Morning Headlamp — Industry left out of White House summit

September 30, 2016 | Posted in : News

from the Alaska Arctic for a first-of-its-kind White House meeting to work on international cooperation for Arctic research. The group has agreed to examine their plans within a few key areas: Understanding what causes rapid Arctic climate change, and what the consequences are for the rest of the planet; bolstering needed Arctic data and advancing science, technology, engineering and mathematics education for Arctic residents. At the meeting, the Department of Energy announced plans to design support tools to create “microgrids” — ways to create power off the grid — in the Arctic.

While Headlamp always welcomes discourse surrounding Arctic development, we are curious why industry needs were not addressed at the conference. Arctic economic development should remain an important part of any discussion about the region.

Podium shuffle. At the Alaska Business Monthly top 49ers luncheon, some companies saw a drop in their rankings based on 2016’s performance. Bristol Bay Native Corporation has held onto the number two rank for years but saw a nearly 13 percent drop in gross income in 2015. Because of that, the company was ranked 3rd for 2016. “BBNC has taken a hit as have other companies,” says BBNC President and CEO Jason Metrokin. Arctic Slope Regional Corporation and NANA Regional Corporation took the first and second spots, respectively. Headlamp salutes the 23 Alliance members who made the list! 

Ahtna Inc. began drilling an exploratory well Thursday in an unusual effort to find natural gas that could lower energy bills for residents in the Copper River area. The 2-million-pound drilling rig was recently hauled from Kenai near Cook Inlet. Ahtna subsidiary, Tolsona Oil and Gas Exploration, plans to drill a single exploratory well about a mile deep on the 4-acre site. The drilling should take 26 days, Ahtna said. Headlamp notes that tax credits were critical to the project. 

 

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First Reads

Top grossing Alaska companies see drop in revenue after year of slumped oil prices
KTUU, Mallory Peebles, September 29, 2016

Alaska Natives, international officials gather for White House meeting on Arctic research
Alaska Dispatch News, Erica Martinson, September 29, 2016

ConocoPhillips Alaska sets drilling record
KTVA, Daniella Rivera, September 29, 2016

Native corporation starts 1st well in effort to bring cheaper natural gas to villages
Alaska Dispatch News, Alex DeMarban, September 30, 2016

 

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Morning Headlamp — OPEC to reduce output, Alaska stands to benefit

September 29, 2016 | Posted in : News

Out of Algiers, two sources in the Organization of the Petroleum Exporting Countries (OPEC) said the group would reduce output to 32.5 million barrels per day from current production of 33.24 million bpd. “We don’t know yet who’s going to produce what. I want to hear from the mouth of the Iranian oil minister that he’s not going to go back to pre-sanction levels. For the Saudis, it just goes against the conventional wisdom of what they’ve been saying,” said Jeff Quigley, director of energy markets at Houston-based Stratas Advisors. As optimistic news trickles in from abroad, hopefully this helps ease the global low-price environment.

Founder and CEO of Houston-based Burgundy Xploration Paul Basinski said he and his partner in the Icewine project, Australia-based 88 Energy Ltd., expect to drill an appraisal well early next year to delineate exactly what is underneath their southern Slope acreage. Basinski, who spoke Sept. 20 to the Alaska Oil and Gas Congress in Anchorage, is confident in the initial results from Icewine No. 1, the first well the company’s drilled last fall.

Here to stay. Kara Moriarty, president and CEO of the Alaska Oil and Gas Association, addressed the weekly meeting of the Greater Wasilla Chamber of Commerce Tuesday. Her presentation sought to dispel what she said were myths about one of the state’s largest employers, specifically with regard to output, tax credits and the future of liquefied natural gas. “I know a lot of policymakers have said we need to shift away from oil and move to other sources of energy, but the fact is Alaska has a lot of oil left,” Moriarty said. “In the existing North Slope fields and on state land we think there’s about five billion barrels left. We have produced 17 billion barrels and counting.”

 

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First Reads

OPEC reaches 1st deal since 2008 to cut oil output
Alaska Dispatch News, September 27, 2016

Partners will drill at Icewine in 2017
Alaska Journal of Commerce, Elwood Brehmer, September 28, 2016

Far from the ‘last days’ of oil
Mat-Su Valley Frontiersman, Steven Merritt, September 27, 2016

Former attorney general Richards gets a 2nd contract with Alaska Department of Law
Alaska Dispatch News, Nathaniel Herz, September 27, 2016

 

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Alaska Support Industry Alliance to Interior Secretary Jewell: Make the Right Decision for a Secure Future

September 28, 2016 | Posted in : News

In a letter to Secretary of the Interior Sally Jewell, the Alaska Support Industry Alliance urged the retention of Arctic leases in the Obama administration’s Outer Continental Shelf (OCS) leasing plan as offshore resource development is an essential part of Alaska’s future and could play a vital role in turning the state’s economy around and strengthening America’s energy security. The Alliance is comprised of over 600 Alaskan companies employing more than 25,000 Alaskans.

The letter, with 65 signatories, outlines how keeping the Arctic leases in the plan is a critical component for Alaska’s economic future. “Conversely,” the signatories write, “removing the leases from the final plan would needlessly curtail future options for resource development while placing an unnecessary burden on our families, our businesses and the state’s already struggling economy.”

Three years ago, the oil and gas industry accounted for more than 30 percent of all jobs in Alaska, and as of last year, the taxes from that industry combined for 90 percent of the state’s general revenue. Despite the record low global and oil prices, the global energy market is constantly evolving. Eliminating options for future Alaskan offshore energy development based on conditions today would unnecessarily harm Alaska’s economy.

Significantly, roughly 84 percent of the undiscovered oil and natural gas resources in Alaska are in the offshore areas the Administration is considering removing from its plan.  Developing those resources would support about 55,000 jobs annually and contribute over $150 billion in wages during the next five decades.  With an unemployment rate far above the national average, growing Alaska’s economy with these quality family wage jobs is crucial to changing that reality.

Not only would Alaskans ensure their economic security through pursuing safe offshore development, but as a National Petroleum Council report noted, “the long lead times necessary to bring on new crude oil production from Alaska would coincide with a long-term expected decline of U.S. Lower 48 production.  Alaskan opportunities can play an important role in extending U.S. energy security in the decades of the 2030s and 2040s.”

The signatories conclude, “Including the Arctic in the OCS plan does not mean that development will occur; rather, it leaves that option available so that we can take advantage of it in the future. We owe it to our state and to the strength of our nation to make the right decision for a secure future.”

 

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Morning Headlamp — North Slope still “target rich”

September 28, 2016 | Posted in : News

Looking for targets. Bill Armstrong, CEO and founder of Armstrong Energy LLC, and his team have  plans to be one of the only outfits to invest in exploration this winter: drilling two wells south of the company’s previous work in the Pikka Unit. The U.S. Army Corps of Engineers is currently evaluating Armstrong’s development plan for three well pads and a processing facility in the early, scoping phase of the Nanushuk environmental impact statement, or EIS. Despite being an independent player, he looks for big plays in arenas dominated by the majors, in part to weed out competition. “Small and Alaska don’t seem to go together very well,” Armstrong said. If the shallow Nanushuk formation proves to be even half of current expectations, Armstrong, a geologist by trade, believes it will be the next play on the North Slope, which he considers to still be a “target-rich environment.” Headlamp applauds Armstrong’s commitment to exploration in a low-price environment.

According to Business Wire, Fitch Ratings has assigned a ‘AA’ rating to $113.075 million of Alaska Municipal Bond Bank Authority (MBBA) general obligation (GO) and refunding bonds. Oil prices and resource development was a factor that lead to this rating. According to the analysis, “Alaska’s ‘AA+’ Issuer Default Rating (IDR) reflects the state’s maintenance of very substantial reserve balances and conservative financial management practices to offset significant revenue volatility linked to oil production from the North Slope and global petroleum price trends. For many years, the state focused on expected declines in production at its oil fields, prudently dedicating a substantial share of its past oil tax revenue to reserves to ease anticipated revenue loss due to the declines. However, the steep drop in crude oil prices beginning in late 2014 exceeded expectations and significantly reduced tax revenues to the state, requiring sizable use of reserves to fund operations in fiscal years 2015 through 2017.”

 

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First Reads

Five things to know about the proposed Pacific NorthWest LNG project in B.C.
Alaska Highway News, September 27, 2016

Armstrong Energy CEO aims to prove North Slope is still ‘target rich’
Homer News, Elwood Brehmer, September 27, 2016

Market Possibilities for Alaska Gas
Web Center 11, September 27, 2016

Fitch Rates Alaska Municipal Bond Bank Authority’s $113MM GOs ‘AA’; Outlook Negative
Business Wire, September 27, 2016

 

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What People Are Saying About Pension Obligation Bonds

September 27, 2016 | Posted in : News

The issue of Alaska’s massive unfunded liabilities and how to pay for them has risen to the forefront again. In 2015 Gov. Walker floated the idea of issuing pension obligation bonds (POB) as a way to pay off the billions owed to Alaska’s Teachers’ Retirement System (TRS) and Public Employees’ Retirement System (PERS). That idea was originally scrapped, but the Administration has brought it back again, and this time is proposing to borrow up to $3.5 billion using POBs.  Headlamp is here to help give you a clear sense of what people are saying about this issue.

  • “A state committee made up of members of Gov. Bill Walker’s administration on Monday approved borrowing as much as $3.5 billion to cover Alaska’s pension shortfall.” (Link)
  • “The state’s pension system was in bad shape long before oil prices fell. As of 2013, Alaska had the fourth-worst funded pension among U.S. states, reporting it had 52.3 percent of the money needed to pay retirees, better than only Illinois, Connecticut and Kentucky, data compiled by Bloomberg shows. (Link)
  • “Borrowing money at a low rate and investing it to earn a higher rate is known as arbitrage, but it comes with risks, Michael O’Leary, a retired state investment adviser, has told the Alaska Retirement Management Board, which oversees the trust funds as it was reviewing such investments. “There are no free lunches,” O’Leary told the board. If markets take a downturn after the state’s investments are made, Alaska may not even be able to recover its losses, let alone make profits.” (Link)
  • Fitch Ratings, one of the major bond rating firms, has recently warned of the growing use of pension obligation bonds nationally and the impact on state bond ratings. “Issuing POBs always exposes the issuer to timing and investment risks to which it otherwise would not be exposed,” Fitch said in August. (Link)
  • “The Government Finance Officers Association (GFOA) recommends that state and local governments do not issue POBs for the following reasons: The invested POB proceeds might fail to earn more than the interest rate owed over the term of the bonds, leading to increased overall liabilities for the government.” (Link)
  • Alaska fiscal hawk Brad Keithley wrote: “I just got a sinking feeling. If it were me, I would put repeal of the authority [to issue POBs without legislative approval] on the agenda for early in the session…. Just because you can do something doesn’t make it a good idea.” (Link)
  • Jerry Burnett, deputy revenue commissioner, acknowledged, however, that it could “look really bad” if the state borrowed the money and the market crashed soon afterward, because then the state would be faced with the same pension shortfall, plus a new obligation to pay back the cash it just borrowed. (Link)
  • Matt Fabian, an analyst and partner at Municipal Market Analytics, a financial research firm based in Massachusetts, said “Every pension bond isn’t a bad bond. But every pension bond has some risks,” Fabian said in a phone interview Monday. “It could increase the long-term cost to the state if the investments underperform, or are ultimately lost in the market.” (Link)

The Senate Finance Committee has scheduled a meeting for Thursday September 29th, at 1:30pm at the Anchorage LIO to discuss this issue. Headlamp encourages our readers to tune into that hearing here.

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Morning Headlamp — Oil and gas jobs lose big

September 27, 2016 | Posted in : News

Live from Singapore. Gov. Bill Walker issued a press release yesterday to provide an update on his recent trip to the WC World LNG & Gas Series: Asia Pacific Summit. According to Walker, “We were able to show that Alaska has the right team with the expertise to lead on this gasline….We not only raised awareness of the Alaska gasline project, we rekindled interest in our state’s tremendous potential to provide long-term solutions to the market’s energy needs…As we secure more customers, we lower the cost of the project and the cost of energy to Alaskans…Too many Alaskans are forced to choose between paying for food or paying to heat their homes. The gasline will change that by bringing down the cost to power homes and businesses and will even spur the development of new industries. Just as the trans-Alaska pipeline provided jobs and economic growth, the gasline will lead to tremendous opportunities for generations to come.”

 Alaskan unemployment grew over the past year, largely hitting the oil and gas industry. “We are seeing higher claims pretty much across the board for most industries over the year, although nothing to the magnitude seen with oil and gas,” said Lennon Weller, a state Labor Department economist, last week. At least 2,400 jobs have been lost in the oil and gas industry in 18 months, from 14,800 jobs in March 2015, according to state data. Shell’s decision to stop exploring in the U.S. Arctic Ocean 12 months ago, and layoffs announced by employers such as BP and ConocoPhillips, may be dragging down the broader economy. But to know for sure will take more time, Weller said. It’s a shame to see the human cost of anti-industry policies.

 

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First Reads

Governor Walker Offers LNG Update, Singapore
Your Alaska Link, Maria Athens, September 26, 2016

Unemployment insurance claims rise across Alaska
Alaska Dispatch News, Alex DeMarban, September 26, 2016

NANA shareholders won’t get a dividend this year
Alaska Dispatch News, Annie Zak, September 26, 2016

 

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Morning Headlamp — Hendrix: “We all need to come together”

September 26, 2016 | Posted in : News

Following last week’s Prudhoe Bay plan of development announcement and subsequent tension between the state and the big three producers, John Hendrix, chief oil and gas advisor urged all parties to look for more alignment. “We need to have a pro-industry government and residents; … we need to have residents that are aligned with government; … we all need to come together as one and get this solved as soon as possible,” Hendrix said. Hendrix questioned the level of the state’s reserve-replacement ratio, an index that oil companies use to assess the health of their oil portfolios. In terms of stranded North Slope resources, Hendrix focused on the Alaska liquefied natural gas project. “One of our biggest stranded resources that we have today is the North Slope gas,” he said. “We need to be in the game for that, and we need to do it economically.” Headlamp hopes the current administration will work on being a pro-industry government that encourages residents to be pro-industry. 

Gov. Bill Walker defended the recently-announced Permanent Fund Dividend amount of $1,022 in a Mat-Su Valley Frontiersman op-ed. According to Walker, “Unfortunately, lawmakers failed to pass my plan or any other, leaving a nearly $4 billion budget gap. In the past four years we’ve drawn down our savings from $16.3 billion to an expected $3.6 billion at the end of this fiscal year. We’re burning through our savings at an alarming rate. I therefore took action to extend the life of our fast-shrinking savings. In June I vetoed $1.3 billion, including $430 million in oil tax credits. My vetoes also included roughly half of the money for this year’s permanent fund dividends. The vetoed dividend money is not being spent. It remains in the permanent fund earnings reserve account, prolonging the state’s ability to pay dividends in the future.”  To clarify – the governor did not veto $1.3 billion – he deferred payment on $430 million the state owes and took half of the dividend appropriation and returned it to savings. In addition, the administration has refused to take a hard look at the size and scope of state government. Alaskans will have a hard time supporting a reduced dividend until the size and scope of state government is at a sustainable size, and until the administration fairly represents its actions. 

According to Bloomberg, oil and gas companies will spend 2.5 percent more on capital expenditure next year than they did this year, the first yearly growth in such spending since 2014, BMI Research said in a Sept. 22 report. Spending will increase by another 7 percent to 14 percent in 2018. It will remain well below the $724 billion spent in 2014, before the worst oil crash in a generation caused firms to cut back on drilling and exploration to conserve cash.  Headlamp wonders if any of that increase will be seen here in Alaska after the Governor’s refusal to honor the deals previously made with industry. 

 

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First Reads

Alignment is needed
Petroleum News, Alan Bailey, September 24, 2016

Smaller dividends painful but prudent
Mat-Su Valley Frontiersman, Gov. Bill Walker, September 25, 2016

Alaska lawmakers on guard for potential new offshore monuments
Alaska Dispatch News, Erica Martinson, September 25, 2016

Oil Firm Spending Seen Up in 2017 for First Time Since 2014
Bloomberg, Dan Murtaugh, September 25, 2016

 Here’s where Hillary Clinton and Donald Trump stand on energy issues
Business Insider, Jeremy Berke, September 25, 2016

 

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Prudhoe Bay Unit Plan of Development Approved at Last

September 23, 2016 | Posted in : News

Headlamp has been anxiously waiting for the Prudhoe Bay Plan of Development (POD) to be approved by the Department of Natural Resources (DNR). There was a collective sigh of relief when it was announced that DNR Commissioner Andy Mack had approved the plan submitted by BP and the working interest owners (WIO). But what took so long? An article in the Alaska Journal of Commerce (AJOC) may provide some insight.

According to emails obtained by the AJOC, Division of Oil & Gas Director Corri Feige wrote a letter approving the plan on September 16, 2016, but that letter was modified by Commissioner Mack before being sent to BP and the WIO’s on September 20th. The changes were few, but Headlamp believes they send a strong message.

As Tim Bradner writes in the AJOC article, “The difference appears to be that Feige requires the companies to document their efforts toward a generic major gas sale, while Mack’s version conditions future plan approval to showing their steps to support a state-led gas project.”

And there it is.

Headlamp continues to be disappointed and gravely concerned over the state’s efforts to charge forward with a state-led project that faces considerable economic challenges. Likewise, Headlamp fundamentally disagrees with the state’s recent actions of trying to force producing companies to reveal proprietary information related to the Prudhoe Bay unit.

Unfortunately, as Bradner points out the train has already left the station, “The transition from a privately-led to a state-led project is underway and will be completed by the end of the year.” This transition will be even harder now that the state has one less key member, as Director Feige’s letter of resignation is coincidentally dated September 20th.

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Friday’s Fast Five

September 23, 2016 | Posted in : News

Top Story of the Week

This week Alaska and ConocoPhillips have signed an agreement to negotiate the formation of a joint venture company that could buy and sell North Slope natural gas to utilities outside Alaska. Gov. Walker said he was pleased with the development. “ConocoPhillips has played an integral role in developing our state’s gas reserves, and has been shipping LNG from Nikiski to Japan markets for over 40 years – the longest such contract in LNG history. This joint venture will provide new opportunities to develop our LNG resources for a global market.” Click here to view the story.

Top Reads of the Week

Prudhoe plan approved on day Oil & Gas Division director resigned
Alaska Journal of Commerce, Tim Bradner, September 22, 2016
Alaska Department of Natural Resources Commissioner Andy Mack approved the 2016 Plan of Development for the Prudhoe Bay oilfield on Sept. 20, but only after amending the original approval signed four days earlier by Division of Oil & Gas Director Corri Feige. Sept. 20 was also when Feige announced her resignation from the division.

Cutting off Arctic drilling options would harm US energy security
The Hill, Erik Milito, September 19, 2016
Maintaining Arctic exploration options in the Obama administration’s next five-year leasing plan is critical for America’s future energy security.

Hilcorp applies for Moose Pad development to tap 7 square miles of oil reserves
Alaska Dispatch News, Alex DeMarban, September 21, 2016
North Slope newcomer Hilcorp Alaska is planning to buck the trend of decline in the state’s big oil patch and undertake a new development known as Moose Pad, with space for up to 44 wells designed to reach about 7 square miles of undeveloped oil reserves in the Milne Point unit.

Quote of the Week

“Not attractive enough”Paulyn Swanson, communications manager for the Alaska Permanent Fund Corp.

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Morning Headlamp — All signs point to Prudhoe POD approval

September 23, 2016 | Posted in : News

Pen pals signal Prudhoe POD approval. Yesterday, according to the Alaska Journal of Commerce, Alaska Department of Natural Resources Commissioner Andy Mack approved the 2016 Plan of Development for the Prudhoe Bay oilfield on Sept. 20, but only after amending the original approval signed four days earlier by Division of Oil & Gas Director Corri Feige. BP is the unit operator for the Prudhoe Bay unit on behalf of fellow working interest owners ConocoPhillips and ExxonMobil. According to a letter obtained by AJOC, several steps will be taken in the coming months including the transfer of land and the federal export licenses to the Alaska Gasline Development Corp. as well as supporting the state’s efforts to lower the cost of supply through forms of federal tax exemption.

Alaska Senator Lisa Murkowski is running out of time to accomplish some of her more ambitious bills, deemed a master wish list for the state. One bill would open part of the Arctic National Wildlife Refuge to oil drilling and mandate lease sales in the National Petroleum Reserve-Alaska, and offshore. Murkowski said Alaska needs to develop these federal resources. The senator says other provisions are realistic before President Barack Obama leaves office. She cited the Alaska Mental Health Trust land trade. It would allow the Trust to get land in the Tongass National Forest to avoid logging near Ketchikan and Petersburg.

 

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First Reads

Prudhoe plan approved on day Oil & Gas Division director resigned
Alaska Journal of Commerce, Tim Bradner, September 22, 2016

Murkowski launches big Alaska bills whose days are numbered
KTOO, Liz Ruskin, September 22, 2016

Questions surround Walker’s gas line plan
Alaska Public Radio News, Elizabeth Harbell, September 22, 2016

Small-scale scheme gives Alaska LNG a boost
Interfax energy, Damon Evans, September 22, 2016

 

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