April 18, 2018

Final Finding of the Director Recommended citation:

ADNR (Alaska Department of Natural Resources). 2018. North Slope areawide oil and gas lease sales. Written Finding of the Director. April 18, 2018.

Questions or comments about this final finding should be directed to:

Alaska Department of Natural Resources Division of Oil and Gas 550 W. 7th Ave., Suite 1100 Anchorage, AK 99501-3560 Phone 907-269-8800

The Alaska Department of Natural Resources (ADNR) administers all programs and activities free from discrimination based on race, color, national origin, age, sex, religion, marital status, pregnancy, parenthood, or disability. The department administers all programs and activities in compliance with Title VI of the Civil Rights Act of 1964, Section 504 of the Rehabilitation Act of 1973, Title II of the Americans with Disabilities Act (ADA) of 1990, the Age Discrimination Act of 1975, and Title IX of the Education Amendments of 1972.

If you believe you have been discriminated against in any program, activity, or facility please write to:

ADNR ADA Coordinator P.O. Box 111000 Juneau AK 99811-1000

The department’s ADA Coordinator can be reached via phone at the following numbers:

(VOICE) 907-465-2400, (Statewide Telecommunication Device for the Deaf) 1-800-770-8973, or (FAX) 907-465-3886

For information on alternative formats and questions on this publication, please contact:

ADNR, Division of Oil and Gas 550 W. 7th Ave., Suite 1100 Anchorage, AK 99501-3560 Phone 907-269-8800.

Division of Oil and Gas Contributors:

Shawana Guzenski

Jonathan Schick

Kyle Smith Final Finding of the Director

Prepared by: Alaska Department of Natural Resources Division of Oil and Gas

April 18, 2018

Contents Page Chapter One: Director’s Final Written Finding and Decision 2-1 A. Director’s Final Written Finding ...... 2-1 B. Director’s Decision ...... 2-3 Chapter Two: Introduction 2-1 A. Constitutional Authority ...... 2-1 B. Written Findings ...... 2-2 C. Annual Lease Sales...... 2-7 Chapter Three: Description of the North Slope Lease Sale Area 3-1 A. Location and General Description ...... 3-1 B. Land and Mineral Ownership ...... 3-3 C. Historical Background ...... 3-6 D. Communities ...... 3-7 E. Historic and Cultural Resources ...... 3-13 F. Climate ...... 3-13 G. Natural Hazards ...... 3-16 H. References ...... 3-25 Chapter Four: Habitats, Fish, and Wildlife 4-1 A. Ecoregions ...... 4-1 B. Habitats ...... 4-3 C. Fish and Wildlife Populations ...... 4-8 D. References ...... 4-49 Chapter Five: Current and Projected Uses in the Lease Sale Area 5-1 A. Subsistence ...... 5-1 B. Commercial and Sport Fishing ...... 5-9 C. Hunting and Trapping ...... 5-10 D. Tourism and Recreation ...... 5-13 E. Other Uses ...... 5-15 F. References ...... 5-16 Chapter Six: Petroleum Potential, Operations, and Transportation Methods in the Sale Area 6-1 A. Geology ...... 6-1 B. Exploration History ...... 6-4 C. Oil and Gas Potential ...... 6-6 D. Likely Methods to Transport Oil and Gas from the Sale Area ...... 6-7 E. Spills and Releases: Risk, Prevention, and Response ...... 6-14 F. References ...... 6-30 Chapter Seven: Governmental Powers to Regulate Oil and Gas 7-1 A. State of Alaska ...... 7-1 B. Federal ...... 7-11 C. Other Federal and State Regulatory Considerations ...... 7-14 D. Local Governmental Powers ...... 7-15 E. References ...... 7-16 Chapter Eight: Reasonably Foreseeable Effects of Leasing and Subsequent Activity 8-1 A. Introduction ...... 8-1 B. Phases of Oil and Gas Development ...... 8-2

North Slope Areawide Final Best Interest Finding

C. Post-Disposal Oil and Gas Activities ...... 8-4 D. Reasonably Foreseeable Cumulative Effects to Air and Water ...... 8-13 E. Reasonably Foreseeable Cumulative Effects on Fish and Wildlife Uses ...... 8-17 F. Reasonably Foreseeable Cumulative Effects on Terrestrial Habitats and Wildlife ...... 8-21 G. Reasonably Foreseeable Cumulative Effects on Other Activities ...... 8-47 H. Mitigation Measures and Other Regulatory Protections ...... 8-48 I. Reasonably Foreseeable Fiscal Effects of the Lease Sale and Subsequent Activity on the State and Affected Municipalities and Communities ...... 8-50 J. References ...... 8-58 Chapter Nine: Mitigation Measures Error! Bookmark not defined. A. Mitigation Measures ...... 8-1 B. Definitions ...... 8-9

Tables Page Table 2.1.—Topics required by AS 38.05.035(g)(1)(B)...... 2-3 Table 3.2.—Temperature and precipitation means for Prudhoe Bay (°F) 1981–2010...... 3-14 Table 3.3.—Temperature and precipitation means for Umiat (°F) 1981–2010...... 3-14 Table 5.1.—Average Household Cost of Subsistence Activities 2010 & 2015...... 5-3

Figures Page Figure 3.1.—Sale Area...... 3-2 Figure 3.2.— New areawide boundary surrounding jointly owned tracts ...... 3-3 Figure 4.1.—Ecoregions in the Sale Area...... 4-3 Figure 4.2.—Federally designated habitat areas...... 4-8 Figure 4.3.—North Slope game management units...... 4-9 Figure 4.4.—North Slope caribou range...... 4 - 2 4 Figure 5.1.—Subsistence Harvest GPS Tracks ...... 5-5 Figure 5.2.—Subsistence Use Areas and Sites in and Near the Sale Area ...... 5-6 Figure 5.3.—GMU 26 Boundaries ...... 5-11 Figure 6.1.—Stratigraphic Column for Northern Alaska...... 6-4 Figure 9.1.—Gravel Consideration Boundary ...... 8-7

North Slope Areawide Final Best Interest Finding

Executive Summary

Executive Summary

The director of the Division of Oil and Gas (DO&G), with consent of the State of Alaska Department of Natural Resources (DNR) commissioner, determines whether issuing oil and gas leases serves the state’s best interests (AS 38.05.035(e)). This document presents the director’s written final finding and decision for the disposal of interest in state oil and gas through lease sales in the North Slope Areawide lease sales area (Sale Area). All relevant facts and issues within the scope of review that were known or made known to the director were reviewed. The director limited the scope of the final finding to the disposal phase of oil and gas activities and the reasonably foreseeable significant effects of issuing oil and gas leases (AS 38.05.035(e)(1)(A)). Conditions for phasing have been met under AS 38.05.035(e)(1)(C). The content of best interest findings is specified in AS 38.05.035(e), and topics that must be considered and discussed are found in AS 38.05.035(g). A. Director’s Final Decision

After weighing the facts and issues known at this time, considering applicable laws and regulations, and balancing the potential positive and negative effects given the mitigation measures and other regulatory protections in place, the director finds the potential benefits of lease sales outweigh the possible negative effects, and the director finds that North Slope Areawide oil and gas lease sales are in the best interests of the State of Alaska. B. Public Process

The process of developing a best interest finding includes opportunities for input from a broad range of participants, including: the public; state, federal and local government agencies; Alaska Native organizations; resource user groups; non-government organizations (NGOs); and any other interested parties. More information on public comments is found in Chapter Two. C. Description of Lease Disposal Area

The Sale Area includes more than 5.1 million acres of state-owned land and waters located within the North Slope Borough. Five communities are located within the Sale Area or in close proximity to the Sale Area: Prudhoe Bay, Nuiqsut, Utquiagvik, Anaktuvuk Pass, and Kaktovik. Generally, the Sale Area extends from the eastern boundary of the National Petroleum Reserve-Alaska to the western boundary of the Arctic National Wildlife Refuge and from the Umiat Meridian baseline to the south to the Beaufort Sea Areawide lease sale area to the north. There are 3,137 tracts ranging in size from 640 to 5,760 acres. The State owns the majority of surface and subsurface land in the Sale Area. The Arctic Slope Regional Corporation (ASRC) owns subsurface lands and the Kuukpik Native Corporation owns surface lands on the western portion of the Sale Area. Only free and unencumbered state-owned oil and gas mineral estates and lands jointly-owned by the State and ASRC within the tracts will be included in any leases issued. More detailed discussion of the sale area is found in Chapter Three.

North Slope Areawide Final Best Interest Finding i

D. Habitat, Fish, and Wildlife

The Sale Area exists in two ecoregions, mainly the Brooks Range Foothills and Beaufort Coastal Plain. The wide variety of terrestrial, freshwater, and marine habitats in the area include estuaries; barrier island and lagoons; various wetland habitats; coasts; rivers, streams, and lakes; and tundra. There are six federally-designated habitat areas on the North Slope.

Freshwater and anadromous fishes are found in the area’s waters. While all five species of Pacific salmon have been recorded in coastal waters, only pink and chum salmon make consistent returns to the Sale Area rivers and streams. The fish species most commonly found in the Sale Area are char and whitefish. Dozens of lakes in the Sale Area contain lake trout, Arctic char, Arctic grayling, and burbot.

The terrestrial habitats support four caribou herds, brown bear, moose, muskoxen, and furbearers. Marine mammals include polar bears beluga and Bowhead whales; and ringed, bearded, and spotted seals. Some species are listed as threatened or endangered under the federal Endangered Species Act such as the Alaska stock of the ringed seals, Beringia segment of the bearded seals, Bowhead whale, and polar bears. The Sale Area also sees major concentrations of migratory birds, providing breeding and nesting habitat for hundreds of species of shorebirds, raptors, landbirds, and waterfowl. Additional information on the area’s species and habitats is found in Chapter Four. E. Current and Projected Uses

Subsistence fishing, hunting, and gathering is the most consistent and reliable economic component for local communities. Commercial fishing, sport fishing and hunting, trapping, recreation, and tourism take place to a lesser degree in the Sale Area. The Sale Area is contained with Game Management Unit 26B where hunters target the Central Arctic caribou, moose, and brown bears during limited open seasons. Although recreation and tourism are nearly as popular as fishing and hunting, local communities are benefitting as more visitors are coming to view the scenery and wildlife, especially bears and birds. Proposed transportation projects are also foreseeable as the Arctic Strategic Transportation and Resource Project (ASTAR) seeks to identify, evaluate, and advance community infrastructure and regional connectivity projects that offer the greatest benefits to the region. These uses are discussed in more detail in Chapter Five. F. Oil and Gas in the Lease Sale Area

The Sale Area contains all three critical petroleum system elements which included four mega sequences, prolific source rocks, and numerous play types. Oil potential is greatest along the Barrow Arch on the northern coastal plain and the nearshore areas of the Beaufort Sea. The North Slope area has produced more than 17 billion barrels of oil to date with estimates of billions more barrels of oil and many trillion cubic feet of natural gas of undiscovered, technically recoverable resources. The oil produced in the Sale Area is transported to market through a network of processing facilities and gathering lines to enter the Trans-Alaska Pipeline System (TAPS). TAPS transports Sale Area oil to tankers in Valdez to be shipped to west coast and foreign markets.

Oil is transported within the Sale Area primarily by above-ground pipelines for efficiency, wildlife access, and safety. Underground pipelines are rarely employed due to permafrost and other soil

North Slope Areawide Final Best Interest Finding ii

issue on the North Slope. Natural gas produced in the Sale Area typically reinjected in reservoir for enhanced oil recovery or pressure maintenance, used for fuel gas, or flared. It is foreseeable for a market for North Slope gas to develop.

Oil spill and gas releases are concern with pipelines, wells, and facilities in the Sale Area. There is a comprehensive network of agencies, local governmental entities, non-profits, and other organizations prepared for events in the case a spill or release occurs. Petroleum potential, transportation of hydrocarbons, spill and release responses are discussed in Chapter Six. G. Governmental Powers to Regulate Oil and Gas

All oil and gas activities are subject to numerous federal, state, and local laws and regulations. These government agencies have broad authority to regulate and condition activities related to oil and gas. Agencies include the Alaska Departments of Natural Resources, Environmental Conservation, and Fish and Game; the Alaska Oil and Gas Conservation Commission; the U.S. Environmental Protection Agency; the U.S. Army Corp of Engineers; the U.S. Fish and Wildlife Service; and local boroughs. Many of the regulatory and statutory authorities are discussed in Chapter Seven. H. Reasonably Foreseeable Effects of Disposal and Oil and Gas Activities

Potential activities to be permitted under future oil and gas development phases of the leasing process that could have reasonable foreseeable effects on the Sale Area’s habitats and fish and wildlife populations. After disposal phase, there are four phases of oil and gas development: exploration, development, production, and transportation. These phases include activities such as seismic surveys, construction of support facilities and pipelines, exploration and development drilling, and construction of drilling pads and roads. Some potential cumulative effects of these activities include physical disturbances that could alter the landscape, lakes, rivers, and wetlands; habitat fragmentation; behavioral changes of fish, wildlife and birds; and contamination of terrestrial, freshwater, or marine habitats from pipeline and well drilling spills, gas blowouts, or spills of hazardous substances.

Effects of terrestrial species would be most common within the Sale Area as marine species are mostly unaffected by oil and gas activities in the Sale Area. Specifically, caribou, brown bears, muskoxen, and some furbearers are seen to be most impacted by post-disposal activities. These activities may have effects on subsistence resources by avoidance or displacement from historical ranges. Oil and gas development could also result in increased access to recreation, hunting, and fishing areas due to construction of new roads. This could also increase competition between user groups. Some negative effects related to historic and cultural resources may also occur.

If unregulated, oil and gas activities could potentially affect local landowners and surface users, habitats, fish, and wildlife, air quality, subsistence, viewshed, recreational, and sport and commercial uses. Local residents’ use of the Sale Area requires access to it. Any activity, facility, or structure that restricts access could have an adverse impact on local residents. Mitigation measures included in this written finding and those developed through permitting in future phases,

North Slope Areawide Final Best Interest Finding iii along with laws and regulations imposed by state and federal agencies, are expected to mitigate these potential effects.

Oil and gas activities may also have effects, including fiscal, on nearby communities. Positive potential effects are job creation, substantial local and state revenues, and the potential to local use of oil and gas to lower energy costs. If local and Alaska residents and contractors are hired for work in the Sale Area the multiplier effect may benefit local and state economies. Lessees are also encouraged to employ apprentices to work in leased area. More information about potential effects is found in Chapter Eight. I. Mitigation Measures

Mitigation measures address protection of state lands; water quality; air quality; access; habitat for fish and wildlife; subsistence, commercial, and sport harvest activities; as well as management of fuels, hazardous substances, and wastes; potential spills of hazardous substances; and siting of facilities and operations. Mitigation measures are found in Chapter Nine.

North Slope Areawide Final Best Interest Finding iv Chapter One: Director’s Final Finding and Written Decision

Contents Page A. Director’s Final Written Finding ...... 2-1 B. Final Decision ...... 2-3

Chapter One: Director’s Final Written Finding and Decision

The State of Alaska offers oil and gas leases through a program known as “areawide lease sales” conducted by the Alaska Department of Natural Resources (DNR), Division of Oil & Gas (DO&G). The purpose of areawide leasing is to provide regularly scheduled competitive oil and gas lease sales for available state lands within five specific sale areas that have known hydrocarbon potential: the Alaska Peninsula, Beaufort Sea, Cook Inlet, North Slope, and North Slope Foothills. By conducting lease sales on a regularly scheduled basis, the state has a stable, predictable leasing program, which allows companies to plan and develop their strategies and budgets years in advance. Additionally, the public is afforded a consistent process and timeline during which to comment and provide new information on the proposed areawide lease sales.

Every 10 years, the Director conducts a region-wide analysis, taking a hard look at the topics required under AS 38.05.035(g), including social, economic, environmental, geological, and geophysical information on the proposed lease sale area, and develops a written finding as part of the best interest finding process. In addition to the 10-year review of an area’s best interest finding, DO&G annually issues a call for new information before each subsequent lease sale. The call for new information is a request for any substantial new information that has become available since the issuance of the most recent final best interest finding. The result is increased public input, earlier exploration and development, government efficiency, and mitigation measures that reflect current information.

The DO&G is proposing to offer all available state-owned acreage in the North Slope Areawide oil and gas lease sales to be held from 2018 to 2027. The gross acreage of the lease sale area (Sale Area) is approximately 5.1 million acres.

J. Director’s Final Written Finding

In making this final finding, the Director weighed the facts and issues known at the time of administrative review, considered applicable laws and regulations, and balanced the potential positive and negative effects of the proposed mitigation measures and other regulatory guidelines. The Director finds that the potential benefits of the lease sales outweigh the possible negative effects, and that the North Slope Areawide oil and gas lease sales will best serve the interests of the State of Alaska. The discussion of these matters is set out in the accompanying chapters of this final written finding. Based on consideration and discussion of the information contained herein, the Director finds:

 The Alaska constitution directs the state “to encourage…the development of its resources by making them available for maximum use consistent with the public interest” (Alaska Constitution, art. VIII § 1).  The people of Alaska have an interest in developing the state’s oil and gas resources and maximizing the economic and physical recovery of those resources (AS 38.05.180(a)).

North Slope Areawide Final Best Interest Finding 1-1 Chapter One: Director’s Final Finding and Written Decision

 AS 38.05.035(e)(1)(A) allows the Director to establish the scope of the administrative review on which the Director’s determination is based, and the scope of the written finding supporting that determination.  AS 38.05.035(e)(1)(B) allows the Director to limit the scope of an administrative review and finding for a proposed disposal to a review of applicable statutes and regulations, and facts pertaining to the land, resources, property, or interest in them that the Director finds are material to the determination and are known or available to the Director during the administrative review.  AS 38.05.035(e)(1)(C) allows the Director to limit a written finding to the disposal phase.  AS 38.05.035(h) provides that in preparing a written finding under AS 38.05.035(e)(1), the Director may not be required to speculate about possible future effects subject to future permitting that cannot reasonably be determined until the project or proposed use for which a written finding is required is more specifically defined.  At the disposal phase, it is unknown whether tracts offered during the lease sale will receive bids or if leases will be issued for the tracts receiving bids; whether exploration, development, production, or transportation will be proposed on any leased tract; and if subsequent exploration, development, production, or transportation is proposed, what the specific location, type, size, extent, and duration would be.  All oil and gas activities conducted under oil and gas leases are subject to numerous federal, state, and local laws and regulations with which lessees must comply.  Potential effects of post-disposal oil and gas activities can be both positive and negative.  North Slope fish and wildlife species that could be affected by oil and gas activities include, but are not limited to, loons, shorebirds, eiders, raptors, whitefishes, char, Arctic grayling, caribou, bowhead whales, polar bears, and ringed seals. Birds may experience displacement, increased predation, loss of habitat and disturbance. The range and traditional migration routes of caribou may be impacted by oil and gas activity. Polar bears and seals are sensitive to habitat changes and oil pollution. Measures developed to mitigate potential impacts on fish and wildlife are discussed in Chapter Nine.  Several important subsistence, sport, and personal uses of fish and wildlife could be affected. Subsistence activities are important to Alaska Native communities of the North Slope. For residents of North Slope villages, for example, individual and community identity is tied closely to the procurement and distribution of caribou or bowhead whales. Many people maintain strong cultural and spiritual ties subsistence resources, so disruption of subsistence activities may affect more than just food supplies. Mitigation measures addressing harvest interference avoidance, public access, road construction, and oil spill prevention can mitigate potentially negative impacts.  Discharges of oil, gas, and hazardous substances into North Slope land, water, and air may harm habitats and fish and wildlife populations or resident health. Improved design, construction, operating techniques, proper handling, storage, spill prevention measures, and disposal of such substances can mitigate impacts.

North Slope Areawide Final Best Interest Finding 1-2 Chapter One: Director’s Final Finding and Written Decision

 Communities located in the North Slope Borough could benefit through economic opportunity such as the collection of property taxes, state and local government spending of oil and gas revenues, and increased employment in areas of development. lower fuel prices if oil or gas is produced.  Most potentially negative effects of oil and gas activities on fish and wildlife species, habitats, and their uses, and local communities, can be mitigated through additional stipulations imposed on the subsequent oil and gas activities if they are not adequately addressed by federal, state, or local law.

The locations and characteristics of the specific tracts that may receive bids in future lease sales may allow DNR to determine requirements and impacts directly associated with proposed operations on those tracts. DNR will also determine additional requirements necessary to protect the state’s interest in approval of later phase activities.

K. Disposal Phase Decision

The Director of DO&G has weighed the facts and issues known at this time and has set out findings. The Director considered applicable laws and regulations and balanced the potential positive and negative effects given the mitigation measures and other regulatory protections. Therefore, the Director finds that the potential benefits outweigh the possible negative effects, and that the North Slope areawide oil and gas lease sales will best serve the interests of the state of Alaska.

The state is sufficiently empowered through constitutional, statutory, and regulatory regimes, terms of the lease sale, lease, contract, and plans of operations to ensure lessees conduct their activities safely and in a manner, that protects the environment and maintains opportunities for existing and anticipated uses.

A person is eligible to file a request for reconsideration and any subsequent appeal to the Superior Court only if the person has meaningfully participated in this process by submitting written comment during the public comment period.

Director, Division of Oil and Gas

I concur with the Director that the North Slope oil and gas lease sales are in the state’s best interest.

Commissioner, Department of Natural Resources

North Slope Areawide Final Best Interest Finding 1-3

Chapter Two: Introduction

Contents Page A. Constitutional Authority ...... 2-1 B. Written Findings ...... 2-2 1. Applicable Law and Facts ...... 2-2 2. Scope of Review ...... 2-2 a. Reasonably Foreseeable Effects ...... 2-3 b. Matters Considered and Discussed ...... 2-3 c. Review by Phase ...... 2-4 3. Process ...... 2-5 a. Request for Agency Information and Preliminary Finding ...... 2-5 b. Request for Public Comments ...... 2-6 c. Final Finding ...... 2-6 d. Requests for Reconsideration ...... 2-6 C. Annual Lease Sales ...... 2-7 1. Calls for New Information ...... 2-7 2. Bidding Method and Lease Terms ...... 2-7 3. Lease Adjudication and Lease Award ...... 2-8 Tables Page Table 2.1.—Topics required by AS 38.05.035(g)(1)(B)...... 2-3

Chapter Two: Introduction

The State of Alaska is proposing to offer all available state-owned acreage in the North Slope Areawide oil and gas lease sales to be held from 2018 to 2027. The proposed lease disposal area contains approximately 5,100,000 acres which generally consists of all state-owned lands lying between the National Petroleum Reserve-Alaska (NPR-A) on the west and the mean high water mark of the extreme west bank of the Canning River on the east, and from the Beaufort Sea in the north to the Umiat Meridian Baseline in the south. Some acreage not owned or selected by the state may be included within identified sale tracts, but only free and unencumbered state-owned oil and gas mineral estates will be included in any leases issued. The boundaries of the North Slope Areawide sale area (Sale Area) are discussed further in Chapter Three.

This is the Director’s final written finding and decision issued under AS 38.05.035(e). It discusses whether the interests of the state will best be served through the disposal of interests in state oil and gas through lease sales in the Sale Area.

A. Constitutional Authority

The Alaska Constitution provides that the general policy of the state is “to encourage… the development of its resources by making them available for maximum use consistent with the public interest” and that the “legislature shall provide for the utilization, development, and conservation of all natural resources belonging to the State… for the maximum benefit of its people” (Alaska Constitution, Article VIII, §§ 1 and 2). The legislature has been empowered to make all policy decisions to carry out these general goals, as well as to provide the policies and procedure for the lease, sale, and granting of state-owned land (Alaska Constitution Article VIII, §§ 8, 9, and 12). The Alaska Land Act guides the land management and disposal policy of the state. The Act, codified at AS 38.05, provides the Commissioner of the Department of Natural Resources (DNR) the authority to select, manage, and dispose of state lands, and directs DNR to implement the requisite statutes.

The legislature has found that the people of Alaska have an interest in the development of Alaska’s oil and gas resources to maximize the economic and physical recovery of the resources; maximize competition among parties seeking to explore and develop the resources; and maximize use of Alaska’s human resources in the development of the resources. It is in the state’s best interest to encourage an assessment of its oil and gas resources and to allow the maximum flexibility in the methods of issuing leases to recognize the many varied geographical regions of the state and the different costs of exploring for oil and gas in these regions, and to minimize the adverse impact of exploration, development, production, and transportation activity. Further, it is in the best interests of the state to offer acreage for oil and gas leases or for gas only leases, specifically including state acreage that has been the subject of a best interest finding at annual areawide lease sales (AS 38.05.180(a)(1)–(2)). DO&G has identified five areas of moderate to high potential for oil and gas development and designated these areas, including the North Slope Areawide, for leasing through competitive oil and gas sales.

North Slope Areawide Final Best Interest Finding 2-1 Chapter Two: Introduction

B. Written Findings

Alaska statutes govern the disposal of state-owned mineral interests. Under AS 38.05.035(e), the Director may, with the consent of the Commissioner, dispose of state land, resources, property, or interests after determining in a written finding that such action will serve the best interests of the state. The written finding is known as a “best interest finding” and describes the proposed Sale Area, considers and discusses the potential effects of the lease sales, describes measures to mitigate those effects, and constitutes the Director’s determination whether the interests of the state will be best served by the disposal. The Division of Oil and Gas (DO&G) issues both a preliminary written finding and a final written finding, providing opportunity for public comment after the preliminary finding is released. This final written finding includes a discussion of material issues raised during the public comment period, as well as a summary of the comments received (See Appendix A).

1. Applicable Law and Facts

The best interest finding requirements outlined in AS 38.05.035 provide the Department of Natural Resources (DNR) with procedures to ensure Alaska’s resources are developed for the maximum benefit of the state as mandated by article VIII, § 2 of the Alaska Constitution. The authorities applicable to this written finding include the requirements and procedures set out in AS 38.05.035(e)–(m), and the case law applicable to the disposal phase.

Under AS 38.05.035(e), the Director may not dispose of state land, resources, or property, or interests therein, unless the Director first determines in a written finding that such action will serve the best interests of the state. The provisions in AS 38.05.035(e) set out the scope of review and process for the written finding.

The statute also expressly empowers DNR to review projects in phases, allowing the analysis of proposed leasing to focus on the issues pertaining to the disposal phase and the reasonably foreseeable significant effects of leasing. (AS 38.05.035(e)(1)(C)). Further explanation of the statutory direction is provided in the sections below. The regulatory authorities governing exploration, development, production, and transportation of oil and gas development are discussed further in Chapter Seven.

2. Scope of Review

As required by AS 38.05.035(e)(1)(A)–(C), the Director, in the written finding:

 shall establish the scope of the administrative review on which the Director’s determination is based, the scope of the written finding supporting that determination, and the scope of the administrative review and finding may only address reasonably foreseeable, significant effects of the uses proposed to be authorized by the disposal;  may limit the scope of an administrative review and finding for a proposed disposal to a review of applicable statutes and regulations, facts and issues material to the determination and known to the Director or knowledge of which is made available to the Director during the administrative review, and issues that, based on the applicable statutes, regulations, facts, and the nature of the uses sought to be authorized by the disposal the Director finds

North Slope Areawide Final Best Interest Finding 2-2 Chapter Two: Introduction

are material to the determination of whether the proposed disposal will serve the best interests of the state; and  may, if the project for which the proposed disposal is sought is a multi-phased development, limit the scope of an administrative review and finding for the proposed disposal to the applicable statutes, and regulations, facts and issues that pertain solely to the disposal phase of a project when the conditions of AS 38.05.035(e)(1)(C)(i)–(iv) are met. a. Reasonably Foreseeable Effects

The scope of this administrative review and final finding addresses only the reasonably foreseeable, significant effects of the uses proposed to be authorized by the disposal (AS 38.05.035(e)(1)(A)).

A detailed discussion of the possible effects of unknown future exploration, development, and production activities is not within the scope of this best interest finding. Therefore, the Director has limited the scope of this final finding to the applicable statutes and regulations, facts, and issues pertaining solely to the North Slope Areawide lease sale area, and the reasonably foreseeable significant effects of the North Slope Areawide lease sale disposals. However, this finding does discuss the potential cumulative effects, in general terms, that may occur with oil and gas activities related to lease sales, exploration, development, production, and transportation within the Sale Area and any mitigation measures in the lease terms as required by AS 38.05.035(g)(1) and (2). b. Matters Considered and Discussed

In a final written finding, the Director must consider and discuss facts related to topics set out under AS 38.05.035(g)(1)(B)(i)–(xi) that are known at the time the finding is being prepared. The Director must also consider public comments during the public comment period and within the scope of review set out in Sections A and B.1–2 of this Chapter.

This document is organized for ease of reading and reviewing, and does not necessarily follow the order as found in AS 38.05.035(g)(1)(B) (Table 2.1).

Table 2.1.—Topics required by AS 38.05.035(g)(1)(B).

AS 38.05.035(g)(1)(B) Location in this Description subsection number document

i Property descriptions and locations Chapter Three

ii Petroleum potential of the Sale Area, in general terms Chapter Six

iii Fish and wildlife species and their habitats in the area Chapter Four

Current and projected uses in the area; including uses and value of fish iv Chapter Five and wildlife Governmental powers to regulate the exploration, development, v Chapter Seven production, and the transportation of oil and gas or of gas only Reasonably foreseeable cumulative effects of exploration, development, production, and transportation for oil and gas or for gas only on the Sale vi Chapter Eight Area, including effects on subsistence uses; fish and wildlife habitat and populations and their uses, and historic and cultural resources Lease stipulations and mitigation measures, including any measures to prevent and mitigate releases of oil and hazardous substances, to be vii Chapter Nine included in the leases, and a discussion of the protections offered by these measures

North Slope Areawide Final Best Interest Finding 2-3 Chapter Two: Introduction

AS 38.05.035(g)(1)(B) Location in this Description subsection number document Method or methods most likely to be used to transport oil or gas from the viii lease Sale Area, and the advantages, disadvantages, and relative risks of Chapter Six each Reasonably foreseeable fiscal effects of the lease sale and the subsequent ix activity on the state and affected municipalities and communities, including Chapter Eight the explicit and implicit subsidies associated with the lease sale, if any Reasonably foreseeable effects of exploration, development, production, x and transportation involving oil and gas or gas only on municipalities and Chapter Eight communities within or adjacent to the Sale Area Bidding method or methods adopted by the Commissioner under AS xi Chapter Two 38.05.180

c. Review by Phase

The Director may limit the scope of an administrative review and finding for a proposed disposal to evaluate the potential effects of the proposed disposal when the Director has sufficient information and data available upon which to make reasoned decisions.

Under AS 38.05.035(e)(1)(C), if the project for which the proposed disposal is sought is a multi- phased development, the Director may limit the scope of an administrative review and finding for the proposed disposal to the applicable statutes and regulations, facts, and issues identified above pertaining solely to the disposal phase of the project under the following conditions:

(i) the only uses to be authorized by the disposal are part of that phase; (ii) the disposal is a disposal of oil and gas, or of gas only, and, before the next phase of the project may proceed, public notice and the opportunity to comment are provided under regulations adopted by the department; (iii) the department’s approval is required before the next phase may proceed; and (iv) the department describes its reasons for a decision to phase.

Here, the Director has met condition (i) because the only uses authorized are part of the disposal phase. The disposal phase is the lease sale phase of a project. As defined in Kachemak Bay Conservation Society v. State, Department of Natural Resources disposal is a catch-all term for all alienations of state land and interests in state land1. In Northern Alaska Environmental Center v. State, Department of Natural Resources, the court further held that a disposal was a conveyance of a property right.2 For an oil and gas development project, the lease is the only conveyance of property rights DNR approves. The lease gives the lessee, subject to the provisions of the lease and applicable law, the exclusive right to drill for, extract, remove, clean, process, and dispose of oil, gas, and associated substances, as well as the nonexclusive right to conduct within the leased area geological and geophysical exploration for oil, gas, and associated substances, the nonexclusive right to install pipelines and build structures on the lease area to find, produce, save, store, treat, process, transport, take care of, and market all oil and gas, and associated substances and to house

1 6 P.3d 270, 278 n.21 (Alaska 2000). 2 2P.3d 629, 635-36 (Alaska 2000).

North Slope Areawide Final Best Interest Finding 2-4 Chapter Two: Introduction and board employees in its operations on the lease area. While the lessee has these property rights upon entering into the lease, the lease itself does not authorize any oil and gas activities on the leased tracts without further permits from DNR and other agencies. There are no additional property rights to be conveyed at later phases.

Condition (ii) is met because the disposal is for the sale or lease of available land or an interest in land, for oil and gas, or for gas only, scheduled in the oil and gas leasing program under AS 38.05.180(b). Post-disposal phases may not proceed until public notice and the opportunity to comment on the disposal phase is provided under regulations adopted by DNR. Public notice and the opportunity to comment on the disposal phase of a new 10-year areawide best interest finding is provided under AS 38.05.035(e)(5), AS 38.05.945, and 11 AAC 82.415. Moreover, AS 38.05.035(e)(6)(F) requires public notice and the opportunity to comment on the disposal phase for proposed lease sales under AS 38.05.180(d) or AS 38.05.10(w) of acreage subject to a best interest finding issued within the 10 previous years before post-disposal phases may proceed.

Condition (iii) is met because DNR’s approval is required before the next phase may proceed.

Condition (iv) is met by the findings in Chapter One discussing the speculative nature of current information on where leases may be sold within the Sale Area; what future development projects and methods may be proposed that would require post-disposal authorizations; and what permit conditions and mitigation requirements will be appropriate for authorizations at later phases.

This final best interest written finding satisfies the requirements for phased review under AS 38.05.035(e)(1)(C).

3. Process

The process of developing a best interest finding includes opportunities for input from a broad range of participants, including: the public; state, federal, and local government agencies; Alaska Native organizations; resource user groups; non-government organizations (NGOs); and any other interested parties. a. Request for Agency Information and Preliminary Finding

The process for receiving public input begins with a request for information from state resource agencies, local governments, and Alaska Native corporations. DO&G requests information and data about the region’s property ownership status, peoples, economy, current uses, subsistence, historic and cultural resources, fish and wildlife, and other natural resource values. Using this information and other relevant information that becomes available, DO&G develops a preliminary best interest finding and releases it for public comment (AS 38.05.035(e)(7)(A)).

On April 30, 2014, DO&G issued a Request for Agency Information to initiate the process of gathering information to determine if it is in the state’s best interest to conduct the proposed lease sale disposals within the North Slope Areawide from 2018 to 2027. The Request for Agency Information was sent to 63 agencies including state and federal agencies and NGOs, 11 boroughs and municipalities, and 27 Native corporations and Village Councils. Most agencies received paper notices via the US Postal Service and 18 received electronic notices via email. The comment period

North Slope Areawide Final Best Interest Finding 2-5 Chapter Two: Introduction ran from April 30, 2014 to July 30, 2014. Agencies were encouraged to submit comments and information within that 90-day commenting period. DO&G did not receive any comments in response to the Request for Agency Information. b. Request for Public Comments

Once a preliminary best interest finding is issued, DO&G follows AS 38.05.945(a)(3)(A)–(b)(2) to obtain public comments on the preliminary best interest finding. This statute includes specific provisions for public notice for written findings for oil and gas lease sales under AS 38.05.035(e).

Public comments assist in developing information for the final best interest finding. Information provided by agencies and the public assists the Director in determining which facts and issues are material to the decision of whether the proposed lease sales are in the state’s best interest, and in determining the reasonably foreseeable, significant effects of the proposed lease sale. Summaries of these comments and the Director’s responses are published in Appendix A of the final best interest finding (AS 38.05.035(e)(7)(B)). Public comments on the preliminary best interest finding must have been received in writing by April 2, 2018. c. Final Finding

After receiving public comments on the preliminary best interest finding, DO&G reviewed all comments and incorporates additional relevant information and issues into the final best interest finding. DO&G also included a summary of comments received during the public comment period. After considering the information, laws, comments, and issues material to the determination and made available to her during the administrative review, the Director with the consent of the Commissioner, makes a determination and develops a final written finding which is co-signed by the Commissioner. The final best interest finding will be issued at least 90 days before the 2018 North Slope Areawide lease sale (AS 38.05.035(e)(5)(B)). d. Requests for Reconsideration

A person affected by the final best interest finding who provided timely written comment on this decision may request reconsideration, in accordance with 11 AAC 02. Any reconsideration request must be received within 20 calendar days after the date of issuance of this decision, as defined in 11 AAC 02.040(c) and (d) and may be mailed or delivered to the Commissioner, Department of Natural Resources, 550 W. 7th Avenue, Suite 1400, Anchorage, Alaska 99501; faxed to 1-907-269- 8918, or sent by electronic mail to [email protected]. If reconsideration is not requested by that date or if the Commissioner does not order reconsideration on his own motion, the final best interest finding will go into effect as a final order and decision on the 31st calendar day after issuance.

Failure of the Commissioner to act on a request for reconsideration within 31 calendar days after issuance of the final best interest finding is a denial of reconsideration and is a final administrative order and decision for purposes of an appeal to Superior Court. That decision may then be appealed to Superior Court within 30 days in accordance with the rules of the court, and to the extent permitted by applicable law. An eligible person must first request reconsideration of the final best interest finding in accordance with 11 AAC 02 before appealing that decision to Superior Court. A

North Slope Areawide Final Best Interest Finding 2-6 Chapter Two: Introduction copy of 11 AAC 02 may be obtained from any regional information office of the Department of Natural Resources.

The DO&G complies with Title II of the Americans with Disabilities Act of 1990. The final written finding will be made available in alternate communication formats upon request. Please contact the Best Interest Findings Program at 1-907-269-8800 or [email protected]. Requests for assistance must be received at least 96 hours before the deadline to file a request for reconsideration with the Commissioner in order to ensure necessary accommodations can be provided.

C. Annual Lease Sales

Under AS 38.05.035(e)(6)(F) and AS 38.05.180, once a final best interest finding has been issued for an areawide lease sale, DO&G holds annual competitive areawide lease sales under AS 38.05.035(e) and AS 38.05.180. Under these statutes, land that is subject to a best interest finding issued within the previous 10 years may be offered for oil and gas leasing each year for up to 10 years without repeating this comprehensive best interest finding review process. However, before holding a sale, DO&G will determine whether a supplement to the finding is required through the Call for New Information process.

1. Calls for New Information

Approximately nine months before a lease sale, DO&G issues a Call for New Information requesting substantial new information that has become available since the most recent final finding for that Sale Area. This request is publicly noticed, and provides opportunity for public participation for a period of not less than 30 days. After evaluating the information received, the Director will determine if it is necessary to supplement the final finding and will either issue a supplement to the finding or a Decision of No New Substantial Information no less than 90 days before the sale. The supplement has the status of a final written best interest finding and is subject to an administrative appeal or a request for reconsideration.

Mitigation measures developed in this North Slope Areawide best interest finding will be attached to leases sold during the term of the finding unless, as a result of new information, the Director deems it necessary to change some of the measures, or create additional ones.

2. Bidding Method and Lease Terms

AS 38.05.180(f) and 11 AAC 83.100(a) require competitive bidding for oil and gas leases. For each lease sale under the final North Slope Areawide best interest finding, the Commissioner will adopt the bidding method(s) and terms under AS 38.05.180 that the Commissioner determines are in the state’s best interest. In selecting the bidding method for each North Slope Areawide oil and gas lease sale, DO&G considers and balances the following state interests: protecting the state’s ownership interest in hydrocarbon resources; promoting competition among those seeking to explore and develop the area; encouraging orderly and efficient exploration and development; and, the need to generate revenue for the state.

North Slope Areawide Final Best Interest Finding 2-7 Chapter Two: Introduction

The bidding method(s) and terms may not be the same for each lease sale over the 10-year term of this best interest finding. The bidding method(s) adopted for a lease sale will be published in the pre-sale notice describing the interests to be offered, the location and time of the sale, and the terms and conditions of the sale (AS 38.05.035(e)(6)(F)).

Leasing of oil and gas resources under AS 38.05.180(f) and 11 AAC 83.100 must be by competitive bidding, but bidding methods may vary from sale to sale. Following a pre-sale analysis, the Commissioner may choose from the bidding methods listed in AS 38.05.180(f)(3):

 a cash bonus bid with a fixed royalty share reserved to the state of not less than 12.5% in amount or value of the production removed or sold from the lease;  a cash bonus bid with a fixed royalty share reserved to the state of not less than 12.5% in amount or value of the production removed or sold from the lease and a fixed share of the net profit derived from the lease of not less than 30 percent reserved to the state;  a fixed cash bonus with a royalty share reserved to the state as the bid variable but no less than 12.5% in amount or value of the production removed or sold from the lease;  a fixed cash bonus with the share of the net profit derived from the lease reserved to the state as the bid variable;  a fixed cash bonus with a fixed royalty share reserved to the state of not less than 12.5% in amount or value of the production removed or sold from the lease with the share of the net profit derived from the lease reserved to the state as the bid variable;  a cash bonus bid with a fixed royalty share reserved to the state based on a sliding scale according to the volume of production or other factor but in no event less than 12.5% in amount or value of the production removed or sold from the lease;  a fixed cash bonus with a royalty share reserved to the state based on a sliding scale according to the volume of production or other factor as the bid variable but not less than 12.5% in amount or value of the production removed or sold from the lease.

Not later than 45 days before the lease sale, DO&G issues a public notice describing the tracts to be offered, the location and time of the sale, and the terms and conditions of the sale (AS 38.05.035(e)(6)(F)(ii). The announcement may include information such as a tract map showing generalized land status, estimated tract acreages, and instructions for submitting bids. The lease sale process consists of opening and reading the sealed bids and awarding a lease to the highest bid per acre by a qualified bidder on a tract. DO&G verifies the state’s ownership interest only for the acreage within the tracts that receive bids. Only those state-owned lands wit