THE LINK WINTER | JANUARY 2024 The official magazine of the Alaska Support Industry Alliance INSIDE THIS ISSUE n Conoco $7 billion in Willow n Educating next generation workers n AIDEA part of Inlet solution? n What to expect in Juneau 2024 THE NEXT NORTH SLOPE BOOM BEGINS www.AlaskaAlliance.com
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At Santos, we are proud to develop the world-class Pikka Project on the North Slope. Phase 1 will develop about 400 million barrels from a single drill site with first oil expected in 2026. And we are even prouder that our interest in Pikka will be net-zero on Scope 1 & 2 emissions!
THE LINK: JANUARY 2024 4 Alliance Members and Friends: Welcome to 2024. It’s the year of Willow, Pikka, Nuna and many more energy developments. It’s the year of Manh Choh gold hauling and Graphite Creek feasibility studies. It’s another year of new renewables and grid upgrades, with public and private investment pouring into the state. I’m sure you feel it too: progress seems to be in vogue again. We’re building new projects, and there is a lot of long overdue work coming our way. And while you, dear Alliance member, focus on making hay while the sun shines, we are here to help it keep shining for years to come. The Alliance does this in several ways: n 1. Educating Alaskans about the importance of responsible resource development in our state n 2. Advocating for a stable business climate, to policymakers and agencies at every level of government n 3. Advocating for our members, to the producers (our clients) 2024 is, therefore, going to be a busy year at the Alliance as well. With all the activity, we think 2024 will provide a unique opportunity to broadcast why industry is so important. It’s our 45th anniversary in the same year that these projects lead the state’s economic growth. In parallel, the Alaska Oil & Gas Historical Society (akoghs.org) will keep educating the public on the rich history of the energy industry here. We will leave no doubt in people’s minds as to why resource development is so important to them. It’s also an election year, and the second half of the 33rd session in Juneau will start just a few days after I finish writing this letter. On the positive side, the CCUS legislation is looking good, and offers continued opportunity for an active, healthy energy industry for decades to come. But on the flip side, the oil tax discussions are back on the table in Juneau. We will be pushing hard for a stable business climate, as always. Finally, we’re going to show the producers why they need to choose Alaska contractors, especially Alliance members, as their trusted partners for their most important projects. It’s going to be a great year to showcase this, as our members deploy deep experience and fit-for-purpose resources in Alaska’s unique environment. Remember what we have learned in past cycles — activity increases tend to cause our experienced, Alaska-based workforce to be augmented by newcomers — leading to an uptick in HSE incidents and a drop in efficiency. Let’s remember to look out for each other and focus on safety and quality. The results will speak for themselves. It’s my honor and pleasure to steer the Alliance through what is sure to be a great 45th year. As we reinvent ourselves to serve our members as effectively as possible in the resource development industry of the future, we will remain true to our founding principles. Don’t be a stranger! Our doors are open for your questions, comments, feedback. And don’t forget to get involved in one of our many events, breakfasts, or committees. We’d love to see you. Until next time, — Liam In its 45th year, the Alliance will continue to be a beacon Message From Liam Zsolt, Board of Directors President
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Page 14 Santos advances with Pikka project Lots of good news and activity on the North Slope with Santos to bring the Pikka project into production soon. Page 18 ConocoPhillips pushes forward with Willow ConocoPhillips has moved forward with its Willow project with more than $7 billion in investment and generationchanging potential for Alaska. Page 26 Investing in the Next Generation Anchorage School District is launching a bold initiative to educate and encourage young Alaskans on workforce opportunities and needs in Alaska’s resource industries. Page 38 AIDEA taking lead on natural gas? Could Alaska’s development agency take the lead in reversing the continued decline in natural gas from Cook Inlet fields and end a long-term threat now coming soon for all Southcentral communities including Anchorage? FEATURES The Link is published in partnership with the Alaska Support Industry Alliance by Fireweed Strategies LLC, 4849 Potter Crest Circle, Anchorage, AK 99516. We actively seek contributions from Alliance members and the oil and gas and mining industry. For advertising information and story inquiries, email Lee.Leschper@FireweedStrategies.com. Our magazine is mailed at no charge throughout Alaska to those interested in resource development and a healthy Alaska economy. To subscribe, email Admin@FireweedStrategies.com. Publisher: Lee Leschper | Editor: Tim Bradner | Production, Design: Will Leschper Contributing Photographer: Judy Patrick THE LINK: JANUARY 2024 6 ON THE COVER Work on the Santos Pikka Project is both injecting a flurry of new activity on the North Slope this winter and new optimism for increasing long term oil throughput in the Trans Alaska Pipeline and oil revenue for the state. Photo Courtesy Santos Ltd. ON THIS PAGE Gov. Mike Dunleavy’s bold plan to build carbon capture as a revenue stream for Alaska will be among many energy proposals before Alaska legislators for the session that opens this month.
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Alliance Members and Friends: It all began on the back of a napkin … 45 years ago — in 1979 — Paul Harding, a Universal Services employee, read an article authored by Bobbie Parker, then with Parker Drilling. The challenges facing the petroleum industry were such that no one person or business could turn things around. Paul put together a think tank of industry professionals to discuss what he termed a “vague concept” of an association comprised of oil patch businesses. The think tank was composed of Dave Harbour (ARCO), Bob Ryan (Universal Services) and Joe Mathis (Univeral Services). From their discussions at a corner table in the Cattle Company restaurant, the gentlemen sketched out the acronym: “A.S.I.A.” — Alaska Support Industry Alliance — the name of their new organization. The gentlemen worked their way across town talking to colleagues to drum up support for the new organization, recruit members, and solicit financial contributions. In one particular meeting with Frontier Oil Company, Paul recalls meeting Tennessee Miller or perhaps more affectionately known as “Ol’ man Tennessee THE LINK: JANUARY 2024 8 From humble beginnings, we are stronger than ever Message From CEO Rebecca Logan Stay connected with us We are working proactively to keep our members informed and connected via online platforms and events. Watch for our updates through email and social media. And if you’re not receiving our updates, email cchambers@alaskaalliance.com. Stay up to date at AlaskaAlliance.com.
Miller.” Paul shared his vision of the Alaska Support Industry Alliance and before the conversation concluded, Tennessee called someone into his office and said, “I want you to get this man a check for $1,000.00.” Paul left that meeting with the support of the business, money in hand and ASIA’s first vice president, Milton Byrd. As Paul said , “…he had been a real easy sell. It was as if he had been waiting for someone to walk into his office and give him that schpeal.” In fact, the whole campaign took little effort because of the enthusiasm they found in the community. “Momentum for the organization picked up like a snowball on a downhill run.” On Oct. 2, 1979, the first meeting of The Alliance was held with eight attendees. Interim directors were elected, by-laws were reviewed and a membership campaign was launched. Two days later, an article appeared in the Anchorage Daily News crediting “an ad hoc organization … without a name …” for submitting a petition with 972 signatures to Governor Hammond “urging him to hold a lease sale in a ‘simple and expeditious manner.” On Nov. 13, a petition with 1,600 signatures arrived at Senator Stevens’ office protesting his opposition to the same lease sale. Three days later, the ALASKA SUPPORT INDUSTRY ALLIANCE officially received its Articles of Incorporation. It’s going to be a great year celebrating our 45th anniversary while we continue to carry out the work of this dynamic organization — linking Alaska’s resources to Alaska’s people. Thank you for joining us on this journey. Make plans to join us for Meet Alaska 2024! See Page 10 for more information. www.AlaskaAlliance.com 9 Accelerate Growth with Customized Solutions Northrim’s Treasury Management team can help you focus on what is important — growing your business. With our customizable solutions you can: » Leverage automation to reduce time and costs » Manage cash flows to maximize profitability » Mitigate fraud to reduce loss and reputational risk Call (907) 562-0062 today to discuss your unique business needs. ACHIEVE MORE OUR BUSINESS IS TO HELP YOUR BUSINESS
THE LINK: JANUARY 2024 10 Join us for Meet Alask
www.AlaskaAlliance.com 11 ka 2024! We will be celebrating the 40th anniversary of Meet Alaska — the state’s largest one-day energy event — March 22 in Anchorage. For 40 years, we have gathered each spring to learn, share, network and celebrate our resource development industries. Join us this year to celebrate, but also to look both ahead at the coming year’s opportunities and look back at the amazing history we’ve shared, advocating for our energy future, and building a stronger Alaska and America. The Alliance is composed of more than 500 members providing more than 35,000 Alaskan jobs related to the oil, gas and mining industries. Our mission is to advocate for safe, environmentally responsible development of Alaska’s oil, gas, and mineral resources for the benefit of all Alaskans. For sponsor and exhibitor opportunities, contact Catherine Chambers, external affairs coordinator, 907-563-2226, cchambers@ alaskaalliance.com.
THE LINK: JANUARY 2024 12 Alaska will continue lawsuit against the EPA The U.S. Supreme Court rejected the state of Alaska’s long-shot direct appeal to the high court over the U.S Environmental Protection Agency’s ban on a large mine in the Bristol Bay watershed west of Anchorage. Alaska Attorney General Treg Taylor said the state would continue its action through the federal courts. The proposed Pebble project would develop a copper, gold and molybdenum deposit near Iliamna. Northern Dynasty Minerals, a Vancouver, B.C. minerals exploration company, would develop the project through a subsidiary, Pebble Partnership. Fisheries and tribal groups in the region fought to block the mine arguing it could damage salmon-bearing streams. Pebble Partnership contested that, pointing to a federal Environmental Impact Statement prepared by the U.S. Army Corps of Engineers showing minimal impacts. “The EPA set a dangerous precedent when it issued a preliminary veto of a project on State land,” said Alaska Attorney General Treg Taylor in a statement. “Due to the national significance of the EPA’s veto, we went to the Supreme Court directly, asking it to take up this case so the issue can be resolved as quickly as possible.” “While SCOTUS (Supreme Court of the U.S.) did not pick up the case at this time, it does not indicate how the Supreme Court will ultimately rule on the merits. All this decision means is that we will take the more traditional route and file first in the federal district court. We will continue fighting for Alaska’s right to develop its resources through the federal court system,” Taylor said. The direct appeal to the Supreme Court is allowed under certain circumstances but it was always considered a long shot by Pebble’s supporters and even the state, but the justices must agree to hear the case, which they did not. EPA had used its Section 404c authority under the federal Clean Water Act to ban a large mine in an area of state-owned lands. It was a highly unusual move because it was taken before federal permits were issued and without consideration of environmental mitigation steps the developer would pursue. The state argued the action usurped Alaska’s rights to develop its own lands which is given under the federal statehood act that set the terms for the Territory of Alaska’s admission as a state in 1959. John Shively, CEO of Pebble Partnership, said: “While it is a disappointing decision, it is important to note that this is not a comment on the arguments put forward by the state. We have long stated our belief that the EPA has acted outside of its regulatory authority and that remains our position today.” “The legal issues raised by the state will now work their way through the federal courts. We will also evaluate our legal options in contesting the extraordinary steps the EPA has taken to preemptively stop the Pebble Project,” Shively said. “Pebble is an important project for Alaska and the nation. It could create jobs for Alaskans, provide an economic catalyst for the state and provide a much-needed source of critical minerals for the long-term safety and security of the United States,” he said. The Natural Resources Defense Council, or NRDC, a U.S., environmental organization, praised the court’s decision. “This does not mean that the inevitable legal challenges to EPA’s veto from the destructive project’s will not eventually be filed. It means only that the challenges must first be heard beginning in federal district court or, in the case of a claim for ‘taking of state property without just compensation,’ in the Federal Court of Claims,” the NRDC said. — Tim Bradner Supreme Court nixes state’s Pebble appeal Photo Courtesy Pebble Limited Partnership
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THE LINK: JANUARY 2024 14 Busy winter at Pikka project, with more to come next year
Drilling currently underway as part of phase one After years of preparation, it’s a very busy and productive season for one of the biggest new oil projects in a decade, the Pikka Project being developed by Santos Ltd. On the Pikka “to-do” list for Santos this winter: n Pipeline construction, 44 miles of it; n the completion of installation of field facilities; and n utilities on Pikka’s initial production pad. Drilling is also underway. This is phase one of Pikka, targeting a 2026 startup at 80,000 barrels per day. Phase two is planned but not yet sanctioned. Contractors have a lot on their plate. Some infrastructure for Pikka was built earlier, mainly the one production pad, Drill Site B, as part of the initial phase. Drill Sites A and C are planned for phase two. About 1,200 will be employed this winter at Pikka and similar numbers next winter and about the same in the following season. Between drilling crews and project labor the workforce will not drop below 1,000 for the duration of the construction. Securing this labor may be a challenge with other work underway this winter on the slope, but Santos believes it can be managed. In terms of supply chain and cost-control issues the extended time taken for engineering and planning allowed Oil Search, now Santos, to lock in contracts. Modular facilities moved to the North Slope so far were built in Big Lake, in the Mat-Su region. Modules for production facilities were moved to the slope from Alberta, where they were fabricated. The standardization of modular design into “truckable” packages represents a savings at Pikka of about $200 million compared with modules built and moved to Alaska by sealift. Pikka’s modules are 90 tons, at 14’x16’x130’. Drilling is underway, too. Five of 45 wells planned for phase one have already been drilled with 41 of these targeting the Nanushuk formation, two drilled to the Alpine “C” formation and two for disposal. The first well drilled is to handle injection of drill fluids and cuttings so that drilling waste isn’t stored on the surface. These are the first production wells targeting the Nanushuk, a large oil accumulation that was known but not considered economic to produce until exploration and development work was started by Armstrong Oil and Gas, an independent that led the early exploration and Repsol. Today, Repsol is 49% partner with Santos’ 51%. Despite its promise, the Nanushuk has not yet seen production other than test flows, although the companies are highly confident in the reservoir and its capability to sustain production. There have been 21 penetrations, or wells drilled, into the Nanushuk and flow tests were conducted in 2019 at the Pikka B and Pikka C appraisal wells, the results which underpin Santos’ confidence. Pikka may be only the first of the Nanushuk projects to be developed. www.AlaskaAlliance.com 15 Photos Courtesy Santos Ltd. CONTINUED on PAGE 16
The formation extends over a broad area with the Mitquq well discovering resources that led to the formation of the Quokka Unit and the Stirrup discovery leading to the formation of the Horseshoe Unit. The company has also been careful to develop good relations with the nearby Inupiat community of Nuiqsut and the North Slope Borough, the regional municipal government. Nuiqsut owns surface lands in the area through its village corporation, Kuukpik Corp., and both Kuukpik and Arctic Slope Regional Corp., the regional Native development corporation for the North Slope, will share in oil production royalties from Pikka as well as the state of Alaska. Pikka Phase 1 will be net-zero on Scope 1 and Scope 2 emissions (equity share) from first oil through a combination of emissions reduction technologies on its production facilities and offsetting emissions that cannot be eliminated in field operations through an agreement with an Alaska Native corporation. The field itself is estimated to produce less than 14 tons of carbon dioxide equivalent per 1,000 barrels of oil produced, which is 75 percent less than Prudhoe Bay, according to a Wood Mackenzie analysis. — Tim Bradner THE LINK: JANUARY 2024 16 CONTINUED from PAGE 15
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THE LINK: JANUARY 2024 18 ConocoPhillips approves Willow development
www.AlaskaAlliance.com 19 Company will invest $7 billion into the project ConocoPhillips announced its Final Investment Decision, or FID, on the Willow oil project in late December, a move that was anticipated and that formally commits the company to the project and the funds needed for its construction. Willow is expected to cost between $7 billion and $7.5 billion and add 180,000 barrels per day at peak to Trans-Alaska Pipeline System throughput soon after its construction is complete in 2029. Projects like Willow tend to ramp up quickly to peak production and then hold steady for several years before a gradual decline sets in. The company’s FID decision follows the Department of the Interior’s March 2023 Record of Decision approving the project and recent court decisions, including the order from Ninth Circuit Court of Appeals that denied plaintiffs’ request in lawsuits for an injunction. Conservation groups and an Alaska tribal group had filed suit against the U.S. Bureau of Land Management over the agency’s approval of Willow, arguing that BLM’s Environmental Impact Statement was insufficient. Winter construction on the project is now under way and the formal approval by ConocoPhillips will allow activity to ramp up quickly. “We are excited to reach this significant milestone,” said Ryan Lance, chairman and chief executive officer, in a statement. “With this project authorization we’ve begun winter construction and Alaskans have started to CONTINUED on PAGE 21
THE LINK: JANUARY 2024 20
www.AlaskaAlliance.com 21 receive the benefits from responsible energy development.” According to the BLM, the Willow project is projected to deliver $8 billion to $17 billion in new revenue for the federal government, the state of Alaska and Alaska Native communities. When completed, the new field is estimated to produce approximately 600 million barrels across the lifetime of the project, decreasing American dependence on foreign energy supplies. Willow underwent five years of rigorous regulatory and environmental reviews by federal and state agencies. The project is designed to support and coexist with subsistence activities on Alaska’s North Slope. ConocoPhillips said the project will use materials primarily made and sourced in the U.S. and has the potential to create over 2,500 construction jobs and approximately 300 long-term jobs in the state. “We are grateful for the many supporters who advocated for Willow. Alaska Native communities and groups, especially those closest to the project on the North Slope, continually provided input that helped shape this project. We also appreciate the unwavering support from Alaska’s bipartisan Congressional Delegation — Senators Lisa Murkowski and Dan Sullivan and Representative Mary Peltola — the state legislature and organized labor groups,” Lance added. “Our employees and the contractor community have dedicated years to designing a project that will provide reliable energy while adhering to the highest environmental standards,” he said. Willow is in the National Petroleum Reserve-Alaska, or NPR-A, a 23-million-acre federal enclave west of producing fields on the North Slope, which are on state of Alaska lands. The NPR-A covers a huge expanse of land in the western part of the North Slope but only the northeast part of the reserve is considered to have high potential for major oil and gas discoveries. U.S. President Warren Harding created the reserve in 1923 as Naval Petroleum Reserve No. 4 to assure a supply of oil for the U.S. Navy, which at the time was converting its ships from coal to oil. At the time, no oil had been found in the area, but federal geologists felt the region had potential based on the geology and oil seeps that had been detected. No exploration or drilling actually was done until after World War II when the Navy undertook an extensive program. That resulted in the discovery of a small oil field at Umiat, at the southeastern border of the reserve, and a gas field at Barrow (now (Utqiagvik) which still supplies fuel for power generation to that Inupiat community. In 1976 reserve was transferred from the Navy to the BLM, and in the 1980s exploration by private companies using modern technology was allowed. It still took several decades before significant discoveries were made. Willow is the largest and most important of these. — Tim Bradner CONTINUED from PAGE 19 A great Safety Award or Retirement Gift! AVAILABLE IN BOTH HARDBOUND AND SOFT COVER EDITIONS (907) 223-4704 | judypatrickphotography.com Also available in bulk quantities! A COFFEE TABLE PHOTO BOOK OF ALASKA’S NORTH SLOPE OIL PATCH ON SALE NOW!
THE LINK: JANUARY 2024 22 The Legislature’s 2024 agenda will be heavy on energy and natural resource legislation, legislative leaders told the Resource Development Council Jan. 11. What is unlikely in 2024, however, is passage of oil and gas taxes and a bill that sets mandates for renewable energy in the power supply “portfolio” for Southcentral and Interior Alaska electric co-ops, the legislators said. Alliance CEO Rebecca Logan and RDC Executive Director Leila Kimbrell moderated a panel that included State Sens. Click Bishop, R-Fairbanks; Jesse Bjorkman, R-Kenai; Kelly Merrick R-Eagle River; James Kaufman, R-Anchorage and Rep. Tom McKay, R-Anchorage. Here are key points raised: n Sen. Merrick feels the intense partisanship of previous legislative sessions has started to subside. “Without cooperation we’re not going to get anything done,” she said. Also, that 2024 is an election year where substantial legislation is unlikely is just an excuse for not tackling tough problems, she said. n Rep. McKay said there’s urgency in tackling the pending Cook Inlet natural gas shortage and that the way to do it is with incentives. Oil producing nations like Indonesia tackle this with royalty and tax holidays until companies recover costs. McKay noted a bill by Rep. George Rausher, R-Palmer, would remove royalties from Cook Inlet leases. Gov. Mike Dunleavy will introduce a similar bill, but it may be more modest than what Rauscher proposes. “Alaska needs to be much more aggressive in tackling this. We need to chart our own course,” McKay said. “ft we wait for something to happen, it won’t,” he said. n Sen. Click Bishop said, “We need to crack the code on high energy costs,” which impede economic development, particularly mining projects. Bishop points to Iceland as an example of what energy resources can do when combined with consistent government policy. Iceland has commercial power rates of less than two cents per kilowatt hour and residential rates of 7 cents or under, in stark contrast with Alaska’s rates that are much higher despite Alaska’s ample endowment of energy resources inLegislature: Agenda focused on resources Photo Courtesy Judy Patrick
cluding renewable hydro, wind and solar. Rep. McKay added that while Alaska has large resources of critical minerals that could reduce the nation’s dependence on China, high energy costs pose a significant impediment. Members of the audience noted that Sen. Merrick’s Senate Bill 118, now in the Legislature, would require the Department of Natural Resources to submit a report to the Legislature with a three-year, five-year, and 10year plan to develop critical and strategic minerals. McKay also spoke to the need to pass a bill to begin carbon dioxide underground injection storage (the governor introduced this bill last year) “Alaska has the perfect locations for this on the Kenai Peninsula and the North Slope. If we’re ever going to get a gas pipeline, we need a place to store carbon dioxide extracted from North Slope gas, and this would be on the North Slope,” McKay said. The governor’s bill would establish the legal framework for special “Class 6” injection wells that are regulated by the U.S. Environmental Protection Agency. The Alaska Oil and Gas Conservation Commission, which regulates oil and gas wells, has already started work on an application to the EPA for this, but the full legislative authorization is needed. Sen. Jesse Bjorkman expects the Legislature to continue work on workforce development. The Senate Labor and Commerce Committee, which he chairs, held 13 hearings on workforce last session and identified key problems including: the need for childcare; more effective procedures for drug-testing; low pay and benefits in many occupations; and the cost of health care. Sen. Bishop said Alaska need to push alternative clean fuels like hydrogen to be competitive in the coming energy transition. Anchorage now has the third-busiest air cargo airport in the world and supplying airlines with clean fuels will help Alaska maintain its competitive edge. Carbon-free “green” hydrogen can be made by splitting water through electrolysis, but the process requires energy, another argument for developing lower-cost energy, Bishop said. — Tim Bradner www.AlaskaAlliance.com 23 BJORKMAN BISHOP KAUFMAN MERRICK MCKAY
Alaska announced bids Dec. 13 on 48 oil and gas leases sold in competitive online lease offerings. The results, for lands on the North Slope and Cook Inlet, were modest but indicate continuing interest, which is positive, state officials said. Bids were solicited for unleased state-owned land in five regions of the state but only three areas attracted offers: The North Slope; the Alaska Beaufort Sea offshore the slope and in Cook Inlet. All three regions have seen exploration and are now producing. For the North Slope onshore, the apparent high bidders on leases are companies that are existing explorers: Brooks Range Petroleum, subsidiary of U.K.-based Pantheon Resources with high bids on 46 leases in the new sale; Langniappe Alaska, subsidiary of Colorado-based Armstrong Oil and Gas, won 17 leases; Oil Search, a subsidiary of Santo, Ltd. of Australia won 14 leases, and Alaska independent Finnex won three leases and Strong Resources, another independent won one lease. In the Alaskan Beaufort Sea offshore the North Slope, Langniappe Alaska won three leases; Savant Alaska, a Denver-base independent that developed the small Badami oil field east of Prudhoe Bay, won two leases. E&E Partners, an independent bidding group, won seven leases. The aggressive bidding by Brooks Range, for 46 tracts, indicates the company’s confidence in new discoveries being made in the central area of the slope where it is exploring. Similarly, bids on 17 tracts indicates its confidence. The company is planning six exploration wells on acreage it now holds, three wells this winter and three next year, In Cook Inlet, there were six tracts bid on, with three leases won by Hilcorp Alaska, a major independent that is the Inlet’s major oil and gas producer, and three by HEX LLC, an Alaska-based independent that owns and operates the small Kitchen Lights gas field. There were no offers for leases in two remote Alaska areas where bids were solicited, the Alaska Peninsula and the North Slope foothills area south of the Prudhoe Bay and other large producing fields on the slope. The combined sales brought in an estimated $8 million in “cash bonuses” for the State of Alaska, an increase over 2022. More than 224,000 acres on 110 tracts received bids across all of the lease sales. Gov. Mike Dunleavy said he was satisfied that existing explorers and producers in the state are confident enough to expand holdings. In Cook Inlet, it was also promising to see two Alaska-focused companies make offers, the governor said, “but the lack of large new bidders emphasizes the need for Alaska to take action to stimulate more natural gas production in the Inlet.” Natural gas production in the Inlet is declining, a major concern for Dunleavy because gas produced in the region fuels space heating and power generation in Southcentral Alaska, the state’s major population center. “I’ll be introducing a proposal in the upcoming legislative session to offer new incentives. We need to ensure we are doing everything we can to make our natural resources available for affordable, secure energy,” Dunleavy said. In the lease sale just concluded the state had offered a net-profits bid variable for Cook Inlet. “The net profit share enables a producer to recover costs more quickly and then share profits with the State once the development costs are recouped, the governor said, explaining the incentive. — Tim Bradner THE LINK: JANUARY 2024 24 MEET MANH CHOH ALASKA’S NEWEST GOLD MINE Mining is now underway at Manh Choh near Tok, where it will bring hundreds of jobs and millions in business opportunities to the region. Manh Choh is a joint venture with Contango ORE. Alaska nets $8M from Slope, Inlet lease sales
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THE LINK: JANUARY 2024 26 Anchorage schools rolling out new careers program
Students learn career skills to make a living Anchorage School District is rolling out a major shift in its high schools to require career-focused along with traditional academic classes. The effort is aimed at getting more high school students to actually come to class. About half of Anchorage high school students are physically in classes, well below the 90 percent known as necessary to ensure later academic and career success. That’s what school officials have told Anchorage business leaders in a series of briefings. The Anchorage School District’s “career academy” project is now in advanced planning and will be implemented starting fall, 2024, school officials said. Under the plan, all Anchorage high school graduates will participate in a career pathway as a graduation requirement along with academic requirements. Next fall, incoming freshmen (9th graders) will do orientations on careers. The following year, in fall 2025 as 10th graders, they will pick a focus like health care, engineering, or another field. Soft skills like communication, working in teams and being motivated are included. Once underway, improvements are expected in attendance and higher graduation rates. ASD is modeling its program after similar efforts in Akron, Ohio and Nashville, Tenn., both considered similar to Anchorage in size and socio-economic profile, and where there were gains in attendance, fewer suspensions, and graduations. Anchorage schools are partnering with the Ford Next Generation Learning on this with a $15 million U.S. Department of Education grant. This is nothing really new. That career classes and technical education stimulate young people has long been known. Rural Alaska school districts in Northwest Alaska and on the Seward Peninsula have seen a direct link between students in career classes and improved graduation rates. That’s because career classes tend to connect young people with why they’re in school, to learn skills to make a living, and because hands-on work in small groups is more stimulating than traditional classroom learning. The challenge for career education is that it is expensive. Teachers are hard to recruit, and specialized equipment is expensive. Given budget crunches school districts in recent years have tended to focus resources on maintaining traditional academics at the expense of other courses. Rolling out a new program in the midst of the current serious financial challenge for Anchorage schools might be a problem, however. ASD, like other districts, is also dealing with the unfunded state mandates of the new Alaska Reads Act. Anchorage is better equipped than many other districts to handle the new reading requirements, but the extra staffing and coordination needs of the new careers program will add a new burden. Still, there are big upsides to this. That Anchorage schools are taking the initiative is being well received by community leaders. Also, the career and workplace “soft skill” focus is widely supported in the business community, which is concerned about labor scarcity and the drain of younger people out of the state. Support from business leaders will also help temper the anti-public education mood among many legislators that has translated to the current shortfalls in funding for schools. The 59 percent physical attendance rate in high schools means that high school students were in class 52 percent of the time needed to achieve a 90 percent attendance rate that is considered needed for academic and career success. School officials have said that the online classes students say they watch are often an excuse for not coming to class. This was hardly reassuring to business leaders listening to the briefings, who say they need employees who will show up on time. — Tim Bradner www.AlaskaAlliance.com 27 Born and raised Alaskan Nikola Maccabee went straight from high school to a career in mining. Photo Courtesy Pogo Mine
THE LINK: JANUARY 2024 28 Ultra-low sulfur diesel, methanol in the spotlight There may not be as many trucks hauling ultra-low sulfur diesel and methanol up the Dalton Highway in a couple of years. A new company, Alyeschem LLC, plans to build a plant at Prudhoe Bay to make both liquids from natural gas. Alyeschem will produce both methanol and ultra-low sulfur diesel, products that are now transported up the Dalton. While the new Alyeschem plant will reduce truck traffic on the highway, another new plant will be adding to it. Harvest Alaska, Hilcorp Energy’s mid-stream subsidiary, is currently building a liquefied natural gas, or LNG, plant on the same 15-acre gravel pad. That will put trucks carrying LNG headed south from Prudhoe on the highway, carrying the liquefied gas to Fairbanks to Harvest’s customer, the Interior Gas Utility, or IGU, which serves customers with gas for space heating. IGU now trucks liquified gas from a small LNG plant in the Matanuska-Susitna Valley north of Anchorage. Cook Inlet now supplies natural gas to that plant. But with the forecasts for declines in gas production from the Inlet, IGU and Harvest decided to build the North Slope plant to give Fairbanks an alternative supply of gas, and one that is long-term. Harvest’s LNG plant, now under construction, will share a 15-acre pad with Alyeschem’s plant, which will allow for synergy between the two operations. The pad is one half mile south of Flow Station 3 in Prudhoe Bay field and a mile east of Pump Station 1 of the Trans Alaska Pipeline System. Both the LNG and methanol projects have been in the planning stages for several years. There was an earlier plan to build the LNG plant by another company, Spectrum Alaska, to serve Fairbanks but the project did not proceed. However, the gravel pad to be used had meanwhile been secured by AIDEA, the state’s development finance corporation, to assist the LNG project. Harvest ultimately stepped in to build an LNG plant in a deal with the Fairbanks gas utility. But there was also room on the 15-acre pad for Alyeschem’s plant. There has been talk for years of using North Slope natural gas to make liquid products and a lot of work has been done on developing a gas-to-liquids plant using the Fischer-Tropsch process, which is used to make liquid fuels from both gas and coal in South Africa. ExxonMobil and others have studied the idea for the North Slope but did not proceed partly because of the complexity of the process. However, from a technical point of view making methanol is a much easier gas-to-liquids process than Fischer-Tropsch and there is also a local market on the North Slope for the product. Methanol is now used widely on the slope for freeze-protection in producing wells and other facilities. The methanol must now ship to Alaska by sea and trucked to the slope. The expense of the transportation can be avoided by making the product locally. There’s a similar story with ultra-low sulfur diesel, which is now supplied to the slope by truck from PetroStar’s refineries in Valdez and North Pole, and Marathon Petroleum’s refinery at Nikiski, near Kenai. Marathon’s refinery relies on North Slope crude oil for a substantial part of its feedstock, and PetroStar’s rely entirely on North Slope crude, which is an irony of since crude oil to make the diesel is shipped south in TAPS to Valdez and then by shuttle tanker to Nikiski. The finished product, the ULS diesel, is then trucked back north. AIDEA, the state development authority, has stepped in to help both the methanol project and to help IGU get its LNG to Fairbanks. The authority’s board has approved a $7 million line of credit to finance IGU’s acquisition of 15 high-capacity LNG trailers and new construction that would carry the liquefied gas from the new Prudhoe Bay plant to Fairbanks. IGU said the AIDEA financing an option for the new trucks. The authority is also now funding feasibility work on the Alyeschem project, a prelude to helping finance the project. “Alyeschem’s project will reduce CO2 emissions by 93%, or 45,000 tons per year. It will significantly reduce transportation pollution and enable cleaner and cheaper fuel,” AIDEA said in a statement. “By eliminating the long supply chain of importing methanol, the project will also reduce wear and congestion on the Dalton Highway along with environmental impacts,” the authority said. — Tim Bradner Alyeschem plans new plant on North Slope
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THE LINK: JANUARY 2024 30 Oil production likely to dip before rise with new fields
www.AlaskaAlliance.com 31 Total output set to be about 464K barrels per day The state of Alaska is forecasting continued North Slope oil production declines over the next three years until increases begin when the construction of new fields is completed. Total production, including crude oil, natural gas liquids and condensate, is expected to decline to an average of 463,800 barrels per day next year (for state Fiscal Year 2025), according to the forecast prepared by the state Department of Revenue and released Dec. 14. This compares with a 470,300 barrels per day average this year, in state fiscal year 2024, and a 479,400 barrels per day average in FY 2023, the prior fiscal year which ended last July. Production is expected to begin increasing again in the state’s FY2026 when the new Pikka field on the North Slope being developed by Australia-based Santos Ltd. begins producing, said Lorraine Henry, spokesperson for the state’s Department of Natural Resources, or DNR, the agency that does the state’s petroleum forecasting. Production will get another boost in 2029 when ConocoPhillips will start up Willow, another new North Slope field. North Slope production is forecast to average 633,800 barrels per day in state FY 2033. Declines at the larger legacy fields on the slope, like Prudhoe Bay, Kuparuk River and Alpine are expected to continue as output climbs at new fields. Henry said the Pikka and Willow estimates are conservative and “risked” by state forecasters to accommodate unexpected problems, so actual production may be higher. “Generally, the near-term production declines reflect declines at existing fields, then the longer-term production increases reflect new production from new fields and new drilling at existing fields, but that new production is included on a risked basis. Production on the legacy fields is declining as expected,” Henry said in an email. “This does not represent a disagreement with the operators’ proposed plans or timelines, but to CONTINUED on PAGE 33 Hilcorp Energy remains a lynchpin in North Slope production. Photos Courtesy Judy Patrick Field operating costs on the North Slope rose from $15.08 per barrel last year to $16.17 per barrel this year, for FY 2024, and are projected by the producers to reach $16.99 per barrel next year, in FY 2025.
THE LINK: JANUARY 2024 32
www.AlaskaAlliance.com 33 Pipeline Construction & Maintenance | EPC Contracting Powerplant Construction | General Contracting Anchorage | Deadhorse | 907.278.4400 | www.pricegregory.com Thousands of Miles of Experience Committed to Client Satisfaction Dedicated to Safety Excellence CONTINUED from PAGE 31 offer a conservative forecast without binary assumptions. If the projects are delivered as proposed and on schedule, production will likely exceed forecasted amounts in those periods,” Henry said. “In the DNR forecast it is not expected that those projects will be at peak production at the same time,” she said, meaning that the first new field, Pikka, may begin a decline while Willow, the second new field, will be at its peak output,” she said. Production in the larger fields is also declining faster than expected. North Slope production was projected last year to reach 496,400 barrels per day for FY 2024, the current year. It is now expected to be 470,300 barrels per day, based on production for the first five months of the fiscal year, which began July 1. The state’s long-term state forecasts are done yearly in December. Alaska’s forecast also includes per-barrel production operations costs, which the state requires producers to submit as a part of Alaska’s net profits production tax. Field operating costs on the North Slope rose from $15.08 per barrel last year, in FY 2023, to $16.17 per barrel this year, for FY 2024, and are projected by the producers to reach $16.99 per barrel next year, in FY 2025. Transportation costs from the North Slope fields to refineries, mostly on the U.S. west coast, averaged $9.61 per barrel last year, in FY 2023, according to data from shippers included with the tax submissions by company taxpayers. Transportation costs are projected at $10.75 per barrel for both the current year, FY 2024, and next year, FY 2025, according to the state forecast. — Tim Bradner
THE LINK: JANUARY 2024 34 Explorer Armstrong leads exploration east of Prudhoe Bay
www.AlaskaAlliance.com 35 Six test wells will be drilled during next two years Explorer Bill Armstrong — who led the discovery of several North Slope oil finds including Pikka — is leading an aggressive exploration plan to drill six test wells over two years, or three wells per year, east of Prudhoe Bay and near the existing small Badami oil field. The plan is to use the Doyon 141 rig to drill one well, King Steet No. 1, while the Nabors 105 rig will drill the two others, Voodoo-1 and Sockeye-1. Armstrong-affiliated Lagniappe Alaska LLC will be operator of the program with participation by Apache Corp. The re-entry of Apache to Alaska is significant. The company, a major independent, was active in Cook Inlet in recent years where it conducted a major exploration program. The effort was unsuccessful, but Apache has also long been interested in the North Slope. “We’ve got a proven operator (Armstrong) in state lands, (and) very, very prospective acreage,” said John Christmann, Apache’s CEO, on a recent earnings call. Alaska “fits our exploration strategy,” he said. Lagniappe has meanwhile received its state permits to begin other work on 270,000 acres in 148 leases controlled by the company Apache, its partner. Santos Ltd. previously held the leases but has “farmed out” 75 percent of its interest to Armstrong and Apache. This leaves Santos still holding 25 percent. The program will add substantially to winter work planned by Santos at Pikka and by ConocoPhillips at Willow. Each rig will need an ice road, camp and support for the supply of fuel, materials for drilling fluids and other needs. Forty-four miles of ice road construction is needed along with an ice bridge over the Sagavanirktok River, according to documents filed by Lagniappe with the state Department of Natural Resources. Armstrong has high hopes for the area, including the possibility of finding large accumulations like Pikka and Willow. The area is considered underexplored in previous initiatives by other companies. Most of the industry’s exploration focus in recent years has been west of Prudhoe Bay in areas near the Colville River where Pikka and other discoveries have been made and further west in the National Petroleum Reserve-Alaska where the Willow find was made as well as the smaller GMT-1 and GMT-1 projects, which are now producing. The region east of Prudhoe toward the Arctic National Wildlife Refuge has only been lightly explored except along the Beaufort Sea coast where the small Badami oil field was found and Point Thomson, a large natural gas and condensate field as well as Sourdough, an oil deposit virtually on the ANWR border. A big advantage for any new discoveries by Lagniappe is the existing pipeline from Point Thomson to the east of Badami, to Prudhoe Bay and the Trans Alaska Pipeline System further west. The Badami field is producing much less than was expected, so there is capacity for new oil that Lagniappe might discover. There is also an oil and gas processing facility at Badami that is also underused, and with spare capacity, so new oil discovered might also be processed there. Living quarters, an airstrip and other support facilities have also been built at Badami. — Tim Bradner The region east of Prudhoe Bay toward the Arctic National Wildlife Refuge has only been lightly explored. Photos Courtesy Gaylynn Mertz
THE LINK: JANUARY 2024 36 Commissioner of Revenue touts areas to improve Alaska’s financials are looking good, state revenue commissioner Adam Crum says. The state budget is balanced, and a $450 million surplus is estimated for the current fiscal year, FY 2024. But there are problems, including workforce outmigration. Young people are still leaving Alaska. The state’s economy needs to grow to keep them here, Commissioner Crum said in briefings to business groups last fall. Gov. Mike Dunleavy’s goal is to reverse outmigration so that by the end of his second term as governor the state’s population, and workforce, will be growing again. Another problem is in the unusual structure of the Alaska Permanent Fund, Commissioner Crum said. While oil prices are always a wild card for the state, those now support a smaller part of the state budget, about 35 percent in the current budget year, compared with 75 percent or more in years when oil production was higher. Alaska Permanent Fund income now pays for most of budget. In the current FY 2024 $3.53 billion was paid by the Fund to support the budget, and next year it will be $3.65 billion. The amount will keep growing because the Fund itself is growing. The good news about this is that the amount paid by the Fund for this year and next are known with certainty because what the Fund contributes to the budget is paid based on a Percent of Market Value, or POMV, formula of 5 percent of the Fund’s total value on a five-year average. Because the amount paid on the previous five-year average knowing the POMV payment adds financial certainty for the state. In past years, the instability of oil markets and prices left the governor and Legislature only guessing on how much they could spend for public services. Other revenue, from non-oil sources, pays a much smaller part of the budget. The state revenue structure is now more diversified and stable, but it doesn’t mean there aren’t problems, Commissioner Crum said. That includes the POMV. A difficulty is created by the unusual structure of the Permanent Fund, which is unlike a traditional endowment that supports public purposes. When legislators, and voters approved the amendment to the state Constitution in 1976 creating the Fund, lawmakers wanted the Fund invested in safe assets, which at the time meant fixed income, mostly bonds. Stocks were then considered too risky. Spending of certain Fund earnings was allowed, but from the fixed income. To deal with this, the Legislature in 1976 split the Fund, with a principle, or corpus, constitutionally protected and which can’t be spent, and an Earnings Reserve Account, or ERA, to hold the realized gains, or cash earnings. The cash earnings came from interest on bonds and later income from real estate and sales of stock when the Legislature allowed those kinds of investments. However, only the realized, or cash, earnings going to the earnings account can be appropriated, or spent, by the Legislature. Over the years money for the annual Permanent Fund Dividend was appropriated from the earnings reserve. More recently the large POMV payment, which now funds the PFD and state services, has had to come from the reserve account. To make this work, there has to be enough coming into the earnings reserve to make these payments. However, a concern is now that uncertainty in financial markets has reduced cash earnings to the point that at some point there might not be enough in the account to pay the annual POMV. The solution, Commissioner Crum said, is to end the two-account structure and combine it into a single fund that is protected, but with an annual POMV allowed coming from the combined account. In this way the Fund would be like an endowment like those of large universities like Harvard. This change, however, will require a rewrite of the 1976 constitutional amendment that created the Fund. The Fund’s trustees, which include Commissioner Crum, will likely propose this to the Legislature, but its approval will need not only legislators’ approval but that of voters in the next general election. It’s complicated, so explaining it, first to legislators and then to the public, will require the Fund’s trustees to be persuasive. — Tim Bradner Crum: State’s in good shape
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