STATE OF ALASKA DEPARTMENT OF NATURAL RESOURCES DIVISION OF MINING, LAND AND WATER SOUTHCENTRAL REGION

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1 STATE OF ALASKA DEPARTMENT OF NATURAL RESOURCES DIVISION OF MINING, LAND AND WATER SOUTHCENTRAL REGION Regional Manager s Decision Furie Operating Alaska, LLC ADL Private Non-Exclusive Easement AS Project Overview On April 26, 2013 the Department of Natural Resources (DNR), Division of Mining, Land and Water (DMLW), Southcentral Regional Office (SCRO) received an application from Furie Operating Alaska, LLC (Furie), requesting authorization of a private non-exclusive easement running approximately 16 miles on State-owned tidelands. Specifically, the requested easement will include two parallel pipelines carrying untreated natural gas from an offshore drilling platform located with the Furieoperated Kitchen Lights Unit (KLU) to Furie s onshore production facility located near Nikiski, Alaska. The location of the requested authorization is shown in Figure 1. From the upland parcels Furie plans to install the proposed pipelines under the existing bluff and through the intertidal zone using horizontal directional drilling (HDD). The pipelines will emerge onto the seafloor at a depth of approximately 20 feet below mean low low water and 1000 feet offshore from the mean low low water line (approximately 2000 feet offshore from the mean high water line which defines the State-owned tidelands). From this point, the pipelines will lie on the bottom of Cook Inlet and will traverse the seafloor in a north-northeasterly direction parallel to and approximately 100 feet east of the existing Cook Inlet Gas Gathering System (CIGGS) corridor. After approximately 14 miles the proposed pipelines will diverge from the CIGGS corridor and traverse approximately 2 additional miles of seafloor in a northeasterly direction before reaching the production platform. Scope of Decision The scope of this decision is limited to the determination of whether it is in the State s interest to issue an easement to Furie for the installation and operation of natural gas pipelines on State-owned tidelands. All other aspects of Furie s KLU Project, including the construction and operation of an offshore natural gas production platform and onshore production facilities, fall outside of the scope of this decision. These activities must be approved by the affected land owners (e.g.: Kenai Peninsula Borough) or the appropriate local, State (e.g.: DNR Division of Oil and Gas, Department of Environmental Conservation) or Federal (e.g.: U.S. Fish and Wildlife Service) authorities. Although these approvals are outside the scope of ADL , under the conditions of this decision Furie is required to comply with all applicable laws and the terms of any other required authorizations. Background Furie is undertaking the KLU Project for the purpose of producing natural gas for eventual inclusion in the Southcentral Alaska natural gas distribution system. According to Furie this will supply up to 30 billion cubic feet of natural gas each year to users in the Cook Inlet and Railbelt region. If

2 authorized, the requested easement will provide a means of transporting unprocessed produced gas from the offshore production platform to the onshore production facility. Furie submitted the Plan of Operations (POO) titled 2014 Unit Plan of Operations; Kitchen Lights Unit Natural Gas Production Platform, Pipeline and Onshore Production Facility to the Division of Oil and Gas (DOG) in compliance with the rules and regulations of DOG. The POO was also submitted to SCRO as supporting material for Furie s application under ADL DOG approval of the POO is pending, and may require changes to the POO. Furie will be required to notify SCRO immediately of any changes which affect ADL and will be responsible for securing any additional authorizations which SCRO deems necessary, as described in the Management Issues section below. The overall KLU Project includes the construction and operation of the following major components. However, only those items in bold type are being authorized by this decision as ADL An offshore natural gas production platform; Use of a jack-up drilling rig and/or platform workover rig for drilling, well support and intervention; Two parallel 10-inch-diameter natural gas gathering pipelines extending approximately 16 miles from the production platform to the onshore production facility; An onshore production facility to condition the produced gas for transmission to market; and An onshore pipeline tie-in to an existing natural gas distribution pipeline. Location Geographic: This project is located on State-owned tidelands extending NNE from Nikiski, AK. Legal Description: Within Sections 6 and 7 of Township 8 North, Range 11 West; Sections 12, 13, 24, 25, 35 and 36 of Township 8 North, Range 12 West; Sections 4, 9, 16, 17, 20, 29 and 32 of Township 9 North Range 11 West; and Sections 25 27, 33 and 34 of Township 10 North, Range 11 West; all within the Seward Meridian. Width and Acreage: The requested easement is 250 feet in width and approximately 83,500 feet in length, occupying approximately 480 acres of State-owned land. This includes approximately 48,350 feet (278 acres) on and within State-owned tidelands outside of the DOGissued KLU and 35,150 feet (202 acres) inside the unit. Title The State of Alaska claims title to lands beneath tidally influenced and navigable waterways within its jurisdiction on the basis of the Submerged Lands Act of 1953 and the Equal Footing Doctrine. Authority DNR is authorized to execute easements on State-owned land under the provisions of AS Also referenced in this decision are: AS , 11 AAC , 11 AAC , 11 AAC and 11 AAC Administrative Record The administrative record for this authorization consists of the case file for ADL ADL Regional Manager s Decision Page 2 of 14

3 Figure 1 Figure 1 shows the approximate location of ADL geographically and in relation to existing or pending DNR-issued authorizations. ADL Regional Manager s Decision Page 3 of 14

4 State Plans and Classifications The proposed project is located within Units 506B, 511 and 514 of the Kenai Area Plan (KAP). These units are designated for General Use (Units 506B and 514) and Waterfront Development (Unit 511). The KAP designates a specific management intent for portions of Unit 506B where the shore- tideand submerged lands are owned by the City of Kenai. The authorization considered under ADL falls outside of this specific management area and is subject only to the guidance for lands designated as General Use. According to the KAP, General Use lands are to be managed to minimize damage to streambeds, fish and wildlife habitat, vegetation, trails and other resources; minimize conflicts between resources and uses; and protect the long-term value of the resource, public safety, and the environment. In addition, where authorizations from other agencies are required DNR is directed to consider issuing a permit contingent upon issuance of these other authorizations. Under the KAP, lands designated for Waterfront Development are to be managed to protect anchorages, minimize soil erosion and minimize adverse impacts to fish or wildlife habitat. Additional guidance refers to specific uses not under consideration under ADL KAP. In consideration of the proposed activities, the requested authorization is compatible with the Public and Agency Notice Notice of this application was posted on the DNR website from September 4 th October 4 th, Notice was also distributed for public viewing at the US Post Offices in Nikiski, Kenai and Soldotna and sent to third party interest holders Hilcorp Alaska, LLC, Alaska Communications System Group (ACS), Kodiak Kenai Fiber Link, Inc. (KKFL; formerly known as Kenai Kodiak Cable Company, LLC), General Communication, Inc. (GCI) and the Kenai Peninsula Borough (KPB) Land Management Division. Notice was provided to State agencies including the Alaska Department of Fish and Game (ADF&G), Department of Environmental Conservation (DEC), DMLW Land Sales, DNR Division of Parks and Outdoor Recreation (DPOR), DPOR State Historical Preservation Office (SHPO), Department of Transportation and Public Facilities, DOG and the DNR Petroleum Systems Integrity Office (PSIO). In addition, notice was sent to the Kenai River Center and the US Army Corps of Engineers (USACE). Comments from all parties were due on or before 5:00 PM on October 4, SHPO replied that no historic properties are affected by the proposed project. ADF&G commented that no ADF&G permit is required in association with the proposed authorization but suggested that comments be solicited from federal habitat and wildlife management agencies, such as the US Fish and Wildlife Service (USFWS), National Oceanic and Atmospheric Administration (NOAA) and NOAA National Marine Fisheries Service (NMFS). The USFWS and NMFS have already been consulted on this project with regard to compliance with the Endangered Species Act (ESA) and mitigation measures required by the DOG for the KLU Project. These comments have been incorporated into the POO and therefore no additional outreach to these agencies is being conducted in association with ADL ADF&G also recommended that observers for marine mammals be on board ships during construction. According to Furie, at least one protected species observer (PSO) with stop-work authority will be present at all times during the installation or maintenance of these pipelines for the purpose of ADL Regional Manager s Decision Page 4 of 14

5 monitoring the project area for the presence of Cook Inlet beluga whales, Steller sea lions and other protected species. During ESA Section 7 Consultation with the USACE, NMFS found that Furie s proposed avoidance and mitigation measures, including the presence of PSOs during pipeline installation, have proven effective during similar activities in Cook Inlet. Furie is required to comply with all applicable laws and the terms of any other required authorizations. Therefore, although the requirement for PSOs will not be incorporated as a specific requirement of ADL , Furie will remain responsible for complying with any authorization required by USFWS, NMFS or ADF&G regarding wildlife protection. PSIO and SPCO commented that SCRO should require that Furie produce an as-built survey of the constructed pipeline. Additionally, SPCO stated that they would require an applicant to share spatial data and metadata regarding the location of the constructed pipeline, and PSIO recommended that SCRO require Furie to provide a financial assurance package relating to the authorizations. Each of these comments relate to standard requirements for DMLW-issued authorizations and are applicable in the case of ADL Requirements regarding location of the constructed pipeline are described in the Survey section of this decision and the requirements for provision of financial assurances are described in the Performance Guaranty section of this decision. PSIO commented that flowline internal corrosion control provisions are addressed in 18 AAC (c)(4) and that they consider this pipeline to be governed by this regulation. DMLW does not have authority to enforce the provisions of 18 AAC (c)(4), which is granted to the Department of Environmental Conservation under AS , AS and AS Therefore this regulation is outside of the scope of this decision. However, as a condition of this authorization Furie is required to comply with all applicable laws, ordinances, regulations, rules and orders, and to obtain and comply with all other required authorizations for this activity. It is recommended that Furie contact DEC regarding this matter. PSIO commented that Alaska Oil and Gas Conservation Commission (AOGCC) regulations may require a different metering location than that described in Furie s application materials. Possible meter locations are within the onshore production facility and on the offshore production platform. Neither location is covered under ADL and the relevant regulations (20 AAC ) fall under the authority of the AOGCC in accordance with AS As described above, Furie is required to comply with all applicable laws, ordinances, regulations, rules and orders, and to obtain and comply with all other required authorizations for this activity. PSIO commented that DMLW should advise them if a gas-only determination has been made for the project. DMLW does not make gas-only determinations, nor does the authorization considered under ADL directly require that such a determination be made. Therefore it is outside the scope of this decision if a gas-only determination has been made. It is recommended that Furie contact DEC regarding this matter. SCRO received comments from PSIO and SPCO stating that Furie should be required to provide a number of additional documents and plans. A number of the suggested documents and plans have already been provided or will not be required in consideration of the scope of ADL The following are documents and plans that PSIO suggested for request: Maintenance, surveillance and monitoring programs are described in Section and of the POO. ADL Regional Manager s Decision Page 5 of 14

6 A separate quality management plan is not required by DMLW due to the limited scope of the authorization (i.e.: connecting pipelines only). The POO describes sufficient quality management measures. The following are documents and plans that SPCO suggested for request: A basis for design is described in Section of the POO. A plan for fish and wildlife protection is described in Section 6.1 of the POO. A plan for the control, sanitation and disposal of hazardous waste and hazardous substances is described in Section 7 of the POO. A plan for the handling of solid and liquid waste substances is described in Section 7 of the POO. A plan for emergency preparedness is described in Section 10 of the POO. Plans for erosion control and the restoration of disturbed areas are not required for ADL because the portion of the KLU project covered under this authorization is submerged and/or placed underground via directional drilling (as opposed to excavation). A plan for abandonment and retrieval is not required by DMLW at this time because the methods and means by which the pipelines will be abandoned and retrieved depends on the technology available and current laws at the time of removal. This topic is further described in the Management Issues section of this decision. A separate plan for the disposal of overburden and excess material is not required by DMLW. This topic is further described in the Management Issues section of this decision. The SPCO commented that Furie should be required to submit a pre-installation survey of the pipeline route and that, once the route is approved, any proposed changes to the surveyed route must be approved by SCRO before the change is implemented. Furie has submitted sidescan sonar and bathymetric surveys of the proposed route which are incorporated into the case file for ADL This decision refers only to the pre-surveyed and Furie must request authorization from SCRO before implementing any changes to the proposed route. SCRO reserves the right to determine if a proposed change is significant enough to merit adjudication as a request to amend this decision. PSIO commented that Furie should explain how they plan to monitor internal scouring of the pipelines, particularly considering the assumption that sand will be part of a 3-phase flow regime. This comment is addressed in the Management Issues section of this decision. PSIO commented that Furie should address pipeline movement and vortex shedding over the life of the project and explain how location and lack of movement will be verified. This comment is addressed in the Management Issues section of this decision. Comments from GCI relating to the KKFL are addressed in the Third Party Interests section of this decision. Term The proposed authorizations described herein will be issued for a total term lasting 28 years from the effective date of this decision. The Entry Authorization (EA, described below) issued for development of the project will expire 3 years after the effective date of this decision. Extensions to the EA may be granted at the request of the applicant, if granting the extension is deemed to be appropriate ADL Regional Manager s Decision Page 6 of 14

7 by SCRO. If an extension is required, the applicant must contact SCRO no later than 30 days prior to the expiration of the EA and submit a non-refundable filing fee per 11 AAC (a)(5)(B), if applicable. The proposed easement described herein will be issued for the remaining term of ADL , expiring 28 years from the effective date of this decision. The authorizations issued under ADL may be revoked for cause, if the area described is no longer used for the purpose intended, or if a higher and better use for the project site is established as determined by the DMLW Director (as per AS ). Third Party Interests The locations of third party interests relative to ADL are shown in Figure 1. Kodiak Kenai Fiber Link (KKFL) GCI, as owners of an Indefeasible Right of Use of the KKFL (authorized under ADL ), commented that all work should comply with the International Cable Protection Committee (ICPC) standards and that they and Furie will need to agree on a crossing angle, surface protection and separation of the fiber optic cable and pipelines. They further commented that they anticipated entering into a crossing agreement with Furie regarding the intersection of ADLs and On February 20, 2014, Furie confirmed by letter to GCI that they agree to install their proposed pipeline in accordance with the ICPC standards in order to protect the KKFL cable. In a follow-up comment, GCI requested that a crossing agreement be made a categorical condition of any easement granted under ADL According to the Early Entry Authorization granted to the Kodiak-Kenai Cable Company, LLC (now KKFL) on January 13, 2006: The State of Alaska reserves the right to grant other like or compatible uses within, overlapping or adjacent to the subject easement as long as such rights will not unreasonably interfere with the use of the easement area by the permittee. The State of Alaska also reserves the right to require such users to enter into an equitable maintenance agreement with the original applicant. In consideration of the scope of the two projects, DMLW requires that the two parties work to enter into a crossing agreement for ADLs and In order to be granted any authorization under ADL Furie must either (1) demonstrate that such an agreement is substantially complete and being negotiated in good faith, or (2) demonstrate to the satisfaction of DMLW, as determined by the SCRO Regional Manager, that the design of the pipeline crossing is sufficient so that it will not unreasonably interfere with the use of the KKFL. Cook Inlet Gas Gathering System (CIGGS) submarine pipeline (ADL 56285) Hilcorp, holders of ADL 56285, previously commented to USACE that Furie should 1) perform subsea bottom profiling of the route prior to installing their pipelines; 2) route their pipelines at least 50 feet from CIGGS (and other subsea structures) as much as possible; 3) perform subsea bottom profiling of the route after installation, showing the relation of ADL to existing subsea structures and pipelines, and make this information available to Hilcorp; and 4) notify Hilcorp prior to any installation within 100 feet of CIGGS. Each of these comments are incorporated as described below and Hilcorp has stated that they do not have any additional comments with regard to ADL In response to Hilcorp s comments, Furie has obtained pre-installation sub-sea bottom profiling of the route and will be required to complete a post-installation as-built survey of ADL as described in the Survey section ADL Regional Manager s Decision Page 7 of 14

8 of this decision. The completed as-built survey will be available to Hilcorp. Furie s plans state that their pipelines will be offset from the CIGGS corridor by 100 feet, rather than the 50 feet requested by Hilcorp. SCRO shall require that Furie notify Hilcorp and SCRO of any installation activities occurring within 100 feet of the CIGGS pipeline as shown by the pre-installation survey of the route. Upland parcel(s) adjacent to State-owned tidelands The KPB owns 1 the upland parcel(s) traversed by the pipelines between the offshore area owned by the State of Alaska and the Furie-owned parcel where the associated onshore production facility is to be located. The KPB did not comment on the proposed project but Furie has stated that they have applied to the KPB for an easement for the underground pipeline, for utilities and for site access. Any authorization granted by the State under ADL does not apply to lands owned by the KPB and Furie is solely responsible for securing all required authorizations from the KPB before entering KPB lands in any way. Alaska Communications Systems Group, Inc. (ACS) fiber optic cable (ADL ) ACS operates ADL , a private non-exclusive fiber-optic easement under preliminary authorization from DMLW, located on the seafloor of Cook Inlet. Furie s proposed pipelines will cross under ADL in a drilled corridor at a depth of approximately 25 feet. Due to the burial depth of ADL at the crossing, there are no anticipated impacts of the pipelines on ADL ACS did not comment on the proposed project. Division of Oil and Gas (DOG) Kitchen Lights Unit As described above, the proposed pipelines are in support of the KLU Project which requires a variety of authorizations from the DNR DOG encompassing ADLs , , , , , and Furie has submitted a 2014 POO to DOG for approval, which is incorporated by reference into the application for ADL SCRO does not require that the POO be approved by DOG prior to its incorporation, as this would prevent the simultaneous adjudication of the two divisions authorizations. However, Furie must notify SCRO of any changes to the POO which affect ADL Furthermore, Furie may be required to apply for an amendment of ADL if SCRO determines that an amendment is necessary due to changes in the POO. No changes to the activities or infrastructure authorized under ADL are allowed unless approved by SCRO. Management Issues Plan of Abandonment Furie states in the POO that at the conclusion of the project, the subsea marine gathering pipeline will likely be purged, capped and abandoned in place in accordance with applicable regulations. SCRO cannot pre-approve a plan of abandonment for the pipeline, but acknowledges that at times it may be in the interest of the State to allow less than full removal of infrastructure, though any such exception must be approved by SCRO prior to implementation. Therefore ADL will be issued subject to the requirement that upon termination of the easement Furie must within 30 days remove all structures and improvements from the area and restore the area to the same or similar condition as it was prior to their installation. If Furie fails or refuses to remove said structures and improvements they may revert to and become property of the grantor, except that Furie will not be relieved of the cost of restoring the area. 1 State Patent 4430, issued 9/27/1979 ADL Regional Manager s Decision Page 8 of 14

9 SCRO may alter or modify the removal requirement if it benefits the State to do so. However, it is incumbent upon Furie, as the holder of ADL , to apply to SCRO for any exception to the complete removal of infrastructure. To apply, Furie will need to submit a plan of abandonment to SCRO for review and approval, explaining why abandonment is in the interest of the State and fully disclosing what infrastructure is to be abandoned and the location(s) of the abandonment. SCRO is unlikely to approve a plan in which abandoned sections of pipeline could pose any type of safety hazard, or pose a risk of future pollution of the lands or waters of the State. Such an application should only be submitted within one year of expiration of the proposed easement or when the pipeline is no longer used for the proposed purpose, whichever occurs first, as SCRO must consider the application in the context of current laws and regulations existing at that time. Disposal of Overburden and Excess or Excavated Materials In placing the proposed pipelines within the State-owned subsurface, Furie will extract and remove State-owned materials during horizontal directional drilling operations. SCRO authorizes the sale of these materials under AS (a)(3)(A), allowing Furie to remove drill spoils and excess rock produced during drilling from easement area in accordance with applicable laws. Any such materials must be purchased by the applicant at the representative regional sales price of $3.00/cubic yard for rock or $3.25 for sand and gravel, pursuant to 11 AAC (c). Per AS (b) this does not apply to materials moved within and not removed from the boundaries of ADL The use of drill spoils and excess rock within the boundaries of ADL must be consistent with all other applicable required local, state and federal authorizations. Monitoring of Corrosion and Scouring Furie describes pipeline monitoring in Section 3.3 of the POO. They state that the pipelines will be made of inch thick steel externally coated with an anti-corrosion fusion-bonded epoxy and featuring sacrificial anodes and an impressed current cathodic protection system. According to Furie the pipelines are also designed to accommodate non-target substances, including sand, which might otherwise affect pipeline integrity due to internal scouring of the pipelines. In addition the POO states that the pipeline design provides a inch allowance in the steel pipe thickness as an additional safety factor. Furie shall be required to maintain and inspect the pipelines regularly in order to ensure their integrity. Furie will internally inspect the pipelines using smart pigs to measure pipeline thickness, clean the pipelines and identify changes to pipeline integrity. SCRO requires that Furie inspect the pipelines once every five years unless additional inspections are deemed necessary. In accordance with 11 AAC , SCRO may require that Furie file annual reports regarding the operation, maintenance and inspection of ADL Monitoring of Pipeline Stability Wave and current actions have the potential to affect subsea pipelines. Furie reports that the pipeline is designed to safely rest on the floor of Cook Inlet under normal conditions 2, with a concrete weight coating running the length of the pipelines and varying in thickness according to the expected site-specific conditions. Although Furie s stability analysis showed that the pipeline s positional and structural integrity will be maintained under the conditions considered, it remains possible that extreme 2 The design was analyzed using 100-year storm wind, tide, wave and current data for Cook Inlet, per the POO. ADL Regional Manager s Decision Page 9 of 14

10 events could lead to pipeline movement. According to Furie the pipeline design does provide some flexibility for movement during extreme events and periodic inspections will be made to determine if there has been any movement or if any soil scouring has occurred. In consideration of the pipelines design, Furie will be required to verify the location of the pipelines and inspect for soil scouring following any event which exceeds the test criteria used in designing the pipelines. In addition, SCRO reserves the right to require Furie to verify the pipelines location and inspect for soil scouring at any time if no such verification has been performed for 5 years. Following any such verification or inspection, Furie shall submit a report of the results to SCRO for review. SCRO shall retain the right to require such remediation as it deems necessary if any movement or scouring is identified, as well as the right to require additional verification and inspection to document remediation activities. Other Management Issues The State of Alaska reserves the right to grant authorizations for compatible uses within, overlapping, or adjacent to this project area. The authorization issued under ADL may not be assigned to another party without prior notice to, and approval by, the Regional Manager or designee. Environmental Considerations SCRO considered several environmental factors as they relate to determining performance guaranty requirements for ADL In accordance with 11 AAC (b), these factors are considered in light of the potential cost of site restoration. Environmental factors not related to site restoration may be discussed elsewhere in this decision or be addressed by the appropriate permitting agencies (e.g.: United States Environmental Protection Agency, USFWS, NMFS, USACE, ADF&G and DEC). Other agencies review and permitting processes are outside the scope of SCRO s authority and are not addressed by this decision. Installation Pipeline installation carries the risk of point discharge of sediments and drilling fluids when the HDD reaches the seafloor. The drilling fluids will be water based and certified for drinking water well use and sediments are expected to disperse quickly due to tidal currents. Discharge into Cook Inlet is managed under the Alaska Pollutant Discharge Elimination System, administered by DEC, and is therefore outside of the scope of this decision except that Furie must secure and comply with any authorization required by DEC in association with the KLU Project. Operation and Maintenance Risks associated with the operational life of ADL have been identified in the POO and preventative and mitigative measures to reduce these risks are described elsewhere in this decision. The risks posed by a natural gas leak, in terms of site restoration, are low and regular, routine maintenance as described elsewhere in this decision mitigates the likelihood of an integrity breach in the pipelines. Furthermore, metering at both ends of the pipeline (on the offshore production platform and within the onshore production facility) will allow Furie to detect leakage from the system. Site restoration outside of ADL is outside the scope of this decision, but falls under the U.S. Environmental Protection Agency s Spill Prevention, Control and Countermeasure Plan as well as DEC s authority under Title 46 of the Alaska Statutes and the regulations promulgated thereunder. Decommissioning ADL Regional Manager s Decision Page 10 of 14

11 Decommissioning ADL poses the highest potential costs of site restoration. As described above, at the end of the pipelines life or the term of this authorization (and any amendments or reissuances, if applicable), Furie is expected to remove all infrastructure from State-owned lands and restore the site to its original condition. Although exceptions to this requirement may be granted by SCRO if the Regional Manager determines that the exception will benefit the State, at this time SCRO must protect itself against the need to dismantle and remove the pipelines and restore the site if Furie fails to do so. Economic Benefit and Development of the State s Resources In accordance with AS , the SCRO considered three criteria to determine if this project provided the greatest economic benefit for the State and the development of its natural resources. These included direct economic benefit to the State, indirect economic benefit to the State, and encouragement of development of the State s resources. The proposed project presents a direct benefit to the State of Alaska in the form of land use fees associated with the authorizations issued under ADL This project also encourages development of the State s resources by allowing Furie to transport natural gas produced by the KLU Project from the offshore production platform to the onshore production facility for subsequent delivery to the Southcentral Alaska natural gas distribution system. Because there are no competing projects which are incompatible with ADL , and in consideration of the economic benefits versus the risk associated with the project, DNR finds granting of the proposed easement provides the greatest economic benefit to the State. Other Authorizations There are no related DMLW authorizations required for the proposed project. Furie is responsible for obtaining and complying with all other agencies required authorizations in association with the KLU Project. Survey A DNR approved as-built survey is required for ADL to determine the proper location and compute accurate acreage of improvements proposed for installation on DMLW-managed State lands. The applicant may be required to submit an Application for Survey Instructions to the DNR Cadastral Survey Unit (Survey Section) along with the survey instruction fee of $225 as per 11 AAC (a)(13)(a). Survey Instructions for ADL will be provided to the applicant upon receipt of the application and fee. Advance planning facilitates the survey process, saving time and money for both the State and the applicant. Therefore, SCRO strongly recommends coordination with the Survey Section prior to beginning construction on State land. A draft of the project as-built drawings must be submitted to the Survey Section prior to expiration of any Entry Authorization (EA) issued by SCRO for ADL , and must be approved of by SCRO before issuance of the final easement document. Fees Within the DOG-issued KLU, there is no additional fee for a DMLW-issued authorization under ADL However, over time the boundaries of the KLU may change. If such changes affect the acreage of ADL that falls outside of the KLU, Furie must notify DMLW immediately and the annual fee(s) for ADL will be updated according to current regulation. ADL Regional Manager s Decision Page 11 of 14

12 The applicant s request for use of State-owned, DNR DMLW-managed lands under ADL will be authorized in two phases. First, an Entry Authorization (EA) will be issued for construction and survey activities within the approximately 278-acre project site. Upon the date this decision becomes effective, Furie will be charged an annual fee in accordance with 11 AAC (e)(9), totaling $50 per acre or fractional acre, with a $100 minimum. The annual fee for activities authorized under the terms of Furie s EA is estimated to be $13,900 per year for the term of the EA and any extensions to the EA. Second, upon completion of construction and survey activities in accordance with this decision and all terms and conditions of the EA, an approximately 278 acre private, non-exclusive easement will be issued for the operation and maintenance of the installed infrastructure as parallel natural gas gathering pipelines. The annual fee for authorization of a Private Non-Exclusive Easement issued in accordance with 11 AAC (e)(11)(A) is $100 per acre or fractional acre, with a $200 minimum. The annual fee for the issued easement will be determined after the easement has been constructed and surveyed, but is currently estimated to be $27,800 per year. History of Compliance DNR Land Administration System records indicate that Furie is in compliance with the terms of other DMLW-issued authorizations. Performance Guaranty Per 11 AAC , Furie is required to submit two performance guarantees to DNR totaling $278,375. The guarantees may be submitted separately, or as a single guaranty. Additionally, the guarantees may be adjusted to reflect updates and changes in the associated project and the applicant may be required to furnish an additional bond if DMLW determines there to be additional risk to the State or its interests. First, Furie must submit a $50,000 survey deposit in accordance with AS , which will not be released until a survey is received and approved by the region. In the event the Applicant fails to comply prior to expiration of the instructions, all or part of the deposit may be used to cover the State s costs to survey ADL All deposited funds not expended shall be refunded to the applicant at the time of easement issuance. Second, Furie must submit a $228,375 performance guaranty to be held by DMLW for the life of ADL The guaranty is intended to assure compliance with the terms and conditions of the grant. The guaranty may be utilized by DMLW to cover actual costs incurred by the State to pay for any necessary corrective action(s) in the event the Applicant does not comply with site utilization and restoration requirements and other stipulations contained in the authorization. The performance guaranty or applicable remainder will be released upon removal of the pipeline infrastructure from State land and restoration of the site in a manner acceptable to SCRO. Insurance After considering the risks associated with the activity planned and in accordance with 11 AAC , Furie shall be required to submit proof of insurance to protect the State from risks associated with the planned activities and to maintain said insurance during the term of the EA and during construction and survey activities. Furie must secure and maintain insurance, listing the State as an additional named insured on the policy, unless Furie can submit an alternative proposal acceptable to the SCRO Regional Manager in lieu of this requirement. ADL Regional Manager s Decision Page 12 of 14

13 If such an alternate policy is not provided, SCRO will not waive the requirement for insurance in accordance with 11 AAC Furie shall be required to submit a certificate of insurance listing the State of Alaska, Department of Natural Resources as an additional named insured on the policy prior to entry onto State land for usages which are not generally allowed. Furie shall be responsible for maintaining the insurance necessary during the term of the EA and during construction and survey activities. Proposal & Recommendation for Issuance of an Entry Authorization I recommend granting an Entry Authorization (EA) to Furie for a term of three years for the purpose of constructing and locating two natural gas gathering pipelines connecting the applicant s offshore production platform to their onshore production facility across and within State-owned tidelands as described herein. The pipelines are to be constructed within a corridor 250 feet in width, centered on the pipelines. Per 11 AAC (e)(9), Furie will be subject to an annual land use fee of $13,900 for the term of the EA. A finalized easement will not be granted until the applicant has conformed to all terms and conditions of this decision and the EA. Extensions to the EA may be granted at the request of the applicant, if granting the extension is deemed to be appropriate by SCRO. If an extension is required, the applicant must contact SCRO no later than 30 days prior to the expiration of the EEA and submit a non-refundable filing fee per 11 AAC (a)(5)(B), if applicable. Proposal & Recommendation for Issuance of Private Non-Exclusive Easement In consideration of all events and criteria described above, it is my determination that this project is consistent with the overall classification and management intent for this land. Therefore I recommend issuance of a Private Non-Exclusive Easement pursuant to AS to Furie upon satisfactory completion of the project in conformance with all terms and conditions of this decision and the EA. Per 11 AAC (e)(11)(A), Furie will be subject to an annual land use fee of $100 per acre or fractional acre, with a $200 minimum, for the term of the easement. The annual fee for the issued easement will be determined after the easement has been constructed and surveyed, but is currently estimated to be $27,800 per year. The easement will be issued for a term which expires 28 years after the effective date of this decision. However, the easement may be terminated if a higher and better economic use for the project is established as determined by the DMLW Director (AS ), if the land is no longer used for the above stated purpose or for non-compliance with the terms identified in relevant Departmental authorizations issued in association with the requested land use approval. If issued, the easement will be 250 feet in width and approximately 83,500 feet in length, occupying approximately 480 acres of State-owned land. It will authorize Furie to operate and maintain two parallel natural gas gathering lines crossing State-owned tidelands between Furie s offshore production platform and their onshore production facility. Furie will be responsible for the construction and maintenance associated with ADL , and shall notify DMLW of any additional construction or improvements associated with this project on State-owned lands. Such construction and/or improvements may also require additional authorizations from DMLW. Within 30 days following issuance of this easement, Furie shall pay the appropriate recording fee as determined based on current statute to have the document recorded by DMLW. Signature Page Follows ADL Regional Manager s Decision Page 13 of 14

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