This meeting of the House Resources Committee will now come to order. It is now 1-0-1 p.m.
Wednesday, February 4th, 2026 in Capital Room 124. Members present are Representative Fields,
Representative Colomb, Representative Hall, Representatives Mears,
Representative Prox, Rep. Elam, representative Sadler,
Let the record reflect that we have a quorum to conduct business and please take this time
to silence your cell phones for the duration of the meeting. Thank you. I'd like to thank
Cheryl Cole from Records and Renzo Moises from the Juneau LIO for staffing the committee today.
Today in house resources we are holding an introductory hearing on House Bill 271 from
in Cook Inlet and then hearing a related presentation from HEC's theory on their operations in
Cook inlet.
We also have available for questions, Ryan Fitzpatrick, a commercial manager with a division
of oil and gas within the Department of Natural Resources.
So first up, we'll bring House Bill 271 before the committee.
Representative Fields, please take the testifier table with your staff.
Michael Nadi, and begin your presentation.
Thank you, co-chairs Burke and sorry, Freer and
Diber for the opportunity to present House Bill 271.
This bill pertains to royalty rates for
the kitchen lights unit in Cook Inlet.
And I want to thank former representatives on this committee for introducing.
prior royalty relief bills so that we could start exploring the options in this policy area.
What is the kitchen lights unit? Almost 84,000 acres in cook-and-let.
DNR combined three units in 2009 to form what's currently the Kitchen Lights Unit.
Fury, sorry, Fury owned and operated a single offshore platform.
Better image of where kitchen lights is relative to some hill court units
More detail about where the well slots are and
This chart really shows why I'm introducing this bill. So
When hex purchased fury
They were able to stabilize what had been a production decline
They also applied for royalty relief.
This was basically during a time period in which the legislature was debating royalty
relief when DNR granted royalty
relief as you see from the green era that did produce a very significant
expansion of production.
One of the reasons I'm introducing this bill is that D&R has looked at the economics of
the unit and found that royalty
What does that mean to be in the public interest?
Royalty relief is in public interests in
the sense that royalty relief
is necessary to produce more natural gas economically,
and DNR modeling indicates that we actually get
more revenue with royalty-relief because
that the status, quote,
anti-royalty level production
simply would not occur in
the context of overriding royalty interests
that also add cost to production in this unit.
two ways of looking at the public interest. One of them is gas supply. This chart from DNR shows
that we are probably going to have some security of supply through 2031 and hex's production out
of the kitchen lights unit has been an essential element of that.
Chewgach gas supply issues at a previous hearing, so I think when we look at the inlet, we have
to think about both heating and electric generation. Kitchen lights is important in that broader
context looking beyond heating, but also for electric generations of course as members know,
People have been looking at gas production and cook and let for a long time.
This is just a little bit of history.
One thing that I want to focus on is, and this is something that the previous
members like representative, former representative Rousher now, Senator Roucher.
I appreciate them introducing bills on royalty relief because I think it gave
some of us an opportunity to learn more.
One things that's a bit challenging when you look at cook-and-let is
they're simply different costs for different units based on overriding royalty
I wish that those, the department had never approved those way back before the current
commissioner designee or his predecessor or the predecessor before that or commissioners,
but the fact is these overriding royalty interests or orries exist.
And when you have a cumulative Ori plus royalty burden of 25% as was the case in kitchen lights,
you just aren't going to have production.
investigated the economics and found that yes, royalty relief is necessary for the kitchen
lights unit to reach its productive potential.
Now that might not, the same calculus or the
same percentage royalty might
not apply to other cook and let units because they have different ory burdens or they might
not have orry burdens.
So if you're asking yourself why did I introduce a bill for one unit, it is because this unit
that has the highest burden of a writing royalty interest in the inlet.
And DNR has done the very extensive investigations to validate that royalty relief is necessary
to get more production for the Inlet, so I think as you look at this bill there are a lot of policy options.
is indefinitely extending a three percent royalty rate, the right way to incentivize production in
this unit. That's a good question. Another good questions, well, goodness, if we're contemplating
royalty relief for kitchen lights, should we be contemplating royalty-relief for cosmopolitan,
or maybe some of the units were health corpus producing? I think those are good
questions too.
I started with this unit because we have some really good data on this
unit and we had a record of success. So I felt very comfortable
defending royalty relief extension for this
unit. I think it's a good discussion if we want more production now of
Cook & Let. What are some other steps we should
contemplate? This is just a little bit of the
background where DNR found that the applicant made a
clear and convincing showing for royalty modification.
Um, this is DNR modeling that indicates DNR anticipated, um, that we would have more
production and more revenue with royalty relief.
And I guess I would know in the past, I had not been supportive of broad, uh, royalty
relief levels for all units in that absence of that economic modeling.
I think it's really important to have the modeling
So, some key takeaways, DNR did test many different scenarios to see what was an appropriate
level of royalty relief for this unit.
And again, concluded that royalty-relief is in the best interest of the state because
it prolongs the life of kitchen lights unit, it produces additional royalties, I think most
importantly for me, um, increases really essential gas production that's...
essential and you're replaceable for South Central Alaska and there are some
positive jobs impacts and and Fury can talk more about that. With that I'm happy
to answer any questions. I think one more thing I want to note is and members of
the committee may already be aware of this but right now there's only been one
jack-up rig in Cook Inland. Hillcorp and Hex have had to share that jackup
with a gross value of I think seven hundred and twelve million dollars having a
gross of value essentially disincentivizes major capital investments
i.e. a jack-up rig by hex or other companies because if a company makes
that investment they don't their gross
value threshold does not change
So they're essentially willingly accepting a lower profit margin within the
construct of a royalty relief decision.
So I think the way that my bill is structured and definitely extending a
3% royalty-relief target eliminates that disincentive, a company producing
in the cook in this unit could invest.
And if that prolongs the life of the field and they could earn more money,
they sort of encouraged to do it under my Bill.
the currently royalty relief structure issued by DNR
within their existing statutory authority,
I would argue, disincentivizes major capital investment.
And that's probably not a good idea.
Now, there are other ways other than my bill
of at least allowing a company to break even
with a major capitol acquisition like a jackup rig.
I think it would be beneficial to have another jack up rig
in the inlet and deconstrain that exploratory potential,
recognizing there multiple explorers
and producers in in let.
Major topics of the bill
Representative Prox
Yes, thank you through the chair
Representative Fields
You have you said the DNR has the background documentation, etc. On this correct. I
Wouldn't even know where to look right now
But is that available and could we include that so we have that on the record? Yes. Let us
find that for you and we will include it on on basis and I have read it
represented products and i think when you read that you will conclude it was
very exhaustively researched mhm
represented me
thank you through the chair so i understand we've got a specific
instance in front of us but we also have tools within the dnr to
um to look at real royalty relief I was really grateful
process. I guess that was the or last that we went that DNR went through that.
Have you looked at all at what statutory changes might be necessary for D&R to be
evaluating these or sideboards for evaluating the royal to relief where I think it's far more
You mean at the, like, broad and agency authority representative?
So, yeah, one thing you could do is you can say for this unit and or others,
DNR has the statutory authority issue, multi-year royalty relief that avoids that distance
and information for major capital investment.
But I think one of the issues with royalty-relief is its currently structure is DMR can revisit it
every year, the way the statute.
Works that doesn't provide a lot of stability across administration. So I think an investor may be nationally hesitant not knowing
Changes from administration to administration again. That's one of the reasons the bill. I thank DNR to its homework
I support it and I I
Think there's a public interest in providing some predictability across administrations
Okay, representative you thank you
I haven't seen that report yet, but thank you for bringing this up. I mean uppercook inlet is very important to a lot of folks
myself included,
but I was curious if you had done any research into the
Elements, which maybe a little outside of the scope of this but for oil
You know marathon and the refinery and getting cook in let oil in particular is also
Really important. A lot our communities to and so I don't know if that DNR report has any of that information in it
Through the chair and doing the research for this bill, I was just focused on gas given the sort of gas supply crisis.
So I have not looked at what we should consider in terms of oil and context of royalty relief.
Okay, thanks.
Representative Sadler, then Representative Klum.
Thank you.
I'd appreciate the sponsor of bringing the bill forward.
I also want more production of natural gas from Kirk Inlet.
That's what my constituents use to keep their homes warm and their lights on.
You know, the question anyone's going to have, and I think it's been asked, is if kitchen
lights deserves a royalty relief throughout the life of production, why don't others?
And maybe I want it perfect to be the enemy of good and say, Why don t we have the entire
If the royalty relief provisions in the 180 are not sufficient for a kitchen-laced unit,
the question may be, why not?
It should be fixed that.
And so that's kind of problematic.
But so I guess, do we know how long kitchen laced units will operate and how
long these royalty-relief provisions you're expecting to last?
And I'm sure the answer is, depending on how many wells you drill with the
drawers and so forth, but some idea what the geology might support will
Information as to how long of a world to relief regime
I would be willing to go for.
Just a reminder, we do have Ryan Fitzpatrick on the line
as well with the division of oil and gas.
Yeah, and I thank you, Coach here for your.
And I defer to either Mr. Fitzpatrick
or the upcoming presentation on likely production time
frames.
And good point, Representative Sadler,
maybe 10 years with a potential multi-year extension
is a better way to structure.
Thank you, Chair. Through the chair, I just want to clarify something. Thank
you for bringing this forward, by the way. So this keeps the royalty rate at 3% of
each month of the gross value of production from the lease. Is that what
is currently happening? Is it what the DNR commissioner did?
Is the percentage change from what's happening right now?
Through the chair, I simply extended the same percentage that DNR had picked,
again, based on their economic analysis. All the bill does for this unit is provide
multi-year predictability to encourage ongoing investment. Okay, all right, thank you.
Are there any other questions for committee members?
Actually, yes.
Representative Sandler.
And again, the not to the sponsor, maybe if we have Mr. Fitzpatrick or anybody from DNR,
I guess the question has to be brought out in the record.
Why have the existing royalty relief mechanisms not been sufficient?
I've heard that, Yes, they exist in law, but they are long and arduous and don't recognize
the need to act quickly.
So I'd just like to give D&R the opportunity to respond to that allegation.
Think you represent Sadler. I think you also might get that answer in your in the next presentation if I yeah
But if mr. Fitzpatrick is on the line and can
Do this and I can also take a stab at it coach here for you
So if you're a company weather hex or another company and you are going to say borrow money to procure say a jack-up rig
And I'd think it would be logical for the lender to ask bull
how sure are you that you will continue to get this royalty relief,
which we know because of the public data is necessary for the production
to be economic.
And part of my purpose here is to make it easier for those companies
to attract capital by showing, yes, we have a 10 year window.
We're going to take the investment.
We are going recoup it.
We going earn profits is very predictable.
Thank you.
Well, seeing no other questions.
Hold on a second.
Up to you on whether you want to read your sectional analysis
or go straight to the next presentation, thank you.
I think we might just go
straight into the Next presentation.
I'm going to, we'll take a brief at ease
while we switch presentation
We are back on record in house resources, Mr. Slaughter.
Thank you for joining us at the table.
Please begin your presentation.
Great, thank you, co-chairs for your
and cochair Dibert and committee members.
For the record, my name's Mark Slaughter,
I am the Chief Commercial Officer for Hex and Fury.
Just a little bit of background for myself.
I'm born and raised in Fairbanks, lifelong Alaskan.
my live in Anchorage with my wife and we are lucky enough to have all four of our adult children
living in the Anchorage, with our three grandchildren. So living
in Alaska, we're very proud to be Alaskan and working for Alaska Company.
Just the point of making sure that everyone can hear me since I have a soft voice.
HB 271, HB271 improves upon the positive decision that the Department of Natural Resources
made in February 2025.
The kitchen lights unit is a unique unit.
It was formed in 2009 by bringing two other units that were in distress, the kitchen and
the course area units and the northern lights units.
Hex itself is the owner of Fury, and I'll be, to clarify things, Hex will be rebranding
the Fury name, then Fury will go away, so for the purpose of the presentation, I will
just refer to Hex, even though currently and legally Fury is operator of kitchen lights
So, the kitchen lights unit is 84,000 acres, it's offshore,
it is in the middle of the Cook Inlet and we have one platform
that produces natural gas and only produce natural
gas. As of December 2025, we produced approximate and will
over 9% of total Cook inlet gas production and the second
And then we additionally have been purchasing leases and the cooking state lease sales for
some more additional offshore leases, which you can see that in the red or dark brown
color off to the side.
And those are additional prospective leases that we look to be doing some additional
exploration on in that upcoming future.
Well, beginning with the Allegra League platform off to the left on the side, that's the newest
platform in Cook Inlet.
It was set in 2015.
It's also the smallest platform.
The prior owners of Hex, excuse me, of Firi, elected to build a small platform that had
limited number of well slots.
At this time, I'll get into this later, but we've improved upon that capacity of the platform.
We produce gas, we send it through a 15-mile subsea pipeline,
where then it's processed onshore at our central processing facility in Nikiski.
There we treat the gas. We bring it up to utility grade specifications,
where it goes into a greater cook-and-let transmission system,
the Marathon Refinery, and we've sold in the past a Chugach Electric,
Matt Newska Electric. Homer Electric was the first company that we sold
gas to in 2015, so we have a long history. We have over 10 years of production at this point.
This slide is kind of the basis for this bill as Representative Fields presented it.
When kitchen lights went into production you had the total royalty and overriding royalty was 25 percent
That's the green they come a combination of the Green bar and the Blue bars green being the state's 12 and a half percent
share of in royalties and
The Blue bar is a 12.5 percent that the State Department of Natural Resources approved the creation of
So that unit is unique in that it had 25%
combination of royalty and overriding royalties.
No other unit has had this burden placed on it,
and this is one of the reasons why the predecessor company was
unable to survive financially, because 25% of every dollar they
earned went out the door before they could pay bills,
before we pay employees, contractors, anything.
With the department's decision last year, the royalty relief
took the royalty relief, their share down to 3%.
So now the unit is operating at 15 and a half percent total
royalties, which is above the average for the inlet.
You can see some units that are older units have just 12 and
a 1.5% because the state, that's a typical royalty burden for
the State, other units are higher.
But those are, any time you see the blue line, those
are overriding royalties that the state approved the creation
of, and those were private interest royalties.
So the process, I mean, you just heard it, it's a arduous
process.
This slide is intended to give you an idea how long it takes to go through the process working within the framework that the Department of Natural Resources has.
We started the initial discussions in April of 2023, and in that there is rightly so concerns by the department about the private overriding interests.
have them reduce voluntarily their share, or we attempted to buy them out.
And unfortunately, we were not successful in that effort.
And then the department advised us that we should seek a legislative process,
go through the legislative processes.
And that, as you previously heard, was sent at the time,
representative Rauscher's House Bill 223, and it did not pass out through
Because it was, say in part because it
was a wide cook-inlet area, a
wide bill, it
was not targeted just for this unit.
And there were concerns,
does royalty relief work?
Will it actually get more gas out of
the ground, get
more investment in cook inlet?
So, we reengage with
the Department of Natural Resources and spent the summer.
working with the commercial section of the oil and gas division.
And they did extensive modeling.
If you look at the Royalty Modification Report
that they issued, there is.
an extreme amount of work that went into this, and I'll point out that this was the first
royalty application within Cook Inlet that has occurred specifically for gas.
So it was a new process for everyone involved.
It's not something that they do frequently.
In their best interest finding presentation to LBNA in December,
they have a table that shows the number of applications
and whether or not they've been successful.
We are the only ones that proved and demonstrated to the state
that royalty modification would work was necessary for this unit
to extend the life of the unit.
And during that period, while we worked with the Department
We did drill wells in advance of receiving it.
So we moved forward.
We took the risk to drill a sidetrack well in the fall of 2024 before royalty relief occurred.
The department approved the relative relief in February of 2025 and shortly thereafter,
we were moving forward with using the jackup rig to drills that spring.
And we also, at the same time, we're going through the loan application process with
ADA, where we secured a $50 million revolving liner credit to facilitate the additional
investments necessary in Cook Inlet.
Before we proceed, I believe Representative Prox had a question.
Yes, thank you.
Through the chair, you see, these are private royalty interests.
What, who is private?
Representative Prox through the chair, these are their private, some are companies,
some our individuals that may have done work for prior owners of the unit that they were given the
overriding royalty as a
as a reward for doing work for the unit, but you have to go to the Department of Natural
Resources, creating this, and the department approves the creation of it.
The department will, as states, they approve the initial creation,
but then they don't track the, it's something that can be sold, can
be traded.
But these are entities, there's a few individuals,
Yeah, follow-up, please
I guess question is have they been involved those entities been
Involved with the discussion at this point in my mind. It seems like an arbitrary decision
against the current
private royalty holders
Representative Prox through the chair
The privately held overwriting royalties that total to 12 and a half percent that has not changed since the creation their creation
Okay
If I could just follow up just get it clear in my mind, we're just
This is between hex and the state of Alaska. We're not affecting somebody else. Yes, that's correct
Representative Fields has a yeah
And I was just going to offer it through the chair to follow up with Representative Prox
on the history of these particular orries and various ways, let's just let your look at
resolving them, which were unsuccessful sort of hints leading us to this bill, thank you.
Some time. Representative Schadler.
Well thank it. And through that chair, I'm not sure if Mr. Slaughter, or if the sponsor
might be the first to answer. Maybe DNR is the right answer, but has the state ever denied
request to approve an overriding world interest? And if so, what was the criteria?
And that probably does sound like a do in our question,
but because anytime I hear,
or you represent a reference,
it's always in connection with your company.
Yeah, Representative Sadler through the chair.
Yes, the state has, particularly for this unit,
denied the attempt to create additional overriding royalty
interests.
There, I believe it was in 2010,
there was an attempt
to increase additional that would have taken the royalties,
over the private overriding royalties higher
Good to know there's a limit
It's seen no further. Oh, do you have a follow-up on a different topic?
So through the chair mr. Slatter
I've seen that the it sounds like the one of the objectionable
elements of The traditional
Existing
Royalty reduction process is the requirement that you'd meet the plan development requirements would which would mean jack-o-break with the
Would a potential solution short of a statutory change be a modification of your plan of development to give you some more flexibility or some grace period on new drilling?
I'm just representing this out through the chair, the plan development, we submit that every year with the to the department and then they review it and approve it.
We're able to have access to knowing we have
access and that provides us a greater line of sight.
And as I'll explain, additional sites, we
have pursued additional Jackup rig.
We just were unsuccessful in securing that agreement.
So to follow up?
Follow up.
So I think I could say that that.
You do see that as a potential solution, and you've made that request and it's not been approved.
I'm not quite sure you're saying that yes, the plan development is approved every year,
but could it be modified, which would achieve your ultimate goal here?
HP 271 provides the long term of security or
does not provide us the long-term ability to make sure that we have the runway to
invest within the unit to maximize the production from the
unit.
Gotcha. So just feedback.
So the existing process is a potential
vector but it's not, does
not provided us to reliability, reliability you need.
Okay.
Yes.
Got you.
Okay, seeing no further questions.
Okay thank you, so this is again of some more
during this process of securing royalty relief what hex has done. As I mentioned before, in 2024,
while we were going through the process with royalty-relief, we committed to using the
Hillcorp Jackup rig, and we drilled, or we did a sidetrack well, which is the first new drill
within the unit since 2018. And that brought gas on in the late fall of 2024.
Even though we knew the economics weren't necessarily as we would desire,
but we made the decision to move forward because gas was so urgently needed within for our customers.
Subsequent to the decision from the department, we again renewed our contract with Hillcorp
for the Jackup rig and moved that rig on April 10th of last year and from April
10 through the end of June we were able to drill two new wells that brought on additional
By October, we had increased our production rate to an average of 25,000 cubic feet per
day.
That was a five-year goal for the company, and we doubled our
production from prior year, including the production
from those two wells.
Additionally,
we've made additional investments to the platform.
by expanding the number of wells
that can be drilled from that platform.
We've expanded.
We added additional well slots to the platform,
we added a new production header system
that will allow us to go from the current configuration
of 12 wells.
We can actually add two more wells to it
if we can identify the capacity of another well
slots we could add.
Again, this is all in the efforts to increase production.
We're making investments to the existing platform to bring more gas online.
And the point I want to make with the adding the additional well slots is we effectively
set a new platform.
Without the time and cost of putting a new platform out there,
we used the existing resources.
Our engineering team identified a creative way
to add capacity to what was a platform people said,
you can only drill six wells.
What are you doing?
Our team's figured out a way to double that.
And that's allowed us to a double production
and then have a greater runway to increase additional production
that is needed for the inlet.
Representative Sandler.
Thank you, Madam Chair.
And Mr. Slaughter is the best person to ask this.
I tried to get it from dinner before, but this is better.
We're speaking a lot about the short-term effects, and I'm glad the future begins with
a short step.
But help us understand the underlying geological supply of gas and how long a permanent royalty
relief might be employed.
Basically, how on condition will that unit be expected to produce?
I know that depends on how much you drill and so forth, they give us some idea what the
from Representative Sadler through the chair, as we as you drill you have the ability to add
resources. You can see as, you produce the gas you're reducing your resources but every time you
drill the geologists get more information and you are able to expand out what the reach where
you think the gases and where you believe the gasses you start confirming that. So from a
That, certainly, the timeframe, you know, DNR showed that from their projections this would take us out to 2032.
I believe we believe that we have a much longer runway out the 2040s.
Any fellow just observation that we've heard from DNR in previous years. Yes, the same question.
It's a complex basin. The geology is interesting. But the more you drill,
the better you have. And therefore, you can identify. So although it seems counterproductive,
you're drill. You are depleting some resource that you know about.
You might be identifying new ones. This is kind of keeping the patient alive and
make it even better, not patient. I mean, more drill the
Thank you. So this slide really shows the crux of the discussion. That does royalty
modification result in additional gas? Does it result
in more investment, more production in the inlet? And the answer is yes. You can see
the decline that the prior production from the
prior ownership, what the field was looking like with the red line.
Once the company was purchased by Hex, you can see an increase as new resources were looked at, new work was new wells that had been previously shut in, were brought back, and you could see a slower decline rate.
But then once royalty was relief had occurred,
you see the immediate benefits of that.
the first spike was for the A1A side track, then the next large spikes are when we brought on the
A5A and the a6 wells. Those wells are extremely important to the inlet. Combined, those two wells
alone in the past six months have produced over 2.1 BCF of gas. So that's 2,1 BCF gas that could
And if you look at what N-Star presented to the RCA last week regarding this recent cold snap,
that gas was critical for maintaining the supply to
the N.L.T.
Thank you.
Through the chair, Mr. Slaughter, the chart, look at the red box,
the kind of Dumas Day scenario,
the end of field life without a hex ownership.
I've asked the question of pipeline operators, too.
Is it fair to assume that production would actually continue down to
zero-point production, or is there a point at which economically
you could not produce gas that might exist?
Is that red runway a fair, is that just theoretical?
The Representative Sadler through the chair that is at that decline rate of those wells
But if the wells will reach a point where they won't
Produce at a high enough pressure to lift either the water or be able to enter into the float line
So instead of saying going all the way to zero those Wells might only produce
You know, you might have to stop producing it like 3000 MCF a day or something
Thank you.
So particularly for how does HB 271 work?
I mean, it is working and it's improving upon the royalty relief.
Is it working? And this HB 291 improves upon
the department's decision to prepare for 2026.
The hex team did look at buying a jack-up rig.
Fernley's overseas AS as a rig broker, the team traveled to Singapore and Saudi Arabia
looking at rigs that had been identified for purchase.
We used Magi spec rig inspection company to inspect the rigs and we were preparing a tender
for the purchase of a Rig and then the owner of the rig took it off the market and put
The other rigs that we have identified that might work, again, are all overseas, and those rigs are in the 50, 40, 50 to 100 million dollars cost for a rig.
So, thankfully, we were able to secure the third time, third use of the Hilkarpso Spartan 151, Jacob Rig. We signed that contract in December of 2025,
For the second half of the drilling season and for the record
I want to be very clear hillcorp has been an excellent partner with a jack-up rig
Their team is very professional the efficiencies the knowledge of that team has
been excellent to work with there is
They have a very strong safety record, and there's been very little downtime with that rig,
so it's a key piece of our success for bringing additional gas on out of the kitchen lights unit.
The question, does royalty relief work, I think we've proved it does.
What HB 271 does is it provides us the surety that we have when we make our long term decisions to spend capital.
We're a small company, we're the only 100% Alaskan owned company in the oil and gas sector.
Our platform, you know, John renamed it after his granddaughter this summer.
I think that should be an indication of his belief, his vision of where this company is
going and the longevity of this Company.
So this bill will facilitate improving additional resources being produced for the Cook Inlet.
Representative Sadler.
Thank you, Madam Chair.
As the Chief Commercial Officer,
you may be in best position to answer this question.
Do you have any potential investors you maybe working with
who might be willing to pull the trigger
and make an investment decision
should you obtain this royalty relief?
Any prospects in the line?
As mentioned previously,
we have our line of credit with ADA.
That I we use the last year where we secured, you know, we borrowed 15 million dollars from them as part of the process of drilling
Whether or not we have other investors. I mean those are confidential discussions
But you we are actively moving forward with a drilling program. You know this year
Thank you represent Paul
Thank you, madam co-chair through the co chair. I'm curious everything is relative and you say that hex fury is a
Small company. What does small mean?
Representative Hall through to the chair we
are small and that we have approximately 24-time employees based in Alaska.
When we are drilling, when Hill Corp has the jack-up rig,
there's over 100, 120 people out on our combined between the platform.
And some of them, there is overflow that stay on, excuse me.
that are on the Jackup rig and then overflow to our platform.
Our platform can hold, I believe, bed, 28 beds,
I think is the count.
Compare that to other producers in the inlet
who have hundreds of wells and hundreds
of employees, we are small, but we have
demonstrated that Alaska Company Alaskans can do the work and get more gas out of the inlet.
And we think that's very important and it's just there's a unique nature to the
Cook Inlet and the unique that the state doesn't have any other small Alaska owners.
If you look at Oklahoma or Texas, there are a lot of independent small producers.
You know, we have visions to grow the company.
And we'd like to be a much larger company in the future.
And royalty modification provides that ability for us to continue to grow.
Thank you.
Thank You.
I've got a co-chair.
Then represent.
Thank.
Thank, you through the co chair.
Thank
you so much.
Mr. Slaughter for your presentation.
that you had described and how you were able to overcome a challenge and have more wells
drilled. That's fantastic. It's excellent. So the teacher and me, you know, that's like STEM,
that is innovation. And if you want to hire a lot, young Alaskans and
challenge, you know, go through challenges like this. I was wondering if you, your company,
your small company would ever do like a STEM camp to like,
you now energize our youth. You think outside of the box, think through
challenges that the oil and gas companies you need to think about like expansion
something to think about and thank you.
Yeah.
Thank you, Chair Diberg.
That's certainly a very good idea and I'll point out we do
interact with the Kenai Peninsula Technical College.
We do sponsor a $10,000 scholarship to any graduating
high school student on the Kinai peninsula.
It's a shameless plug right now.
You can apply for that.
And we have been doing that for a number of years.
And we think that's very important, and as part of John's ownership of the company is
to give back to the communities and be involved in the community.
So we are very encouraging to have additional, we want local kids growing up to see that
there's jobs on the cook-inlet, that you could go home at night, you don't have to be on
the slope for two weeks on, two week off.
you know, the original oil basin of the state is right here in Cook Inlet, so thank you.
I've got Representative Klom and then, yeah, Representative. Okay, thank
you, Chair, through the Chair. So I'm kind of curious about the Jacob Briggs,
so I know that you're using Hill Corps. And last session, we actually had a bill
to bring jack up break up so can you explain so if you let's say that sale had
gone through you guys would keep that busy it sounds like you would be busy
enough to actually purchase your own jack-up break is that something that
you'd share with others or and is it holding you back to have to share it
The jack-up rig just around numbers to move it was going to be in the five to ten million
dollars just to remove it with a heavy left vessel here.
You want to have that rig operating for as long and is drilling as much for efficiencies
of scale, but the window that you can really drill is limited because of the winter.
you know, you'd be looking to try and drill as many wells as possible to minimize your cost.
And then if there's other, excuse me, parties that had an interest in the rig,
you can make that rig available, yes. So right now, do you feel like it's holding you back
by not having you having one? It limits the pace at which we can develop the field.
We did provide DNR a plan of exploration for the unit.
I believe it was the exploration.
But the focus we have said is why drill an exploration well
that may or may not be able to connect into the system
when gas is needed and we can just drill from our platform.
That's the need is yet cooking like gas being produced.
I just wanted to comment.
I went to go visit the.
the platform. It's amazing and thank you for the invite to do that. Really help me see a lot of
stuff. Thank you. To follow up on represent Columbus Point on your slide eight if you just
pop up one slide back. There's reference to folks that made trips to Singapore and Saudi to inspect
for purchase jacket breaks. Should we conclude that you actually may be considering looking for one
At that time, yes, last fall,
we were certainly preparing to buy a rig.
Now that we have the rig with Hillcorp under contract,
the number of well slots that
we can drill with our own rig is now different.
We may have three wells drilled by the end of this year.
That affects our decision for a jack-up rig
It's all up on a different topic.
The language, and maybe this is a point for this sponsor,
but I suspect you've worked with
The findings say granting royalty modifications for certain kitchen light unit leases at the bottom of page one, line 14.
And then the actual guts of the bill on page two line 11, I'm sorry, the whole thing, six shall modify the leases.
So my question to Mr. Slaughter is, are there any particular leases inside the unit that would get more benefit from royalty relief?
And basically does the law, does this bill cover all leases in the units?
The bill just covers the specific leases that the DNR modified they limited to.
Instead of, I believe we have 30 leases and I think it's six, that modification applied to
Thank you, Mr. Chair.
Thank You.
So, as this slide, I didn't really discuss, but Cook Inlet is a unique market.
The kitchen lights unit is unique unit.
What this bill does is allow us to have a surety when we make our decisions of the
immediate term.
They're significant as the committee is well aware of other issues coming down the line
The unit, excuse me, the Cook Inlet Basin as an oil basin is a challenge unit
because the contractors have effectively left the unit.
There's a lot fewer support contractors in the basin.
We are having to send tools that we're using or equipment that were using
for this drilling season, upcoming drilling seasons in 2026.
We have equipment
to have worked on by our contractors and then ship it back to cook inlet because
there's their facilities have been shut down in the inlets. So that is a
significant change of where this basin used to be. And then we have the bullet
just about the timing of the rig. We have dates where we expect to get the
rig but as the owner of their rig
you know, they need to do their work first.
So that will affect it.
And then when the, depending on the weather,
we have dates that we
have to get the rig out from the unit back to shore.
If it's a cold, if it is an early winter,
we'll needing, we need
to to the get back the shore
because we don't want to have it, you
know get stuck out in the inlet.
The positives will definitely show,
have shown, is royalty relief works.
Targeted royalty, relief.
As of right now, we have six wells at the end of the unit.
50% of those wells have been drilled under royalty relief.
That, I think, is a very good indicator of that this is working.
The benefit we had with that rig under contract right
now is that we're able to move forward and demonstrate there is gas and
coconut.
Kitchen lights has the gas we've shown in big increase in production.
Hillcorp over at the Tionic platform has increased production by drilling.
CEA and HillCorp at The Bluga River Unit has increase production
by Drilling. You just have to start drilling and you can find gas.
If you look at USGS, the data is there.
It supports that there's 19 TCF to be discovered in Cook Inlet.
So it's not a depleted basin.
It's just an underexplored basin
And then I'll wrap up of just two more slides.
This one, we continue to provide this information because I think there's a huge misconception
about the cost of gas in Cook Inlet and cost to the consumer.
This is U.S. Energy Information Administration data.
They get the information from the local gas utilities of each state, and they produce
the price of gas at your home. Alaska is extreme is the 10th cheapest as of
September at I believe it was 15 dollars. Yeah 1538 versus Texas is
the fourth most expensive bait place for gas and
It's imperative to show this shit. This basically shows locally produced gas is the best is
the cheapest gas for consumers this also is a benefit or demonstrates that end star does
extremely good job of providing safe reliable low cost service to their customers. So it
Not associated with a Henry hub pricing. It's unique in its market and
We were still benefiting at the consumer for the benefit of having locally produced gas
Representative you had a question and then representative Paul. Thank you
No, I was just kind of looking at that the cost there and like, you know as far as how we would
Look at dad. I mean with this
Make any kind of a difference at the the price to the end users or to that to
the customers because you know the there's a variety of price prices out
there. Sorry I'm not formulating my thoughts very well here but this royalty
relief with this actually result in cheaper natural gas. I will say it
This market is unique in that the utilities typically want firm contracts with a set price
They're they do not like spot prices
These lower 48 typically trade on spot price is they may have a basis of long-term or short and meet mid- term
But there's a lot more flexibility
In the pricing versus you'll see the utility seeking
fixed price contracts
So I can't speculate what, if it will or will not,
but it, will produce more gas for the market.
Okay, thank you.
Representative Hall then representative Prox.
Thank you, Madam co-chair.
Through, through the co chair, when it comes to the price of gas in Texas,
is that price for local consumption or is it export or
is in a mixture and then for Alaska gas?
Is there a difference between the price that you're selling the gas and what Hillcourt was selling their gas for?
Representative Hall through the chair
This the Price in Texas this is the residential price. So this what they would be the consumer pays at their meter
And again with this this, is this the priced that in Alaska the Consumer pays that the meter
Regarding, is there a difference in price between Texas price and what Hillcorp charges?
Yes, there are differences in prices and that data is of it, you know,
you can get that date available from the Department of Revenue.
Follow up, Madam Coach.
Can we ask whoever's on with DNR with that price differences?
Let me see if he's still here with us.
Mr. Fitzpatrick, are you still on the line?
Yes, hello.
This is Ryan Fitzpatrick.
Commercial Manager from the Department
of Natural Resources.
Thank you.
Did you hear Representative Hall's question by chance?
I believe the question was, and please correct me
if I'm wrong, the right difference
between the contracts that Hex currently.
has from sale of gas versus other producers in the inlet. That is not something that I
have available immediately. Typically, the department of revenue publishes a weighted
average cost of the gas for the e-inlet, but that's weighted average across multiple sellers
But the RCA, the Regulatory Commission of Alaska,
approves the sales contracts between the gas
sellers and the utilities.
So that's the agency that typically
has the record of those sales contract.
Answer your question.
Thank you.
I've got, and Q, Representative Prox?
Maybe just an observation this is new information for me
which
Opens up a whole discussion about the whole cook-in-let field and what the potential might be but I kind of think that is
Discussion for another time, but we should think about that
Thank you representative products representative
Diver or culture diver
Thank you, co-chair, Mr. Slaughter, this U.S. Energy Information Administration bubble on this slide.
For Alaska, is that an average for this state?
Does that include Fairbanks, Natural Gas, and Cookin, like natural gas?
Or how would Fairbinks find themselves? Thank You.
Through the chair, yes, the utilities are required
to submit this data, and so this would include N-Star,
IGU,
and the other gas utility, I believe, up on the slope.
So it's a blended price.
I'm seeing no further questions and this just we're just you know when I acknowledge
that is not just hex that gets us done that this is a cooperative effort of from
the governor all the way down to our employees specifically you
know our customers and star marathon chugach electric
the Alaska legislature taking the time to investigate to look at this
We are only successful by having everybody working together to make this ability to get more gas out of the inlet.
So I appreciate the opportunity to testify in support of HB 271, and we're happy to have any follow-up questions that you might have.
Let us please know if we can help.
Thank you. I believe we have one final question from Representative Paul.
Thank for your indulgence.
Thank you, Madam Co-Chair. Through the co-chair, back on slide nine, you had mentioned that
support contractors are leaving the Cook Inlet Basin. Why is that?
Frankly, there's just a less activity in the basin. I'm not sure if there has been a new oil
limited number of producers, you can see that consolidation has occurred in the inlet. And
frankly, like we only have access to cis-free boats to support us. I guess I should refer to
Mr. Hendricks is out right now, out of state looking at purchasing our own support supply vessel because there is a need for us to have more support services.
It's just that the basin over time, you have fewer and fewer parties exploring looking for gas, so there's fewer support contractors and the North Slope has been.
Booming so that's there's a lot more activity. That's where the jobs where. The work is that where they're going to migrate to
Thank you
Representative Sather thank you, man. Sure. This is not for mr. Slaughter. It's for the sponsors. Okay
Through the chair, Representative Fields, on page two of the bill,
straight line nine through 11, there's a phrase, the royalty modification under the subsection may be terminated if the commissioner determines the modification was assigned without approval of
the Commissioner.
And so that's a bit interesting.
So why would he do something or she
do is something that he had an opportunity.
Can you please help understand, is that
to prevent second seconding, transfer of this royal human
application, just what's the origin of that language?
Through the chair, that specific language was not
something I asked for from leg legal,
so I'm going to have to follow up leged legal
to understand why they put it in there.
I sure there's good legal reason,
but just sounds like a little gray hand
doesn't know the left hand is approved.
Seeing no, was that, did you conclude your presentation?
Yes, for co-chair for, yes, that concludes my presentation.
Thank you very much for the opportunity to present.
Thank and seeing no further questions.
Are there any questions for that bell sponsor?
Representative Klop?
I thank you, Chair.
I just want to make a comment.
My first session here, we had the bill that was referenced by Representative Raucher to give royalty relief to gas and
cook and lit. I think it ended up being oil, too. It turned into a big, I don't know, scenario.
But at the time, it was surprising how many of my colleagues were against that bill.
They wanted the royalty they want they didn't want to give up the money
But we weren't giving up any money because there was nothing happening
And so I just appreciate
Refields bringing this forward because it's obvious that
Not only do we need the gas, but the Royalty relief works. I'm interested in getting it
Broadened I think this is an important bill the kitchen lights units important
But it's just interesting to me, because these are the discussions we had three years ago
that we needed more gas, utilities were clear that
we need more and we tried to give the rail to relief, and there were several iterations
of what relief went from zero to five, I think, or zero
to three, kind of back and forth.
But I hope, you know, with the information presented for the bill, what the work that
It's pretty obvious that this helps keep our constituents' houses warm and their lights
on.
So thank you, Redfields.
Thank you.
Representative Colomne, Representative Fields?
Yes.
Through the chair, I was just going to let Representative Clum know.
I think that's a good suggestion.
I'll do a little more research about sort of options if you wanted to look beyond the
kitchen lights unit, recognizing the different royalty plus tax burdens across the
different units.
How we might address that.
Thank You.
Thank you through the chair to rep pull my think we're gonna
discussion portion portion here and I think I
think there's a difference between support of royalty relief and how the
decision who makes the decisions with what the process that DNR went through
to come to the conclusion for royalty relieve is far deeper than we've got
the ability to do here in committee and you know maybe they go further but
I'm more thoughtful about that that process and being able to evaluate the information and
I am grateful that DNR has got the ability. They've got a statutory authority and the
ability to do that work and I
think it serves us best in the long run to make sure that the department has
got the authority and the tools they need to be able to do that more in-depth
analysis. They'll also be be to see things that are further down the road in a
different way than we can here.
Seeing no further questions or comments for the bill sponsor. I'm gonna
That completes the agenda.
We'll now set this bill aside.
That concludes the Agenda for House Resources Committee meeting today.
Our next House resources committee meeting will be Monday, February 9, 2026 at 1 p.m.
The agenda for that meeting, we'll be noticed tomorrow by 4 p-m
Time now is 2-0-7 p.-m
And this hearing of the House Resource Committee is now adjourned.