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DNR approves reduced royalty for HexFury in Cook Inlet, lowers rate to 3% to extend field life
Summary
DNR said it approved a royalty reduction for HexFury under statutory authority, lowering the royalty from 12.5% to 3% to extend the field life and increase gas recovery, conditioned on compliance with development plans and commitments to drill additional wells.
The Department of Natural Resources told the finance subcommittee on March 4 that it has approved a royalty-relief decision for HexFury in Cook Inlet, reducing the royalty rate from 12.5% to 3% under the department’s statutory authority to modify royalties.
Deputy Commissioner John Crother explained that HexFury applied under the department’s statutory provision permitting royalty adjustments. The department conducted the public process required by law, reviewed operational and economic data, and concluded that a reduced rate was warranted to extend field life and increase total recovery. Crother said the relief could extend the field life by up to 10 years and that, based on department modeling, total state recovery (in dollars) would be higher under the extension even with the lower rate because additional production would occur.
As conditions of the decision, DNR required compliance with HexFury’s plans of development and secured commitments from the company to pursue new drilling during the royalty-relief period. Crother told the committee HexFury committed to continuing development activities in the core area of the Kitchen Lights unit this year.
The department did not record a legislative vote on the decision; DNR noted this was an administrative determination conducted pursuant to its statutory authority. Crother confirmed the department reduced the royalty from 12.5% to 3% and that the analysis indicated increased gas supply and materially higher recovery over the relief period compared with an early end-of-field scenario.
Why it matters: Cook Inlet gas supply and field life affect regional energy availability. The department framed the decision as a tradeoff that preserves longer-term production and increases total recovery despite a lower royalty rate in the near term.
What’s next: DNR will monitor compliance with the plans of development and the company’s drilling commitments; committee members asked for updates as activities proceed.
