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Sullivan balances frustrations overObama decisions with optimism
l L A N D & L E A S I N G
l F I N A N C E & E C O N O M Y
l E X P L O R A T I O N & P R O D U C T I O N
Vol. 21, No. 52 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of December 25, 2016 • $2.50
Celebrating 20 years: 1996-2016
page10
www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of December 25, 2016
Mallott: AK, BC have come a longway on transboundary concerns
NEWS NUGGETSCompiled by Shane Lasley
l F E D E R A L R E G U L A T I O N S
Paulson, Tocqueville, AngloGoldgrab greater stake of Tower HillInternational Tower Hill Mines Ltd. Dec. 15 said it has
arranged a US$22 million non-brokered private placementfinancing. The offering will consist of 45,833,334 companyshares, or roughly 39.4 percent of the 116.4 million sharescurrently issued and outstanding, at US48 cents per share.Tower Hill intends to use the net proceeds of the privateplacement to pay a roughly US$14.8 million payment due inJanuary for the acquisition of certain mining claims andrelated rights in the vicinity of the company’s Livengoodproperty; continuation of optimization studies to furtherimprove and de-risk the Interior Alaska gold project; contin-ue the required environmental baseline studies; and for gen-eral working capital purposes. The offering will be taken upby International Tower Hill Mines three largest shareholders:Paulson & Co. Inc., Tocqueville Asset Management, L.P.and AngloGold Ashanti (U.S.A.) Exploration Inc. Uponcompletion of the financing, Paulson (34.2 percent),Tocqueville (19.7 percent) and AngloGold (9.5 percent) willbeneficially own approximately 63.4 percent of the compa-ny’s 162,186,972 common shares. In connection with thefinancing, International Tower Hill Mines has agreed toappoint one Paulson designee to the company’s board ofdirectors at closing, and Paulson will have the right to nomi-nate two individuals for election to the board of directors atTower Hill’s next annual meeting of shareholders. Typicallysuch a financing – where more than 25 percent of the cur-rently issued and outstanding common shares are beingoffered and the outcome will materially affect control of thecompany – would require shareholder approval underToronto Stock Exchange rules. However, the Tower Hill hasapplied for a “financial hardship” exemption from therequirement to obtain shareholder approval. The company’sdirectors, who are free from any interest in the offering andare unrelated to the investors, have authorized the hardshipapplication on the basis that the company is in serious finan-cial difficulty and the offering is designed to improve thecompany’s financial situation. As a consequence of relyingupon the financial hardship exemption, the Toronto StockExchange announced it has initiated a remedial de-listingreview, which is normal practice when a listed issuer seeksto rely on this exemption. Tower Hill believes that it will bein compliance with all of the TSX listing requirements, butwarns that no assurance can be provided as to the outcomeof the review.
USI
BEL
LI C
OA
L M
INE
INC
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This unassuming photo shows Poker Flats, an area recently mined and reclaimed at Usibelli Coal Mines’ Healyoperation in Interior Alaska. The family-owned coal company initiated reclamation activities at its Interior Alaskamine in 1970 and over the ensuing 46 years has refined the science of revegetation, particularly in encouragingnative species to retake the previously mined land.
SHA
NE
LASL
EY
Overlooking the Livengood exploration camp, the nearly 20-mil-lion-ounce Money Knob gold deposit looms on the horizonbeyond the Elliott Highway. A US$22 million investment by threeof International Tower Hill Mines’ largest shareholders will helpmake an upcoming property payment and provide funds to con-tinue optimizations studies at this Interior Alaska gold project.
see NEWS NUGGETS page 10
At the midnight hourDOI publishes coal rule to go in effect on last day of Obama presidency
By SHANE LASLEYMining News
As President Barack Obama enters his last monthin the White House, his administration has
finalized a midnight hour rule that would add anoth-er level of regulatory burden on coal miners in theUnited States.
A product of the Office ofSurface Mining Reclamationand Enforcement, a bureauwithin the United StatesDepartment of Interior, this“Stream Protection Rule” isbeing advertised as a means toensure that surface andgroundwater flows remain inbalance in and around a coalmine.
“This updated, scientifically modern rule willmake life better for a countless number of Americanswho live near places where coal is being mined,”said OSMRE Director Joseph Pizarchik. “We areclosing loopholes and improving our rules to morecompletely implement the law passed by Congress.”
While the Department of Interior is touting thisrule as an improvement to regulations previouslypassed on Capitol Hill, Alaska’s senators say the in-house regulation is another example of the Obamaadministration bypassing the legislative branch in aneffort to place added regulatory burdens on miners.
“The Obama administration has abused the rule-making process for eight years to subvert the law tomeet their policy objectives,” said Sen. LisaMurkowski, R-Alaska, said. “The stream buffer rule… is yet another example of this administration’sunilateral efforts to bypass Congress and the states toimpose rules that will have severe impacts on theeconomic well-being of our country – in this case byshutting down coal mining in several regions of theU.S., including Alaska.”
Alaska ignoredUsibelli Coal Mine Inc., which operates
Alaska’s only currently producing coal operation,
says the Stream Protection Rule is a “one-size-fits-all” regulation that attempts to address concerns inthe eastern U.S. and apply them across the country,an approach that does not work for an area asunique as Alaska.
“Clearly, the Obama administration’s streamrule was not crafted with Alaska in mind. Itappears to be a rule targeting the Appalachianregion, and was then smeared across the countryall the way up to Alaska. The stream rule com-pletely ignores Alaska’s unique conditions and dis-regards the need for special considerations withrespect to surface coal mining operations in ourstate,” said Usibelli Coal Mine President and CEOJoe Usibelli, Jr.
In fact, OSMRE said the rule is the outcome ofa 2009 memorandum of understanding betweenthe Department of the Interior, EnvironmentalProtection Agency, and Army Corps of Engineersto address environmental concerns related to sur-face coal mining operations in six states in centraland northern Appalachia.
While the Stream Protection Rule was primarilycrafted to clarify rules surrounding valley fill, amining technique used in the Appalachia thatinvolves depositing overburden removed fromhilltops in an adjacent valley and then re-contour-ing the landscape after mining is complete.
“Regulations need to keep pace with modernmining practices, so we worked closely with manystakeholders to craft a plan that protects waterquality, supports economic opportunities, safe-guards our environment and makes coalfield com-munities more resilient for a diversified economicfuture,” said U.S. Secretary of the Interior SallyJewell.
Sen. Murkowski, however, said Obama andJewell cut out important stakeholders – state gov-ernments, which have an act of Congress right tocontribute to such rules.
“This rule was written behind closed doors,ignores nearly all input from state regulators, andis specifically intended to put coal miners out of
see MIDNIGHT HOUR page 10
JOE USIBELLI, JR.
This week’s Mining News
Department of Interior publishes coal rule to go in effect on lastday of Obama presidency. Read more in Mining News, page 7.
page3
HEA members reject deregulationThe members of Kenai Peninsula utility Homer Electric
Association have voted decisively to reject a move by the util-
ity to become deregulated from the Regulatory Commission
of Alaska. An RCA order issued on Dec. 20 certifying the
results of the deregulation election said that, of the valid bal-
lots received, 4,854 had voted against the move, with 2,042
voting in favor. That represents a 70 percent vote rejecting
deregulation. The accounting firm commissioned to count the
State takes surety bond commentsIn the wake of the passage of House Bill 247, the Alaska
Division of Corporations, Business, and Professional
Licensing is taking public comment on its requirement of
surety bonds with oil or gas exploration, development, or pro-
duction business licenses.
The version of the bill passed earlier this year requires any
company “engaged in the business of oil or gas exploration,
development, or production” to file a surety bond, cash
deposit or “other negotiable security” of $250,000 when it
see HEA VOTE page 14
see SURETY BOND page 14
Most Arctic OCS outObama withdraws Chukchi Sea, much of the Beaufort from future leasing
By ALAN BAILEYPetroleum News
In conjunction with Canadian Prime Minister
Justin Trudeau, President Barack Obama issued
a statement on Dec. 20, saying that the United
States “is designating the vast majority of U.S.
waters in the Chukchi and Beaufort seas as indefi-
nitely off limits to offshore oil and gas leasing.”
Canada is designating all Arctic Canadian waters
as indefinitely off limits to future oil and gas
licensing, with a review every five years through
“a climate and marine science-based life-cycle
assessment.”
Obama has also placed 31 Atlantic subsea
canyons off limits to oil and gas.
The president commented that he was making
the move in the Arctic because of the important,
irreplaceable values of the Arctic waters for
“indigenous, Alaska Native and local communi-
ties’ subsistence and cultures, wildlife and wildlife
habitat, and scientific research; the vulnerability of
these ecosystems to an oil spill; and the unique
logistical, operational, safety and scientific chal-
lenges and risks of oil extraction and spill response
in Arctic waters.”
Fracking issues airedAOGCC hears pros, cons on requiring public comments, hearings for applications
By TIM BRADNERFor Petroleum News
Kenai Peninsula Borough Mayor
Mike Navarre has waded into the
controversy over hydraulic fracturing of
oil and gas wells, risking flak from some
of his Kenai constituents who want more
public notices and public hearings.
“I don’t believe a public hearing is
needed for every well,” the mayor said.
“The existing public process for state review of
drilling applications is working well,” Navarre’s
comments were in a statement given by the bor-
ough’s oil and gas advisor, Larry Persily, at a con-
tentious hearing by the Alaska Oil and Gas
Conservation Commission Dec. 15.
The AOGCC was taking testimony
from the public on whether it should
change its rules to require public notice
and hearings when an oil and gas opera-
tor wants to do a hydraulic fracture job
on a well.
Bob Shavelson, director of Cook
Inletkeeper, an environmental group, had
filed a petition asking the commission to
require notice and a hearing.
Industry operators objected, arguing that a rule
for public notice and a hearing would create delays
in drilling and completing wells and open the
process to possible litigation.
State wins oil tax caseIssue goes back to ’05 Revenue decision to aggregate Prudhoe fields under ELF
By KRISTEN NELSONPetroleum News
The Alaska Supreme Court in a Dec. 16 deci-
sion upheld production taxes paid in 2005 and
2006 by Chevron, ConocoPhillips, ExxonMobil
and Forest Oil, a dispute based on aggregation of
fields for taxation purposes.
Attorney General Jahna Lindemuth said in a
statement that the decision ensures the state retains
some $500 million in taxes and interest.
Lindemuth called it a great result for the state,
“Not only from a fiscal point of view, but it also
recognizes the expertise of Department of
Revenue in interpreting tax laws.”
The issue arose under an earlier production tax
system, ELF, based on a production tax of 15 per-
cent multiplied by the economic limit factor, a
coefficient between zero and one which was calcu-
lated for each field, the Alaska Supreme Court said
in its decision.
In 1989 the Legislature added the “field size
factor,” the volume of production during a given
month, as a component of ELF, the court said. “All
else being equal, the field size factor produced a
higher ELF (and therefore a higher tax rate) for
larger fields and a lower ELF (and therefore a
lower tax rate) for smaller fields,” based on the
reasoning that while smaller fields needed produc-
tion facilities similar to larger fields, with less pro-
see ARCTIC OCS page 16
see FRACKING ISSUES page 11
see OIL TAX CASE page 15
AGDC officially takes over AKLNGThe state-owned Alaska Gasline Development Corp. is on
track to take over the industry-led Alaska LNG Project.
AGDC’s board gave approval Dec. 21 for the corporation to
sign two agreements on the handover and to complete negoti-
ations on two others.
The first agreement gives AGDC access to the project’s
preliminary engineering and environmental information com-
piled during the pre-Front End Engineering and Design, or
see STATE TAKEOVER page 14
“This unprecedented move marginalizesthe voices of those who call the Arctichome and have asked for responsible
resource development to lower the cost ofenergy to heat houses and businesses.”
—Gov. Bill Walker
MIKE NAVARRE
2 PETROLEUM NEWS • WEEK OF DECEMBER 25, 2016
Petroleum News North America’s source for oil and gas newscontents
4 Regulators finalize Swanson River rates
5 AOGCC regs hearing moved to March
6 Report says fracking can impact water
EPA study recommends focusing attention on situationswhere the risk of drinking water contamination is highest; cites data gaps
ENVIRONMENT & SAFETY
FINANCE & ECONOMY4 Revenue forecasts $46.81 ANS for FY 2017
North Slope crude production increased in FY 2016 to 514,900 bpd, expected to drop to 490,300 bpdin FY 2017, 455,600 in FY 2018
5 Continuing question of fiscal certainty
Locking taxes has been a long-standing issue for NorthSlope gas line; what is it, how could it be done and does it still matter?
11 Arctic continues dramatic warming trend
NOAA annual report card points to rising temperatures,shrinking sea ice, increasing ocean acidification, melting of Greenland ice
GOVERNMENT3 Sullivan: Obama treads unfriendly waters
Entering third year, Sullivan balances frustration overObama decisions with optimism over state’s prospects, citing recent lease sale
PIPELINES & DOWNSTREAM
AGDC officially takes over AKLNGHEA members reject deregulationState takes surety bond comments
Most Arctic OCS out
Obama withdraws Chukchi Sea, much of the Beaufort from future leasing
Fracking issues aired
AOGCC hears pros, cons on requiring public comments, hearings for applications
State wins oil tax case
Issue goes back to ’05 Revenue decision to aggregate Prudhoe fields under ELF
ON THE COVER
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(907) 272-1232(907) 272-1344
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contact Susan Crane at 907.770.5592
By STEVE QUINNFor Petroleum News
U.S. Sen. Dan Sullivan is signing his
name to a lot of letters addressed to
President Obama. None of them of good
cheer, either. He, along with his Alaska
colleagues, wants Obama to cease with
the executive orders that he believes are
shutting down Alaska’s prospects for
economic prosperity. Each week, another
order, the more frustrated he gets.
Sullivan shared his thoughts on the out-
going administration and what he
believes a new administration means to
Alaska. He spoke to Petroleum News
before Obama ordered the closure of
nearly 125 trillion acres in the Beaufort
and Chukchi seas on Dec. 20.
Petroleum News: Let’s start with yourthoughts on what you think changes innext year’s Congress and the new admin-istration could mean for Alaska?
Sullivan: The way I like to talk about
that right now at the end of one adminis-
tration and the beginning of a new
administration is in the terms of person-
nel and in terms of policy. As you know
they both are inter-related. Look, I think
the cabinet that the president-elect is
putting together in terms of strong eco-
nomic growth as a key focus, responsi-
ble resource development, our own ener-
gy in oil and gas on federal lands, less
regulation, more access to those federal
lands, I would say the Trump administra-
tion is putting together one of the
strongest cabinets we’ve seen in
decades.
There is also an irony here. We kept
the Senate and I was certainly someone
who was campaigning all over the coun-
try to keep my Republican colleagues in
control and keep Sen. Murkowski in her
chairmanship for Energy and Natural
Resources. One of the ironies is when
we weren’t in control, and Harry Reid
was the majority leader, you may
remember he undertook what was then
called the nuclear option and he changed
the rules in the Senate even though he
didn’t have 67 votes to do it. That’s the
requirement to changes the rules; he just
ignored it.
He mandated that cabinet members
and federal judges no longer needed the
60-vote threshold. The irony now is
because of Harry Reid’s decision, which
upset a lot of people, we only need 51
senators to approve these strong pro-
resource develop-
ment cabinet picks.
If we had to have
60 votes, it would
be a lot tougher to
get Attorney
General Pruitt from
Oklahoma or Texas
Governor Rick
Perry for the secre-
tary of Energy.
In terms of policies and personnel, I
think we are looking at a very oppor-
tunistic time. The bottom line is what
I’ve been focusing on and trying to get
to our federal government, whether it
was my time as attorney general or DNR
commissioner or now as U.S. senator, is
a federal government that wants to work
with us, that wants to help us create
opportunities, that wants to maintain a
strong healthy environment, but also get
projects online.
We haven’t had that in eight years
with President Obama. It’s actually been
exactly the opposite. Now it looks like
we are going to have that opportunity to
have a federal government who is a part-
ner in economic opportunity not an
obstacle. I certainly hope so. I think one
indication of that — at least a sense that
it is going to change — was the lease
sale that Alaska had, which was a really
impressive lease sale.
As a former DNR commissioner, I
worked hard to get companies to bid. I
want to commend the current commis-
sioner (Andy Mack) and his team for
what is a really strong lease sale. I think
that is indicative of the opportunity peo-
ple feel is returning to Alaska.
Petroleum News: Let’s talk aboutopportunity gained or lost. Last monthObama removed the Beaufort andChukchi seas from the five-year leaseplan. Can you speak to that please?
Sullivan: One of the things I tried to
do my first few years in the Senate was
bring back a more aggressive oversight
role in terms of what these federal agen-
cies and the agency heads were doing
with regard to Alaska and whether they
were abiding by the law. Every agency
action and every agency rule has to be
based in a statute or the U.S.
Constitution. Literally every hearing I
had a senior Obama official in front of
me, I asked them “where do you get the
authority to do what you’re doing?”
Certain agencies like the EPA, I flat out
stated that Gina McCarthy, I thought she
was running a rogue agency who didn’t
care about the rule of law or what the
law required. I said the agency, meaning
her, was to blame.
So whether it was the EPA, the Corps
(of Engineers), or Fish and Wildlife
Service, we’ve tried to have rigorous
oversight but it’s not always easy
because these guys can just say, well
senator we are abiding by the law and
just doing what they think was their goal
which in my view was always to lock up
Alaska, to delay, delay, delay until the
companies essentially
cried uncle. I’ll tell you
this, one of my biggest
frustrations with Sally
Jewell — several times
— and to be honest at the
end of the day she just ignored us: that’s
the importance of consultation with the
state of Alaska, the elected representa-
tives of that state, whether it be Sen.
Murkowski and myself and Don Young,
or Gov. Walker, or other interested par-
ties. That just never happened. All these
recent decision, no one reached out, no
one gave us a heads up.
The Center for Biological Diversity
and other extreme environmental groups
had their press releases literally ready to
go right when the announcements came,
so obviously they are consulting with
those groups.
I can’t overstate how frustrating that’s
been and whether you or a Democrat or
Republican, how insulting that is to the
state of Alaska that on these major deci-
sions, we got zero consultation, the peo-
ple who represent the people of the state.
So I’m certainly hopeful that is going to
change.
We have been, for weeks, drawing up
a list of all these different orders,
whether they are executive orders,
whether they are full-blown regulations,
whether it’s things like the NPR-A order,
and use whatever means we have with a
new administration and a new Congress.
One is the Congressional Review Act
where you can reverse rules that have
been promulgated by the
executive branch within 60
legislative calendar days. So
we are going to look at
every single element to
reverse in what in my view
is unlawful orders. Certainly the process
didn’t abide by the law because they
never consulted with the state of Alaska.
So we are going to be very focused on
that — and we already are.
Petroleum News: There was a policyanalyst who believes the Obama admin-istration is simply trying to overload thenext Congress with executive ordersmaking it difficult to address all of thesemeasures recently taken. Are you seeingit that way?
Sullivan: Absolutely. The president’s
regard for the rule of law and the
Constitution has never been very sub-
l G O V E R N M E N T
Sullivan: Obama treads unfriendly watersEntering third year, Sullivan balances frustration over Obama decisions with optimism over state’s prospects, citing recent lease sale
PETROLEUM NEWS • WEEK OF DECEMBER 25, 2016 3
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SEN. DAN SULLIVAN
see SULLIVAN Q&A page 13
By KRISTEN NELSONPetroleum News
The Alaska Department of Revenue
released the fall 2016 Revenue Sources
Book Dec. 15, estimating total state revenue
of $5.8 billion in fiscal year 2016 which
ended June 30 and forecasting $9.9 billion
and $9.7 billion in total revenues, respec-
tively, for FY 2017, which began July 1, and
FY 2018.
The department said the forecast is based
on an annual average Alaska North Slope
crude oil price of $46.81 per barrel for FY
2017 and $54 per barrel for FY 2018. Actual
ANS prices averaged $43.18 in FY 2016.
“Market prices for Alaska oil have
rebounded by over $25 per barrel from the
low earlier this year,” Revenue
Commissioner Randall Hoffbeck said in a
statement. “While the move higher is
encouraging, we think the fundamentals of
supply and demand will ultimately limit the
rise in price, and that is reflected in our fore-
cast.”
The department said ANS production
increased from 501,000 barrels per day in
FY 2015 to 514,900 bpd in FY 2016,
buoyed by new developments on the Slope
and is forecasting ANS production of
490,300 bpd in FY 2017 and 455,600 bpd in
FY 2018.
“Oil production is expected to decline
over the coming decade,” Hoffbeck said,
“with North Slope production declining to
331,000 barrels per day by FY 2026.”
He said the department is optimistic
about developments not yet in the produc-
tion forecast, including Armstrong Energy’s
Nanushuk prospect and the Caelus Alaska
discovery at Smith Bay. “Over the coming
years, we will be working to find ways to
encourage new production while also pro-
tecting the state treasury,” he said.
Revenue said in the Sources Book that
future crude oil prices are the most sensitive
variable in the department’s revenue fore-
cast and the most prone to uncertainty.
Major factors which contribute to pricing
of oil on the world market include inventory
levels, infrastructure, geopolitics, natural
disasters, supply disruptions, action by the
Organization of the Petroleum Exporting
Countries, macroeconomic events and
financial market trends and speculation, the
department said, adding that each of those
factors has influenced the price of oil over
the last 10 years.
Fundamental economic factors of supply
and demand drive oil prices over the longer
term, and price prediction requires under-
standing of demand growth and future sup-
ply, the department said.
“On the supply side, advances in hori-
zontal drilling and hydraulic fracturing tech-
nology have unlocked billions of barrels of
producible crude in the so-called ‘shale rev-
olution.’”
The department said that as of the fall of
this year, shale drilling activity appears to
have stabilized and even increased in some
areas.
Significant undeveloped resources which
may become economic to drill as prices rise
effectively set a ceiling for oil prices, “with
many experts pointing to a price range of
$60-$70 (in real terms) as a likely level that
if exceeded, would incentivize enough new
supplies to keep prices from going much
higher over the long term.”
Global economic weakness has delayed
balancing of oil markets on the supply side,
the department said, adding that when it pre-
pared its fall 2015 forecast, “conventional
wisdom pointed to markets balancing in
mid-2016; now, experts point to mid-2017
for a likely balancing of supply and
demand.”
The department concluded that absent
better than expected global economic
growth, it is unlikely that oil prices will rise
substantially in the short- to medium-term.
Nominal ANS oil prices are projected to
average $46.81 per barrel in FY 2017 and
$54 in FY 2018, the department said, with
the price estimated to rise to $60 per barrel
in FY 2019 and $63 per barrel in FY 2020.
While ANS prices are expected to exceed
$80 by FY 2026, Revenue said that would
mostly be due to inflation, with the ANS
price expected to increase slowly, reaching
$70 per barrel in real terms by FY 2026.
Revenue said it has changed its produc-
tion forecast method, moving from an out-
side consultant to collaborating with
Department of Natural Resources’ staff.
For the fall 2016 forecast, Revenue said
the new process refines the way risk factors
are incorporated, with risks “now modeled
for specific types of events on a field-specif-
ic basis.”
Compared to the spring 2016 forecast,
projected volumes are lower in the near term
and higher in the longer term.
For ANS, FY 2016 production was fore-
cast to average 520,200 bpd in the spring;
the fall forecast shows 514,900 bpd, a differ-
ence of 1 percent. For FY 2017, ANS is
forecast to average 490,300 bpd, down 3.3
percent from the spring forecast. Current
forecast numbers are lower through FY
2021 and from then through FY 2025 the
new forecast has higher numbers, up 15.1
percent for FY 2025, with an estimated
345,900 bpd compared to 300,500 bpd in
the spring forecast.
For the period through FY 2026, Prudhoe
Bay continues to be the largest ANS produc-
er, followed by Kuparuk, Alpine and off-
shore fields which include Nikaitchuq,
Northstar and Oooguruk. l
l F I N A N C E & E C O N O M Y
Revenue forecasts $46.81 ANS for FY 2017North Slope crude production increased in FY 2016 to 514,900 bpd, expected to drop to 490,300 bpd in FY 2017, 455,600 in FY 2018
4 PETROLEUM NEWS • WEEK OF DECEMBER 25, 2016
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PIPELINES & DOWNSTREAMRegulators finalize Swanson River rates
State regulators have made permanent new rates for the Swanson River Oil
Pipeline.
In a Dec. 14 order, the Regulatory Commission of Alaska approved a settlement
between Swanson River Oil Pipeline LLC and the Regulatory Affairs and Public
Advocacy Section of the office of the Attorney General over rates on the pipeline.
The Swanson River Oil Pipeline will charge 42 cent per barrel to ship oil through
the end of 2017. The commission approved that shipping rate on a temporary and
refundable basis in November. The current order makes the rate permanent for the com-
ing year.
In addition to setting present rates, a recent agreement between the pipeline compa-
ny and the Attorney General’s office also established a methodology for determining
rates in the future and requires Swanson River Oil Pipeline to file new rates by the end
of each year.
The case emerged from earlier proceedings where the Swanson River Oil Pipeline
asked to operate under simplified rate filing, which creates a mechanism for changing
rates without undergoing the long and expensive ratemaking process. The company
later withdrew the request, as part of its settlement negotiations with the Attorney
General.
The Swanson River Oil Pipeline runs from the Swanson River field on the Kenai
Peninsula to a tie-in point with Kenai Pipeline facilities at the Nikiski Marine Terminal.
—ERIC LIDJI
By ALAN BAILEYPetroleum News
For many years a central discussion
point in negotiations between the state
of Alaska and the North Slope oil produc-
ers over major sales of North Slope gas has
been the question of fiscal certainty, the
locking in of tax provisions that would
apply to the commercial arrangements for
the gas sales.
In a talk to the Law Seminars
International’s Alaska Energy Markets and
Regulation conference on Dec. 12 attorney
Craig Richards, a previous state attorney
general under the Walker administration,
reviewed the history, meaning and signifi-
cance of the fiscal certainty question.
Characterizing fiscal stability as a continu-
ing “800-pound gorilla in the room” when
it comes to negotiations over a potential
North Slope gas line, Richards said that the
issue has been a running theme in those
negotiations since at least the mid-1990s.
With the state taking over the gas line
project and the producers no longer antici-
pating investing capital in the infrastruc-
ture required for the project, the fiscal cer-
tainty question has faded recently. But clar-
ity over the issue continues to be critical,
given the risk that the issue poses to the
project, especially in terms of project
delays that could result from having to
resolve any legal issues triggered by a fis-
cal agreement between the state and the oil
companies, Richards argued.
Addressing fiscal riskIn the past the oil companies have
sought fiscal certainty in relation to major
gas sales to eliminate the fiscal or political
risk associated with investing major capital
in a North Slope pipeline project. That cer-
tainty, which would involve the freezing of
tax and royalty rates for companies mar-
keting North Slope gas, could take three
different forms, Richards suggested. The
state government could contractually bind
itself not to change the terms of the taxes.
Alternatively, some form of government
oil company could compensate the produc-
ers for any tax changes. Or a government
oil company could pay the producers’ gov-
ernment take out of the government com-
pany’s share of production profits.
And there are other issues relating to
exactly how fiscal certainty could be
achieved, including the duration of the tax
freeze arrangements and the total scope of
the taxes covered. For example, would
property taxes, as well as production taxes
and royalties be included? And would
taxes on oil be frozen, as well as those on
gas?
Is it constitutional?But, by whatever means the fiscal cer-
tainty is achieved, a question arises over
whether the state Legislature setting up
some special contractual arrangement for
oil and gas taxes would be legal under the
state constitution. In common with a num-
ber of other states, Alaska’s constitution
says that the state’s power of taxation shall
never be surrendered, Richards said. The
constitution also says that this power shall
not be suspended or contracted away,
except in certain circumstance relating to
tax exemptions.
When he was attorney general,
Richards had expressed an opinion that
these terms within the constitution would
render a fiscal certainty deal unconstitu-
tional. However, different attorney gener-
als have in the past expressed different
views on this question, Richards comment-
ed.
If a fiscal certainty deal is needed for
gas exports, the constitutionality issue
would need to be dealt with by one of two
routes: Enact an appropriate amendment to
the state constitution, or send the terms of
the deal to the state court system for a rul-
ing. And either of these routes would entail
project risk in terms of the timing and out-
come. A constitutional amendment can
only be enacted in a general election, the
next of which will not take place until
2018. The judicial route would be subject
to the time ramifications of the court
process.
Project risksWithout a resolution of the fiscal cer-
tainty question within a pipeline plan, the
timing of the project will be at the mercy of
the timing of a constitutional amendment
or the timeframe of a judicial review,
Richards suggested. And, without clarity
on the issue, would investors be willing to
put capital into the project, he wondered.
Given the uncertainty over the constitu-
tionality issue, there now appear to be four
possible ways of dealing with fiscal cer-
tainty as the gas pipeline project moves
forward, Richards suggested.
First, no fiscal deal may be needed,
given that the state rather than the oil com-
panies now plans to build the project infra-
structure. Second, the project could try
moving ahead with a fiscal certainty agree-
ment but no constitutional amendment,
with the courts then having to adjudicate
on the legality of the situation. A third
option would be to enact a constitutional
amendment prior to the start of the project
front-end engineering and design, or
FEED, thus delaying the start of that phase
of the project to 2018 at the earliest. And a
fourth option would be to enact a constitu-
tional amendment before the North Slope
producers need to form commercial agree-
ments for gas sales.
A long historyRichards recounted how thinking over
how to deal with fiscal certainty has
evolved over the years.
The Stranded Gas Development Act,
passed in 1998, provided a mechanism for
the state to negotiate a fiscal contract with
the gas producers and culminated in a gas
pipeline contract that then Gov. Frank
Murkowski agreed to with the producers in
2006. That contract, which committed to a
freeze of tax terms for all forms of tax
relating to both oil and gas production and
would have required a constitutionality
ruling through the courts, was not agreed
to by the Legislature. Subsequently,
Murkowski was not re-elected as governor.
Then came the Alaska Gasline
Inducement Act, or AGIA, under Gov.
Sarah Palin. AGIA moved the start of tech-
nical work for the pipeline plan ahead of fis-
cal certainty negotiations but eventually
became uneconomic because of the emer-
gence of shale gas development in North
America. The Alaska Gasline Development
Corp., the state’s internal initiative for the
development of a “bullet line” from the
North Slope, tried a similar fiscal certainty
approach to AGIA but has not reached a fis-
cal agreement, Richards said.
Senate Bill 138, the bill that triggered a
gas pipeline project involving the state
partnering with the producers, required
discussions over fiscal certainty in parallel
with the pre-FEED stage of the project.
The concept was to have fiscal terms in
place prior to embarking on the FEED
stage, with the North Slope lessees then
being in a position to evaluate the commer-
ciality of the project, Richards said. The
state administration was pushing for a con-
stitutional amendment to be on the general
election ballot in November 2016, a move
that would have required commercial
agreements to be in place by March 2016.
But negotiations over commercial terms
broke down, with the state subsequently
transitioning into taking over the project,
Richards said.
So where from here? It is critical to
include a resolution of the fiscal certainty
question within any plan for the gas
pipeline, Richards suggested. l
l F I N A N C E & E C O N O M Y
Continuing question of fiscal certaintyLocking taxes has been a long-standing issue for North Slope gas line; what is it, how could it be done and does it still matter?
PETROLEUM NEWS • WEEK OF DECEMBER 25, 2016 5
GOVERNMENTAOGCC regs hearing moved to March
The Alaska Oil and Gas Conservation Commission has moved a hearing on
amendments to its regulations from January to March.
The agency said Dec. 19 that Jan. 10 had been given as the next hearing date
at a Sept. 27 hearing. Work continues on a second draft of regulations and another
hearing will be held sometime in March, rather than in January, with the date to
be announced later, the commission said.
—PETROLEUM NEWS
By ALAN BAILEYPetroleum News
In response to concerns expressed by
Congress, the Environmental
Protection Agency has conducted a study
into the impact of oil industry hydraulic
fracturing operations on drinking water
and has issued a draft version of a report
on the study. Although there are signifi-
cant gaps in the data relating to this diffi-
cult issue, the agency has found that there
are situations where water impacts can
happen and have occurred. The agency’s
report says that a focus on situations
where water impacts are most likely to
happen can prevent or reduce future prob-
lems.
“EPA’s draft assessment will give state
regulators, tribes and local communities
and industry around the country a critical
resource to identify how best to protect
public health and their drinking water
resources,” said Dr. Thomas Burke,
deputy assistant administrator of EPA’s
Office of Research and Development. “It
is the most complete compilation of scien-
tific data to date, including over 950
sources of information, published papers,
numerous technical reports, information
from stakeholders and peer-reviewed EPA
scientific reports.”
Surface water impactsFracking, as hydraulic fracturing for oil
production is commonly known, can
impact drinking water supplies by remov-
ing water from drinking water sources, the
draft report says. That caused a water
shortage in the Haynesville shale area in
Louisiana in 2011, for example. And water
volumes reported for annual fracking
operations have exceeded readily avail-
able freshwater supplies in 17 Texas coun-
ties, the report says. Overall, however, in
most areas where fracking is taking place,
the local water supplies greatly exceed the
fracking needs. And the use of brackish
water, rather than drinking water, or the
use of surface water rather than aquifers,
can alleviate situations where water sup-
plies are tight. To a certain extent, water
consumption can be reduced through the
re-use in fracking of fracking wastewater.
A potential source of water contamina-
tion is the surface spillage of fracking flu-
ids, given that the fluids, if not contained,
could migrate into drinking water sources.
The fluids consist predominantly of water
and sand, which are not generally harmful.
However, chemicals added to the fluid can
be problematic. Although these chemicals
only represent a tiny portion of the frack-
ing fluid mix, the huge quantities of frack-
ing fluid typically used result in the need
for a significant volume of chemicals, the
report comments. Over the years the EPA
has documented 151 fluid spills, of which
13 impacted surface water resources.
However, there is no data relating to the
factors behind the spills and no data about
the impacts of the spills on the water.
Spill prevention techniques, such as
secondary containment systems and spill
response capabilities, can mitigate this
type of fluid spill problem, the report says.
Leakage from wellsAn escape of fracking fluids, or pro-
duced hydrocarbons, into the environment
can also happen as a consequence of leak-
age from a well bore, especially as a con-
sequence of a fracking operation, when
hydraulic pressures in the well are sub-
stantially increased. There was an instance
of an inadequately cemented well in Ohio
leaking methane into local drinking water.
And in North Dakota a well casing burst
during a fracking operation, resulting in
the release of fracking and formation flu-
ids into a groundwater resource.
It is also theoretically possible for
fracking fluid to leak to an aquifer through
the subsurface fractures created by the
fracking operation. However, in practice,
fracking typically takes place many thou-
sands of feet below any aquifers, thus
making this cause of water contamination
unlikely, the report says. There are a few
places, such as in the Wind River basin,
Wyoming, where there may be a problem
with fracking operations within a location
with drinking water resources. And the
collocation of wells subject to fracking
with other wells can raise the risk of a
fluid leakage through those other wells,
the report says.
The keys to preventing water contami-
nation as a consequence of a fracking
operation are ensuring the mechanical
integrity of wells and maintaining ade-
quate separation between the targeted rock
formation and any underground drinking
water resources, the report says.
Produced waterAfter a fracking operation has been
completed and a well is producing oil or
gas, water comes from the well, both in
the form of used fracking fluid and in the
form of water that had been present in the
hydrocarbon bearing rock. This produced
water, if not handled appropriately, could
be spilled and thus contaminate a drinking
water source. Although produced water
spills have been reported across the United
States, most of these spills have been rela-
tively small. There have, however, been a
small number of large-volume spills,
including 12 spills greater than 21,000
gallons in North Dakota. Of 225 produced
water spills characterized by the EPA, 30
spills reached surface water bodies, the
report says.
The largest produced water spill noted
in the report took place in 2015 in North
Dakota, when 2.9 million gallons of water
escaped from a broken pipeline and
flowed into a local creek, the report says.
Spill response actions mitigated the
impacts of this spill. And, in general, spill
prevention and response activities can
protect water bodies from produced water
spills, the report says.
Wastewater disposalThe disposal or re-use of wastewater
can also pose some water contamination
risks. Most of the water is disposed of
underground by injection though
approved disposal wells, the report says.
Re-use of the water is much less common,
except in certain specific regions, such as
in Marcellus Shale gas wells in
Pennsylvania. Evaporation ponds and
other above ground disposal systems have
also been used on occasion.
There have been documented examples
of water contamination from above
ground disposal systems, and from
unlined or inadequately constructed
wastewater storage pits, the report says.
The report says that some of the chem-
icals used in hydraulic fracturing are
known to be hazardous to human health
but there is an absence of data on any pres-
ence of these chemicals in drinking water.
Local and regional hazard assessments
could be conducted, the report suggests.
Data gapsIn general, there are significant gaps in
the data required for a full assessment of
the impact of hydraulic fracturing on
drinking water, in part because data have
not been collected or are not publicly
available, the report says. There is also
significant uncertainty relating to the com-
plexity of the underground environment
and the possibility of water contamination
having multiple causes.
However, the report recommends a
focus on issues most likely to result in
drinking water problems, such as the with-
drawal of fracking water from areas with
low water availability; the spillage of
fracking fluids or inadequately treated
wastewater; ensuring the mechanical
integrity of wells; avoiding the injection of
fracking fluids directly into groundwater
resources; and the inappropriate surface
storage or disposal of wastewater.
In Alaska, the Alaska Oil and Gas
Conservation Commission regulates
drilling and hydraulic fracturing, includ-
ing the enforcement of strict rules regard-
ing well integrity. The Alaska Department
of Environmental Conservation regulates
surface environmental protection, includ-
ing the protection of water bodies. l
l G O V E R N M E N T
Report says fracking can impact waterEPA study recommends focusing attention on situations where the risk of drinking water contamination is highest; cites data gaps
6 PETROLEUM NEWS • WEEK OF DECEMBER 25, 2016
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Overall, however, in most areaswhere fracking is taking place, thelocal water supplies greatly exceed
the fracking needs.
page10
www.MiningNewsNorth.com The weekly mining newspaper for Alaska and Canada's North Week of December 25, 2016
Mallott: AK, BC have come a longway on transboundary concerns
NEWS NUGGETSCompiled by Shane Lasley
l F E D E R A L R E G U L A T I O N S
Paulson, Tocqueville, AngloGoldgrab greater stake of Tower Hill
International Tower Hill Mines Ltd. Dec. 15 said it has
arranged a US$22 million non-brokered private placement
financing. The offering will consist of 45,833,334 company
shares, or roughly 39.4 percent of the 116.4 million shares
currently issued and outstanding, at US48 cents per share.
Tower Hill intends to use the net proceeds of the private
placement to pay a roughly US$14.8 million payment due in
January for the acquisition of certain mining claims and
related rights in the vicinity of the company’s Livengood
property; continuation of optimization studies to further
improve and de-risk the Interior Alaska gold project; contin-
ue the required environmental baseline studies; and for gen-
eral working capital purposes. The offering will be taken up
by International Tower Hill Mines three largest shareholders:
Paulson & Co. Inc., Tocqueville Asset Management, L.P.
and AngloGold Ashanti (U.S.A.) Exploration Inc. Upon
completion of the financing, Paulson (34.2 percent),
Tocqueville (19.7 percent) and AngloGold (9.5 percent) will
beneficially own approximately 63.4 percent of the compa-
ny’s 162,186,972 common shares. In connection with the
financing, International Tower Hill Mines has agreed to
appoint one Paulson designee to the company’s board of
directors at closing, and Paulson will have the right to nomi-
nate two individuals for election to the board of directors at
Tower Hill’s next annual meeting of shareholders. Typically
such a financing – where more than 25 percent of the cur-
rently issued and outstanding common shares are being
offered and the outcome will materially affect control of the
company – would require shareholder approval under
Toronto Stock Exchange rules. However, the Tower Hill has
applied for a “financial hardship” exemption from the
requirement to obtain shareholder approval. The company’s
directors, who are free from any interest in the offering and
are unrelated to the investors, have authorized the hardship
application on the basis that the company is in serious finan-
cial difficulty and the offering is designed to improve the
company’s financial situation. As a consequence of relying
upon the financial hardship exemption, the Toronto Stock
Exchange announced it has initiated a remedial de-listing
review, which is normal practice when a listed issuer seeks
to rely on this exemption. Tower Hill believes that it will be
in compliance with all of the TSX listing requirements, but
warns that no assurance can be provided as to the outcome
of the review.
USI
BEL
LI C
OA
L M
INE
INC
.
This unassuming photo shows Poker Flats, an area recently mined and reclaimed at Usibelli Coal Mines’ Healyoperation in Interior Alaska. The family-owned coal company initiated reclamation activities at its Interior Alaskamine in 1970 and over the ensuing 46 years has refined the science of revegetation, particularly in encouragingnative species to retake the previously mined land.
SHA
NE
LASL
EY
Overlooking the Livengood exploration camp, the nearly 20-mil-lion-ounce Money Knob gold deposit looms on the horizonbeyond the Elliott Highway. A US$22 million investment by threeof International Tower Hill Mines’ largest shareholders will helpmake an upcoming property payment and provide funds to con-tinue optimizations studies at this Interior Alaska gold project.
see NEWS NUGGETS page 10
At the midnight hourDOI publishes coal rule to go in effect on last day of Obama presidency
By SHANE LASLEYMining News
As President Barack Obama enters his last month
in the White House, his administration has
finalized a midnight hour rule that would add anoth-
er level of regulatory burden on coal miners in the
United States.
A product of the Office of
Surface Mining Reclamation
and Enforcement, a bureau
within the United States
Department of Interior, this
“Stream Protection Rule” is
being advertised as a means to
ensure that surface and
groundwater flows remain in
balance in and around a coal
mine.
“This updated, scientifically modern rule will
make life better for a countless number of Americans
who live near places where coal is being mined,”
said OSMRE Director Joseph Pizarchik. “We are
closing loopholes and improving our rules to more
completely implement the law passed by Congress.”
While the Department of Interior is touting this
rule as an improvement to regulations previously
passed on Capitol Hill, Alaska’s senators say the in-
house regulation is another example of the Obama
administration bypassing the legislative branch in an
effort to place added regulatory burdens on miners.
“The Obama administration has abused the rule-
making process for eight years to subvert the law to
meet their policy objectives,” said Sen. Lisa
Murkowski, R-Alaska, said. “The stream buffer rule
… is yet another example of this administration’s
unilateral efforts to bypass Congress and the states to
impose rules that will have severe impacts on the
economic well-being of our country – in this case by
shutting down coal mining in several regions of the
U.S., including Alaska.”
Alaska ignoredUsibelli Coal Mine Inc., which operates
Alaska’s only currently producing coal operation,
says the Stream Protection Rule is a “one-size-fits-
all” regulation that attempts to address concerns in
the eastern U.S. and apply them across the country,
an approach that does not work for an area as
unique as Alaska.
“Clearly, the Obama administration’s stream
rule was not crafted with Alaska in mind. It
appears to be a rule targeting the Appalachian
region, and was then smeared across the country
all the way up to Alaska. The stream rule com-
pletely ignores Alaska’s unique conditions and dis-
regards the need for special considerations with
respect to surface coal mining operations in our
state,” said Usibelli Coal Mine President and CEO
Joe Usibelli, Jr.
In fact, OSMRE said the rule is the outcome of
a 2009 memorandum of understanding between
the Department of the Interior, Environmental
Protection Agency, and Army Corps of Engineers
to address environmental concerns related to sur-
face coal mining operations in six states in central
and northern Appalachia.
While the Stream Protection Rule was primarily
crafted to clarify rules surrounding valley fill, a
mining technique used in the Appalachia that
involves depositing overburden removed from
hilltops in an adjacent valley and then re-contour-
ing the landscape after mining is complete.
“Regulations need to keep pace with modern
mining practices, so we worked closely with many
stakeholders to craft a plan that protects water
quality, supports economic opportunities, safe-
guards our environment and makes coalfield com-
munities more resilient for a diversified economic
future,” said U.S. Secretary of the Interior Sally
Jewell.
Sen. Murkowski, however, said Obama and
Jewell cut out important stakeholders – state gov-
ernments, which have an act of Congress right to
contribute to such rules.
“This rule was written behind closed doors,
ignores nearly all input from state regulators, and
is specifically intended to put coal miners out of
see MIDNIGHT HOUR page 10
JOE USIBELLI, JR.
8NORTH OF 60 MINING PETROLEUM NEWS • WEEK OF DECEMBER 25, 2016
Shane Lasley PUBLISHER & NEWS EDITOR
Rose Ragsdale CONTRIBUTING EDITOR
Mary Mack CEO & GENERAL MANAGER
Susan Crane ADVERTISING DIRECTOR
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Curt Freeman COLUMNIST
J.P. Tangen COLUMNIST
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Mapmakers Alaska CARTOGRAPHY
ADDRESS • P.O. Box 231647Anchorage, AK 99523-1647
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NORTH OF 60 MINING NEWS is a weekly supplement of Petroleum News, a weekly newspaper.To subscribe to North of 60 Mining News,
call (907) 522-9469 or sign-up online at www.miningnewsnorth.com.
Several of the individualslisted above are
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North of 60 Mining News is a weekly supplement of the weekly newspaper, Petroleum News.
NORTHERN NEIGHBORSCompiled by Shane Lasley
see NORTHERN NEIGHBORS page 9
White Gold adds famed YU prospector to boardG4G Capital Corp. Dec. 20 announced the appointment of renowned Yukon
prospector Shawn Ryan to its board of directors. In recent years Ryan has made a
number of important gold discoveries in the Yukon, including the 2.2-million-
ounce Golden Saddle deposit at Kinross Gold’s White Gold property; Goldcorp’s
roughly 3-million-oz. Coffee deposit; as well as a number of other prospects and
deposits being explored in Yukon's prolific White Gold District. "With the addi-
tion of Shawn, we have now assembled a team which has been directly involved
with every major gold discovery in the White Gold District during this era,” said
Rob Carpenter, a C4G director and co-founder of Kaminak Gold, which signifi-
cantly expanded Ryan’s Coffee discovery before selling it to Goldcorp for rough-
ly C$520 million. In late October, G4G Capital announced finalization of an
option to acquire 21 properties covering 2,490 square kilometers (roughly
615,300 acres) of the White Gold district from Ryan and Wildwood Exploration
Inc., a company owned by Ryan and his wife, Cathy Wood. Following his noted
discoveries in the White Gold District, Ryan founded GroundTruth Exploration,
an innovative exploration company that employs a strategic combination of geo-
chemistry, remote sensing, geophysics and tactical drilling. The technological
advances developed by GroundTruth have revolutionized gold exploration in the
Yukon – significantly cutting exploration costs, allowing crews to work year-
round and minimizing environmental impact. “Shawn has an outstanding track
record of identifying high-quality early stage projects and his dedication and pas-
sion for exploration has led to major new gold discoveries. I am looking forward
working with him and GroundTruth this season," Carpenter added. Considering
that Agnico Eagle Mines Ltd. has agreed to invest C$14.52 million to buy a
19.93 percent stake in G4G Capital, the coming program should be well funded.
To better reflect its focus, G4G is changing its name to White Gold Corp.
New Strategic gold explorer in the YukonStrategic Metals Ltd. Dec. 19 announced plans to spin-out three precious met-
als properties in the Yukon – Eureka, Triple Crown (formerly called OOO) and
Treble (formerly called LLL) – and sufficient cash to qualify for a listing on the
TSX Venture Exchange to Trifecta Gold Ltd. in exchange for Trifecta shares.
SHA
NE
LASL
EYThe legendary Yukon River cuts through the White Gold district, an area south ofDawson City where prospector Shawn Ryan has made numerous gold discoveries,many of which have yet to be fully explored.
l O P I N I O N
Some misgivingsabout Rep. ZinkeIn a perfect world, the next Secretary of the Interior would becommitted to the devolution of public lands to the host states
By J. P. TANGEN Special to Mining News
Like all Americans, those of us who
live in that part of America that is
generally contained in a tiny inset on the
lower left corner of traditional maps,
have watched and waited as the most
improbable of candidates for the White
House, one by one, slew the dragons of
tradition, aided and abetted by a press
corps that is somehow able to draw a dis-
tinction between satire and fake news.
The President-elect has nominated
many of his picks for cabinet and other
high-ranking posts. In most cases, those
tapped for secretariats have been men and
women of accomplishment and distinc-
tion. This trend took an abrupt left turn
recently when Mr. Trump identified Rep.
Ryan Zinke, R-Montana, as the choice to
head up the Department of the Interior.
I am not personally acquainted with
Mr. Zinke, but I am sure he is a fine fel-
low. I don’t imply that he is anything but
distinguished. He comes from Montana,
and that is a real plus. And he is a Navy
SEAL, which is even better.
What is disturbing, from a purely aca-
demic perspective, is that he is on the
record as being at odds with many people
of the (western states) and, by extension,
many Alaskans who draw their livelihood
from access to and across federal lands.
There are many of us who feel that the
Columbian landlord who wields zoning
authority over two-thirds of Alaska and
“One-Third of the Nation’s Land,” ought
to have the wisdom and flexibility to
realize that most of that land could be
managed more effectively by the individ-
ual states.
I do understand the Ted Turner syn-
drome, whereby affluent individuals are
able to convert large, remote tracts into
their own private “Sherwood Forests,”
and the concomitant paradigm that if the
land were turned over to the states, they
might, in turn, sell it off to the highest
bidder for the purpose of ensuring that
hunters don’t get their annual bag limit.
However, if that is a clear and present
risk in Montana, quite the opposite is the
case in Alaska.
Our experience is that the state is very
parsimonious with its land, allowing only
a tiny fraction of its holdings to devolve
to private ownership, and then only after
survey and subdivision. On the other
hand, those with enough money can pull
the strings of the federal system to ensure
that no matter who owns the land, the
general public cannot make use of it for
resource development.
Montana is about one-fourth the size
of Alaska and, like Alaska, is endowed
with vast timber and mineral resources.
The state also encompasses a lot of feder-
al land. Mr. Zinke has represented the
people of Montana in their state legisla-
ture and more recently in the U.S. House
of Representatives; yet if he has heard the
pleas of miners and loggers, he is not per-
suaded by their argument.
One would think that the endless
debates from the Sagebrush Rebellion to
the sage hen fiasco would have turned his
head. The folks who decide who will do
what, and where they will do it, have
established that they have no concern for
the success and fortunes of the rest of us.
Mr. Zinke, sadly, represents more of the
same old, same old. If his nomination is
approved by the U.S. Senate, it will clear-
ly mean another eight years of the U.S.
Department of the Interior chasing
investors and producers from our shores.
Mr. Zinke has no track record of hav-
ing worked in the trenches and may never
have had to meet a payroll. These criteria
for federal employment, unfortunately,
are often waivable; but Mr. Zinke also
has no visible credentials demonstrating
aggressive leadership against the land
managing agencies guilty of federal over-
reach, which in the current context is a
dispositive disqualification.
In Alaska, we are confronted with fed-
eral land managers who appear highly
motivated to reduce the entire state to one
giant Forbidden Zone. We must throw off
that yoke and deliver our resources to the
marketplace. Devolution of federal land
to the state may not be the only means to
resolve Alaska’s land issues, but it has a
certain appeal.
We respectfully request that Mr.
Zinke’s nomination be withdrawn in
favor of someone more qualified and
motivated to inspire land use planners to
practice their magic in more verdant for-
eign climes.
Barring that, we hope that the Senate
Energy and Natural Resources
Committee will plan to condition its
approval of Mr. Zinke’s nomination on a
commitment to the principles of the
Sturgeon case and a promise that he will
ensure every land management decision
in Alaska under his purview will be har-
monized with the promises of the Alaska
Statehood Act, the Alaska Native Claims
Settlement Act and the Alaska National
Interest Lands Conservation Act, i.e.,
there must be no additional restraints on
the multiple use of the public domain in
Alaska, there must be no further impedi-
ments to access across federal lands to
inholdings and remote State land, all
Public Land Orders promulgated pursuant
to ANCSA Section 17(b)(1) must be
repealed, and recordable disclaimers of
interest to all navigable waters and RS
2477 trails in Alaska must be promptly
recorded. Mr. Zinke can be our Interior
secretary only with these pledges in
place. l
Mining & thelaw
The author,J.P. Tangen hasbeen practicingmining law in J.P. TANGENAlaska since 1975. He can be reached [email protected] or visit his Web site atwww.jptangen.com. His opinions do notnecessarily reflect those of the publishersof Mining News and Petroleum News.
9NORTH OF 60 MINING
PETROLEUM NEWS • WEEK OF DECEMBER 25, 2016
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Eureka is an orogenic gold project in the legendary Klondike goldfields about 70 miles
(110 kilometers) road miles south of Dawson City. Triple Crown and Treble are midway
between Goldcorp Inc.’s Coffee gold project and Rockhaven Resources Ltd.’s Klaza
gold-silver property. One rock sample collected at Triple Crown returned 6,680 grams
per metric ton silver, 30.22 percent lead and 0.80 g/t gold. The transaction is intended to
increase value for Strategic shareholders by creating a new precious metal focused com-
pany. In addition to the three fully owned properties it will receive from Strategic,
Trifecta will option Trident, a large land package that blankets the Matson Creek placer
region, from Metals Creek Resources Corp. Originally known as the Squid properties,
Trident is situated near the Alaska border about 85 miles (135 kilometers) southwest of
Dawson City. “The proposed transaction will give Trifecta an exceptional land package
in the Dawson Range Gold Belt. This belt is one of the most active gold exploration
areas in Canada and has recently seen large investments by major mining companies
including Goldcorp, Agnico Eagle and Kinross,” said Strategic President and CEO W.
Douglas Eaton. Strategic shareholders will be asked to vote on the plan of arrangement at
a special meeting slated for February. The arrangement proposes the dispersal of 90 per-
cent of the Trifecta shares received Strategic to Strategic shareholders on a pro-rata basis.
“The management and board of directors of Strategic believe that the proposed spin-out
is an excellent opportunity for shareholders to maximize the value of their Strategic hold-
ings, which is not adequately reflected in the current share price” Eaton added. As a
prospect generator, Strategic identifies and stakes promising projects and completes ini-
tial exploration to confirm the geologic potential of its targets. The company then seeks
partners to advance the projects and shares in the blue-sky potential via shareholdings or
royalty interests. Through this strategy, the prospect generator holds an 8.3 percent inter-
est in Atac Resources Ltd., which is expanding Carlin-style gold deposits at its Rackla
Gold project; a 41.4 percent stake in Rockhaven Resources Ltd., which has identified
large gold-silver zones at the Klaza property; and a 16.5 percent interest in Silver Range
Resources Ltd., a company that recently shifted its focus to generating gold projects in
Northwest Territories, Nunavut and Nevada. Strategic has a current cash position of more
than C$18 million.
Nice gold intercept at Teuton’s Clone projectTeuton Resources Corp. Dec. 19 reported 6.43-meter intercept of 17.83 grams per
metric ton gold from a depth of 46.33 meters in the first 2016 hole drilled at the Clone
property 20 kilometers (12.5 miles) southeast of Stewart, British Columbia. Hole CL-16-
01 was designed to test the depth potential of a trench excavated in 1995 that returned
11.65 g/t gold and 0.18 percent cobalt across nine meters. In addition to the highlighted
intercept, CL-16-01 cut 3.05 meters of 3.07 g/t gold from 34.14 meters and 33.6 meters
of 1.11 g/t gold from 78.3 meters. Cobalt assay results from this hole and assays from a
further six holes drilled this year are pending. Teuton said the last five holes of the pro-
gram were spotted at the southeastern end of the bulk sampling area from which several
multi-ounce gold shipments have been taken. The Clone gold and gold-cobalt bearing
shear zones were first discovered in 1995. Since then, nearly C$6 million has been spent
exploring a series of occurrences lying along a 2,000-meter package of volcanic and sedi-
mentary rocks. Present ownership of the property is Makena Resources (50 percent),
Silver Grail Resources Ltd. (25 percent) and Teuton Resources (25 percent).
Pretium prepares for Brucejack gold mine startPretium Resources Inc. Dec. 15
reported that the proven and prob-
able reserves at the Valley of the
Kings deposit of its Brucejack
gold mine project in northwestern
British Columbia has increased to
15.6 million metric tons of ore
grading 16.1 grams per metric ton
(8.1 million ounces) gold. This
includes 3.3 million metric tons of
proven reserves averaging 14.5 g/t
(1.6 million oz) gold, enough ore
for the first three years of produc-
tion at this developing under-
ground gold mine. With construc-
tion and development on schedule,
Pretium continues to anticipate the
commissioning of the Brucejack
Mine in mid-2017. Following the
full enclosure of the mill building
in October, internal construction
has progressed significantly.
Nearly half of the internal structural steel is now complete and more than 80 percent of
the concrete has been poured. All major equipment continues to be delivered according to
schedule. Electrical and mechanical contractors are now on site, and electric and piping
installation has been initiated in the mill and underground. The 57-kilometer transmission
line feeding power to Brucejack is more than 75 percent complete and is expected to be
fully energized early next year. The main portal access for the Valley of the Kings has
broken through to surface and the steel structure of the portal building is under construc-
tion. The portal will serve as the primary access point to convey the gold ore from the
underground crusher to the mill. Roughly 30,000 metric tons of ore has been stockpiled
in preparation for mill commissioning expected to start in mid-2017. With Brucejack
nearing production, Pretium has realigned its senior leadership talent to support the next
phase in the company's growth. Effective Jan. 1, Pretium Chairman and CEO Robert
Quartermain will become executive chair and Joseph Ovsenek, who has been managing
Pretium’s daily operations since being appointed president in 2015, will assume the role
of president and CEO. l
continued from page 8
NORTHERN NEIGHBORS
PRET
IUM
RES
OU
RC
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.
The main portal access for the Valley of the Kings willserve as the primary access point to convey ore fromthis 8.1-million-ounce high-grade gold deposit to thesurface mill.
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work,” said Alaska’s senior senator.
Joe Usibelli, Jr. says the new rule
deprives states of Congress granted con-
trol over coal programs.
“The Surface Mining Control and
Reclamation Act allows states to have
primacy over their coal programs.
However, the stream rule robs states of
their discretion,” the third generation
leader of the Interior Alaska coal compa-
ny explained. “The state of Alaska is bet-
ter suited to determine Alaska’s unique
coal mining conditions than a bureaucrat
in Washington D.C.,” Usibelli added.
Killing the rulePublished in the Federal Register on
Dec. 20, the Stream Protection Rule is
scheduled to take effect on Jan. 19, the
day before Obama leaves office.
Both Alaska senators have said they
will work with colleagues to kill the mid-
night hour rule.
“By issuing this rule, the Obama
administration is cementing its lawless
legacy of failing to consider the concerns
and comments raised during the rulemak-
ing process, in favor of pushing its ideo-
logically driven eight-year war on coal”
said Sen. Dan Sullivan, R-Alaska. “I hope
that my colleagues in Congress and the
incoming administration can work swiftly
to kill this last gasp of bureaucratic over-
reach. We need to reduce and modernize
regulatory requirements, not create a
maze of duplicative, conflicting, and
industry killing regulations.”
One way to kill the rule is the
Congressional Review Act, which allows
Congress to overturn rules issued by fed-
eral agencies by passing a joint resolution
of disapproval, which would prevent the
law from taking effect.
“I will continue to fight this rule with
every tool available, including, but not
limited to, filing a Congressional Review
Act resolution," Rep. Morgan Griffith, R-
Virginia, vowed. "This rule is so unpopu-
lar that there will probably be many in
Congress who will wish to lead this CRA
resolution, and I will either join with
other members to file a resolution or I
will file it myself.”
Senate Majority Leader Mitch
McConnell, R-Kentucky, said he will
introduce a CRA resolution of disap-
proval when the new Congress convenes.
“I will continue to do all I can to fight
back against the Obama administration’s
repeated and gratuitous attacks on our
coal miners whose only crime is working
hard to maintain a reliable source of ener-
gy and provide for their families,” the
Kentucky senator promised.
If Congress fails to get the votes need-
ed to overturn the Stream Protection
Rule, it is expected to be among the regu-
lations on the chopping block when
President-elect Donald Trump takes
office.
“I’ve proposed a moratorium on new
federal regulations that are not compelled
by Congress or public safety, and I will
eliminate all needless and job-killing reg-
ulations now on the books,” Trump said
when he introduced his economic plan is
September.
“We’re going to put our great miners
and steel workers back to work,” the
incoming president added. l
continued from page 7
MIDNIGHT HOUR
AK-BC set transboundary plan in motion; more transparency key
Alaska Lt. Gov. Byron Mallott Dec. 20 said Alaska and
British Columbia officials have begun implementation of a
recently signed statement of cooperation that addresses trans-
boundary mining and water quality concerns in Southeast
Alaska. Signed in October, the statement of cooperation pro-
vides for B.C. and Alaska to coordinate on a water quality
monitoring program; exchange information on the environ-
mental performance of B.C. mines; and enhance existing
opportunities for Alaskans to receive information and com-
ment on new mining projects in the westernmost Canadian
province. Implementation of this statement of understanding
is being overseen by a bilateral working group, consisting of
the commissioners of the Alaska departments of environmen-
tal conservation, fish and game, and natural resources, along
with the deputy ministers of the British Columbia ministries
of energy and mines, and environment. On Dec. 16, Mallott and B.C. Minister of
Energy and Mines Bill Bennett headed the first meeting of this working group. “We
have come a long way with the help of many citizens in Alaska and British
Columbia who care deeply about the quality of our water, our fisheries, and way of
life, and I thank them,” said Lt. Gov. Mallott. “However, we know success will only
be measured by how well we do going forward.” To establish a baseline and meas-
ure this progress going forward, ADEC will lead Alaska’s implementation of a water
quality monitoring program. “The intent is to have reliable data on current and
future conditions so we can spot any changes of concern and act on them before we
see significant impacts,” explained ADEC Commissioner Larry Hartig. “Although
we appreciate all of the additional safeguards and government oversight B.C. and
the Canadian federal government have been putting in place relating to mining con-
cerns, we are expecting more commercial development and shipping in the area and
believe having a monitoring program like this in place is wise.” Over the next four
years, ADEC will be using grant funds from the U.S. Environmental Protection
Agency to help support work on this program. Additionally, Alaska’s environmental
department will be collaborating with others performing monitoring in the area, such
as the Central Council Tlingit and Haida Indian tribes of Alaska. DNR will lead
Alaska’s development and implementation of procedures the neighboring jurisdic-
tions will use to exchange information and concerns relating to existing and future
mine projects. While Alaska and B.C. agencies exchange information and technical
comments, the agencies will now post this shared information on public websites,
providing the public greater opportunities to engage with the regulators on topics of
concern. “DNR has already seen a ramping up of the information we have been get-
ting from B.C.,” said Deputy Commissioner Ed Fogels. ”In addition, DNR is devel-
oping an interactive web-based map that will make it easier for the public to get
information about mining projects in B.C. We plan to have this ready for demonstra-
tion as early as next month.” ADF&G is taking the lead on developing communica-
tion plan describing how Alaska and B.C. will make the information available to the
public. Greater transparency is a key element of the (statement of cooperation).
“Our central goals are providing user-friendly access to reliable information and
more meaningful engagement with Tribes, First Nations, and stakeholders,” said
David Rogers, director of habitat, ADF&G. l
continued from page 7
NEWS NUGGETS
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a.adnan Cerhtrod nka saly in Ativitg acd nt, aenesrt, psag pg ininf 60 Mh otro, N
usr isthenos at mis’n
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. elinnr ot oinra piu vws ey nleimn tt oun
BYRON MALLOTT
BILL BENNETT
National issueNavarre said the residents of the Kenai
Borough have become more aware of the
controversies around large-scale
hydraulic fracturing due to national news
stories and, closer to home, plans by
BlueCrest Energy to use the procedure
with development of its Cosmopolitan
field just offshore Anchor Point.
“I follow these national headlines and
the concerns, anxieties and the economic
interests of almost 58,000 residents on the
peninsula,” he said. However, “adding
one more public hearing per well is not
going to appreciably improve the
process,” of the AOGCC in reviewing
plans for the well.
“Nor will it resolve the national, and
even international debate over hydraulic
fracturing,” Navarre said.
“The AOGCC does excellent work in
policing oil and gas operations in the
state. The existing public process for state
review of drilling applications is working
well, and I cannot see any regulatory defi-
ciencies in the process of the (drilling)
application in need of correction,” the
mayor said.
Public recordDrilling applications to the AOGCC
are already public record, both with
hydraulic fracturing and the drilling of
disposal wells to inject produced water
back underground for storage, Navarre
said.
He pointed out that two other state
agencies besides the AOGCC are
involved in approvals of fracturing. One
is the Department of Environmental
Conservation, which must approve any
use of surface water in a drilling opera-
tion. A second is the Department of
Natural Resources, which gives approval
for any extraction of water from an under-
ground source, the mayor said in his state-
ment.
Navarre said the AOGCC had adopted
stringent new regulations on hydraulic
fracturing in 2015 that include new dis-
closure requirements on well operators of
the content of fluids used in fracturing,
including chemical additives.
“Even before those regulations, more
than 160 wells in Cook Inlet have been
fractured, the first in 1965. I am not aware
of any significant environmental damage
from any of those operations,” Navarre
said.
Emotional testimonyThe mayor’s comments were in stark
contrast to often-emotional testimony of
Kenai residents at the AOGCC hearing.
Although fracturing is a common
industry practice the news accounts of
problems in other states including claims
of contamination of drinking water and
concerns by scientists of a connection
between large-scale fractures and local-
ized earthquakes has set off alarm bells
with some Kenai residents.
In support of the application,
Shavelson said Cook Inlet is an active
seismic region and it makes sense for the
public to be able to review and comment
on proposed fracturing. “The AOGCC
makes opportunities for public comment
available in well spacing applications,
enhanced oil recovery and disposal of
drilling waste, and we believe the same
opportunities should be there for
hydraulic fracturing.”
Shavelson complimented BlueCrest
for being open and transparent about its
plans but said hydraulic fracturing is still
complicated and deserving of more
scrutiny.
As for delays in drilling, Shavelson
said, “We look at the cost of delay as a
cost of doing business in a community
that cares about a healthy environment
and clean water.”
Industry opposedIndustry spoke at the hearing in oppo-
sition to the changes. In comments sub-
mitted by the Alaska Oil and Gas
Association, Joshua Kindred, AOGA’s
environmental counsel, said a number of
states including Alaska have updated reg-
ulations on fracturing to address public
concerns “to a process (fracturing) that is
largely misunderstood.”
“AOGA believes that (Alaska’s) regu-
lations as currently constructed provide
ample protection for public input. The
proposed modification is unnecessary and
appears to be nothing more than a veiled
attempt to frustrate oil and gas recovery
as opposed to articulating legitimate con-
cerns with the current regulations,”
Kindred said in his comments.
BlueCrest’s proposed fractures are
larger than those done previously on
Cook Inlet wells but they are not on the
scale of the very large fracturing done in
the Eagle Ford and Bakken shale oil
developments in Texas and North Dakota,
or the Marcellus and Utica shales in
Pennsylvania and eastern Ohio.
Most of what is actually injected in the
well is water along with natural materials,
but there are quantities of chemical addi-
tives that have caused worry if they were
to leak.
Engineers review plansPreventing leakage is the job of
AOGCC, however. Engineers at the com-
mission not only review the drilling plans
for integrity of the well, which is typically
more than a mile underground, but also
the nature of the rock formations around,
and particularly above, the well. The goal
is to ensure an impermeable rock barrier
so that if drilling or injection fluids do
leak they remain underground.
On the North Slope there is an addi-
tional barrier, the permanently frozen
layer of soil and rock that underlies the
North Slope usually to a depth of 2,000
feet.
At the hearing AOGCC Commissioner
Hollis French asked Shavelson, of Cook
Inlet Keeper, if he would support hearing
requirements only for south Alaska,
where there are drinking water aquifers at
shallow depths, or if he would prefer the
requirements extended to all parts of the
state including permafrost areas.
Shavelson said he thought it should be
statewide because climate change may
melt permafrost someday and there may
be communities on the North Slope tak-
ing drinking water from below ground. l
continued from page 1
FRACKING ISSUES
By ALAN BAILEYPetroleum News
The National Oceanic and
Atmospheric Administration’s Arctic
Report Card for 2016 highlights persistent
warming in the Arctic region with the sea
ice cover continuing to shrink as tempera-
tures rise. On land, the Greenland ice
sheet is melting. Atmospheric carbon
dioxide that dissolves in the sea water is
pushing up levels of ocean acidification.
NOAA has published its Arctic Report
Card annually since 2006, as a vehicle for
publishing peer-reviewed, concise and
reliable environmental information for the
Arctic region.
Rising air temperaturesThe report says that Arctic air temper-
atures have been rising at double the over-
all global rate. The average surface air
temperature over land north of 60 degrees
north latitude between October 2015 and
September 2016 was 2 C higher than the
1981 to 2010 baseline and by far the high-
est since observational records began in
1900. The average temperature has
increased 3.5 C over that time period.
Winter air temperatures greatly exceeded
previous record levels, with January tem-
peratures more than 8 C above normal at
some locations, the report says.
However, air temperatures over the
Arctic Ocean in the summer of 2016 were
relatively low, a situation that slowed the
rate of summer sea ice loss. Thus, despite
a record low winter maximum sea ice
extent in March, the minimum extent
reached in September tied for the second
lowest on record rather than setting a new
record for the minimum. But, given the
multi-year warming trend, the sea ice
cover continues to be relatively young and
thin. The proportion of multi-year ice rel-
ative to first-year ice in March has shrunk
from 45 percent in 1985 to 22 percent in
2016.
Warming oceanThe retreat of sea ice is exposing more
of the sea surface to solar radiation, thus
causing upper ocean and sea surface tem-
peratures to rise through much of the
Arctic Ocean and the adjacent seas, the
report says. The Chukchi Sea, off Alaska,
and eastern Baffin Bay, off west
Greenland, have seen the fastest rates of
warming, with warming trends of around
0.5 C per decade since 1982. In August
2016 the surface sea temperatures in
regions of the Barents Sea and the
Chukchi Sea, and off the east and west
coasts of Greenland, were up to 5 C higher
than the 1982 to 2010 average.
The decline of sea ice cover, by expos-
ing more of the sea surface to sunlight, is
also causing an increase in biological pro-
ductivity in the sea water. The only excep-
tions to this trend are in the North
American Arctic and the Sea of Okhotsk,
the report says.
However, the Arctic seas, with relative-
ly cool water temperatures and the preva-
lence of processes such as the freezing
and melting of sea ice, are also particular-
ly susceptible to acidification from the
dissolving of carbon dioxide from the
atmosphere. Relatively small amounts of
human-derived carbon dioxide in the
Arctic atmosphere can trigger significant
chemical changes not observed in other
regions, the report says. Current data
demonstrates that shallow waters over
Arctic marine shelves are experiencing
prolonged ocean acidification effects.
With these waters then being transported
off the shelves to greater depths, the cor-
rosive impacts of acidification have been
extending deeper into the Arctic basin in
recent decades, the report says.
Greenland ice sheet meltingOn land, the Greenland ice sheet has
continued to melt, especially in the sheet’s
southwest and northeast regions. In 2016
the melt season lasted longer than usual
by up to 40 days, the report says.
The Arctic snow cover extent has also
dropped significantly since satellite obser-
vations began in 1967 and in particular
since 2005. April and May of 2016 saw a
new record low for the North American
Arctic. The drop in snow cover appears to
result both from rising air temperatures
and a lower mass of pre-melt snow, the
report suggests.
Other impacts of rising Arctic temper-
atures include the increasing greenness of
the tundra and the thawing of the per-
mafrost. And, although an extended Arctic
growing season results in an increased
uptake of carbon from the atmosphere,
that effect is more than offset by carbon
loss in the winter, as carbon dioxide and
methane escape from permafrost areas.
Changes in the Arctic tundra are also
causing changes in the distribution of
Arctic fauna, with evidence of poleward
shifts of small mammals such as Arctic
shrews. l
l E N V I R O N M E N T & S A F E T Y
Arctic continues dramatic warming trendNOAA annual report card points to rising temperatures, shrinking sea ice, increasing ocean acidification, melting of Greenland ice
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The retreat of sea ice is exposingmore of the sea surface to solarradiation, thus causing upper
ocean and sea surfacetemperatures to rise through much
of the Arctic Ocean and theadjacent seas, the report says.
Other impacts of rising Arctictemperatures include the
increasing greenness of the tundraand the thawing of the permafrost.
12 PETROLEUM NEWS • WEEK OF DECEMBER 25, 2016
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Hudson Chemical Corp.
Inspirations
Judy Patrick Photography . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Kuukpik Arctic Services
Last Frontier Air Ventures
Lounsbury & Associates
Lynden Air Cargo
Lynden Air Freight
Lynden Inc.
Lynden International
Lynden Logistics
Lynden Transport
Mapmakers of Alaska
MAPPA Testlab
Maritime Helicopters
N-PNabors Alaska Drilling
NANA WorleyParsons
Nature Conservancy, The
NEI Fluid Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Nordic Calista
North Slope Telecom
Northern Air Cargo
Northwest Linings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
NRC Alaska
PacWest Drilling Supply
PENCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Petroleum Equipment & Services . . . . . . . . . . . . . . . . . . . .13
PND Engineers Inc.
PRA (Petrotechnical Resources of Alaska) . . . . . . . . . . . . . . .2
Price Gregory International
Q-ZResource Development Council
Ravn Alaska
SAExploration
STEELFAB
Stoel Rives
Sourdough Express
Taiga Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Tanks-A-Lot
The Local Pages
TOTE-Totem Ocean Trailer Express
TTT Environmental
UIC Design Plan Build
UIC Oil and Gas Support Services
Unique Machine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Univar USA
Usibelli
Valley General Energy Services
Volant Products
Waste Management
AECOM announces new appointment for Laura YoungAECOM, a premier, fully integrated global infrastructure firm,
announced that it has made a leadership change within its Alaskaoperations, appointing Laura Young as operations manager, effec-tive immediately.
In this new role, Young will oversee AECOM’s operational teamin Alaska, focusing on maximizing assets to complete current proj-ects and developing new business opportunities. Young will alsocontinue to oversee the engineering and technical services practicegroups, while serving as the federal business development lead forAlaska as well. Young has been with AECOM since 1995.
“We are excited for Laura Young to take on this new role at thecompany. For more than two decades she has demonstrated hercommitment to our clients and dedication to adding value to our team,” said AECOM VicePresident-Northwest area business unit lead environment, Karen Beattie. “We look forwardto her continued success at AECOM. We would also like to thank Joe Hegna for his leader-ship over the past eight years and wish him success on his next assignment.”
Fluor awarded China manufacturing facility contractFluor Corp. announced that Chevron Chemicals Co. LTD. has selected Fluor to perform
front-end engineering and design work for a manufacturing facility in Ningbo, Zhejiang,China. Fluor booked the undisclosed contract value in the fourth quarter of 2016.
The facility will serve as a blending and shipping operation for fuel and lubricant addi-
tives. The additives are used to enhance fuel performance and improve the reliability, effi-ciency and lifespan of engines.
“With Fluor’s nearly 40 years of experience in China, we will develop a capital-efficientapproach and further enhance our strong track record of successful project delivery forChevron,” said Ken Choudhary, president of Fluor’s energy and chemicals business for theAsia-Pacific region.
Fluor has completed more than 350 projects across 20 provinces and municipalities inChina. Fluor has more than 800 employees in China supporting projects across a range ofindustries from theme parks to manufacturing facilities and chemical projects.
The project timeline currently calls for blending and shipping activities to begin in2020.
Editor’s note: Some of these news items will appear in the next Arctic Oil & GasDirectory, a full color magazine that serves as a marketing tool for Petroleum News’contracted advertisers. The next edition will be released in March.
LAURA YOUNG
stantial and it’s sunken to new lows. I
think one of the big frustrations of
Alaskans and the American people is the
economy hasn’t grown.
The last 10 years if you look at the
national numbers, there has been anemic
economic growth. A lot of Americans
thought the federal government not only
didn’t care, but was almost the cause of
that lack of growth and opportunity, and
the federal government has grown arro-
gant. Let me give you an example. I
recently had a meeting with the new
head of the Fish and Wildlife Service
here in Alaska. The whole point of the
meeting was telling him how I was
closely following the permitting process
for Donlin Creek mine, which is an
important resource development project,
has strong stakeholder support from a
vast array of Alaskans, could be strategic
in helping our state, which is struggling
economically with jobs, with energy
from Cook Inlet, and that could increase
demand for Cook Inlet. Then there are
possibilities of increasing energy beyond
Donlin to places like Bethel. I mean this
is a real strategic project.
Then I asked him, as his agency was
not the lead agency — it was a cooperat-
ing agency — why they submitted over
700 pages of comments — 700; from
one agency. I said, look, I’ve been
around the block here a little bit. I’ve
watched the Obama administration as an
AG, as a resources commissioner and as
a U.S. senator and here is exactly what I
know you’re up to. You are trying to kill
this project. That’s not your role. You
don’t have the legal authority to do it.
That’s not your role as a cooperating
agency and it’s my job as a U.S. senator
to have extreme oversight to what you’re
doing to these opportunities in my state
and I’m going to continue to do that.
Now we will have the ability to
change the direction of those kinds of
agencies that were all about shutting
down resource development. People like
Sally Jewell made it so Shell took seven
years and $7 billion to get permission to
drill one exploration well in 100 feet of
water. I’m certainly hopeful that we are
going to be able to put new leadership
throughout all of these agencies and
bureaucracies to listen to Alaskans, to
listen to Americans, to not take their
orders from extreme environmental
groups, and start enabling us to develop
our resources in a responsible way and
put Alaskans and Americans back to
work with good high-paying jobs.
So if you’re sensing frustration in my
voice it’s because I’m deeply frustrated
that this administration, which has done
so much damage to Alaska, seems hell
bent in doing as much more as they can
in the next month, most of which in my
view is outside the law.
Petroleum News: Are you worriedthat there is more to come?
Sullivan: We are looking at all possi-
bilities of what more might come. I cer-
tainly hope, and I’ve made this clear as
I’ve tried to reach out to these guys and
say: “You’ve done enough damage.
You’ve done enough damage.” I was one
of a number of senators who wrote the
president recently and it said Mr.
President the American people spoke in
November. Please stop all new regula-
tions. Your approach to the economy was
rejected by the American people. They
don’t want more over regulation of our
economy and stifling job opportunities.
They want you to stop. Please respect
that. A number of us in the Senate have
been making that case but again, I think
their interest have never been aligned
with us in terms of jobs and economic
growth. I am concerned there is more to
come. We are already drawing up ways
to thwart it and if possible reverse it.
Petroleum News: Getting back to theArctic, were you getting a sense from theindustry that they were still interested inthe Beaufort and the Chukchi?
Sullivan: I think there is clearly still
interest. Just look at the recent lease sale.
I know that was just state waters in some
of the Beaufort areas. I’m very forward
looking and very optimistic for a whole
host of reasons, but one of the most
disingenuous things Sally Jewell did dur-
ing her tenure was that department clear-
ly slow rolled the Arctic development.
As I said it took seven years and $7 bil-
lion for Shell to get permission to drill
one exploration well. Then Shell decided
to leave Alaska, hopefully for the time
being.
I talked to Shell’s senior officials: It
was primarily because of the regulatory
system that was so dysfunctional by the
federal government. So Shell leaves
because of our dysfunctional federal per-
mitting system, then the secretary of the
Interior indicates Shell’s leaving indi-
cates there is no interest from industry. I
mean if that is not disingenuous or even
devious, I don’t know what is. My view
is there is plenty of resources — enor-
mous resources — on the North Slope
both onshore and offshore. It’s not if and
when you find oil. Just look at Caelus,
Armstrong and Conoco. Our problems
have been above ground not below
ground.
We’re just talking about conventional.
We haven’t even talked about the enor-
mous potential on the North Slope in
terms of oil and gas. So I think it’s an
incredibly exciting time. We are going to
work really hard with regard to trying to
roll back regulations, then work with a
responsible resource development com-
munity in the state and get projects
going again. If companies are having a
challenging time with federal agencies,
they should reach out to me and my
office. They know I’ll get personally
involved to make sure these agencies are
abiding by the law, abiding by the rules,
abiding by timelines and helping
Alaskans seize opportunities, not contin-
uing to delay projects, which has been
their record for the last several years.
Petroleum News: You’ve mentionedregulatory reform and that’s been anissue with you for years. When you firstgot into office, you wanted to establish alaw that would take one regulation offthe books for every one that was added.That’s still seems to be a priority, partic-ularly of late with a Wall Street JournalOp-Ed. Is that correct?
Sullivan: If you look at that Op-Ed, I
talk about the Red Tape Act, the one-in,
one-out rule that would essentially cap
regulations. That would dramatically
speed up time if it’s in the law. I got a
floor vote; we didn’t get it passed, but
the permitting reform issues have been
an obsession of mine when I was DNR
commissioner. We had this backlog of
permits. It’s an even bigger challenge at
the federal level.
My team is working on a bill called
the Rebuild America Now Act. It focuses
mostly on helping to expedite the build-
ing of infrastructure whether it’s roads,
or bridges, or pipelines, or ports, or har-
bors or rail lines. Right now, nationally
that system is broken. There has been
some talk that the incoming Trump
administration wants to take on a big
infrastructure package. Now there has
been a lot of debate on how we would
pay for that. What I tried to do in that
Wall Street Journal Op-Ed is say we
have to be able to execute infrastructure
in a way where we dramatically reform
our dysfunctional permitting system or
you can spend $1 trillion and it’s not
going to have an impact because the
money will get tied up in red tape and
litigation.
Just like the way President Obama’s
2009 stimulus package: It was $800 bil-
lion and it had a very small impact on
the economy, blew out the balance sheet
of our nation and so much of that money
never got deployed. We all know the sto-
ries and I’ve highlighted a few I’ve seen
in my career. It’s not just Shell taking
seven years; Kensington Mine, if you
include all the litigation, taking almost
20 years to get permits.
We had a hearing at the Commerce
Committee where the head of the Seattle
Airport was talking about building a new
runway at Sea-Tac. I asked how long it
took to build the runway, he said four
years. I asked how long it took to get the
permits. I had no idea what the answer
was. He said 15 years. I honestly think
this is an area where there could be bi-
partisan report. Whether you are
Democrat or Republican, you’ve got to
know if it takes six years to permit a
bridge in America, something is wrong.
Petroleum News: The words fast-trackcan carry negative connotation or nega-tive interpretation. You used those wordsin your Op-Ed. How do you see it?
Sullivan: A negative connotation com-
pared to what? Sometimes people hear
the word fast-track, they think you’re
cutting corners. That’s just not the case
in Alaska. We have the highest standards
on the environment of any place in the
world. There is more oil dripped in a
parking lot of Walmart in LA by far than
any place on the North Slope. If it takes
seven years to get permission to drill one
exploration well in 100 feet of water, the
system is broken. I think you can do it
responsibly in terms of permitting but
also expeditiously. Our federal permit-
ting system doesn’t do that.
It’s not just policy; it’s personnel.
What I’m hopeful for and in my role as a
senator in terms of the confirmation
process with members of the incoming
administration, I’m going to be vigorous
to make sure the people who are put in
the federal government are officials who
want to help us develop, build things and
create things, not want to shut us down.
Unfortunately, that’s clearly been the
goal of most of the administration, and
I’m excited for them to leave the scene.
Petroleum News: Let’s take a quicklook at a few nominees, starting withRick Perry. He once wanted to abolishthe Department of Energy, now he’s inline to head the agency.
Sullivan: I’ve never met Gov. Perry.
The Department of Energy has spent a
lot of its time, money and effort on the
nuclear efforts of the country.
Given his background, who was pro
resource development, pro natural
resource development, I think it’s a nom-
inee who looks positive. I plan on raising
important Alaska-related issues with the
nominees for these cabinet positions.
Petroleum News: How about ScottPruitt for the EPA. Here is someone whosued the EPA; now he wants to lead it.
Sullivan: I think that was an inspired
choice. I met him a number of times
when he’s testified. As a former attorney
general who has also sued the EPA, I
PETROLEUM NEWS • WEEK OF DECEMBER 25, 2016 13
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SULLIVAN Q&A
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think one of the many things that needs
to happen at the EPA, which is out of
control, is to bring that agency back
under a leader who understands the rule
of law, statutory authority and the consti-
tution.
Petroleum News: OK, last one: RyanZinke for Interior.
Sullivan: I’ve met Congressman
Zinke before. He’s got a very impressive
career as a Navy SEAL. I was pleased to
see President-elect Trump choosing
someone from a Western state who has
also been a strong advocate for energy
independence. But I look forward to
speaking with him more about some of
Alaska’s unique land issues, and having
a better understanding of why and to
what degree he has stated he’s against
the transfer of certain federal lands to
state and private hands. That is concern-
ing to me and I want to have a deeper
discussion with him to understand the
contours of those beliefs. l
continued from page 13
SULLIVAN Q&A
ballots rejected 375 ballots as invalid, the RCA said.
“The HEA board of directors would like to thank each
and every one of the members for voting on this impor-
tant matter,” Homer Electric said in a Dec. 20 statement.
“Almost one third of the membership voted which high-
lights one of the values of the cooperative model,
enabling members to provide direction to their utility.”
Under Alaska statutes a utility can opt to deregulate,
if it conducts a ballot of its members, at least 15 percent
of the membership votes, and a majority of the voters
approves the deregulation move. After deregulation, a
utility would still require a certificate of public necessity
and convenience from RCA, but the utility’s board, and
not RCA, would provide oversight of issues such as the
utility’s rates.
A utility such as Homer Electric is commonly subject
to government regulation because, being a natural
monopoly in its service area, the utility does not face
competition over pricing or services. However, Homer
Electric has said that deregulation would enable a more
nimble approach to implementing or piloting new serv-
ices and rate structures, and that members could pursue
complaints though the utility’s board and the state court
system.
AEEC disputeThe results of the Homer Electric deregulation elec-
tion may render moot a dispute that is simmering at RCA
over a pending election for the deregulation of Alaska
Electric and Energy Cooperative, the Homer Electric
affiliate that owns and operates the Homer Electric
power generation and transmission facilities on the
Kenai Peninsula.
The AEEC board had filed a notice of intent to ballot
its membership for deregulation approval, following
Homer Electric’s deregulation election. But AEEC only
has one member: Homer Electric. And Homer Electric
indicated that, if its membership approved deregulation,
Homer Electric would vote to deregulate AEEC. Thus,
by voting to approve the deregulation of Homer
Electric’s power distribution operations, Homer Electric
members would automatically be voting to also deregu-
late the AEEC transmission and generation assets.
In response to a complaint by two Homer Electric
Association ratepayers over the AEEC election, RCA has
ordered an investigation into the manner in which the
election is to be conducted. Homer Electric and AEEC,
in a Dec. 14 RCA filing, requested a briefing schedule
for the investigation but suggested that the issue under
investigation could become moot, should Homer
Electric’s members vote against the deregulation of
Homer Electric.
AEEC had objected to the complaint, arguing that the
AEEC deregulation election was being conducted in a
legally correct manner and that RCA does not have juris-
diction to deny or disrupt the election. RCA says that
AEEC has inadmissibly excluded Homer Electric’s con-
sumers from the election.
ComplaintThe complaint against the AEEC deregulation pro-
posal came on Nov. 15 from Homer Electric ratepayers
Peter McKay and Bob Shavelson. Shavelson, executive
director of environmental organization Cook Inletkeeper,
has previously expressed concerns about the proposal to
deregulate Homer Electric. In a letter to RCA, McKay
and Shavelson wrote that the mechanism whereby the
AEEC deregulation ballot is being arranged denies the
rights of Homer Electric members to participate in the
AEEC deregulation decision.
“We believe the AEEC/Homer Electric board is mak-
ing the decision (on whether to exempt AEEC from RCA
regulations) that the AEEC/Homer Electric
members/owners should be deciding by an election of
the members,” McKay and Shavelson wrote.
McKay and Shavelson also claimed that Homer
Electric was conducting its deregulation election without
notifying its members that a vote to deregulate Homer
Electric would also deregulate AEEC.
PrecedentsThe two complainants cited as precedents two previ-
ous cases in which an Alaska regulatory commission has
ruled in favor of the need for a broad vote of the con-
sumers for an electricity utility to vote in a deregulation
election.
In 1985 the Alaska Public Utilities Commission,
RCA’s predecessor agency, ruled in a case involving the
potential deregulation of Alaska Electric Generation &
Transmission Cooperative, the utility that operated
Homer Electric’s generation and transmission facilities
prior to AEEC. AEG&T was jointly owned by Homer
Electric and Matanuska Electric Association, with those
two utilities being AEG&T’s only members. In that 1985
case APUC ruled that the deregulation of AEG&T must
be based on a vote of all the consumers of the members
of AEG&T.
In the second case, dating from 2005, RCA, citing the
1985 case, denied a deregulation request from Kwaan
Electric Transmission Intertie Cooperative, a utility
owned by two other utilities.
RCA responseIn a Dec. 7 order initiating an investigation, RCA
responded to the election complaint and to AEEC’s
response. RCA said that after AEEC had taken over
AEG&T’s Kenai Peninsula generation and transmission
assets in 2001 RCA had issued a new certificate to
AEEC. And, whereas AEG&T’s certificate had specifi-
cally prohibited deregulation without a vote by con-
sumers who used AEG&T’s services, the AEEC certifi-
cate did not include that particular provision.
But, with Homer Electric being aware of the election
condition placed on AEG&T’s certificate and the univer-
sally applicable reasoning behind that condition, AEEC,
the successor to AEG&T, is implicitly bound by that
same condition, RCA commented. It is clear from prece-
dent that the deregulation condition placed on the
AEG&T certificate is generally applicable to all genera-
tion and transmission cooperatives, without have to be
explicitly stated in the cooperatives’ certificates, RCA
said.
—ALAN BAILEY
continued from page 1
HEA VOTE
pre-FEED, phase of the project, which is
now complete.
A second allows it to formally notify
the Federal Energy Regulatory
Commission of the change in project sta-
tus. Two other agreements are still pend-
ing, one giving the state rights to land for
a liquefied natural gas plant on the Kenai
Peninsula now owned by the North Slope
producers, and a second allowing AGDC
to take over an LNG export license grant-
ed by the U.S. Department of Energy.
AGDC began the transition earlier this
year after Gov. Bill Walker reached
agreement with the industry partners in
Alaska LNG, BP, ConocoPhillips and
ExxonMobil, for the state to take the proj-
ect over. AGDC had previously been a
part of the gas project consortium, but it
will now own 100 percent.
An immediate work item for the state
corporation is to respond to a lengthy
series of questions from federal agencies
on resource reports prepared by Alaska
LNG for its preliminary application for a
FERC license for the project. The state
corporation must now respond to the
agency questions, complete the applica-
tion and file it.
AGDC has about $30 million appro-
priated for work on the Alaska LNG
Project as well as $70 million appropriat-
ed for the Alaska Stand-Alone Project, or
ASAP, a backup project plan the state
developed in case the larger project fal-
ters.
Some legislators have questioned
whether the state gas corporation can
shift funds from one project appropriation
to another.
—TIM BRADNER
applies for a business license.
The purpose of the surety bond is to
ensure that exploration companies are
paying taxes to the state and other tax-
ing bodies, and also paying their work-
ers and contractors.
As part of its effort to create regula-
tions in line with the new law the
Division of Corporations, Business,
and Professional Licensing is seeking
comments from the public and the
industry about the licensing process.
“The division is not currently propos-
ing any specific changes at this time,”
the state wrote in a recent public notice.
“There are no draft regulations to
review. The division is in the informa-
tion gathering stage and seeks com-
ments from the public for suggestions
and proposals on regulations related to
the requirement of surety bonds with
oil or gas exploration, development, or
production business licenses, before
the formal process of drafting any pro-
posed changes begin.”
The division is taking comments
through Jan. 20.
—ERIC LIDJI
continued from page 1
SURETY BONDcontinued from page 1
STATE TAKEOVER
Contact Tim Bradner at [email protected]
Under Alaska statutes a utility can opt toderegulate, if it conducts a ballot of its
members, at least 15 percent of themembership votes, and a majority of the
voters approves the deregulation move. Afterderegulation, a utility would still require a
certificate of public necessity and conveniencefrom RCA, but the utility’s board, and not
RCA, would provide oversight of issues such asthe utility’s rates.
PETROLEUM NEWS • WEEK OF DECEMBER 25, 2016 15
duction smaller fields had poor econom-
ics of scale and were less profitable.
The downside, the court said, was that
the field size factor created an incentive for
companies “to capitalize on tax breaks for
smaller fields by classifying certain areas
as independent fields even if the areas
were economically interdependent with
other, larger fields.”
The aggregation statute permitted
Revenue to aggregate two or more fields
“when economically interdependent oil or
gas production operations are not confined
to a single lease or property.” Aggregation
was dependent, the court said, on whether
the fields were “economically interde-
pendent,” but the Legislature did not
define that term in statute and Revenue
never defined it in regulations.
Petition for assuranceRevenue adopted regulations permit-
ting producers to petition for assurance
that Revenue would not aggregate specific
fields for ELF calculations. Requirements
for the guarantee included showing that
common production facilities would lower
production costs; that the guarantee would
increase the likelihood a new field would
be developed; that oil would be accurately
allocated; and that “operations ... would
not be economically interdependent in the
absence of the proposed use of common
production facilities.”
But proof of those factors did not guar-
antee an advance ruling. And as with relat-
ed regulations, “economically interde-
pendent” was not defined.
The ELF-based tax system was
repealed in 2006.
PrudhoePrudhoe initially had two participating
areas, one for oil and one for natural gas,
each with production facilities. A third par-
ticipating area, Lisburne, was approved in
1986; Lisburne also had its own produc-
tion facilities.
Nine additional reservoirs were later
identified at Prudhoe and the Department
of Natural Resources approved participat-
ing areas for each. Six of those, the satellite
participating areas, are involved in the
appeal, the court said: Aurora, Borealis,
Midnight Sun, Orion, Polaris and Point
McIntyre.
The satellites did not have their own
production facilities. Their fluids were
processed at facilities built to serve the
original participating areas, with produc-
tion measured at Pump Station No. 1 of the
trans-Alaska oil pipeline and production
allocated based on estimates of well pro-
ductivity as determined by periodic tests of
the wells.
The central production facilities could
not handle all production, the court said, so
“fluids from some wells were ‘backed
out,’ or blocked, in favor of fluids from
other wells based on the ‘best well pro-
duces’ principle,” favoring fluids with the
highest ratio of oil to gas.
Satellite participating areas at Prudhoe
had smaller field size factors and thus a
lower ELF than the initial participating
areas, with production from the initial par-
ticipating areas taxed at a rate of about
12.5 percent and production from satellites
at less than 0.5 percent.
As older wells in the initial participat-
ing areas tended to produce more gas,
“lower-tax oil from the Satellite PAs
backed out higher-tax oil from the initial
PA wells at increasing rates,” growing
from 217,896 barrels in 2000 to 1,224,090
barrels in 2004, the court said.
Advance rulingsProducers sought advance rulings from
Revenue on aggregation, with multiple
requests filed between August 1998 and
November 2001, with Revenue telling pro-
ducers as early as 2000 that it was examin-
ing the issue — but it never acted on the
requests.
The department did, however, conduct
internal analyses, producing “a variety of
internal memoranda and internal depart-
mental position papers acknowledging
confusion over the interpretation of ‘eco-
nomic interdependence’ and analyzing
whether it would be better to clarify the
term via statute, regulation, or administra-
tive decision,” the court said.
While drafts seemed to indicate
Revenue was looking at regulations to
address the issue, the director of the Tax
Division issued Revenue’s decision in
January 2005 without regulations, notify-
ing producers that the department had
decided to aggregate the initial participat-
ing areas and satellite participating areas at
Prudhoe effective Feb. 1, 2005.
“DOR found that operations at the
Initial PAs and the Satellite PAs were eco-
nomically interdependent, and, therefore,
DOR aggregated them, referencing a vari-
ety of policy reasons for its decision,” the
court said, “resulting in a higher ELF and
a higher tax rate” on oil from the proper-
ties.
In finding the areas economically inter-
dependent the department cited shared
production facilities, decisions by the own-
ers on which wells to produce and which to
back out across participating areas and
commingling of fluids.
The court quoted the department as say-
ing that the Legislature intended ELF “to
serve as a tax break for costlier production,
but in Prudhoe Bay, non-aggregation gave
a tax break to oil from the Satellite PAs
even though that oil was less costly to pro-
duce due to its higher ratio of oil to gas
than the oil from the initial PAs.”
Producers appealThe producers appealed the decision in
March 2005 and in November 2008, after
an informal conference, the department
affirmed its earlier decision.
The producers appealed to the Office of
Administrative Hearings, which upheld
Revenue’s decision “and concluded that
DOR was not required to engage in formal
rulemaking in interpreting the Aggregation
Statute the way it did in its Decision.”
The producers then appealed to superi-
or court, which held that Revenue had
adopted a commonsense interpretation of
the statute that did not require formal rule-
making.
The producers then appealed to the
Alaska Supreme Court, which, in its Dec.
16 ruling, concluded Revenue’s decision
“was not a regulation because it was a
commonsense interpretation of the statute”
and did not require regulations, affirming
the superior court’s decision.
Regulations issueThe department had discussed the pos-
sibility of making a change through regu-
lation in internal documents. The produc-
ers said in their Supreme Court appeal that
Revenue’s decision constituted a regula-
tion and since it was adopted without com-
plying with requirements for establishing
regulations the decision was invalid.
The court said that under Alaska statute
regulation encompasses many statements
by agencies, including policies and guides
to enforcement, but “not every agency
action or decision constitutes a regula-
tion.” Regulations must meet two criteria,
the court said: it must be an action that
implements, interprets or make specific the
law; and it must affect the public or be
used by the agency in dealing with the
public.
The court said “agencies must have
some freedom to apply relevant statutes
without the burden of adopting a regula-
tion each time they do so.” The court said
it had clarified that actions that are merely
commonsense interpretations of existing
requirements are not regulations requiring
compliance with rulemaking standards.
But, the court said, agency actions may
not be commonsense interpretations if the
agency adds requirements of substance,
interprets a statute in way that is expansive
or unforeseeable or alters its previous
statutory interpretation.
The court said Revenue clarified the
scope of statute “by indicating the degree
of economic interdependence that could
warrant aggregation, but it did not add any
specific criteria to the term ‘economically
independent’ that went beyond the scope
of the Aggregation Statute’s existing lan-
guage.” It also found Revenue’s interpreta-
tion of “economic interdependence” to be
consistent with dictionary definition of the
terms.
The Legislature gave Revenue the dis-
cretion to aggregate fields to accomplish
the purpose of taxing different fields at dif-
ferent rates to reflect underlying econom-
ics and incentivize development of small-
er, less profitable fields, the court said.
“When oil and gas operations in different
fields become integrated such that there is
no meaningful separation between produc-
tion in the different fields, there is no justi-
fication for maintaining different effective
tax rates on those fields.”
The court also found Revenue’s deci-
sion did not depart from previous interpre-
tation of the Aggregation Statute.
It affirmed the lower court’s conclusion
that Revenue’s decision was not a regula-
tion but a commonsense interpretation of
the Aggregation Statute and also upheld
the lower court’s decision upholding
Revenue’s decision. l
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OIL TAX CASE
Executive orderThe president has issued an executive
order saying that he is mandating the land
withdrawals for a period of time without
specific expiry under the authority of sec-
tion 12(a) of the Outer Continental Shelf
Lands Act. The land withdrawal encom-
passes the entire Chukchi and Beaufort
seas, apart from a 2.8 million acre strip of
the Beaufort Sea with relatively high oil
and gas potential offshore the coastline
between Smith Bay and the western side
of Camden Bay.
Geologists view the Chukchi Sea shelf
as having the makings of a world class oil
and gas province. But, as evidenced by
Shell’s recent foray into the region, the
remoteness and climatic challenges of the
region would require a very large oil find
and robust oil prices for a viable oil
development. The Beaufort Sea continen-
tal shelf contains a continuation of the
geology that hosts the operational North
Slope oil fields and has some known,
undeveloped oil pools.
Section 12(a) of OCSLA simply states
that “the president of the United States
may, from time to time, withdraw from
disposition any of the unleased lands of
the outer continental shelf.”
Commentators are saying that, although
this section of the act has been invoked in
the past in, for example, Obama’s with-
drawal of the North Aleutian basin from
oil and gas leasing, there is no precedent
for any legal challenge to this section of
the act.
A fact sheet published by the White
House says that, while the Arctic with-
drawal area contains oil and gas
resources, production of these resources
would be cost-prohibitive at today’s oil
price levels and that, even with a 200 per-
cent oil price increase, it would take 10 to
50 years to develop the resources, given
the lead time involved in exploration and
development. The fact sheet especially
emphasizes the ecological importance
and environmental fragility of the
Chukchi and Beaufort seas.
“The president’s bold action recog-
nizes the vulnerable marine environments
in the Arctic and Atlantic oceans, their
critical and irreplaceable ecological
value, as well as the unique role that com-
mercial fishing and subsistence use plays
in the regions’ economies and cultures,”
Interior Secretary Sally Jewell said in
response to Obama’s action. “The with-
drawal will help build the resilience of
these vital ecosystems, provide refuges
for at-risk species, sustain commercial
fisheries and subsistence traditions, and
create natural laboratories for scientists to
monitor and explore the impacts of cli-
mate change.”
Walker respondsIn a Dec. 20 press release Gov. Bill
Walker said that he and Natural
Resources Commissioner Andy Mack had
met several times with Jewell, to high-
light areas of the Arctic of economic
importance to the state. Jewell has told
the governor that Interior had taken into
account what Walker and Mack had told
her when figuring out the land with-
drawals. Jewell was presumably referenc-
ing the area of the Beaufort Sea remain-
ing on the table for future leasing.
However, Walker expressed his con-
cern about the potential economic impact
of the president’s decision on Alaskans.
“This unprecedented move marginal-
izes the voices of those who call the
Arctic home and have asked for responsi-
ble resource development to lower the
cost of energy to heat houses and busi-
nesses,” Walker said. “For centuries, the
Arctic has provided food for those in the
region. No one is more invested than
Alaskans to ensure that the habitats with-
in the Arctic are protected. To lock it up
against any further exploration or devel-
opment activity is akin to saying that the
voices of activists who live in Lower 48
cities have a greater stake than those to
whom the Arctic is our front yard and our
back yard.”
Slammed by congressional delegationAlaska’s congressional delegation has
slammed the president’s action, saying
that the action sides with extreme envi-
ronmentalists, contradicts the administra-
tion’s own conclusions about Arctic
development and will have lasting conse-
quences for Alaska’s economy, state
finances, and the security and competi-
tiveness of the nation.
“The only thing more shocking than
this reckless, short-sighted, last-minute
gift to the extreme environmental agenda
is that President Obama had the nerve to
claim he is doing Alaska a favor,” said
Sen. Lisa Murkowski. “President Obama
has once again treated the Arctic like a
snow globe, ignoring the desires of the
people who live, work, and raise a family
there. I cannot wait to work with the next
administration to reverse this decision.”
“This announcement by the Obama
administration is an affront to our repre-
sentative democracy,” said Sen. Dan
Sullivan. “Make no mistake — the presi-
dent betrayed Alaskans today — especial-
ly those living in the Arctic — who were
not consulted, and instead gave one final
Christmas gift to coastal environmental
elites. This decision is not about environ-
mental protection or the economics of oil
and gas exploration in the Arctic.”
“This decision only strengthens our
resolve — as a resources oriented state —
to overturn the heavy hand of government
and empower our people and communi-
ties with new social and economic oppor-
tunities. The groundwork is already being
laid to overturn this terrible decision,”
said Rep. Don Young.
Industry reaction“Today’s announcement is a stunning
example of hypocrisy from President
Obama,” said Kara Moriarty, president
and CEO of the Alaska Oil and Gas
Association. “In his announcement about
the Bering Sea just last week, he claimed
he was listening to Alaskans when he
established the ‘climate resilience’ area.
Then today, his announcement ignores the
76 percent of Alaskans who support
resource development in the Arctic off-
shore, and 72 percent of Alaska Natives,
who say local opinions should matter the
most on this issue. It is foolish to believe
the United States can have a strong, suc-
cessful economy in the Arctic without oil
and gas development.”
“We will fight this legacy move by the
outgoing president with every resource at
our disposal,” said Rex Rock Sr., presi-
dent and CEO of Arctic Slope Regional
Corp. “This decision will not stop our cli-
mate from changing, but it will inhibit our
North Slope communities from develop-
ing the infrastructure, communications
capability and technology necessary for
growth. It’s a move which was made
without any consultation from the largest
private land owners in the U.S. Arctic and
yet we will be the ones forced to live with
the consequences.”
Environmentalists jubilantEnvironmental organizations have a
different perspective.
“Obama just took an important step to
protect our oceans and his environmental
legacy. Protecting the Arctic and Atlantic
from dangerous drilling will give polar
bears, right whales and other endangered
species a fighting chance,” said Miyoko
Sakashita, oceans program director at the
Center for Biological Diversity. “This
decision helps jump-start the resistance to
Trump’s promised attacks on our environ-
ment.”
“We applaud President Obama’s
actions today, which will permanently
protect most of the Arctic Ocean and
important parts of the Atlantic from
expanded offshore drilling,” said
Earthjustice President Trip Van Noppen.
“As President Obama said at a May gath-
ering with the leaders of five Nordic
nations in Washington, D.C., ‘We have a
moral obligation — to this and future
generations — to confront the reality of
climate change and to protect our planet,
including our beautiful Arctic.’” l
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ARCTIC OCS
