HB 271: royalty relief
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Kitchen Lights state royalty would continue at 3% to promote gas production
Kristen Nelson Petroleum News
House Bill 271, indefinitely extending the 3% royalty rate approved by the Alaska Department of Natural Resources in 2025 for the Kitchen Lights unit in Cook Inlet, had its first hearing in the House Resources Committee Feb. 4.
Rep. Zack Fields, D-Anchorage, the bill sponsor and a member of the committee, introduced the bill, noting that when the DNR commissioner approved the application by unit operator and working interest owner HEX/Furie in February 2025 for reduction of the state's royalty, DNR had looked at the economics of the Kitchen Lights unit "and found that royalty relief is in the public interest."
Prior to approval of the reduction in the state's royalties on gas from the unit, the combined state royalty and overriding royalty interests, ORRIs, were 25%, the highest in Cook Inlet. In addition to the state's 12.5% royalty, previous DNR commissioners had approved a total of 12.5% in ORRIs.
Fields said he introduced the bill targeting Kitchen Lights because that unit has "the highest burden of overriding royalty interests in the inlet," because of the extensive investigation done by DNR to validate royalty relief for the unit and because there was a "record of success" at Kitchen Lights.
HB 271 indefinitely extends the 3% royalty approved by DNR, Fields said, providing "multi-year predictability to encourage ongoing investment."
The bill was still in House Resources awaiting a second hearing when this issue of Petroleum News went to press. From Resources the bill will move to House Finance. There is no companion bill in the Senate.
HEX/Furie supports bill Mark Slaughter, chief commercial officer for HEX/Furie, told the committee the company supports the bill.
HEX, the owner of Furie which it acquired in 2020, is the only locally owned and operated gas explorer, producer and operator in the state, he said.
Furie is the operator at Kitchen Lights.
Slaughter said HEX plans to rebrand, eliminating the Furie name.
The Kitchen Lights unit was formed in 2009 from two existing units and one proposed unit.
Production began in 2015, when the small platform was put in place by the previous Furie owners with slots for just six wells. From the Allegra Leigh platform, gas goes through a 15-mile sub-sea gathering line to a processing facility in Nikiski and from there is sold.
When HEX acquired Furie in 2020, Slaughter said, production from the unit was in decline.
Highest royalty Slaughter said the royalty at Kitchen Lights was higher than any other unit and was one of the reasons the previous owners were unable to survive financially, "because 25% of every dollar they earned went out the door" before employees or contractors or anything else could be paid.
With DNR's approval of the reduction in the state royalty to 3% the total royalties at Kitchen Lights are now 15.5%, still above the average for the inlet.
HEX started royalty relief discussions with DNR in 2023, and DNR wanted HEX to focus on getting a reduction in the ORRIs. Slaughter said HEX asked those private parties holding ORRIs to voluntarily reduce their share and also attempted to buy them out, but those efforts were unsuccessful.
Then DNR advised seeking a legislative fix, and that resulted in a bill from then-Rep. Rauscher, but that inlet-wide bill did not pass. Concerns at the time were whether royalty relief would work in producing more gas production in Cook Inlet, he said.
In the summer of 2024, HEX reengaged with DNR on royalty reduction and with the expectation that royalty relief would be granted, moved forward with a sidetrack in advance of royalty reduction, which was granted in February of 2025.
In April of 2025 Hilcorp's Spartan 151 jack-up was moved to the Allegra Leigh and drilled two wells.
At the same time HEX was working with AIDEA, the Alaska Industrial Development and Export Authority, to secure a $50 million revolving line of credit to facilitate additional investments necessary.
In addition to drilling, Slaughter said HEX expanded the number of wells that could be drilled from the platform to 12 and added a new production header system that could allow two more wells if the company can identify additional well slots.
With the additional well slots, "we effectively set a new platform without the time and cost of putting a new platform out there," Slaughter said.
Success of royalty reduction After DNR approved royalty reduction in 2025, in preparing for the 2026 drilling season, HEX looked at buying a jack-up rig, Slaughter said.
The company engaged a rig broker and traveled to Singapore and Saudi Arabia to look at rigs that had been identified for purchase, used a rig inspection company to inspect the rigs and was preparing to tender an offer to purchase a rig.
But the owner of that rig took the rig off the market.
Slaughter said HEX was able to secure use of Hilcorp's Spartan 151 for the third time, with a contract signed in December for the second half of the 2026 drilling season.
"I want to be very clear," he said, "Hilcorp has been an excellent partner" with the jack-up rig, with a very professional team, which has been excellent to work with. "They have a very strong safety record and there's been very little downtime with that rig," which has "been a key piece of our success for bringing additional gas out of the Kitchen Lights unit."
To the question of whether royalty relief works, "I think we've proven that it does." Of the six wells at the unit, Slaughter said, half were drilled under royalty relief.
As to the bill before the committee, he said HB 271 provides surety to the company "when we make our long-term decisions to spend capital."
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