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Vol. 28, No.45 Week of November 05, 2023
Providing coverage of Alaska and northern Canada's oil and gas industry

HEX pays off AIDEA loan early, working Kitchen Lights, elsewhere

Kay Cashman

Petroleum News

On Oct. 25, HEX Cook Inlet LLC made the final loan payment on a $7.5 million term loan from the Alaska Industrial Development and Export Authority that helped the Alaska-based company acquire the Kitchen Lights gas field in upper Cook Inlet in 2020, following a grueling six-month bidding war with multiple parties.

HEXs acquisition of Furie Operating Alaska and Cornucopia Oil & Gas Co. and Corsair Oil & Gas along with the Kitchen Lights unit, or KLU, was through Delaware bankruptcy proceedings.

On June 30, 2020, HEX became the only producing Alaskan-owned oil and gas company in the state.

In addition to the 83,000-acre KLU, the companys assets include the Julius R. production platform, a 15-mile subsea gathering line, an onshore natural gas processing facility at Nikiski on the Kenai Peninsula, and other Cook Inlet basin leases acquired in the last three years.

HEX LLC, which owns 100% of HEX Cook Inlet, is owned by long-time Alaskan John Hendrix, who formed the HEX companies for the purpose of purchasing Furie, its sister companies and their Cook Inlet assets -- principally to switch the upper Cook Inlet KLU from foreign and Outside ownership to Alaska ownership, Hendrix told Petroleum News in 2020.

Hendrix, like AIDEA, also wanted to see mainly Alaskans employed in the KLU. At the time of the acquisition there was only one Alaskan employee. In the first two months alone Outside employees and contractors (mostly from Louisiana and Texas) dropped by half, being replaced by Alaskans and Alaska contractors.

Three years later, on June 30, 2023, there were only two Outside employees, including a geologist and an operator who had been with Furie for several years. The rest were Alaskans.

The final AIDEA loan payment of $260,180.11, was not due until June 2024. A check in that amount was presented by Hendrix at the Oct. 25 AIDEA board meeting where he received kudos from board members for his leadership role in rescuing the stranded asset, Kitchen Lights.

This payoff was the first step in removing several financial obligations of the company.

Investment decisions

Another shared goal of Hendrix and AIDEA was stabilizing and then increasing natural gas production from Kitchen Lights -- hopefully from both the Beluga and Sterling formations, with much of the potential upside in the unproved Sterling.

"Were going to invest in inlet natural gas exploration and development wherever it makes sense financially to do so," Hendrix said. "KLU is part of our portfolio but it is burdened by high costs, overriding royalties, and taxes, so diversifying our investments into other leases and opportunities outside the KLU has advantages."

How much of that investment will go into the offshore Kitchen Lights unit remains to be seen. But the company did invest $10 million this past summer in repairing two KLU wells.

And two of HEXs top people -- Bob Laule and Hunter Van Wyhe -- are designing an onshore well that the company hopes to drill in the next two years.

Fixing everything

In a Dec. 18, 2020, presentation in Anchorage, Hendrix said, "When we took over Kitchen Lights, we basically had to go in and fix everything." This statement was confirmed by Alaskas Division of Oil and Gas.

One of the reasons for Furies bankruptcy was a lengthy closure of the field in the winter of 2019 because of hydrate blockages in the KLUs subsea pipeline and in the onshore facility -- hydrate formation that resulted from the freezing of a combination of gas and excess water in the line, costing the company significant revenue as well as penalties to their utility customers.

To remediate this issue, Hendrix had a produced water handling system installed primarily for the Sterling formation, and he obtained the appropriate permits to allow production of gas zones with higher water content.

"We spent about $1.8 million on it," Hendrix said. Udelhoven Oilfield Services, which was founded in Kenai in 1970, installed the system.

Dunleavys efforts

With a shortage of Southcentral Alaska gas supplies looming, Hendrix talked to Petroleum News Oct. 31 about legislation Gov. Mike Dunleavy is looking at introducing that would reduce state royalties on natural gas from undeveloped pools in state oil and gas leases in the Cook Inlet basin.

"We support and welcome the governors efforts to stimulate exploration and development of our natural resources within Cook Inlet. We believe we have additional opportunities within the KLU and elsewhere that his proposal will facilitate their economic evaluation. Until we see the specific language of the bill hes introducing we wont be able to fully evaluate the impact on our plans," Hendrix said.

"We can say that the thought of having utilities import LNG into our state from foreign countries like Canada, Mexico, or even further away is shameful. That outflow of Alaskans monies and elimination of local oil and gas jobs will be terrible," Hendrix said.

"We need to be thinking of the risk of importing gas and how that affects our state, our local economy and our military bases," he added.

"The development of additional natural gas is expensive and has significant challenges -- geologic, economic, and from third parties that dont want additional local energy development," Hendrix said.

"Alaskans need the opportunity to have good paying local jobs that allow them to go home to their families at the end of the day and enjoy all the great benefits of living in Alaska," he said.


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