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AIDEA to the rescue?
Authority shares HEX desire to produce untapped natural gas reserves
Kay Cashman Petroleum News
HEX Cook Inlet LLC has requested the participation of the Alaska Industrial Development and Export Authority in the financing of a natural gas drilling program via a Revolving Line of Credit for the Kitchen Lights Unit, KLU, in Alaska's Cook Inlet. HEX CI's goal is to increase natural gas output from the KLU.
The Alaska Department of Natural Resources' Division of Oil and Gas recently approved the 10th plan of development for the KLU, stating "Furie (a subsidiary of HEX CI and operator of the KLU) 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.
AIDEA Resolution No. G24-08 dated Aug. 7 authorizes the Executive Director to 1) execute a cost reimbursement agreement and 2) negotiate a non-binding term sheet with HEX Cook Inlet.
The cost reimbursement agreement would allow AIDEA to study, evaluate, prepare a finance plan, and conduct due diligence with regard to the viability of the project and the soundness of the business case (the "feasibility analysis"). Up to $200,000 could be used for this effort.
The budget for the feasibility analysis is:
Technology consultant $75,000
Financial advisor $50,000
Legal services $75,000
Total: $200,000
Background: HEX Cl through its affiliates Furie, Cornucopia Oil & Gas Company LLC own natural gas leases, natural gas production and processing infrastructure for the KLU.
HEX Cl is the only 100% Alaskan oil and gas company operating in Alaska.
John Hendrix is the owner of HEX LLC, the parent of HEX CI.
AIDEA facilitated Hendrix's acquisition of Furie out of bankruptcy in 2020 with a $7.5 million loan that was fully paid off eight months early.
The KLU consists of approximately 84,000 acres offshore in the upper Cook Inlet. Furie operates the production platform, subsea gathering line, and onshore processing facility.
Currently Furie has three wells producing a combined 11,000 thousand cubic feet per day of natural gas from the Julius R platform. There are four wells drilled and two additional well slots for new grassroots wells.
It is HEX Cl's desire to commence a multi-year infield development program, sidetracking non-performing wells and drilling grass root wells to access previously untapped natural gas reserves.
Drilling at the platform entails contracting with a mobile drilling unit aka a jack up rig, that is towed to the platform and cantilevers over the platform to drill or sidetrack wells. Offshore work with the Jack up rig can only occur in ice free periods, thus there is a limited six to seven-month period to conduct well activity in Cook Inlet.
There is a high demand for locally developed reliable supplies of natural gas by the local market. The buyers of natural gas are stable utilities that provide heat and electricity to more than 70% of the state's population. Furie's current and/or historical customers include Alaska Electric and Energy Cooperative Inc. (Homer Electric), Alaska Pipeline Co. (Enstar), Matanuska Electric Association, Chugach Electric Association, Golden Valley Electric Association, Interior Gas Utility and Marathon Petroleum Corp.
The combined annual local natural gas market is approximately 70 billion cubic feet, of which Furie in May 2024 averaged 10,560 mcf per day, 5.2% of inlet volume, down 556 mcf per day, 5%, from an April average of 11,116 mcf per day but up 2.9% from a May 2023 average of 10,260 mcf per day.
Furie has existing long-term contractual agreements with its customers and will be able to sell all the natural gas it can produce. The largest producer of natural gas in Cook Inlet, Hilcorp, has stated it will be unable to meet the local market demand as early as 2028.
Furie is working with Hilcorp to determine access and schedules for using the Enterprise/Spartan 151 jack-up rig.
Project impact HEX CI's proposed development will benefit the state of Alaska in several ways, including:
--Lowering operating costs will extend field life and increase state revenues.
--Reduce the forecasted, beginning in 2027, supply gap of natural gas production in the Cook Inlet.
--Additionally, the impact of the project will create an estimated 100 jobs and retain five jobs as certified in HEX CI's direct finance application.
Current status: The current status is as follows:
--A cost reimbursement agreement is being reviewed by counsel and will be presented to HEX Cook Inlet subject to the approval of Resolution G24-08.
--Due diligence consultants/contractors have been identified and shall be selected for both the technical and financial review.
--Initial due diligence review and analysis indicate that this project warrants continued AIDEA participation, per AIDEA.
AIDEA mission: AIDEA's purpose is to promote, develop, and advance the general prosperity and economic welfare of the people of Alaska. Economic development in connection with the extraction, transportation and production of Alaska's abundant natural resources, including oil and gas resources is key for the prosperity of all Alaskans.
Under AS 44.88.172(a), AIDEA is entitled to expend money from the economic development account to finance, acquire, manage and operate development projects that the Authority intends to own and operate or to provide development project financing, all for projects defined under AS 44.88.900(13)(A), including oil and gas development.
Thus, the proposed and contemplated financing to HEX Cook Inlet is consistent with AIDEA's mission to create and maintain jobs and facilitate economic development in Alaskan communities and address the forecasted natural supply shortage within the Cook Inlet and Southcentral region of Alaska.
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