North Slope

Updated story — April 8, 2020 — Nat Herz, Alaska Public Media

Alaska Attorney General Kevin Clarkson says there’s no legal authority behind the North Slope Borough’s emergency order attempting to seize the property of a bankrupt airline within the borough’s boundaries.

Borough Mayor Harry Brower issued the order Sunday, the same day that RavnAir Group filed for bankruptcy in Delaware court.

Ravn was the only passenger air service to some of the borough’s isolated villages.

Last week, the company announced the termination of nearly all of its flights to the more than 100 communities it served, citing a 90 percent reduction in ticket sales due to the coronavirus pandemic. On Sunday, it announced it was shutting down completely and filing for bankruptcy.

Brower said the airline’s assets were needed to guarantee companies could step in to replace Ravn in order to move food and medical supplies for the borough’s residents.

But in a prepared statement on Tuesday, Clarkson said Brower’s order is “counterproductive” and complicating the ongoing bankruptcy proceedings. Those proceedings could lead to investment for Ravn that could help pay money owed to company employees that were laid off, along with establishing substitute service.

Clarkson says the state appreciates the borough’s goal of establishing substitute service. But that will be more difficult as long as local governments are attempting to seize Ravn’s property, Clarkson added.

Clarkson says that Ravn’s property is part of its bankruptcy estate, which means the borough’s emergency order is void under federal and state law.

A borough spokesman did not immediately respond to a request for comment.

 

Original story — April 7, 2020 — Lex Treinen, Alaska Public Media

The North Slope Borough’s government says it is taking possession of all of RavnAir Group’s planes and other property within the borough’s boundaries in order to guarantee continued air service to the region.

Until last week, Ravn was the sole passenger air carrier to several North Slope villages. On Sunday, the company announced that it was shutting down all operations and filing for bankruptcy.

In an emergency order signed Sunday by Mayor Harry Brower, the borough says that under its authority during a disaster declaration, it is “commandeering” all of Ravn’s “hangars, equipment, operations manuals, parts, supplies, vehicles, (and) airplanes.”

The order also says that the North Slope Borough can take possession of “intangible assets,” such as security codes and leases.

“The borough must, in this time of disaster, ensure that its residents have food, medical supplies, and medical transport,” the order says.

Ravn’s ground crew, hangars and equipment were still being used through Sunday in Utqiagvik, the North Slope’s hub community, according to Matt Atkinson, a part-owner of Wright Air.

Wright Air has taken over Ravn’s routes on the North Slope, and on Sunday afternoon, Atkinson said Wright had hired five of Ravn’s ground crew to keep the flights going, but hadn’t yet secured access to facilities.

Borough officials couldn’t immediately be reached to explain the practical effect of the order; a North Borough spokesman didn’t immediately respond to a request for comment. RavnAir Group did not immediately respond to phone calls or emails.

The North Slope Borough had an estimated 9,800 residents in 2019, according to the U.S. Census Bureau, with about half living in Utqiagvik. The rest live in the North Slope Borough’s seven other communities of Anaktuvuk Pass, Atqasuk, Kaktovik, Nuiqsut, Point Hope, Point Lay, and Wainwright.

Alaska’s largest private-sector employer, Arctic Slope Regional Corp., has laid off employees and cut charitable giving due to the collapse in oil prices and the economic shutdown caused by the global coronavirus pandemic.

That’s according to an April 3 letter from the chair of ASRC’s board of directors, Crawford Patkotak, to the company’s 13,000 shareholders. An ASRC spokesperson would not say how many employees were let go.

ASRC’s letter to shareholders said the corporation had cut “many of the charitable programs in our region,” eliminated all corporate bonuses and incentives for executives, and reduced the board of directors’ compensation — in the form of a stipend — by 30%.

“It’s a challenging time for a lot of businesses right now, and let’s hope we can all weather the storm and get back to a new normal soon,” ASRC spokesperson Ty Hardt wrote in an email.

Hardt declined to answer any further questions about the cuts.

“Unfortunately, the total impact of the COVID-19 response (and low oil prices) isn’t quite known yet and it could get worse before it gets better,” Hardt wrote, referencing the disease caused by the coronavirus.

Hardt said ASRC has 15,000-plus employees in Alaska and the Lower 48, and in its most recent available annual report, from 2018, it reported revenues of more than $3 billion.

The Alaska Native corporation is heavily invested in oil and gas, including ownership of an oil refining business, and represents residents and descendants of Iñupiat communities on Alaska’s North Slope, from Point Hope to Kaktovik.

ASRC paid out dividends of $7,000 to each shareholder with 100 shares in 2018, according to its report for that year.

In its letter to shareholders this month, ASRC said it was cutting spending in areas that were not generating revenue the corporation needs to pay shareholder dividends.

“In 2020, it is likely we will have to decrease the amount of the ASRC dividend disbursements, but we do not yet know by how much or for how long,” the letter says.

The letter says ASRC will continue plans to expand into the Lower 48 and diversify its investments away from oil and gas.

Commenters on a private Facebook group for ASRC shareholders had mixed responses. Some felt the corporation’s board was too highly compensated and had not done enough to cut at its higher levels of management. A few vowed to vote out the current board members.

Others thanked the board for making difficult decisions to keep the corporation afloat during tough economic times.

Alaska’s Energy Desk reporter Nat Herz contributed reporting to this story.

 

https://ktoo.sandbox.5mts.com/2020/04/07/north-slope-borough-commandeers-ravns-north-slope-assets/

State regulators have asked Hilcorp, the independent oil company buying BP’s Alaska assets, to disclose whether and how the pandemic-driven crash in oil prices will affect its ability to seal the $5.6 billion deal.

In an 18-page order Thursday, the Regulatory Commission of Alaska asked BP and Hilcorp affiliate companies to answer 32 different questions, including whether “recent changes in financial markets” have affected Hilcorp’s ability to finance the deal.

“If market conditions have not impaired access to capital, please explain the sources of capital for this acquisition,” the order said.

Hilcorp’s finances have become an increasing area of focus for those following the deal amid a historic crash in the price of oil last month — driven by both plummeting demand and a feud between Saudi Arabia and Russia over whether to further reduce production in response. Alaska North Slope crude prices have plummeted from $50 a barrel in early March to $22 by Friday.

Hilcorp has not said exactly how it plans to raise the full $5.6 billion, but ratings agencies have said that heavy borrowing could cause them to reduce the company’s credit rating.

Two watchdog groups also say they’re concerned about whether Hilcorp’s debt levels could affect its ability to operate safely.

In a letter to the RCA before the order was issued, the Prince William Sound Regional Citizens’ Advisory Council said the commission should require Hilcorp to file “new and updated financial statements” to reflect the “current investment environment.”

“Much has changed since Hilcorp submitted its initial financial statements and sales agreement with BP. The changes are of a magnitude that the analysis of Hilcorp’s financial fitness might be affected,” wrote Donna Schantz, the director of the council, which was created after the 1989 Exxon Valdez oil spill.

“The council is not opposed to this transaction,” she wrote. “It just wants to be sure the state conducts its due diligence responsibilities and that Hilcorp is fit and able to carry-out its significantly increased and critically important responsibilities associated with this transaction, including the prevention of oil spills and the capacity to respond if one should occur.”

The Alaska Public Interest Research Group sent a similar letter to the RCA on Friday. It praised the commission for its request for additional information about the effects of the oil price crash. But it argued that Hilcorp should still be required to provide complete updated financial statements, which the RCA has not asked for.

“Without requiring updated financials, the RCA will be evaluating a company whose past financial statements bear little relationship to reality,” said the letter, written by the research group’s policy analyst, Phil Wight.

A Hilcorp spokesperson, Luke Miller, declined to comment. The company’s founder, Jeff Hildebrand, participated in a White House meeting between President Donald Trump and oil company executives Friday, where he told the president he was there representing “the family-owned businesses that are in this industry.”

BP, in an announcement Wednesday, said its broader asset sale initiative that includes the Hilcorp deal “remains on track,” though the timing of when it receives the money from the sales “may be revised as transactions complete, particularly while volatile market conditions persist.”

“This includes the sale of our Alaskan business to Hilcorp, which we continue to expect will complete during 2020, subject to regulatory approvals,” the announcement said. “We will provide further information on this transaction going forward, as appropriate.”

In its order Thursday, the commission said it wants the additional information from BP and Hilcorp “to assist us in our analysis of whether Harvest Alaska’s proposed acquisition of BP’s Alaskan assets meet our statutory standards.” Other questions involve liability and insurance, along with the operations of pipelines that a Hilcorp affiliate is acquiring stakes in, including the trans-Alaska pipeline.

The companies’ responses are required by May 4.

 

Alaska’s largest rural air carrier, RavnAir Group, says it’s cutting its service by 90% amid a coronavirus-driven crash in revenue — a move that could leave dozens of rural villages with deeply diminished air service for passengers and no other reliable link to the road system.

The company, until this week, served 115 communities across nearly the entire state, from the North Slope to the Yukon-Kuskokwim Delta to the Aleutian Islands.

In a prepared statement, RavnAir Group said it’s shrinking its fleet of planes from 30 to three.

“RavnAir Group today announced that due to the dramatic and continuing 90% reduction in passenger revenue bookings resulting from the COVID-19 coronavirus, it has been forced to take further actions to drastically cut costs,” the statement said.

In a prepared statement. Gov. Mike Dunleavy said that “the aviation industry is working cooperatively to ensure essential passenger service, bypass mail and freight service is maintained to their communities during these uncertain times.”

“This morning, I also spoke with officials from the United States Postal Service and they assured me they are working with contract carriers to maintain scheduled service to rural areas,” he said. “The importance of the supply chain to rural Alaska communities is a priority for my administration.”

Oil and gas company BP confirmed Tuesday that a worker at Prudhoe Bay has tested positive for COVID-19, the disease caused by the coronavirus. It’s the first confirmed case of the illness at the massive oil field in northern Alaska, where many workers live in close quarters.

BP is the operator of the field.

“BP is following procedures and protocols to minimize the risk of COVID19 and ensure the safety of our people. We are eliminating all non-essential activity on the slope,” said a statement from the company. “The safety and wellbeing of staff and contractors and respect for the communities in which we operate is our highest priority.”

A BP spokesperson did not immediately respond to additional questions. It’s unclear where the employee is from, what condition the employee is in and whether they have exposed others.

The company also did not provide specifics about which work activities qualify as essential.

BP previously said it has deployed new measures to prevent the spread of the coronavirus on the Slope. Those include checking employees for fevers, extending many workers’ shifts to at least three weeks and increasing cleaning. It also said its out-of-state workers will self-quarantine for two weeks in Alaska before flying to the Slope.

This story has been updated.

 

Oil prices are way down. The price of U.S. and global benchmarks are both below $40 per barrel.

Alaska North Slope crude is in the $30 range. In the last 20 years, it’s only been that low a few times. From 2000-2004, in 2008, and in late 2015-2016.

The COVID-19 pandemic is driving some of the recent decline. But prices were low even before the outbreak.

Larry Persily is a former federal pipeline coordinator in Alaska. He says the drop comes down to supply and demand.

“It’s pretty much basic economics,” Persily said. “More oil out there, and buyers are thinking ‘hey it’s going to be cheaper tomorrow, and next week and next month and if you don’t want my $34 today, heck, I’ll get it for $32 tomorrow.’ It’s not a good situation.”

Persily says reduced demand has been a problem for a while, and there are many factors at play. A big one: China’s economy weakened, and with it, demand.

And then came a global health emergency.

“The coronavirus outbreak came, demand in China went down, the world economy is contracting as people are producing less, flying less, manufacturing less,” Persily said.

So, already low demand has been pushed even lower.

Russia and the Organization of Petroleum Exporting Countries, or OPEC, met recently and tried to help balance global supply and demand. But, Persily says they were unsuccessful and now, to add to existing uncertainty, he says we’re seeing an oil price war.

In recent years, the price of Alaska North Slope Crude has been reliably higher than the U.S. benchmark, West Texas Intermediate. That also has to do with supply and demand. Alaska oil competes with foreign exports, rather than West Texas. Persily says different markets have different channels of supply and demand.

“2018, 2019, there was a period there where Alaska oil was worth $10 per barrel more than Texas,” Persily said. “Of late, we’re back to the $2 or $3 bump as was historical practice. Because global demand was weakening, global prices were going down, and Alaska rode it down with them.”

That’s why right now, the two commodities are much closer in price, and that price is low.

The big question now is: how far will oil prices drop and how long will they stay so low?

“We’ll get out of this and oil will start climbing, I think during this year certainly back into the $40s, maybe the $50s,” Persily said. “A lot will depend on the economy and how bad the coronavirus outbreak gets around the world.”

If oil prices don’t bounce back, it could mean more trouble for Alaska’s oil-dependent economy.