Rashah McChesney

As oil prices dropped, Alaska’s jobs have dwindled.   

The state’s oil and gas industry shed nearly 2,400 jobs in the first half of the year. That’s according to new data from the state’s Department of Labor and Workforce Development.

A state economist said the oil and gas industry is shrinking fast, but it could bottom out soon.

It started in mid-January. BP announced that it would cut its Alaska workforce by 13 percent. Then ConocoPhillips, Parker Drilling and CH2M Hill announced layoffs. The reports have been rolling in for most of 2016.

“It’s dramatic. It’s, really ever since the ’80s recession, we certainly haven’t had job losses of this magnitude,” said state economist Caroline Schultz.

She said the state is hemorrhaging oil and gas jobs.

According to estimates from the state’s Department of Labor and Workforce Development, the oil and gas sector shed more than a quarter of its jobs between last October and this October.   

And even though there hasn’t been an official announcement of a recession at the state level, Schultz said this is it.

“I think it is safe to say, based on all possible interpretations of the word recession, that yes, we are in one,” she said. 

And, while the heaviest losses might be coming from the oil and gas industry, it’s not the only sector where Alaskans are losing jobs.

In the first half of the year, job loss in Alaska spread to most sectors of the economy.

In the construction sector, specialty trade contractors and engineering were hit the hardest both by the cuts to the state’s capital budget and cutbacks in oil-related construction projects.

In the professional and business service sectors, nearly half of all jobs losses were in fields like architecture, engineering and technical consulting.

And, it’s new territory for the state. Schultz said she’s spent time studying data from Alaska’s last oil price crash in the 1980s. But, it’s not a crystal ball.

“So, we don’t actually know how Alaska’s economy responds to this kind of shock. We’re definitely in new uncharted territory here. This is, you know this is the home grown recession. Our, kind of our number one value export is oil,” she said. “The value of that export has dramatically declined.”

But that last crash has provided a few clues about what could happen in the coming months.

One, that the oil and gas industry is is flexible. When oil prices dropped in the 1980s, the jobs in the industry fell fast and they fell hard. But, they didn’t fall for very long.

And Schultz said she used employment numbers from that time period as a framework for what’s happening now. Then, the oil and gas industry dropped down to about 8,000 jobs.

“To me, like, kind of mentally that’s been my floor. For how low can the oil and gas industry in Alaska go and still function,” she said.

Based on the the state’s current estimates, the oil and gas industry is down around 10,000 jobs now.

A state corporation has agreed to change the terms of a multimillion dollar loan to a Cook Inlet oil company. Texas-based BlueCrest asked for the loan modification to help the company deal with construction delays and the loss of oil tax credit payments from the state. Earlier this year, Gov. Bill Walker vetoed $430 million in oil tax credits, delaying payments to companies, including BlueCrest.

In 2015, the state agreed to give Texas-based BlueCrest Energy Inc., and its subsidiaries, a $30 million line of credit to buy a drilling rig and camp, which the company is using produce oil from the Cosmopolitan Field in southern Cook Inlet. When the oil starts flowing, the project is supposed to produce thousands of barrels of oil a day in Cook Inlet and bring in more than $150 million in new oil taxes and royalties to the state.

But there were delays in the completion of the drilling rig and that led to postponed oil production from the field. Then, Walker decided to postpone tax credit payments owed to the company.

Now, BlueCrest is asking the Alaska Industrial Development and Export Authority, or AIDEA, to change the terms of its loan. It wants to make interest-only payments for most of 2017. And it wants to lower the amount of money it keeps in an account that would reimburse the state if the company defaults on it loan.

The authority’s board members heard public testimony during their Dec. 1 meeting.

Some Kenai Peninsula residents were dismayed that the company is getting financing at all, let alone being allowed to relax the terms of its loan.

“I don’t have a clue how that would be a worthy investment. With the price of oil that’s been discussed already, it seems to be a huge gamble,” said Katie Kennedy, of Ninilchik.

Kennedy’s community neighbors BlueCrest’s pad in Southern Cook Inlet. She said BlueCrest’s ties to Buccaneer Energy,  a now-bankrupt company that also operated in Cook Inlet, show that the company doesn’t deserve a state loan.

But others say the company has a viable business plan that was derailed when it lost tax credit revenue it needed to meet the terms of the loan.

Kara Moriarty, president and CEO of the Alaska Oil and Gas Association, placed the blame for the loan modification squarely on the shoulders of the state.

“We’re here, not because of anything BlueCrest did. It was part of the business plan the state was aware of with AIDEA that the tax credit payments would be part of the financial package for AIDEA and for BlueCrest. And with the Governor’s veto it has caused a lot of companies to refinance their projects,” Moriarty said. “There are other companies that have had to do the same thing with private lending institutions.”

Ultimately, AIDEA board members unanimously voted to modify the loan.

A radical reshuffling in the state House has shifted control and the ruling philosophy for the upcoming session, but key questions on state energy policy remain the same.

As the dust settles from the election lawmakers find themselves in a new world, with plenty of new faces, but they’re staring down some of the same issues that kept them locked in Juneau last session:

Can the state afford its current system of oil tax credits? And what will happen to the Alaska LNG project?

In the state House, a new coalition of Democrats, Independents — and moderate Republicans are taking over from the Republican-led majority for the first time in 24 years.

The new leadership says dealing with the state’s budget crisis is at the top of their list. A big part of that includes deciding how to manage its relationship with the industry that has historically paid the bills: oil.   

Rep. Paul Seaton, R-Homer,  is one of three Republicans who teamed up with Democrats to form the new majority, and he said that reforming the state’s oil tax credits has to be a priority.  

“I do not see us just robbing the state’s piggy bank or its savings account to pay out tax credits beyond what are statutorily obligated,” he said. 

Seaton is also the new co-chair of the House Finance committee – which means he’ll be in a powerful position to shape the budget next year.

In the last nine years, the state gave $8 billion in oil and gas production tax credits: $3.5 billion in actual checks and the rest in credits to offset taxes, according to state tax division data.

Last year, lawmakers passed a bill cutting credits in Cook Inlet. Seaton says it’s time to talk about the North Slope.

Another big ticket item on the agenda is the massive Alaska LNG project. While, the new coalition in the state House might be friendlier than their predecessors, to some of Governor Walker’s ideas, that doesn’t mean they’ll support his entire agenda. His administration is pushing for a state-led alternative to the natural gas pipeline from the North Slope, but many lawmakers aren’t too keen on pumping more money into the project.

Representative Seaton thinks the project might be too big for the state during an era of depressed budgets.

“We don’t have the money to put into it as a go-it-alone project,” he said.  

Anchorage Democrat Andy Josephson agrees. He said natural gas prices are down and he doesn’t think the gasline will rescue Alaska from its current fiscal crisis.

“This is just economics,” Josephson said. “What the experts tell us is this will be developed some day but it’s not likely to be in 2023 when we thought it might be. You know, it may be when I’m in my golden years that this happens.”

Josephson will chair the powerful House Resources committee during the next session along with another Anchorage Democrat, Geran Tarr. 

And the two urban Democrats plan to take the committee in a new direction.

Josephson says they will continue the traditional focus on  the oil and gas industry — but will also pay more attention to environmental issues.

“So, you’re going to see some environmental legislation that is going to provide a greater opportunity for discussion about things like climate change, wildlife management, the mining industry and its impacts on fisheries and our recreational opportunities,” Josephson said.

But the House might find itself clashing with the Senate, which is still controlled by a traditional Republican majority.

On oil tax credits, Senate Majority Leader Peter Micciche, R-Soldotna, said his district in Cook Inlet has already taken a huge hit from the cuts last session.

“It dramatically reduced credits paid out for development in Cook Inlet, that affected by district by several hundred million dollars a year,” he said.

And while Micchiche said some of those reforms needed to happen, he sees a philosophical difference between the new House majority and the relatively unchanged Senate.

“Both sides have a tendency to push too far. And that’s not going to work,” Micciche said. “We’re not going to find solutions if we are dead set on more or less getting our own way.”

He says last year’s tax credit reform bill took a Herculean effort to get passed.   

“We had to drag people across the finish line on the Senate side, I know they had to do the same thing on the House side. People have to be willing to compromise and to find solutions that not only work for Alaskans but balance the liabilities and benefits of tax policy,” he said.

But Micciche also has questions about a state-led Alaska LNG project, which means, on that issue, at least, both houses may be on a collision course with the governor.

 

ConocoPhillips is looking to leave the natural gas business in Cook Inlet.

The Houston-based company said  Thursday its putting its Kenai LNG plant up for sale. 

For nearly 50 years, that plant was the only export facility of domestic liquefied natural gas in North America.

In an emailed statement, spokeswoman Amy Burnett said the company wants to focus on its North Slope operations.

“Our efforts to market the Plant are consistent with our company’s efforts to regularly review our assets to ensure we are optimizing our portfolio,” Burnett wrote. “We believe the plant is a strategic asset that offers good opportunities for the right buyer.”

The Kenai LNG plant includes a dock and loading facility to transport LNG. It processed natural gas from Cook Inlet and nearly all of its product was sold to Japanese utilities. The plant is not part of the state’s Alaska LNG project, which calls for a much larger natural gas plant to be built nearby.

The plant operated for six months in 2015. Burnett says, because of market conditions it  has not exported gas in 2016. But the plant is still operational and could start exporting again.  

It’s the second year the company has sought to drop Cook Inlet assets. In 2015, it put its natural gas production assets up for sale. It sold its North Cook Inlet field to Hilcorp in late October.

It also sold its stake in the Beluga gas field to the City of Anchorage earlier this year.

 

 

As winter approaches, thousands of Alaskans grapple with rising heating bills.

This year, for the first time in nearly a decade, the state won’t step in to help.

More than 9,000 households will see their heating assistance benefits reduced. Another 1,300 will likely be booted entirely from a now-defunct state program designed to keep low-income Alaskans out of the cold.

In 2008, the state was in a different place. 

“Plenty of money in the coffers, the price of oil was high. Home prices for home heating was very high and they wanted to try to offset that,” said Susan Marshall, heating assistance program coordinator for the state. 

The legislature created a heating assistance program to help low-income households cope with high fuel prices, she said. The program was a counterpart to the federal Low Income Home Energy Assistance Program, or LIHEAP and helped cover people whose incomes were too high to qualify for LIHEAP.

And that program was tied directly to the price of oil.

Marshall said she would crunch the numbers.

“So, I would go back and look at the price of a barrel of North Slope crude. Take an average of what the price was,” she said.

When the price of oil was high, more money went into the program.

The state also subsidized the federal heating assistance program, so that the lowest-income Alaskans got money from both to help with heating bills.

But, when oil prices crashed — so did the state’s budget.

The state cut the heating assistance program last year in an effort to trim spending.  

The federal LIHEAP program is still in place, but it only serves the lowest-income Alaskans.  

The loss of state funding to that program will drop payments to those households by 30 percent this year, which means that more than 10,300 households in the state will see their benefits reduced or eliminated entirely this year.

The heating assistance benefits are determined based on what type of fuel the household uses for heat — like wood, coal or natural gas, and how big the home is.

Priority goes to homes with older, disabled or young family members.

The benefits also factor how cold a region gets. 

On average homes in Fairbanks and North Pole received almost twice the amount of heating assistance when compared with homes in Anchorage, according to state data.

While the largest numbers of people were cut in urban areas of the state,  the cuts are hitting especially hard in rural areas, where it’s more expensive to live and fuel prices are still high.

In Dillingham, temperatures have been dropping into the 20s and high teens at night.  

“So basically every day we have some kind of crisis application on the phone, which is typical this time of year,” said Rae Belle Whitcomb, who is director of the Workforce Development Center for the Bristol Bay Native Association.

The association serves 28 out of the 31 villages in their region with federal heating assistance. The program pays for everything from heating oil, to wood, and electric bills.

By the second week of November they’ve had more than 260 applications, about one-third of the more than 700 applications they’ll get in Bristol Bay every year.

Out of that, about 110 homes had incomes that are too high to qualify for the federal program.

Whitcomb said they’ve helped people budget, encouraged them to weatherize, turn down thermostats and dress warmer in their homes.

“What can and does happen sometimes is people will move in together. So there’ll be more families living together because they can’t afford not to,” she said.

Whitcomb said she’s hearing from a lot of people who don’t have the income to make up for the loss of heating assistance.

And a big part of that was the cut to the PFD.

Gov. Bill Walker vetoed about half the amount that was supposed to be paid out.

Alaskans got about $1,000 less than what was projected.

“The double whammy of that was huge,” she said.

The cuts hit harder in rural Alaska because not many people have other sources of income.

“You can’t go down and get a McDonald’s job for $9.75 an hour. There’s not many of those other jobs,” she said. 

Whitcomb said the recent warmer winters have made things easier, but she’s worried this year will be much colder.

 

To see the number of households affected by cuts to the state’s AKAHP heating assistance program this year, see the graphic below.

Data from the Alaska Department of Health and Social Services Division of Heating Assistance.

A private sector petroleum engineer and consultant will lead the state’s oil and gas division.

Chantal Walsh of Anchorage will join the Department of Natural Resources at the end of November. She will replace former division director Corri Feige who stepped down in October.

Walsh has spent more than 30 years in the private sector in Alaska working on everything from litigation to drilling design, according to a DNR media release.

And that private sector experience isn’t common for this position.

DNR Deputy Commissioner and Alaska Public Media board Vice President Mark Wiggin said he’s not sure anyone who has headed the oil and gas division has been a professional engineer.

“It’s not common,” he said. “I believe Chantal has more experience than anyone who has held that position before, in the oil industry.”

She is leaving the firm she helped found, Petrotechnical Resources of Alaska. There, she has consulted on projects for BP, Unocal, and Chevron, according to her resume.

She is also the vice chair of the University of Alaska Fairbanks’ College of Engineering and Mines Advisory Council.

A spokesperson for DNR said Walsh is not available for interviews.