Hex Cook Inlet says royalty modification, new financing and drilling sidetrack raised winter output

Hex Cook Inlet told the Alaska Senate Resources Committee on Jan. 22 that a royalty-modification process, new financing and drilling activity in 2024 increased output from the Kitchen Lights Unit and helped avoid a potential mid‑year shutdown.

Chief Commercial Officer Mark Slaughter told the panel that Hex Cook Inlet — the owner/operator of the Fury-operated Kitchen Lights Unit — applied for royalty relief from the Department of Natural Resources in 2023, completed a full application in September 2024 and is still awaiting the department’s final best‑interest decision. Slaughter said the company had ordered long‑lead equipment and moved a jackup rig onto its platform last fall before the royalty decision was final.

The company said the royalty request sought the statutory minimum of 3 percent (the department can reduce private royalties to that level under the statute cited in the application) for a multi‑year term that would adjust as prices increase. Slaughter summarized DNR’s preliminary best‑interest finding as one that, if implemented, would extend field life by about 10.5 years, produce an estimated additional 62 billion cubic feet and yield roughly $37 million in additional state royalty revenue even at the reduced rate.

Hex Cook Inlet said the Kitchen Lights sidetrack drilled in late 2024 raised the platform’s winter production by more than 50 percent during peak demand, from roughly 8,000–12,000 Mcf/day prior to the work up to about 13,135 Mcf/day after the sidetrack and perforation of previously identified sands. Slaughter described the work as “infill” or development drilling rather than exploration.

The company said it had no corporate debt before the 2024 program, that owner John Hendrickson supplied capital, and that Hex Cook Inlet paid off a prior $7.5 million purchase loan in October 2023. Slaughter said the company secured a $50 million revolving line of credit with ADA to support longer‑term development once the royalty decision is final.

Senators on the committee pressed Hex Cook Inlet on private overriding royalty interests that the company says were granted under prior ownership and which total about 12.5 percent in addition to the state’s 12.5 percent standard royalty. Several senators said those private overriding interests make development uneconomic under current terms and asked why private royalty owners would not agree to reduce their shares. Slaughter said many of those overrides are legacy interests created during earlier ownership and bankruptcy proceedings and that Hex Cook Inlet had attempted to negotiate reductions with private royalty holders but was unsuccessful.

Slaughter said the company worked in parallel on multiple steps starting in April 2023 — securing rig time, permitting moves with federal agencies, negotiating customer contracts, and obtaining financing — and that Hex Cook Inlet moved forward with drilling despite not having the final DNR decision. He told the committee the company spent about $12 million on the sidetrack well.

Hex Cook Inlet also described operational steps taken in 2024: a drone program in partnership with the University of Alaska Fairbanks for beyond‑visual‑line‑of‑sight deliveries and inspections, work toward moving from an individual produced‑water permit to the state general permit under the Alaska Department of Environmental Conservation, and a plan to expand the platform from six well slots (four producing) to as many as 12 slots over time.

The company said contractor and vendor availability in Cook Inlet is a constraint, and that jackup rig access remains a potential bottleneck for 2025 plans. Slaughter said Hex Cook Inlet is negotiating commercial terms with a jackup‑rig owner and targeted an April 1, 2025 start if contracts and permits are in place.

The presentation concluded with committee members asking whether the state could require private royalty holders to give up shares; Slaughter and the chair noted that DNR and the legislature had reviewed the application and that pulling leases would also extinguish overrides but could also risk the state losing an operator that is investing to produce gas.

Hex Cook Inlet provided written slides to the committee and said it would continue reporting status updates to DNR under its unit plan of development.

Hex Cook Inlet’s testimony and the committee’s questions focused on: the pending DNR royalty‑modification process; the company’s decision to self‑fund initial activity and then secure a $50 million line of credit; the sidetrack well that increased near‑term production; the legacy private overriding royalty interests tied to past ownership and bankruptcy sales; and operational workstreams (rig moves, permitting, vendor availability, and produced‑water permitting) needed to sustain and expand production.