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      This is your public service 1-stop-shop for Alaskan and Canadian Arctic energy commentary, news, history, projects and people. We update it daily for you. It is the most timely and complete northern energy archive anywhere — used by media, academia, government and industry officials throughout the world. Northern Gas Pipelines may be the oldest Alaska blog; we invite readers to name others existing before 2001.  -dh

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8-19-15

19 August 2015 7:52am

Commentary.  We predicted yesterday that lowered credit ratings for Alaska, due to the 49th State's dire fiscal condition, would result in higher interest costs.  We note that, today, Journalist Jeannette Lee Falsey, makes the same point (Link Below).

The state's fiscal condition is a direct result of several governors and many legislatures refusing to take austerity steps necessary to balance an unsustainable budget trend.  

This trend of declining oil revenue and increased government program spending was clearly anticipated by an extinct watchdog organization, Common Sense for Alaska, and Dr. Scott Goldsmith over two decades ago.

Had action been taken then, the pains of austerity would have been rather slight.  By the time Governor Sean Parnell was governor, and now, Governor Bill Walker, the pain of austerity necessary to achieve a responsible and sustainable budget has become extreme.

Parnell did not cut spending sufficiently.  Walker has shown no sign, post-election, of making serious budget cuts.  All signs point to Walker's "strategy" of increasing taxes and increasing spending.

Meanwhile, the rating agencies an New York are finally beginning to recognize Alaska's fiscal plight.  The Standard and Poor's negative outlook could soon spread throughout the investment community.  Investors will, accordingly, place a higher premium on an "Alaska risk factor" that translates to Alaska having to pay bondholders higher interest rates.

But the negative impact doesn't stop there.  Big investors that wish to borrow money for projects in Alaska will likely be told by their financial advisors and bond counselors that lenders will also foresee higher risk in private project investments.  This will make some projects uneconomic.

State or private investors planning participate in Alaska North Slope gas transportation projects (i.e. either in-state or LNG export)....

more coming....

8-18-15 Outrageous Decisions

18 August 2015 3:00pm

Bill Walker, governor, Alaska, Standard and Poor's, downgrade, oil, taxes, john donne, ernest hemingway, for whom the bell tolls, Photo by Dave HarbourGovernor Bill Walker's Outrageous Decisions

by

Dave Harbour

RATING AGENCY WARNS ALASKA: A VERY SIGNIFICANT AND VERY BAD OMEN. THIS ACTION WILL AFFECT THE COST OF MONEY AND, THUS, INCREASE ALASKA'S DEFICIT.  WARNING OF A RATING DOWNGRADE PORTENDS MORE BAD NEWS TO COME ABSENT A SIGNIFICANT TURNAROUND IN STATE POLICY.  -DH

STORY BY ANDREW JENSEN, JOURNAL OF COMMERCE

Standard and Poor’s Ratings Services lowered the outlook on the State of Alaska’s credit rating from “stable” to “negative” on Aug. 18, and gave politicians one year to reorganize the fiscal house before the downgrades accelerate.

Standard and Poor’s wrote that the current budget deficit is inconsistent with the state’s “AAA” rating on its general obligation bonds and its “AA+” on appropriation-backed bonds, but cited the state’s still healthy budget reserves as a bridge that could maintain the high ratings.  (READ MORE HERE).

Note: Circa. 2007 your author (i.e. a regulatory commissioner at the time) had the responsibility of briefing approximately 20 investment companies and the three rating agencies in NYC on Alaska's fiscal challenges.  Approximately two dozen of those professionals have remained on our email alert list over the years.  These analysts are the best and the brightest in their financial fields and Alaskans should never be so provincial as to think that what is said and done here is not noticed by investors, analysts and lenders in New York and throughout the world.  

Alaska is not an Island unto itself....

-dh

Immediately after the November election Governor-elect Bill Walker (NGP Photo) assured assembled members of the Resource Development Council for Alaska that he was not their enemy.  

We suspected his poor performances over the years in a quixotic representation of the so-called "Port Authority" would be reflected in his governorship.  

But, we held out hope that performance of his new duties would match his significant charisma and public speaking talents.

Alas, to this watcher of Alaska's slumping economy, the new Governor has engaged in a pattern of poor decisions.

He announced opposition to the Alaska Gasline Development Authority (AGDC) concept of being a back up plan to deliver Alaska North Slope (ANS) Gas to the state's residents.

Then, he began to criticize the large gas transportation project aimed at both monetizing ANS gas through exports and providing taps along a pipeline right-of-way to residents.

We commend the major Alaskan investors/oil producers and Trans Canada for maintaining a stiff upper lip and good attitude as they continued their multi million dollar effort to prove the feasibility of the Ak-LNG project amid a volatile world economy and a failing and unsustainable Alaska economy.

Meanwhile, appearing to do everything possible to discourage the state's largest investors, he began touting his ability to use AGDC as a vehicle for competing with the major Ak-LNG project.  Many of us were bewildered at the strategy, or lack thereof, that could lead a Governor to support investment in one project, then advocate using another state organization to compete with it.  
 
Today, we are not bewildered by such decisions; we conclude them to be outrageous behavior by a public official.
 
In the early part of the year, the Governor began to hint that increased industry taxes might be part of the answer to Alaska's deficit budgeting.  Most savvy observers have long observed that in order for Alaska to become solvent again it must encourage more oil development, not discourage it.

With Alaska failing to balance its budget or even enact significant cuts in its spending, the state's governor proposed even more deficit spending: expanding Medicaid.

Following the Legislative session, earlier this summer, he vetoed legislative expenditures to fund tax credits lawfully accrued by oil producers for investments in the state.

He then championed expanded state involvement in creating a natural gas utility for Fairbanks but urged his 'independent board appointees' to the Alaska Industrial Development and Export Authority (AIDEA) to switch gas sources.  AIDEA now seeks to obtain expensive natural gas reserves (i.e. 3x higher than current, Lower 48 prices) from the limited Cook Inlet supplies serving the major population in South Central Alaska while abandoning the world class reserves on the ANS where gas could be obtained cheaper.

As we noted in yesterday's posting, Walker is now beginning to threaten the oil industry with a reserves tax -- an outrageous and hostile act that would tax private sector energy investors for NOT producing gas even if market timing indicated caution and prudence in project sanctioning.

Today, we note that Standard and Poor's has begun the process of downgrading Alaska's credit rating (i.e. story right column above).  Three ANS oil industry taxes and a royalty payment fund about 90% of Alaska's state government operating budget and support over a third of the state's economy.  The 40-year-old Prudhoe Bay field responsible for most of that wealth has been declining in recent years at a 5-7% annual rate.  The trans-Alaska pipeline transporting that crude oil to market is nearly 3/4 empty.  Major transportation difficulties are now on the horizon and without significantly increased oil throughput, the pipeline could shut down within just a few years--or sooner.

Meanwhile, Alaska will have burned through all of its major savings accounts within the next two-three years.  While a $55 billion Alaska Permanent Fund is a tempting source of cash, the state's Constitution prevents easy access to it.  In any case, spending that savings would not lead to a sustainable economy; it would just prolong the point of no return.

On top of the fact that the state is not earning what it spends...using its savings...and its governor wants to increase spending...three other factors portend economic disaster for Alaska absent masterful management of money and resources: 1) A nearly $10 billion unfunded liability in the State's employee retirement programs; 2) a steadily declining level of oil production; and 3) an average oil price this summer that is half of what it was last summer.

Were we advising the Governor, we would:

  • urge action that would support investment in the state--and honest partnership with investors.
  • We would significantly cut spending in America's highest per capita spending and debtor state.  
  • We would seriously attempt to wean the highest per capita population of not-for-profit corporations in America from state government largess.  
  • We would cut virtually all capital spending, save for maintenance (i.e. which really is in the operating category).
  • We would undertake whatever legislative changes that could lead to not overspending on public employee overhead.  
  • We would also cut all higher education spending that worked counter to Alaska's resource development priorities (i.e. mandated by Alaska's constitution), and
  • we would energetically fight the Federal government every step of the way as it, and its environmental allies, seek to scuttle the 49th ship of state.

Somehow, we think this Governor to be incapable of such decisiveness, though we are still open to being pleasantly surprised.  But we'd better be surprised quickly because a 'drop dead' date quickly approaches and to survive, Alaska needs a major policy overhaul.

If this doesn't happen, we are mindful of John Donne's 1624 observation, later made more famous by Ernest Hemingway, who predicted and then lived the reality of really tough times: the Spanish Civil War.  We hope Governor Bill Walker takes history to heart, for he, too, is no island unto himself.   Outrageously bad decisions can not only create a bad governor's legacy, but can forever injure the economic future of an entire state, our hopeful offspring and coming generations of our descendants.

"No man is an island, entire of itself; every man is a piece of the continent, a part of the main. If a clod be washed away by the sea, Europe is the less, as well as if a promontory were, as well as if a manor of thy friend's or of thine own were: any man's death diminishes me, because I am involved in mankind, and therefore never send to know for whom the bell tolls; it tolls for thee."  -John Donne

Amen.


 

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8-17-15 Feds Permit Half A Loaf (adding many conditions) For Shell's Arctic Program

17 August 2015 11:46am

Breaking News: Bureau of Safety and Environmental Enforcement (BSEE) Director Brian Salerno today announced that Shell has received approval of one Application for Permit to Modify (APM) to conduct exploratory drilling activities into potential oil-bearing zones offshore Alaska at one of the wells at the Burger Prospect, Burger J.  Read More....


OUTRAGEOUS: Alaska's "Socialist Governor In Sheep's Clothing" Begins To Bear All.  See Tim Bradner's piece in the Alaska Journal of Commerce.  We will have plenty of comment tomorrow.  -dh

"Gov. Bill Walker is still pushing North Slope producers for a larger share of the Alaska LNG Project, and may promote a state gas reserve tax as leverage against the companies, state legislative leaders briefed recently on the governor’s plans said in interviews."


 

After extensive review and under a robust array of safety requirements, Bureau of Safety and Environmental Enforcement (BSEE) Director Brian Salerno today announced that Shell has received approval of one Application for Permit to Modify (APM) to conduct exploratory drilling activities into potential oil-bearing zones offshore Alaska at one of the wells at the Burger Prospect, Burger J.  The company remains limited to the top section of the Burger V well.

Shell submitted an APM on August 6 to modify the Burger J Application for Permit to Drill (APD), which previously restricted Shell from drilling into oil-bearing zones since a capping stack was not on hand and deployable within 24 hours, as required by BSEE.  A capping stack is a critical piece of emergency response equipment designed to shut in a well in the unlikely event of a loss of well control.  The capping stack, staged on the vessel M/V Fennica, is now in the region and capable of being deployed within 24 hours.

“Activities conducted offshore Alaska are being held to the highest safety, environmental protection, and emergency response standards,” said Salerno. “Now that the required well control system is in place and can be deployed, Shell will be allowed to explore into oil-bearing zones for Burger J.  We will continue to monitor their work around the clock to ensure the utmost safety and environmental stewardship.”

Shell is still prohibited from simultaneous drilling at Burger J and V, in accordance with the approved APDs, which define limitations related to marine mammal protection consistent with requirements established by the U.S. Fish and Wildlife Service (USFWS).  Consistent with regulatory requirements, a USFWS Letter of Authorization (LOA) issued on June 30 requires Shell to maintain a minimum spacing of 15 miles between active drill rigs during exploration activities to avoid significant effects on walruses in the region. 

Under the LOA, Shell is also required to have trained wildlife observers on all drilling units and support vessels to minimize impacts to protected species.  Shell must stay within explicitly outlined vessel operating speeds and report daily regarding all vessel transits.

To ensure compliance with this and other conditions, BSEE safety inspectors have been present on the drilling units Noble Discoverer and Transocean Polar Pioneer 24 hours a day, seven days a week to provide continuous oversight and monitoring of all approved activities.  The inspectors are authorized to take immediate action to ensure compliance and safety, including cessation of all drilling activities, if necessary.  BSEE experts have been engaged in thorough inspections of both drilling units and Shell’s response equipment.

The Burger Prospect is located in about 140 feet of water, 70 miles northwest of the village of Wainwright.

BSEE’s close oversight of drilling operations in the Chukchi Sea this year is consistent with its continuing efforts over the past five years to upgrade safety standards to improve the safety of offshore oil and gas development.  In addition, building on the lessons learned from Shell’s 2012 drilling operations in the offshore Arctic and incorporating the recommendations of a Departmental review of those activities, the Bureau of Ocean Energy Management (BOEM) on May 11, 2015, provided conditional approval of Shell’s Exploration Plan, which established numerous additional stringent safety requirements:

·         All phases of an offshore Arctic program – preparations, drilling, maritime and emergency response operations – must be integrated and subject to strong operator management and government oversight, as detailed in Shell’s Integrated Operations Plan;

·         A shortened drilling season to allow time for open-water emergency response and relief rig operations late in the drilling season before projected ice encroachment;

·         Capping stack must be pre-staged and available for use within 24 hours;

·         A tested subsea containment system must be deployable within eight days;

·         The capability to drill a same season relief well;

·         A robust suite of measures to avoid and minimize adverse impacts to marine mammals and their habitat, impacts to Native subsistence activities, and other environmental impacts; and

·         Drilling units and their supporting vessels must depart the Chukchi Sea at the conclusion of each exploration drilling season.

The Department has also published proposed regulations to ensure that future exploratory drilling activities on the U.S. Arctic Outer Continental Shelf are done safely and responsibly, subject to strong and proven operational standards andShell’s Chukchi Sea operations are being held to many of standards in the proposed regulations.

NGP Readers may find the APM and decision letter here.

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8-16-15

16 August 2015 11:35am

Petroleum News: 

SAExploration seismic programs approved - 08/16/2015 (Login to read Full story) SAExploration has received approval from the Alaska Department of Natural Resources, Division of Oil and Gas, for two seismic surveys, both on state land and waters in the Beaufort Sea, one in the vicinity of the Colville River Delta and one within the Prudhoe Bay area. The permits, both marine-base....

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8-15-15

15 August 2015 5:56pm

 
 
Duboyce: TransCanada is committed to safety and the environment
The Energy East pipeline's original route is pictured as TransCanada officials speak during a 2013 news conference inCalgary. Jeff McIntosh / THE ...
 
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8-14-15

14 August 2015 10:02am

Gas offers have come in - 08/16/2015 (Full story) Petroleum News by Alan Bailey.  The Interior Energy Project, an Alaska Industrial Development and Export Authority initiative to bring affordable energy to Fairbanks and the Alaska Interior, has passed a couple of milestones, as the project team assesses bids for the supply of gas from the Cook Inlet basin and proposals for the sh....  

(Comment: We remain wary about the reality of Walker Administration efforts to block a free enterprise sale of LNG facilities so that politicians can force feed natural gas prices to Interior Alaska.  

It is the recipe for corruption and chaos and, really, serves as pretext for the Walker Administration to pursue other 'controls over the means of production', such as political control over the Alaska North Slope gas transportation project.  

And, don't forget that the Administration's answer to the monumental operating budget deficit is trending toward higher taxes.  

This Administration is, more and more, demonstrating a dangerous fascination with economic socialism, the ultimate, disastrous outcome of which cannot be concealed by any amount of charisma or populism.  -dh)

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