas tax credits — violates the Alaska Constitution’s strict limitations as to what kinds of debt the state can take on and how. If the Supreme Court strikes down HB 331, the Legislature and Gov. Michael J. Dunleavy’s administration would have to find a new way to pay off the remaining refundable oil and gas tax credit obligation, likely through partial appropriations over several years. Revenue officials say the outstanding tax credit certificates the state has not repurchased total roughly $700 million compared to the $1 billion authorized by the bill. That scenario would require the small, oftentimes financially vulnerable companies as well as the investment banks holding the credits to wait substantially longer to be repaid. Several companies have already delayed drilling work, left Alaska or filed for bankruptcy, citing the lack of expected tax credit payments as a reason for their actions. However, Geldhof contended that upholding HB 331 would allow the state to take on debt that is not contemplated in the Alaska Constitution and could have “enormous” fiscal consequences to the state at-large. “If you allow the kind of debt the state seeks to incur here for the state, keep in mind that there’s 162 municipal units that within a week or two of your decision are going to say, ‘Wow, this is a splendid opportunity for us to borrow and spend and we’ll worry about the debt in the future,’” Geldhof said to the panel. The justices subsequently questioned whether he was making a policy debate, which is outside of their purview to consider. Geldhof responded that he wasn’t asking them to second-guess the Legislature’s policy, but stressed that HB 331 is “a clever workaround” to the Constitution that “will allow a proliferation of debt” in Alaska if it stands. Alaska Superior Court Judge Jude Pate dismissed the suit in January on the grounds that Forrer failed to state a claim upon which the court could grant relief on the grounds that HB 331 “passes constitutional muster,” Pate wrote in his decision. Forrer originally filed the suit in May 2018. Hatched by former Gov. Bill Walker’s administration as a way to pay off the large tax credit obligation, HB 331 would allow the companies and banks holding credits to get their money relatively quickly instead of possibly waiting for the state to pay them off over years of appropriations according to current statute. To get paid sooner the credit holders would have to accept a discount of up to 10 percent less than the face value of the certificates. The state Department of Revenue would then use the difference between the credit values and the discounted amount actually paid to cover the borrowing costs. Supporters of the tax credit bonds insist it is a way to restart investment by small producers and explorers in Alaska’s oil and gas fields that has been slowed by three years of credit payment amounts at levels less than what was applied for as the Legislature and the administration debated how to resolve the state’s large budget deficits. At issue is whether or not the law, which passed with bipartisan support and was signed by Walker, runs afoul of Article IX of the Alaska Constitution as Forrer and Geldhof insist. The state Constitution generally limits the Legislature from bonding for debt to general obligation, or GO, bonds for capital projects, veterans’ housing and state emergencies. In most cases the voters must approve the GO bond proposals before the bonds are sold. State corporations can also sell revenue bonds, but those are typically linked to a corresponding income stream and only obligate the corporation to make payments, not the State of Alaska as a whole. HB 331 allows the Revenue Department to set up the Alaska Tax Credit Certificate Bond Corp. specifically for the purpose of issuing the 10-year bonds. But the only revenue the tax credit corporation would have would be direct appropriations from the Legislature, as the bonds would not be sold to support a project that would eventually generate funds to repay the bonds that originally funded it, as is the case in a traditional revenue bond scenario. That’s why Geldhof and other critics of the plan often refer to the state tax credit corporation as a “shell corporation” with the sole purpose of passing money from the Legislature to the bondholders. State officials rebut that language in the bond certificates would notify potential buyers that their repayment would be “subject to appropriation” by the Legislature, which shields the larger State of Alaska from recourse and makes the plan legal. Department of Law attorney Laura Fox argued on the state’s behalf that prospective bond buyers would be aware of the appropriation risk, which is common in state contracts, and that risk would be accounted for through slightly higher interest rates. “Those words tell creditors they can’t legally compel the state to pay,” Fox said of the subject to appropriation clause. She noted the bondholders only recourse would be against the assets of the corporation — which the Legislature appropriated to it. Geldhof questioned whether the state would truly be free from liability if the lawmakers failed to make the bond payments. State attorneys have also pointed to previous court rulings that have allowed the state to take on debt outside the explicit constitutional provisions, but Geldhof asserts those deal with lease-purchase agreements and are not applicable to the bond sale contemplated in HB 331. The intent of the framers of the Alaska Constitution was also contemplated during the arguments. The justices asked Fox if she could discern through Constitutional Convention meeting records whether or not the delegates crafting the Constitution considered the HB 331 plan to be revenue bonds, or if such a plan was even contemplated. Fox responded that revenue bonds in the traditional sense were likely the understanding at the time the Alaska Constitution was granted, but noted that other state corporations occasionally have revenue bond payments supported by legislative appropriations. “Nothing in (Article IX) says where the corporation has to get its revenue from,” she said. She acknowledged the state does not consider the tax credit obligation to be debt, but rather “it is indebtedness,” Fox said, as the Constitution does allow the state to refinance existing debt. “I don’t know whether the semantic debate whether you call it debt or not really matters,” she said. Geldhof said in his closing rebuttal that the state is trying to incur debt to cover operating expenses, which is not what the constitutional framers intended. “We have enough financial problems in Alaska, don’t add to them by green-lighting debt that we can’t sustain,” he said. No timeframe was given as to when the Supreme Court justices will issue their ruling. (Editor's note: This story has been corrected to accurately reflect that Judge Jude Pate serves on the Alaska Superior Court, not District Court.) Elwood Brehmer can be reached at [email protected]

FISH FACTOR: Dietary guidelines zero in on seafood

Federal agencies are meeting now through next March to define U.S. dietary guidelines for 2020-25, and a high-powered group of doctors and nutritionists are making sure the health benefits of seafood are front and center. For the first time in the 40-year history of the program, the dietary guidelines committee has posted the questions they are going to consider. They include the role of seafood in the neurocognitive development in pregnant moms for their babies, and in the diet of kids from birth to 24 months directly, said Dr. Tom Brenna, professor of pediatrics and nutrition at Dell Medical School at the University of Texas. “We really got jazzed when we saw that because we wanted to figure out what the committee would find when it does its literature search on what medical evidence is out there and boy, did we find a lot,” Brenna said. Brenna also chairs the advisory council of the Seafood Nutrition Partnership, which on Sept. 17 is holding its 3rd annual in Washington, DC. The non-profit hosts the event as part of a public health campaign started in 2015 aimed at getting Americans to eat more seafood. More than 40 studies address the two committee questions, Brenna said, and provide evidence of how nutrients in seafood, such as omega-3 fatty acids, are so especially important to brain and eye development. “The brain and the retina in the eye are omega-3 organs. As calcium is to the bones, omega-3 is to the brain,” he said. “These kinds of data are exactly the kind of human study the dietary guidelines focus on. They are not cell studies, not rat studies, they are based on real studies on humans. It’s direct evidence. That’s why we are so excited.” For centuries, fish has been regarded as “brain food” and a plethora of studies has shown that seafood can prevent or relieve dementia and Alzheimer’s disease and reduce depression, among other things. “I don’t understand why anyone wouldn’t be thinking of seafood if they wanted to keep their brain in good working order,” Brenna said, adding that he is baffled why such positive health messages have not “stuck” in the U.S. Answers could be forthcoming in a discussion of Building Lifelong Seafood Consumers at the D.C. symposium. Unlike the meat or dairy industries who use sustained, national campaigns such as “Where’s the Beef?” or “Got Milk?”, the seafood industry has never banded together on its own behalf. “Getting the seafood industry together to promote one message has been difficult,” Brenna said, adding that the industry appears fragmented instead of coming together as a national “whole.” He is hopeful that putting the spotlight on seafood’s health advantages will help move the message and that national media will show more interest. “We’re generating the ammunition for the policy guys,” Brenna said. “There’s only so much that the science guys can do and boy, we’ve spent a lot of time doing it. We can lay the evidence in front of the policy makers. They have to implement it.” The 2015-20 dietary guidelines recommended at least two servings of seafood per week, but only one in 10 follow the recommendation. Consumption of seafood by Americans reached 16 pounds per person in 2017, in increase of 1.1 pounds versus 2016, according to federal data. The Dietary Guidelines Advisory Committee will meet five times with the last meeting tentatively scheduled for March 12-13, 2020. All meetings will be open to the public and two will include opportunity for public comment. Written comments are being accepted until the committee completes its work. A final report will be submitted to the Departments of Agriculture and Health and Human Services. Crab’s coming Bering Sea crabbers got some good news in advance of the season opener in mid-October. “We’ve been told that we will have a Bering Sea red king crab season. We don’t know what the catch will be yet but we understand that it will be reduced from last year. We really appreciate the Alaska Department of Fish and Game for giving us a heads up on that,” said Jake Jacobsen, director of the Inter-cooperative Exchange, or ICE, which represents more than 75 percent of the crab fleet of about 85 boats. The 2018 catch limit for Bristol Bay red king crab was just 4.3 million pounds. Jacobsen said the catch will go into an eager market and make for a good pay day. “Our average price for king crab last year was $10.53 (per pound),” he said. “We’re expecting higher prices this year based on what we’re seeing in world markets.” The record price for Alaska red king crab was $10.84 per pound paid in 2011. No word yet on the catch quota for snow crab, or opilio, although it should increase from this year’s take of 27.5 million pounds. Surveys in 2018 showed a 60 percent boost in market sized male crabs and nearly the same for females. Bob Foy, director of the North Pacific Fishery Management Council’s crab plan team, said it “documented one of the largest snow crab recruitment events biologists have ever seen.” Snow crab prices for the 2019 winter fishery are still being finalized, Jacobsen said, adding “it should be somewhere around $3.95 to $4 (per pound) average price.” A shortage of snow crab could prompt earlier fishing than the traditional mid-January start, he added. Crabbers also are keeping their fingers crossed for an opener for bairdi Tanners, snow crab’s bigger cousin. Jacobsen said the 2019 Tanner price “should average around $4.50 a pound.” Just 2.4 million pounds were allowed for harvest in the 2018-19 Tanner fishery, although crabbers say they see a lot more crab than what’s been showing up in annual trawl surveys. “It’s really hard to guess from one year to the next on the surveys. It might show something one year and you can’t find them the next,” he said. Jacobsen added that buyers like Red Lobster are featuring the larger bairdi Tanners on their menus and a closure would crimp those markets. “We’re really hopeful we can get a bairdi season this year so we can maintain that differentiation in the marketplace. It seems like we have to rebuild it every time we miss a year or two,” he said. Managers will reveal findings of the summer survey during the week of Sept. 16 in Seattle and finalize the catch quotas in early October. The Bering Sea crab fisheries open Oct. 15. Five species, five pieces Snack sized stories can teach a lot about Alaska salmon and connect people across the state. “I don’t think it’s an overstatement to say that here is no other species that is as important to Alaska as salmon,” said Peter Westley, an assistant professor at the College of Fisheries and Ocean Sciences at the University of Alaska Fairbanks. His students compile a Five Bites of Salmon newsletter that showcases stories and research about Alaska salmon as a way to “help increase salmon literacy and build a network of salmon connected people,” he said. A recent Five Bites highlighted lethal impacts of Alaska’s heat wave on salmon, what raging wildfires might mean for salmon habitat and interactive dives into 13 salmon regions that show, for example, that the Yukon is home to a larger watershed than Texas. The newsletter is a small offshoot of the college’s Salmonid Evolutionary Ecology and Conservation lab, or SEEC, which focuses on projects that help inform policy makers and sustain connections between salmon, people and place, Westley said. “Sustainability is not just about having a high abundance of salmon in some river,” he said. “It’s really about sustaining the connections to that resource on the landscape.” Research by SEEC lab students has revealed, for example, that larger numbers of adult coho salmon at Kodiak have a much higher dependence on Buskin Lake before they head downstream to spawn. Another showed for the first time that the demise of most Yukon River chinook seems to occur in the ocean and not in fresh water habitats. Research also is ongoing on hatchery strays and invasive Northern pike. The SEEC Lab also is a part of the Alaska Salmon and People project, a statewide initiative to quantify the varied states of salmon through histories, case studies and in depth data. Sign on to the Five Bites newsletter and learn how to make Blueberry Cured Salmon Gravlax. Laine Welch lives in Kodiak. Visit www.alaskafishradio.com or contact [email protected] for information.

Movers and Shakers for Sept. 15

Olympic gold medalist Kikkan Randall is the newest member of The Alaska Club board of directors. Randall, a longtime member of The Alaska Club, will bring her unique and extensive perspective on training, physical fitness and personal health to the management team. Randall is an internationally recognized athlete who grew up in Alaska. She has raced for the U.S. Cross Country Ski Team, is a three-time Overall World Cup Sprint Champion and an Olympic gold medalist. Randall is a voice for athletes as an International Olympic Committee member and a United States Olympic and Paralympic Committee board member. She is involved with Healthy Futures and Fast and Female, two organizations that promote healthy lifestyles to youth. Darren Franz was named Anchorage commercial lending officer and executive vice president at First National Bank Alaska. Franz joins First National with 27 years of local banking experience. During his banking career, Franz has successfully overseen the management of retail and business banking in 16 different Alaska communities with broad geographic, economic and cultural diversity.

Schulte’s return to marijuana board restores industry influence

When the Marijuana Control Board meets this week in Nome, there will be a familiar face behind the dais again: Bruce Schulte, the board’s first chairman. Gov. Michael J. Dunleavy appointed Schulte to the Marijuana Control Board in August. The Legislature will consider his appointment for confirmation during its next session, but until then, he’ll serve in one of the board’s seats designated for a member of the public or active in the industry. That’s a change from the last time he served on the board, when he served in the seat designated for a member of the industry after helping lead the campaign to legalize recreational use. Schulte doesn’t actually have a financial stake in a cannabis business. When it was first legalized, he intended to pursue a license, but reconsidered based on the economics, he said. “I applaud the folks that have put so much time and energy and capital into this,” he said. “I want the industry to succeed, but the free market being what it is, some will succeed and some won’t. My sense is that the market is a little saturated. Already we see some people pulling out, merging forces… which is kind of what we expected to happen.” He was dismissed from the board in 2016 under former Gov. Bill Walker’s administration amid accusations of poor behavior to staff. At the time, the Alcohol and Marijuana Control Office was run by former director Cynthia Franklin, who had a somewhat combative relationship with the board and the nascent industry. Schulte said he expects to be asked about the accusations during the confirmation process but described Franklin’s behavior to the board as bullying in those days. “That led to some frustration on my part,” he said. “And rightfully so.”  In a statement provided to the Journal after publication, Franklin wrote that she was “saddened” that Schulte was engaged in “sniping about perceived slights that happened years ago.” “Although Mr. Schulte had personal power and control issues that interfered with his ability to serve in a professional manner on the board back in 2015-2016, I hold out hope that he has grown in the interim,” Franklin wrote. “Given this second chance, surely Mr. Schulte will focus on having mature interactions with the AMCO staff, industry members and his fellow board members. “In my role as director of AMCO when Alaska legalized marijuana, I did my best to balance the need to protect the nascent industry from federal overreach while giving newly licensed businesses room to grow. There were some folks determined to drive a wedge between AMCO and those new businesses, but for the most part, we managed to come together and create regulations that work for Alaska.” Franklin added that she voted for legalization and was “proud” of her work establishing the legal cannabis industry in Alaska. The Marijuana Control Board was established in 2015 after Alaskans voted in favor of Proposition 2, which legalized the recreational use of cannabis, in 2014. At first, two seats were dedicated for industry representation along with one law enforcement, one public health and one public seat. However, statutes establishing the board allowed for one of the industry seats to be a member of the public with no stake in the industry. Dunleavy initially nominated Fairbanks resident Vivian Stiver to fill a vacant seat after he decided not to reappoint industry member Brandom Emmett of Fairbanks. Industry stakeholders heavily objected to Stiver because of her earlier involvement in a citizen initiative to ban commercial cannabis operations from the City of Fairbanks. Stiver said in testimony during confirmation hearings that she intended to regulate the industry fairly at the state level, but the Legislature ultimately voted against confirming her to the seat. Dunleavy later appointed her to the board of the Alaska Housing Finance Corp. and Schulte to the seat on the MCB. The governor’s decision to appoint Schulte came after conversations with people both inside and outside the industry, said Matt Shuckerow, Dunleavy’s press secretary. Schulte’s name was included on a list of five people suggested by the Alaska Marijuana Industry Association shortly after the Legislature voted not to confirm Stiver, and while the governor ultimately chose one of the individuals on that list, he was not obligated to, Shuckerow said. “I think that the governor, in his review of all boards and commissions, has expressed a desire to have people who think innovatively, who take into consideration the different views of their communities and the whole,” Shuckerow said. “He wants someone who can think outside the box, who can bring a different perspective … My understanding on this appointment was that under Mr. Schulte’s credentials, he does qualify as a public member.” In his initial fiscal year 2020 budget, Dunleavy proposed dissolving the Marijuana Control Board and Alcoholic Beverage Control Board and consolidating the powers into the office of the Alcohol and Marijuana Control Office director. The Legislature did not accept that change, and it was ultimately removed from the budget. Shuckerow said he did not have any news about the governor’s intentions related to the boards, but that there is clearly public interest in the actions of the board, as shown by the recent public interest in proposed regulations before the Alcoholic Beverage Control Board about breweries. “More broadly, there is an examination and will continue to be an examination of boards, looking at alignment and intent and whether or not they can be changed or reformed in some manner,” Shuckerow said. “That is something that is important.” Schulte said though he’s not serving in an industry seat, he does have a clearer history of advocating for the industry than the average person. The industry has matured since the first legal sale in 2016, reaching about $130.5 million in retail sales and $15.7 million in total taxes in 2018. In some ways, that’s what early advocates envisioned, Schulte said: that cannabis would be just another industry in Alaska’s economy. There are outstanding issues facing regulators and the industry, though. At the forefront of those issues is the tax structure implemented on cultivators, which is assessed entirely on weight at a rate of $50 per pound. While advocates originally proposed that tax structure for simplicity’s sake in the initiative approved by voters, stakeholders have since raised the alarm that it will strangle cultivators as supply increases and the retail price for cannabis drops. As the price drops, the assessed tax will remain the same, as it is based on weight, cutting more and more into cultivators’ profits. Schulte said he originally supported the tax structure but now agrees that it’s a problem. However, it’s not up to the Marijuana Control Board to change it; that’s the purview of the Legislature. “As prices come down, the taxes have not changed,” he said. “In some cases, people have found that it’s impossible to be profitable. I think that that’s something that needs to be looked at. But again, the best the Marijuana Control Board can do is inform the Legislature what some of the options are and then it is up to the legislators.” On-site consumption endorsements are still an issue for the Marijuana Control Board as well, with the backdrop of a statewide indoor smoking ban complicating the landscape. The board approved endorsements in general for edible on-site consumption indoors for businesses that hold endorsements, but smoking is relegated to outdoor areas with adequate ventilation, but even that is complicated by the smoke-free workplace law. Going forward, he said he wants to see the board partner with the industry stakeholders to help them be successful in addition to being regulators. “The question I would raise in any situation is: are these folks conducting themselves appropriately in regards to regulation and statute, and what are we doing to help them be successful?” he said. “Some of these regulatory boards get too wrapped up in telling folks what they can’t do, not what we can do to make it better. I think if I were to bring any preconceived notion to the board, it would be that: what can we do to help you succeed?” Elizabeth Earl can be reached at [email protected] Editor's note: This story was updated to include a statement from former Alcohol and Marijuana Control Office Executive Director Cynthia Franklin.

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