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Right direction
Hendrix pleased with DNR's preliminary royalty modification finding
Kay Cashman Petroleum News
John Hendrix, owner and top executive of HEX, Hex Cook Inlet and its Furie Operating affiliate, which is the operator of the Kitchen Lights unit, is pleased with the direction the state of Alaska appears to be taking.
"It's good to see the state headed in the right direction. They shouldn't put barriers in the way of companies operating in Cook Inlet," he said in a Dec. 10 interview with Petroleum News. That's something Hendrix has accused the state, in particular the Alaska Department of Natural Resources and its Division of Oil and Gas, of doing in the past.
"We need gas out of Cook Inlet" and only two oil and gas companies, producers, are drilling there now -- us and Hilcorp.
Now "we have royalty relief going in the right direction," Hendrix said, referring to DNR's preliminary decision to grant Furie the royalty reduction the company asked for -- basically a 3% flat royalty rate for five years and then a sliding scale royalty reduction based on the Kitchen Lights unit, or KLU, gas price. The current royalty is 12.5%, a flat rate.
Furie claimed that the reduction it requested would extend the life of KLU.
"Furie provided sufficient technical and financial information to substantiate its" request in its Sept. 5 application, DNR said.
"The applicant clearly showed that the per barrel equivalent cost increase was sufficient to make future production no longer economically feasible without royalty modification. Per AS 38.05.180(j)(1)(B), the applicant clearly showed that the modification of royalty would prolong the economic life of KLU," DNR said Dec. 6.
"Now we just have to get on the jack-up rig schedule for this year to deliver more gas for Alaska. We've got a number of prospects," Hendrix said.
There is only one jack-up rig in the region and it is owned by a Hilcorp subsidiary.
"If we don't get on their schedule, we have to look at bringing another jack-up rig in or find an alternative way of accessing gas for Alaska," Hendrix said.
But Hilcorp has said it will make the jack-up available to other companies operating in Cook Inlet.
"We have funding for our wells if we need it. And we have contracts," Hendrix said, referring in part to the recent contract HEX/Furie signed with Enstar Natural Gas (see sidebar to this article).
Leap of faith This past fall Furie drilled a sidetrack in search of natural gas using Hilcorp's Enterprise 151 jack-up in its Kitchen Lights unit. Work on the sidetrack was being finished on Oct. 30.
HEX risked drilling even though DNR had not signed off on all of its applications and plans. However, drilling for natural gas from the Julius R. Platform met the mandatory drilling conditions of the 10th plan of development that were written into the POD by the Division of Oil and Gas, which stated "Furie will drill a grassroots well or sidetrack well targeting additional gas resources during the 2024 POD," which runs from Jan. 4, 2024, to Jan. 3, 2025.
Hendrix told Petroleum News on Oct. 30, "we're taking a leap of faith by drilling this well. We're just trying to prove we are committing ourselves. We're here for Alaskans. ... We're doing our part."
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