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R E V I E WRESOURCE

A PERIODIC PUBLICATION OF THE RESOURCE DEVELOPMENT COUNCIL FOR ALASKA, INC. www.akrdc.org

I N S I D E

Kensington Project 1, 4

Oil Tax Proposal 1, 5

Tax Policy Principles 3

Pebble Commentary 6

MacKenzie Gas 7

Red Dog TRI Report 8

Beluga Whale Review 9

PPT Commentary 10

RDC News Digest 11

This Edition Sponsored By:

(Continued to page 5)

Proposed changes to the state’s oilproduction taxes have dominated the leg-islative agenda in Juneau this spring andthe stakes are high as the Legislature at-tempts to strike the right balance betweenincreased taxes and critical long-term in-vestments needed to spur new oil and gasproduction.

Last month more than a dozen RDCboard members visiting Juneau told legis-lators that the new petroleum productiontax (PPT) must not jeopardize the long-term investment required over the nextten years to increase production.

North Slope production is decliningabout six percent a year. With industryinvesting at current levels, the state willbe at half of today’s production in just tenyears. However, the state’s long-rangeproduction forecast assumes a three per-cent decline annually. Cutting the decline

Past issues of Resource Review (1978-2006) are available at www.akrdc.org/newsletters/

STAKES HIGH

IN OIL TAX

REVISION

THE RIGHT PROJECT AT THE RIGHT TIMEBY TIM ARNOLD

Kensington

OOnce again, the U.S. Army Corps of Engineers issued a ringing endorse-ment of the environmental soundness of Coeur Alaska’s Kensington gold minewhen it reinstated its 404 permit in late March. With the permit in hand, Coeuris looking forward to a busy year as it continues with an aggressive constructionschedule. The company is aiming to complete the project and start producinggold in 2007.

To date, Coeur Alaska has completed extensive underground work to preparethe mine for operation. Above ground it has built a camp for workers, installeda water treatment plant, a temporary dock, and completed much of the gradingand site preparation for the construction of the mill.

In the coming months, much of the work will focus on construction of a damat Lower Slate Lake and construction of the mill.

While Coeur Alaska moves ahead with stepped-up hiring and construction,the Southeast Alaska Conservation Council, the Sierra Club, and Lynn CanalConservation have resumed their legal attack against the mine. These groupspersist in their efforts despite a permit that has now been twice validated; despite

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Usibelli Coal Mine, Inc.Alaska Railroad Corporation

Resource Review is the official periodic publication

of the Resource Development Council (RDC),

Alaska's largest privately funded nonprofit economic

development organization working to develop

Alaska's natural resources in a responsible manner

and to create a broad-based, diversified economy

while protecting and enhancing the environment.

Resource Development Council121 W. Fireweed, Suite 250Anchorage, AK 99503Phone: (907) 276-0700Fax: (907) 276-3887E-mail: resources@akrdc.orgWebsite: www.akrdc.org

Material in this publication may bereprinted without permission providedappropriate credit is given. Writer & Editor Carl Portman

Executive Committee OfficersPresident John ShivelySr. Vice President Rick RogersVice President Wendy LindskoogSecretary Tom MaloneyTreasurer Stephanie MadsenPast President Chuck Johnson

StaffExecutive Director Tadd OwensDeputy Director Carl PortmanProjects Coordinator/AMEREF E.D. Jason BruneFinance/Membership Deantha Crockett

Page 2 May 2006 Resource Review www.akrdc.org

DAVE HARBOUR

GUEST OPINION

(907) 276-0700 May 2006 Resource Review Page 3

Editor’s Note: The following Guest Opinion was recently published in theAnchorage Daily News and is reprinted here for the benefit of our statewide,Lower 48 and Canadian readers. Harbour is a former RDC board member; afounder of Arctic Power; former chairman of the Anchorage Chamber ofCommerce, the American Bald Eagle Foundation and the Alaska Council onEconomic Education. He is the former public affairs director of the Arctic Gasconsortium and a former government relations director for Atlantic Richfield Co.Dave has no financial ties to the oil industry and provides this piece as a privatecitizen and not as a state employee.

Governor Hammond and Legislative leaders provided ageneration of reasonable oil tax stability. In a historical pressconference on March 17, 1981, they announced a “fair share”tax policy the oil companies also supported.

That legislative policy provided Alaska a 30% share of rev-enue from severance, income and property taxes and royalties.The policy removed oil income tax discrimination, increasedseverance tax from 12.25% to 15% and repealed individual in-come taxes. Modifying the economic limit factor, ELF, it en-couraged less prolific wells while maintaining jobs, royalties,income and property tax payments and maximizing TAPSthroughput. Some say that policy’s outdated today, but it suredid provide stability and massive investments for a generation.

Our generation struggles to createa 2006 “fair share” definition, re-placing severance tax with a higherPetroleum Production Tax (PPT).The Administration negotiated thePPT with industry as basis for gaspipeline progress. Legislatorshaven’t agreed; some want highertaxes. Agreement among theGovernor, Senate, House and indus-try must soon emerge. Withoutconsensus, as occurred 25 years ago,the investment climate could deteri-orate and further delay gas pipelineprogress.

These principles could contribute to a successful 2006 oiland gas tax policy:

FFaaiirr SShhaarree PPrriinncciippllee.. With the Administration’s proposedPPT tax replacing the severance tax, Alaska could get about a35% resource share, 5% more than the 1981 “fair share” defi-nition. That’s about a billion dollars above this year’s $1.4 billion windfall surplus, half a billion above the 1981 formula.Oil industry taxes and royalties currently provide about 90%of Alaska’s unrestricted general fund revenues. Other indus-tries pay a much smaller share of state revenue. With repeal ofthe personal income tax in 1981, citizens began paying noshare of state tax revenue. Before adding to theAdministration’s PPT increase, high tax advocates should ex-plain why more than a 35% share is “fair;” how it improves,without damaging, our investment climate.

MMaaxxiimmuumm BBeenneeffiittPPrriinncciippllee.. Some leaders pro-mote taxing companies to a“break point,” using our con-stitution as justification.Article 8 Section 2 says, “Thelegislature shall provide for theutilization … of all natural re-sources … for the maximumbenefit of its people.” Hightax advocates say we shouldsqueeze more drops of taxfrom the oil turnip than the PPT extracts. Some demand dra-matically higher taxes, fearful of “leaving money on the table.”But the Constitution didn’t restrict “maximum benefit” todollar benefits, nor did it selfishly restrict benefits to our gen-eration of “people.” Leaders should unselfishly aim for along-term, sustainable tax structure that creates, as in 1981, aninvestment climate providing for “… the maximum benefitof,” this and future generations.

WWiinnddffaallll PPrriinncciippllee.. Some tax advocates claim, “Those tax-payers received a windfall,” an irrelevant observation in a freemarket, capitalist nation. High world oil prices produced a

“windfall” for Alaska’s government,a billion dollar surplus. So, whydon’t we hear demands for govern-ment to make tax windfall refunds totaxpayers? Alaska’s fall 2002Revenue Forecast projected thatwith oil in the $22-25 dollar rangethe state would have a $1 billion annual deficit by 2005.Others predicted draconian cuts ingovernment services by now.Instead, we have a surplus. Whathappened? Oil companies enjoyedhigh oil prices and so did Alaskawhich gets tax and royalty percent-

ages of value. It’s more than a little bit hypocritical and ‘thirdworld’ that in an effort to justify higher taxes, anyone shouldput a “windfall” label on taxpayers to rationalize increasinggovernment’s “windfall” at taxpayers’ expense. ‘Windfalls’aren’t necessarily evil; a free market phenomenon, they bal-ance bad times and support reinvestment. Just as governmentwon’t be distributing tax refunds when it experiences taxwindfalls, so should it not demand more than its usual per-centage from taxpayers when world oil prices are high.

Using these principles, this generation can build consensusfor a solid, 21st Century oil tax policy in a non-partisan way.We’ll have our kids’ best interest in mind—as theConstitution’s framers envisioned—and boost our investmentclimate, too.

FAIR SHARE: A TAX FOR

TWO GENERATIONS “Before adding tothe Administration’sPPT increase, hightax advocatesshould explain whymore than a 35%share is ‘fair;’ how itimproves, withoutdamaging, our in-vestment climate.”

Pictured above is Dave Harbour with (the late) Governor JayHammond.

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a mountain of scientific andtechnical data that supportsthe project; and despite over-whelming local and regionalsupport for the project.

EEccoonnoommiicc IImmppaacctt

Coeur Alaska will spend$190 million to construct themine – and much of this willgo to contractors who arebased in or who have stronglinks to Alaska. During theconstruction phase, approxi-mately 300 workers will beemployed on site – with astrong preference for localhires. Once the mine beginsoperating, it will providelong-term employment forsome 200 Alaskans and addtens of millions of dollars an-nually into the economy ofSoutheast Alaska. Annualwages and benefits are ex-pected to be $16 million. Themine will generate state andlocal taxes amounting tomore than $10 million, andcontinue to make significant

contributions to deservinglocal civic and charitable or-ganizations.

MMiinniimmaall VViissuuaall IImmppaacctt

By industry standards,Kensington is a relativelysmall underground mine. Assuch, there is very little landimpacted by the constructionof the mine or the operationof the mill. With the excep-tion of a very modest dockfacility, the Kensington minewill not be visible fromBerners Bay or Lynn Canal.

PPeerrmmiittttiinngg MMeetthhoodd FFoorrTTaaiilliinnggss DDiissppoossaall IIss TThhee

OOnnllyy OOppttiioonn

The rock material left afterremoval of gold is referred toas “tailings.” Tailings fromthe Kensington mine will beinert material similar in con-tent to the sand at nearbybeaches. Forty percent of thetailings will be recycled backinto the mine as fill material.

The remaining tailings will beplaced in a lake that (even inits natural state) is only mar-ginally productive.

When mining is complete,Coeur Alaska will rehabili-tate the lake, making it threetimes larger than it is today.This is consistent with anEPA-contracted study thatconcluded the productivityof the reclaimed lake will bebetter than its current naturalstate.

BBeesstt && BBrriigghhtteesstt

Kensington has incorpo-rated the best and brightestthinking into this project inevery area. Over the years,

Kensington has been the sub-ject of some 900 separatestudies to the tune of morethan $25 million.

RRiigghhtt PPrroojjeecctt,, RRiigghhtt TTiimmee

With a million ounces ofproven and probable re-serves, an annual productionrate of about 100,000 ounces,and a cash cost of about $250per ounce, Kensington is anideally sized project in everysense of the word. It fits thelandscape with a light envi-ronmental footprint; it fitsSoutheast Alaska’s desire foreconomic growth and diver-sification while protectingthe environment; and it ar-rives at a time when theworld demand for gold con-tinues to increase.

For these reasons andmany more, we are excitedabout the Kensington mineand building a project thatwill contribute real and last-ing value to the people andeconomy of SoutheastAlaska.Tim Arnold is Vice President andGeneral Manager of Coeur Alaska. Healso serves on the RDC Board ofDirectors.

KENSINGTON PROJECT

MOVES FORWARD(Continued from page 1)

Management of the mine tailings in Lower Slate Lake was the permitted alternative as it had the least environmental im-pact. After mining, the reclaimed lake, at right, will be about three times larger than the current size, at left. The larger lakewill have improved productivity and aquatic habitat. Native wild fish will be restocked into the lake. Currently the lake isrelatively unproductive and naturally occurring water quality does not presently meet state standards.

After performing 900 environmental studies, investing more than $25 million inenvironmental reviews and working with local, state and federal agencies to se-cure the necessary permits, Coeur Alaska is moving forward with the under-ground Kensington Gold Mine northwest of Juneau.

(907) 276-0700 May 2006 Resource Review Page 5

in half to meet state assump-tions would require industryto double its annual invest-ment from about $1.5 billionnow to $3 billion.

There are more than 15 bil-lion barrels of oil still to beproduced on the NorthSlope, but much of it is tech-nically and economicallychallenged. Without a long-term tax strategy that encour-ages industry, Alaska riskslosing the tens of billions ofdollars necessary to developthe resource and extend thelife of the oil pipeline.

If the Legislature over-reaches in its tax take, more

investment dollars are likelyto flow abroad where costsare lower and return on in-vestment is higher. Under thevarious PPT bills before theLegislature at the time thispublication went to press,Alaska would have the high-est marginal tax rate in theUnited States. Alaska is al-ready considered to have thehighest costs of any oil pro-ducing province in the world.

Last year the oil and gas in-dustry paid more than $3.5billion in taxes and royaltiesto the state. The Governor’soriginal 20/20 PPT proposal,which the industry has reluc-tantly supported, would in-

crease total government taketo 57 percent from the cur-rent 54 percent.

“RDC is concerned withapplying a significant tax in-crease on the one industry re-sponsible for nearly 90percent of the state’s generalfund revenues,” warnedRDC ExecutiveDirector Tadd Owensin testimony lastmonth before theSenate FinanceCommittee. “TheGovernor’s originalproposal — a doublingof the effective tax rate— was troubling in itsown right. The currentSenate version of thebill is extremely worri-some.”

RDC encouraged theLegislature to focus on twoissues when considering thenew tax structure. First,what system will best makeAlaska a competitive placefor capital investment for thenext several decades?Second, will the new systemcontribute to budgetary sta-bility or will it exacerbateAlaska’s historical pattern ofrevenue peaks and valleys?

RDC believes any new taxsystem should place Alaska ata competitive advantage interms of attracting capital andefforts should be made to ad-dress the issue of long-termrevenue stability.

Several years ago, the staterevenue forecast projected a

$1 billion deficit by 2005with oil prices in the $22 to$25 range. The state is nowprojecting a $1.4 billion sur-plus this year.

Owens explained a tax pol-icy that drives investmentaway from Alaska and leavesoil in the ground would haveserious implications for staterevenues regardless of the

Alaska’s oil and gas revenues come from a variety of sources with royalties accounting for thelargest piece of the pie. Other sources include property taxes, corporate income taxes and the pro-duction tax. More oil production over the long-term will net the state additional royalties andhigher corporate taxes.

A doubling of current investment by industry is required to meet the state’s pro-duction and revenue forecasts, which assume a 3% annual decline in production.In ten years, assuming current levels of investment, Alaska will produce half theoil it is producing today, a 6% annual decline.

WILL NEW OIL TAX MAKE ALASKA MORE COMPETITIVE IN

ATTRACTING THE INVESTMENT NEEDED TO BOOST PRODUCTION?

Today the oil and gas industry gives approximately54% of its revenues to the government, the highest taxtake of any industry in any state. The industry has re-luctantly agreed to increase its tax burden to 57.5%under the Governor’s new tax proposal.

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Guest Opinion

Michael L. Menge

“Ready, aim, fire” is the traditionallitany of any marksman hoping to hit histarget. But critics of the Pebble mineraldevelopment have confused that se-quence, firing aimless broadsides at theproject even before a clear target hasemerged.

Recent efforts to inflame public opin-ion against the Pebble copper-gold de-posit as an inevitable environmentalcatastrophe ignore two fundamentaltruths. First, Pebble is not a workingmine, nor even a mine under construc-tion. It’s a mineral deposit whose own-ers, though certainly busy determiningits extent, have yet to file a single permitto begin building a working mine.Second, the state has a comprehensiveprocess established in law to ensure anymineral development at the site will bedone right — or it won’t be done at all.

The Pebble deposit lies just north ofIliamna Lake, 236 miles west ofAnchorage. It holds approximately 31.1million ounces of gold, 18.8 billionpounds of copper and 1 billion poundsof molybdenum in measured and indi-cated resources, and 10.8 million ouncesof gold, 5.9 billion pounds of copper and361 million pounds of molybdenum ininferred resources. How much wouldbe feasible to mine is yet to be deter-mined.

Such numbers mean Pebble could beone of the largest mineral deposits in theworld. They could justify investmentscreating hundreds of construction jobsand 1,000 permanent jobs in a regionwhere the declining commercial fishingindustry has left some residents eagerfor a more diverse and stable economy.Mine proponents hope to duplicate thesuccess of the Red Dog zinc mine, whichgenerates hundreds of jobs for ruralAlaskans and funds most of the localgovernment and economy of NorthwestAlaska.

Like Red Dog, however, any develop-ment at Pebble would be subject to strictenvironmental regulations, laws andpermitting restrictions. There is no ar-gument that the land and waters sur-

rounding the Pebble deposit help sup-port Bristol Bay’s hugely importantcommercial, subsistence and sport fish-eries. What should be equally clear,though, is that the Department ofNatural Resources is committed tomeeting its responsibility to balance thepotential economic and social benefits ofdeveloping non-renewable mineral re-sources with the potential risks to theregion’s renewable resources.

Over the last decade, our departmenthas assembled a Large Mine ProjectTeam, an interagency group that workscooperatively with large mine applicantsand operators, federal resource man-agers, local governments and the Alaskapublic to ensure mining projects are de-signed, operated and reclaimed in a man-ner consistent with the public interest.These experienced professional engi-neers, geologists, biologists, hydrolo-gists and environmental specialists froma number of state and federal agencieshave guided the Red Dog, Ft. Knox,Pogo, Greens Creek, Kensington andother mine projects from concept,through development, to final produc-tion. If a planned mine can’t withstandthis team’s strict scrutiny, it simplydoesn’t get built.

Any plan that Pebble’s operators pro-pose will be subject to an exhaustive en-vironmental review that starts withenvironmental baseline data, continuesthrough the mine’s initial developmentand productive life, and persists longpast closure with provisions for long-term site monitoring and maintenance toprotect other natural resources. Thepermitting process also includes exten-sive public education and involvement,and final plans invariably incorporatemany public suggestions. State officialshave already organized and attendedmultiple forums about the Pebble proj-ect in rural and urban Alaska, wherethey explain the permitting process andlisten carefully to the concerns of the at-tendees.

As the operators of the Pebble projectgather more information about their de-

posit, they will undoubtedly continue torefine their plans for how they wouldpropose to develop it. Until they com-plete those plans and lay them before thestate and the public, however, any effortto generate opposition by appealing toemotions rather than facts is simply pre-mature.

While Pebble does create significantchallenges for Alaska, it also offers excit-ing possibilities. I encourage everyoneto hold their fire on this issue until aclearer target emerges. We’ll be morelikely to hit the bulls-eye — and lesslikely to hurt anybody with a strayround.

Michael L. Menge is Commissioner of the AlaskaDepartment of Natural Resources.

PREMATURE TO RENDER JUDGMENT ON PEBBLE

price of oil. The production decline ratewould likely accelerate, costs would riseand the economics of new prospectswould fail.

“RDC fails to see how taking an addi-tional $1 billion annually from the in-dustry will encourage the levels ofinvestment Alaska needs to maintain ahealthy oil business,” Owens said.

“RDC’s members are concerned thatthe new tax could end up focusing toogreatly on short-term revenue genera-tion at the expense of long-term invest-ment,” Owens added. “Rather thanbegrudging the industry for makingmoney, we ought to create a system thatensures the long-term profitability ofoperating in Alaska. A profitable oiland gas industry equates to economicopportunities for Alaskan firms, andjobs for future generations of Alaskans.More investment means higher oil pro-duction and a healthier revenue streamto state government.”

PETROLEUM

PROFITS TAX(Continued from page 5)

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Editor’s Note: Northwest Territories(NWT) Energy Minister Brendan Bellled a delegation to Alaska in earlyApril. The delegation included twelveAboriginal, political and businessleaders from across the NWT. In addi-tion to meeting with GovernorMurkowski, several Cabinet Ministers,members of the State Legislature andAlaska Native Corporations, the dele-gation visited oil and gas facilities onthe Kenai Peninsula and the NorthSlope. The following is a condensedversion of Minister Bell’s speech be-fore RDC’S April 6th Breakfast Forumat the Petroleum Club in Anchorage.

The Northwest Territories(NWT) is in a position mir-roring that of Alaska in the1970s: on the verge of signifi-cant oil and natural gas devel-opment and working toensure that the benefits flowto the NWT region and itspeople.

The time is now for Arcticnatural gas to flow to market,first from the NorthwestTerritories, and then fromAlaska. Together, we can es-tablish the North as the mostsecure supply of energy forNorth America.

It is important to recognizethe Alaska and NWT proj-ects are not in a two-horserace to deliver gas to market.The real race is not one ofcompeting lines, but one ofmeeting challenges to addresslabor shortages, adapting torising steel prices, creatingregulatory efficiencies andbeating offshore liquefiednatural gas reserves to mar-ket.

Collaboration on these is-sues will improve theprospects of both projects.

MMaacckkeennzziiee GGaass PPrroojjeecctt

Regulatory hearings for theNWT’s Mackenzie GasProject are on schedule toconclude by the end of 2006 –to be followed by a construc-tion decision from producersin 2007. Provided that ourproject proceeds on target,NWT gas will flow to marketsometime in 2011.

That should nicely coin-cide with the target date forconstruction of the AlaskaGas Project. This staggeredtiming paves the way for col-laboration on important is-sues of labor and regulatoryefficiency. The sharing of bestpractices for training and themobilizing of labor forces ineach region are two key areasto explore going forward. Inaddition, as the Alaska linewill inevitably pass throughCanadian soil, Alaskans canbenefit from monitoring ourapproval process and gearingup for the unique regulatoryenvironment that must benavigated in Canada.

NNWWTT OOiill AAnndd GGaassPPootteennttiiaall

The NWT is excited aboutthe future as we begin toscratch the surface on someof our untapped resource po-tential. Although theMackenzie gas project is un-derpinned by 7 trillion cubicfeet of known gas reserves,the proposed pipeline willprovide an energy corridorfor further exploration andinvestment that is certain tolead to undiscovered re-sources.

The National Energy

Board estimates our potentialat 100 trillion cubic feet basedon the information we havetoday. History, however, hasshown these types of basindiscoveries invariably exceedexpectations. There is no rea-son to believe the MackenzieValley will be any different.Alaskans are intimately fa-miliar with this reality.Prudhoe Bay reserves, onceestimated at 1 billion barrels,have now produced over 14billion barrels of oil to date.

WWhhyy TThhee NNWWTTMMuusstt SSuucccceeeedd

There are those that havesaid the NWT is not readyfor a Mackenzie Valleypipeline. Thirty years ago,the Berger inquiry agreed.But times have changed andwe believe the NWT projectis poised for success.

Aboriginal leaders in theNWT are no longer philo-sophically opposed to the de-velopment of resources ontheir traditional lands.Staunch opposition to devel-opment, voiced during the1970s, has been replaced by adesire to negotiate maximumbenefits from development,while imposing safeguards tominimize environmental im-pacts.

Meanwhile, Canada’snewly elected federal govern-ment is now firmly in sup-port of the Mackenzie GasProject - working to support

the Aboriginal PipelineGroup and its one-thirdownership stake in theproject - while taking steps toprovide fiscal certainty toproducers who have investedheavily in the project to date.

Most importantly, theNWT project will move for-ward because it must. Thereis growing disparity betweenregions and communities inthe Northwest Territories.Yellowknife (our capital) andthe regional centers of Inuvikand Norman Wells haveprospered as a result of dia-mond mining and oil and nat-ural gas development.Unfortunately, this prosper-ity has not been felt equallyin our small and more remotecommunities. The MackenzieGas Project will help to re-duce this imbalance and ex-pand the socio-economicbenefits of development to abroader spectrum of resi-dents in the NWT.

Like Alaska, the NWTmust strike a fine balance be-tween fostering a fiscallycompetitive environmentthat is economically viablefor industry while maximiz-ing the benefits of develop-ment for its residents.

I look forward to workingin partnership with Alaskansas we face the challengesahead and strive to leave alasting legacy of sustainabledevelopment for the futuregenerations of the Arctic.

Guest OpinionBrendan Bell

ALASKA-CANADA NORTHERN ENERGY CONNECTION

“It is important to recognize the Alaskaand NWT projects are not in a two-horserace to deliver gas to market.”

Page 8 May 2006 Resource Review www.akrdc.org

The Environmental Protection Agency’s (EPA) recentlypublished Toxic Release Inventory (TRI) report for the RedDog Mine lends itself to misinterpretation.

Every year industry must calculate and report its TRI num-bers to the EPA. Since 1998 mining has been included in thisrequirement and due to the report’s structure, the industry’snumbers have been the highest in the nation.

In the case of mining, 99 percent of what is reported as pol-lution occurs through the process of mining and storing rock.This process is consid-ered to be a “release tothe land” even thoughthe rocks never leavethe site and are man-aged in contained stor-age systems.

TRI regulations re-quire all mining com-panies to report themovement of rock if itcontains certain natu-rally occurring miner-als that are included on EPA’s list of about 650 chemicals andcompounds. Due to size and high-grade nature of the RedDog deposit, the mine has reported the nation’s largest ‘re-lease’ for the past three years.

“This information is too often misconstrued to be pollutionand evidence of poor environmental practice and that is notthe case,” said Jim Kulas, Environmental Superintendent, TeckCominco Alaska. “These are not true releases to the environ-ment. The minerals are within rock that we have simplymoved from one place to another,” Kulas said. “The rock isplaced in piles that are permitted, monitored and all theirrunoff is collected.”

Red Dog, the largest zinc mine in the world, is operated byTeck Cominco Alaska under an agreement with NANARegional Corporation (NANA). NANA is the landownerand Teck Cominco is the operator.

Red Dog, one of the most highly regulated mines in theworld, has established an Environmental Management Systemthat has been certified to meet the stringent international ISO14001:2004 standard.

“As landowners we hold Teck Cominco to the highest stan-dard when it comes to protecting the environment and thesubsistence lifestyle of our shareholders,” said Marie Greene,President, NANA Regional Corporation. “We are pleasedwith the operation and the environmental protection measuresthat are in place.”

TRI NUMBERS FOR RED DOG

MINE ARE MISLEADINGQQ:: WWhhaatt iiss TTRRII??A: TRI stands for ‘Toxic Release Inventory’ and was created by theU.S. Environmental Protection Agency (EPA). The TRI is an annualreporting of certain amounts of chemical substances released into theair, water and land. Releases as defined by TRI are not necessarily un-controlled.

QQ:: WWhhyy ddooeess RReedd DDoogg hhaavvee ttoo rreeppoorrtt TTRRII ddaattaa??A: In 1998, metals mining operations, including Red Dog, were in-cluded in the list of industries that must report TRI data to the EPAand the State of Alaska each year. The report quantifies the amount ofeach substance that is released by a facility to the air, water and land.

QQ:: WWhhaatt ddooeess TTRRII mmeeaann bbyy rreelleeaassee ttoo tthhee aaiirr,, wwaatteerr oorr llaanndd??A: For metals mining facilities, a release to the land includes the rockand processed rock the mine moves, stores or disposes of on the minesite. This material makes up over 99% of the substances reported forRed Dog. As a result, the TRI report from Red Dog and other metalsmines will be unlike the reports from other industries in that most ofthe reported material is contained in managed facilities on the minesite. True releases from Red Dog do not occur anywhere near the ex-tent noted in the reported numbers.

QQ:: DDooeess RReedd DDoogg hhaavvee tthhee nneecceessssaarryy ppeerrmmiittss ffoorr tthhee wwaatteerr ccoonn--ttaaiinnmmeenntt ssyysstteemm??A: Yes. Red Dog has all the permits necessary to operate the extensivewater containment system and a state-of-the-art water treatment sys-tem. Water collected in the containment system goes to the sophisti-cated water treatment plant where the metals are removed. The treatedwater is released to Red Dog Creek after it is tested to make sure itmeets strict discharge standards.

QQ:: AArree tthheessee rreelleeaasseess lleeggaall??A: Yes.

QQ:: WWhhyy hhaavvee RReedd DDoogg’’ss TTRRII nnuummbbeerrss mmaaddee iitt nnuummbbeerr oonnee iinn ttooxxiiccrreelleeaassee ffoorr tthhee UUnniitteedd SSttaatteess??A: Mining’s TRI must include the movement of naturally occurringwaste rock as a release to the land. A court ruling in 2003 dramaticallychanged what other mines had to report and as a result Red Dog be-came the number one release reporter. The court ruling allowed somemine operators to exclude waste rock where certain substances are lessthan 1%. Red Dog waste is slightly above the 1% criteria so it has tocontinue to count the substances in that material.

QQ:: DDoo tthhee nnuummbbeerrss mmeeaann hhuummaannss && aanniimmaallss aarree aatt ggrreeaatteerr rriisskk??A: No. The TRI numbers are only a measurement of the amount ofmaterials managed by a facility and not a measurement of materialstruly released to the environment.

QQ:: HHooww ddooeess tthhee rreelleeaassee ooff zziinncc ccoommppoouunnddss ttoo RReedd DDoogg CCrreeeekkccoommppaarree ttoo pprree--mmiinniinngg ddaayyss aanndd ttooddaayy??A: In 1982, seven years before mining was initiated, an outside con-tractor calculated that some 255,000 pounds of zinc compounds werereleased to Red Dog Creek through naturally-occurring processes. Incomparison, in 2004, the number was 495 pounds released to Red DogCreek, a small fraction of what was released to the creek naturally.

TRI: FREQUENTLY ASKED QUESTIONS

(907) 276-0700 May 2006 Resource Review Page 9

The National MarineFisheries Service (NMFS) hasinitiated a status review forthe Cook Inlet beluga whalepopulation to determine if itshould be listed under theEndangered Species Act(ESA).

Over-harvesting by subsis-tence hunters was identifiedas the primary factor behindthe beluga stock declining bynearly 50 percent between1994 and 1999. NMFS de-clared the belugas depletedunder the Marine MammalProtection Act (MMPA) in2000. At that time, they werenot recommended for listingunder the ESA because thesubsistence harvest was be-lieved to have been the cause

of the decline and a regula-tory regime had been estab-lished to restrict the harvest.

At the time, RDC inter-vened on NMFS’ behalf inlitigation questioning thisdesignation. The court sidedwith RDC and the agency.

The latest survey of belu-gas, conducted in June 2005,showed an abundance esti-mate of 278, considered nearthe lower limit of the ex-pected variability for a stablepopulation. Due to legisla-tion developed by SenatorTed Stevens, the subsistenceharvest is now limited to oneor two animals per yearunder a co-managementagreement.

NMFS is concerned the

population is not trendingupward to date and the rea-son for the stagnant numbersremains a mystery to them.One theory is that youngwhales are difficult to countin the aerial surveys becausethey blend into the gray wa-ters of Cook Inlet. Thesewhales, as they mature, willturn white and will be moreeasily accounted for in futuresurveys.

Fortunately, the popula-tion may be improving. ANMFS report from theAugust 2005 aerial survey re-ports “unusually high num-bers of juveniles and calveswere present with the whiteadult belugas.” It also states,“the counts from August2005 were higher than uncor-rected estimates from Juneduring the past seven years.”

Additionally, NMFS stud-ies report contaminant levelsfor Cook Inlet belugas arelower than those found insimilar populations else-where. “Given these positivetrends, a new status reviewseems completely unwar-ranted,” said Eric Britten,Manager of BusinessPlanning, Horizon Lines.

If NMFS concludes thebeluga should be reclassifiedunder the ESA so soon after

its declaration under theMMPA, critical habitat des-ignations will likely coincide.Critical habitat designationswould pose far-reaching sig-nificant impacts to human ac-tivities in and around CookInlet, including shipping, oiland gas exploration, develop-ment and production, waste-water utility discharges,commercial and industrialcoastal development, andcommercial and sport fishing.In fact, much of the criticalhabitat would likely be con-centrated in the upper inletwhere human development ismore extensive.

“Unfortunately, this desig-nation will only lead to addi-tional permitting hurdles andsubsequent costs with noadded benefit to the recoveryof the population,” saidBritten.

RDC has recently re-convened a stakeholdergroup to participate in thestatus review. The stakehold-ers include the three regionallocal governments and abroad range of Cook Inletbusinesses and industries.NMFS is seeking public com-ment on the status review byMay 23. Visit the RDC web-site for additional informa-tion and updates.

ENDANGERED SPECIES

ACT LISTING BEING

CONSIDERED FOR

BELUGA WHALES

The National Marine Fisheries Service has begun a status review for the CookInlet beluga whales to determine if they should be listed under the EndangeredSpecies Act. Such a listing would likely result in critical habitat designations inCook Inlet, impacting a wide range of human activities, including expansion oflocal ports, oil and gas development, commercial fishing and shipping.

Above are habitat areas identified by NMFS in its Draft Conservation Plan forCook Inlet beluga whales. NMFS considers Type 1 habitats as high value/highsensitivity; Type 2 are high value; Type 3 includes winter habitat, secondarysummering sites and Type 4 denotes the remainder of the known range withinCook Inlet.

Page 10 May 2006 Resource Review www.akrdc.org

In April I visited Juneau with a number of other RDCdirectors to discuss the proposed petroleum production tax(PPT) being debated in the Legislature. We met with officialsfrom the Murkowski administration and members of theHouse and Senate from both parties to get a better idea ofhow the state’s leading policymakers are viewing the new taxand to express some of RDC’s concerns.

I need to acknowledge that the current severance tax withits economic limit factor (ELF) does need some revision. Thistax regime was established about 15 years ago when the aver-age price of oil was about $17 per barrel. The global oil mar-kets have changed drastically, and our production tax shouldbe revised to take into account the structural shift in thosemarkets.

However, changing the methodology for collecting taxes isa tricky business, and I would like to point out some of thepitfalls that I see facing our legislators.

First, I believe we are about to turn government on its head.Rather than identifying and prioritizing the state’s program-matic needs and then designing a tax system to accommodatethose needs, we are considering raising hundreds of millionsof dollars in new taxes without a plan to guide the manage-ment of that revenue or of the $1.5 billion surplus we arecurrently enjoying because of the revenue we collect from theoil industry.

Will state government simply grow to meet the new rev-enues? How sustainable would that scenario be? Will the an-ticipated surplus be saved? If so, where – the ConstitutionalBudget Reserve, the principal or earnings of the PermanentFund, some new account?

For years RDC and numerous other business and civicgroups around the state have been begging our policymakersto develop a fiscal plan that would give more stability to ourgovernment’s revenue picture. Without such a plan, the cur-

rent tax may well endup maximizing short-term revenue at theexpense of the long-term, significant in-vestment needed tostem the steady de-cline we have seen inoil production.

I also am concernedbecause it seems the

Legislature has been put in an almost impossible situation.They have been asked to consider imposing a complicatednew tax regime, a difficult job in itself. However, they havealso been told the new tax system will be made a part of thegasline agreement with the producers, an agreement whichpurportedly will provide that the new tax cannot be changedfor 30 years or more.

Such a situation might drive the Legislature to tax more onthe high side than the low side. While such a strategy couldwell prove beneficial from a monetary point of view in theshort run, it could severely damage future investment in ouroil fields, compromising long-term production and revenues.

Another complication that might drive the Legislature toaim for the high side of the tax revenue curve is the belief bysome that the state should “maximize” its take from the in-dustry. I believe there is a fine but appropriate line betweenAlaska getting its fair share from the industry and maximiz-ing what we think we can take from the oil industry. I don’tknow of anyone in Alaska who believes the municipal gov-ernment should “maximize” what it can take from its citizens.

The key to maximizing state revenues from Alaska’s boun-tiful oil and gas resources is investment – the significant newcapital required to stem declining production. In the long run,the best way to maximize revenue is to maximize production.This must be the Legislature’s end goal.

If the Legislature overreaches, the ramifications could besevere, especially considering a doubling of current invest-ment by industry is required to meet the state’s most recentoil production and revenue forecasts for the next decade. Ifthat investment is not made in our oil fields, actual productionand revenue ten years out from now could be half of what thestate is now forecasting.

Lastly, the Legislature should consider whether a new taxmight drive us back into multi-million dollar litigation withthe oil industry over how to administer the new tax. Is thePPT the best approach to solving the problems with ELF, ormight we be better off fixing a tax system we already know?

The good news for me during my visit to Juneau was thatthe Legislature is working very hard and spending consider-able time trying to understand all of the various aspects of thisvery complicated situation. The only advice I can give themis to take their time and consider the potential long-term con-sequences of their actions.

We have too much of Alaska’s future at stake to make ahasty or, worse yet, a bad decision.

A MESSAGE FROM THE PRESIDENT

JOHN SHIVELY

“The good news forme during my visit toJuneau was that theLegislature is workingvery hard and spendingconsiderable time tryingto understand all of thevarious aspects of thisvery complicatedsituation.”

OBSERVATIONS ON PETROLEUM PRODUCTION TAX

(907) 276-0700 May 2006 Resource Review Page 11

COMMENTS DUE ON COOK INLET PERMIT

The U.S. Environmental Protection Agency and the AlaskaDepartment of Environmental Conservation are seekingpublic comment up to May 31st on the renewal of theNational Pollutant Discharge Elimination System (NPDES)general permit for oil and gas production in Cook Inlet.

The conditions and limits established through this renewalprocess will govern operations during the next five-year per-mit term.

In testimony before the agencies, RDC said it is importantthat permit conditions be technically and economicallyachievable. RDC noted there are a number of conditions inthe proposed permit that are of concern to industry. All ofthese conditions add to the costs of operation and reduce theperiod of time that Cook Inlet facilities will continue to meeteconomic thresholds for operation.

RDC encourages its members to support renewal of thepermit under the existing regulatory regime with improve-ments directed at making monitoring more efficient. Pleasesee RDC’s Action Alert at www.akrdc.org.

RDC SUPPORTS OCS PROPOSAL

RDC submitted comments to the federal MineralsManagement Service last month supporting the draft pro-posed program for Outer Continental Shelf oil and gas leas-ing for 2007-2012.

“The proposed Alaska sales should move forward in astrong regulatory regime that protects the environment,other resource users and traditional ways of life,” RDCnoted. “Any leasing plan should consider conflict avoidancemeasures to minimize impacts to other resource industriesand subsistence harvesters. Reasonable stipulations to protectscientifically-verified, environmentally-sensitive areas shouldbe incorporated into the plan.”

The oil and gas industry in Alaska and elsewhere hasproven its ability to produce energy is an environmentally-safe and efficient manner. OCS development has an out-standing safety and environmental record spanning decades.Development has coexisted with other industries, includingfishing, in the North Sea, Gulf of Mexico and Cook Inlet.

RDC encouraged the federal government to include rev-enue sharing with states and local communities in its leasingplan.

Alaska’s offshore contains reserves estimated at 27 billionbarrels of oil and 132 trillion cubic feet of natural gas. TheChukchi Sea is considered the most promising offshore pe-troleum basin in the U.S. Expanded access to Alaska’s off-shore would significantly improve the nation’s domesticenergy situation, diversify production outside the hurricane-prone Gulf of Mexico and provide economic stimulus to localcommunities and the state.

HELP DEFEAT CRUISE SHIP INITIATIVE

RDC is requesting its members help to defeat the CruiseShip Initiative that will be on the ballot in August. If this ini-tiative passes, it will have an impact on businesses and indi-viduals across the state. The jobs provided by the industry,the tax revenue it produces, and the local businesses it helpsto sustain would be hurt by a decline in cruise line tourism.To learn more, please visit the RDC website:www.akrdc.org/alerts/2006/cruiseship.html.

YUKON FLATS EXCHANGE MAKES SENSE

RDC expressed its strong support last month for the pro-posed land exchange between the U.S. Fish and WildlifeService and Doyon Limited.

The land exchange increases not only the amount, but thequality of federally-managed lands within the Yukon Flatsrefuge while providing Doyon with expanded economic op-portunities. The net effect of the proposed trade is an increaseto the refuge of 98,000 acres of fish and wildlife habitat. Theexchange involves only three percent of the land within the 9million acre refuge and does not include what is widely con-sidered the biological heart of the area.

The exchange would consolidate land ownership within therefuge, reducing the likelihood of future conflicts betweengovernment and private inholders. It would also allowDoyon to consolidate its holdings within the refuge so it canimprove the economics of drilling for oil and gas. The entireflats show favorable signs of oil and gas, but the highest po-tential lies under land proposed for the exchange and adjacentto Doyon lands.

If oil and gas is discovered, many benefits would be gener-ated to the state. Discoveries would also allow for thecreation of a long-term economic base in an economically-disadvantaged area of rural Alaska.

NEW DRAFT OUT ON PARK ACCESS GUIDE

The Alaska Region of the National Park Service has re-leased the second draft of “A User’s Guide to AccessingInholdings in a National Park Service Area in Alaska” forpublic comment through May 27.

Within Alaska’s national park units, there are more than 1.6million acres of land owned by private individuals and cor-porations, the state and local governments. These owners andother valid occupants are entitled to adequate and feasible ac-cess to their property, but the process of obtaining legal ac-cess across public land has never been well described in asingle document.

In 2005, the Park Service released a draft user’s guide tohelp landowners and others understand the process to au-thorize access across park areas. The release of the seconddraft follows commitments made in public meetings for addi-tional review before a policy document is finalized.

Copies of the guide are available online at: parkplanning.nps.gov/

RDC NEWS DIGEST

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