Legislature(2023 - 2024)ADAMS 519

02/07/2024 03:30 PM House RESOURCES

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Audio Topic
03:30:20 PM Start
03:32:00 PM Presentation: Cook Inlet Gas by Hilcorp
04:04:49 PM Presentation: Cook Inlet Gas by Hex/furie
04:30:48 PM Presentation: Cook Inlet Gas by Bluecrest Energy
04:50:29 PM Presentation: Cook Inlet Gas by Enstar
05:27:22 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Time & Location Change --
-- Joint with Senate Resources --
+ Presentation: Cook Inlet Gas Update by Luke TELECONFERENCED
Saugier, Senior Vice President, Hilcorp Alaska;
Mark Slaughter, Chief Commercial Officer,
HEX/Furie; Benjamin Johnson, President and CEO,
BlueCrest Energy Inc.; and John Sims, President,
ENSTAR Gas Company
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
              SENATE RESOURCES STANDING COMMITTEE                                                                             
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                        February 7, 2024                                                                                        
                           3:30 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
SENATE RESOURCES                                                                                                                
 Senator Click Bishop, Co-Chair                                                                                                 
 Senator Cathy Giessel, Co-Chair                                                                                                
 Senator Bill Wielechowski, Vice Chair                                                                                          
 Senator Scott Kawasaki                                                                                                         
 Senator Forrest Dunbar                                                                                                         
 Senator Matt Claman                                                                                                            
HOUSE RESOURCES                                                                                                                 
 Representative Tom McKay, Chair                                                                                                
 Representative George Rauscher, Vice Chair                                                                                     
 Representative Thomas Baker                                                                                                    
 Representative Kevin McCabe                                                                                                    
 Representative Dan Saddler                                                                                                     
 Representative Stanley Wright                                                                                                  
 Representative Jennie Armstrong                                                                                                
 Representative Donna Mears                                                                                                     
 Representative Maxine Dibert                                                                                                   
MEMBERS ABSENT                                                                                                                
SENATE RESOURCES                                                                                                                
 Senator Kaufman                                                                                                                
HOUSE RESOURCES                                                                                                                 
 All members present                                                                                                            
COMMITTEE CALENDAR                                                                                                            
PRESENTATION: COOK INLET GAS BY HILCORP                                                                                         
     - HEARD                                                                                                                    
PRESENTATION: COOK INLET GAS BY HEX/FURIE                                                                                       
     - HEARD                                                                                                                    
PRESENTATION: COOK INLET GAS BY BLUECREST ENERGY                                                                                
     - HEARD                                                                                                                    
PRESENTATION: COOK INLET GAS BY ENSTAR                                                                                          
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
LUKE SAUGIER, Senior Vice President                                                                                             
Hilcorp Alaska, LLC                                                                                                             
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Presented an update on Cook Inlet Gas.                                                                    
MARK SLAUGHTER, Chief Commercial Officer                                                                                        
Furie Operating Alaska and HEX Cook Inlet., LLC                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Presented an update on Cook Inlet Gas.                                                                    
BENJY JOHNSON, President and CEO                                                                                                
BlueCrest Energy, Inc.                                                                                                          
Fort Worth, Texas                                                                                                               
POSITION STATEMENT: Presented an update on Cook Inlet Gas.                                                                    
JOHN SIMS, President                                                                                                            
ENSTAR Natural Gas Company                                                                                                      
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Presented an update on Cook Inlet Gas.                                                                    
ACTION NARRATIVE                                                                                                              
3:30:20 PM                                                                                                                    
CO-CHAIR CATHY  GIESSEL called  the joint  meeting of  the Senate                                                             
and House  Resources Standing  Committees to  order at  3:30 p.m.                                                               
Present at the call to  order were Senators Wielechowski, Bishop,                                                               
Kawasaki, Dunbar,  Claman, Co-Chair Giessel,  and Representatives                                                               
Rauscher,  Baker,  Kevin   McCabe,  Saddler,  Wright,  Armstrong,                                                               
Mears, Dibert, and Chair McKay.                                                                                                 
^Presentation: Cook Inlet Gas by Hilcorp                                                                                        
            PRESENTATION: COOK INLET GAS BY HILCORP                                                                         
3:32:00 PM                                                                                                                    
CHAIR GIESSEL  announced the consideration  of a  presentation on                                                               
Cook Inlet Gas by Hilcorp.                                                                                                      
3:32:51 PM                                                                                                                    
LUKE  SAUGIER,  Senior  Vice   President,  Hilcorp  Alaska,  LLC,                                                               
Anchorage, Alaska, presented an update on Cook Inlet Gas.                                                                       
3:35:29 PM                                                                                                                    
MR. SAUGIER moved to slide 3 and spoke to Hilcorp production:                                                                   
[Original punctuation provided.]                                                                                                
        Cook Inlet Basin Gas Hilcorp is committed to the Cook Inlet Basin Hilcorp is fully developing its leasehold                                                                           
          ? Hilcorp has produced over 700 Bcf of gas since                                                                      
          entering Alaska                                                                                                       
          ? Hilcorp has spent well over $1.0 billion in the                                                                     
          Cook Inlet Basin                                                                                                      
          ? Hilcorp is increasing activity in Cook Inlet                                                                        
          ? Drilled 153 wells since 2011 and plans to drill                                                                     
          15-20 wells per year going forward                                                                                    
        • Producing wells' production initially declines                                                                      
          ~30% per year Cook Inlet Basin gas market is unlike any other                                                                     
          in the United States Gas under Hilcorp's leasehold cannot meet all of                                                                    
          the region's gas demand                                                                                             
      Utilities and other gas producers must identify new                                                                       
     sources of gas supply for South Central Alaska                                                                             
3:36:55 PM                                                                                                                    
MR. SAUGIER  moved to slide  4 and  explained the bar  chart that                                                               
demonstrates  the number  of  wells drilled  every  year in  Cook                                                               
Inlet  Basin since  2005. He  said Hilcorp  has drilled  the vast                                                               
majority  of  wells since  2012  and  is  the only  company  that                                                               
drilled  any  wells since  2019.  He  suggested  that this  is  a                                                               
problem for  Alaska. While Hilcorp  is drilling many  to maintain                                                               
production  at  the  highest   level  possible,  other  producers                                                               
contribute  less  to  the overall  gas  supply.  ENSTAR  recently                                                               
showed  a graph  that depicted  an imbalance  in supply.  He said                                                               
Hilcorp is optimistic it will drill  20 wells in 2024 and expects                                                               
other producers to continue development.                                                                                        
3:38:38 PM                                                                                                                    
MR.  SAUGIER moved  to slide  5  and spoke  to a  bar chart  that                                                               
depicts Hilcorp gas contracts and  reserves. He explained that it                                                               
demonstrates supply  and demand.  Southcentral Alaska  uses about                                                               
70  billion cubic  feet (Bcf)  per  year, which  is typical.  The                                                               
green bars  represent gas supplied  to market while the  red line                                                               
indicates total demand. Historically,  Hilcorp has supplied about                                                               
50 Bcf per year to the market.  It shows a projection of all firm                                                               
contracts  anticipated  for  the   future.  The  company  has  an                                                               
obligation to  deliver that much  gas to customers  through 2033.                                                               
Over time, the amount goes down  due to gas being limited to U.S.                                                               
Securities  and  Exchange  Commission  (SEC)  approved  reserves.                                                               
Hilcorp is required  to have a third-party auditor  send a letter                                                               
confirming  the company  has  the  gas it  claims  and meets  SEC                                                               
standards. The  solid green  line is the  best forecast  for what                                                               
gas production will meet over  this period, which closely matches                                                               
contractual obligations.  Despite any  yearly versatility,  it is                                                               
balanced  over  time.  The  dash line  represents  how  much  gas                                                               
Hilcorp could deliver  if it stopped drilling,  which he believes                                                               
is  in  nobody's  best  interest. The  company  at  times  cannot                                                               
operate  in some  places due  to ice  in Cook  Inlet, so  certain                                                               
areas  are inaccessible.  Drilling  support  services are  fairly                                                               
limited and Hilcorp relies on most  of its own drilling rigs. The                                                               
drilling activity  level has  been relatively  low over  the past                                                               
several years. Permitting is also  challenging and more difficult                                                               
to obtain  for Cook  Inlet than  for the  North Slope  because of                                                               
limitations placed by federal agencies.  Much of the onshore land                                                               
in Alaska  is owned by  the Bureau  of Land Management  (BLM) and                                                               
permitting is onerous. Offshore  drilling also requires companies                                                               
to navigate  around mammals  and wildlife and  it takes  years to                                                               
get permits lined up.                                                                                                           
3:43:54 PM                                                                                                                    
MR. SAUGIER moved to slide 6  and spoke to Cook Inlet gas storage                                                               
facilities.   He   noted   that  Anchorage   experienced   frigid                                                               
temperatures  last  weekend.  Cook   Inlet  Natural  Gas  Storage                                                               
experienced operational challenges with two  of 25 wells and lost                                                               
deliverability  for two  of them,  so  it was  unable to  deliver                                                               
enough  gas  to  meet  market demand.  Utility  companies  worked                                                               
together  and  collaborated to  find  a  solution. The  companies                                                               
determined  that  either  diesel  would  need  to  be  burned  to                                                               
maintain the  city's electricity supply or  Hilcorp could deliver                                                               
more than its contractual obligations at its standard price.                                                                    
MR. SAUGIER  said gas storage  facilities are old  gas reservoirs                                                               
that have  been repurposed  to inject gas  in the  summertime and                                                               
draw it  out in the  winter. Hilcorp  operates three of  the four                                                               
gas  storage facilities  in Southcentral  Alaska.  He noted  that                                                               
Pool Six  is particularly large. It  is used to store  gas at the                                                               
5-20 Bcf range, but has the  potential to hold a larger quantity.                                                               
Hilcorp  has  invested  in   reliability  and  redundancy,  which                                                               
includes additional  compression, maintenance  of the  wells, and                                                               
ensuring  there are  more wells  than are  needed to  account for                                                               
potential   problems.   Three   separate  storage   systems   are                                                               
maintained to put  gas in the line in  different places depending                                                               
on market needs. Hilcorp has managed  this method for a long time                                                               
and has  a lot of experience.  He stated that Hilcorp  would like                                                               
to be  part of the solution  for storage and has  plenty to offer                                                               
to the market.                                                                                                                  
3:48:09 PM                                                                                                                    
REPRESENTATIVE MCCABE  asked how  much West Susitna  access would                                                               
help the company drill and work during the wintertime.                                                                          
3:48:33 PM                                                                                                                    
MR.  SAUGIER replied  that  access would  be  helpful. There  are                                                               
likely other potential gas fields on  the west side of Cook Inlet                                                               
and road access would allow year-round access.                                                                                  
3:49:20 PM                                                                                                                    
SENATOR KAWASAKI asked  if the total storage shown on  slide 6 is                                                               
currently available.                                                                                                            
3:49:34 PM                                                                                                                    
MR. SAUGIER  replied no. He said  Pool Six could store  more than                                                               
100 Bcf; the other wells are smaller.                                                                                           
3:49:57 PM                                                                                                                    
SENATOR  KAWASAKI asked  for the  percentage of  storage that  is                                                               
currently available.                                                                                                            
3:50:10 PM                                                                                                                    
MR. SAUGIER  replied he is  unsure how  much gas is  currently in                                                               
storage.  He stated  that  a problem  arose as  a  result of  the                                                               
inability to pull the gas out quickly enough.                                                                                   
3:50:43 PM                                                                                                                    
SENATOR  KAWASAKI   asked  whether  gas  is   still  exported  or                                                               
exclusively used within the Cook Inlet region.                                                                                  
3:50:50 PM                                                                                                                    
MR. SAUGIER  replied that Hilcorp  does not export gas.  The last                                                               
time gas was exported was around 2015.                                                                                          
3:51:07 PM                                                                                                                    
CO-CHAIR  MCKAY  asked  for  the  cost per  well  if  Hilcorp  is                                                               
drilling 15-20 wells per year.                                                                                                  
3:51:30 PM                                                                                                                    
MR. SAUGIER replied  that it varies depending on  the location of                                                               
drilling and  mentioned that offshore  wells are  very expensive.                                                               
Hilcorp spent over $20 million  on drilling an offshore well last                                                               
3:51:47 PM                                                                                                                    
CO-CHAIR MCKAY noted that it would  cost $300 million to drill 15                                                               
wells  offshore and  asked if  any partners  assist Hilcorp  with                                                               
3:52:06 PM                                                                                                                    
MR.  SAUGIER replied  that the  company has  a partner  in Beluga                                                               
River. He  said it is correct  to say Hilcorp spends  hundreds of                                                               
millions per year.                                                                                                              
3:52:16 PM                                                                                                                    
CO-CHAIR MCKAY opined  that it is unusual in the  oil industry to                                                               
not have partners  that assist with project costs  to help spread                                                               
the  risk,  especially   when  considering  a  one-million-dollar                                                               
project. He asked if the second jackup rig is still in Alaska.                                                                  
3:52:48 PM                                                                                                                    
MR.  SAUGIER replied  that he  does not  believe it  is still  in                                                               
CO-CHAIR MCKAY  said there  is one jackup  rig under  contract in                                                               
Cook Inlet. Bringing  a second jackup rig to Cook  Inlet would be                                                               
an expensive ordeal  and therefore a company would  want to drill                                                               
a full season of about 20  wells. However, unlike oil, gas is not                                                               
exported;  excess supply  means the  company doesn't  recover its                                                               
investment.  Bringing in  a  second  jackup rig  is  not a  great                                                               
3:54:50 PM                                                                                                                    
MR. SAUGIER agreed  that it would be expensive and  said it would                                                               
take three to five years to transport one jackup.                                                                               
3:55:24 PM                                                                                                                    
SENATOR WIELECHOWSKI  quoted the following statement  released by                                                               
the Federal Trade Commission (FTC):                                                                                             
"The  proposed transaction  raises competitive  concerns for  the                                                               
Commission  because Marathon,  Hilcorp,  and ConocoPhilips  today                                                               
account for over  90 percent of the natural gas  produced in Cook                                                               
Inlet.   As  a   result,  this   acquisition  might   lessen  the                                                               
negotiation  strength of  utility and  industrial customers.   He                                                               
conveyed  that  in response  to  the  FTC investigation,  Hilcorp                                                               
entered  a  consent  decree  where  Hilcorp  agreed  to   utilize                                                               
commercially reasonable  efforts to  increase the  production and                                                               
development  of  natural  gas from  Hilcorp's  Cook  Inlet  Basin                                                               
properties. He asked if the consent decree is still in effect.                                                                  
3:56:44 PM                                                                                                                    
MR. SAUGIER  replied that  he is  unsure whether  it is  still in                                                               
3:56:45 PM                                                                                                                    
SENATOR WIELECHOWSKI  sought confirmation  that Mr.  Saugier does                                                               
not know  if Hilcorp is still  under a consent decree  to produce                                                               
gas in Cook Inlet.                                                                                                              
3:56:52 PM                                                                                                                    
MR. SAUGIER replied that he is  uncertain if there is a known end                                                               
3:56:56 PM                                                                                                                    
SENATOR WIELECHOWSKI said the money  Hilcorp spent is pursuant to                                                               
legal obligations under the lease terms and the consent decree.                                                                 
3:57:07 PM                                                                                                                    
MR. SAUGIER stated that Hilcorp invested heavily.                                                                               
SENATOR  WIELECHOWSKI  asked  how  much profit  Hilcorp  made  in                                                               
Alaska over the last year.                                                                                                      
3:57:11 PM                                                                                                                    
MR. SAUGIER  replied that Hilcorp  is proud of its  investment in                                                               
Cook Inlet. The  company invests hundreds of  millions of dollars                                                               
every year,  and has always  abided by  the terms of  the consent                                                               
SENATOR  WIELECHOWSKI asked  how  much profit  Hilcorp made  last                                                               
3:57:24 PM                                                                                                                    
MR. SAUGIER responded that Hilcorp  is a private company and does                                                               
not disclose its profit information.                                                                                            
SENATOR WIELECHOWSKI asked  what Hilcorp's rate of  return was in                                                               
Alaska last year.                                                                                                               
3:57:32 PM                                                                                                                    
MR. SAUGIER  said the  objective of  the program  for 2024  is to                                                               
invest almost $1.5  billion in the fields on the  North Slope. It                                                               
would invest  hundreds of  millions of dollars  in Cook  Inlet to                                                               
supply the gas that the industry has committed to.                                                                              
3:58:03 PM                                                                                                                    
SENATOR WIELECHOWSKI asked again about the rate of return.                                                                      
3:58:09 PM                                                                                                                    
MR. SAUGIER replied that the  company does not disclose financial                                                               
3:58:14 PM                                                                                                                    
SENATOR  WIELECHOWSKI  asked  if  Hilcorp has  ever  applied  for                                                               
royalty relief from any of its  fields in Cook Inlet to make them                                                               
more economical.                                                                                                                
3:58:24 PM                                                                                                                    
MR.  SAUGIER stated  his belief  that some  of its  oil producing                                                               
platforms are eligible for royalty  relief. Department of Natural                                                               
Resources (DNR)  has a  program in place  for marginal  fields to                                                               
receive royalty relief.                                                                                                         
3:58:40 PM                                                                                                                    
SENATOR  WIELECHOWSKI  asked if  that  includes  any of  its  gas                                                               
3:58:43 PM                                                                                                                    
MR. SAUGIER replied he does not believe so.                                                                                     
3:58:49 PM                                                                                                                    
SENATOR  WIELECHOWSKI  conveyed  that  United  States  Geological                                                               
Survey (USGS) said there is likely  19 trillion cubic feet of gas                                                               
in Cook Inlet that is  technically recoverable. He asked how much                                                               
gas  is technically  recoverable  on Hilcorp's  Cook Inlet  lease                                                               
hold properties.                                                                                                                
3:59:02 PM                                                                                                                    
MR. SAUGIER referred  to the slide on gas  contracts and reserves                                                               
and said  firm contractual  commitments the  company has  made to                                                               
supply   gas  to   customers  generally   reflect  its   view  of                                                               
recoverable gas from its leases.                                                                                                
3:59:23 PM                                                                                                                    
SENATOR WIELECHOWSKI  asked if  the bar  graph shows  the maximum                                                               
technically recoverable gas in Cook Inlet.                                                                                      
3:59:33 PM                                                                                                                    
MR.  SAUGIER noted  that the  term  'technically recoverable'  is                                                               
different than  the term 'proved  reserves.' He said  Hilcorp can                                                               
only sell proved  reserves so technically recoverable  gas is not                                                               
3:59:59 PM                                                                                                                    
SENATOR WIELECHOWSKI asked  if these are all  the proven reserves                                                               
Hilcorp has and whether they have been filed with the SEC.                                                                      
4:00:07 PM                                                                                                                    
MR. SAUGIER  replied that  third party  auditors are  utilized to                                                               
review  reserve  bookings,  which   are  used  to  contract  with                                                               
utilities. Hilcorp  hopes to carry  as large a reserve  volume as                                                               
possible that  enhances the  business and  allows it  to contract                                                               
with  utilities.  The  company  has seen  a  relatively  stagnant                                                               
number of  proved reserves  despite a  continually high  level of                                                               
activity in investment.                                                                                                         
4:00:55 PM                                                                                                                    
REPRESENTATIVE MEARS  asked for  other highlights  from Hilcorp's                                                               
development plan with DNR.                                                                                                      
4:01:10 PM                                                                                                                    
MR.  SAUGIER replied  that Hilcorp  plans to  drill wells  at the                                                               
Southern  Kenai Peninsula  Cottonfield,  Whiskey Gulch  prospect,                                                               
and the Swanson River field. He  said in the Wildlife Refuge, the                                                               
company plans to  drill at Beluga River, four wells  at the North                                                               
Cook Inlet  field, a few in  Kenai gas field, and  hopes to drill                                                               
from the Steelhead platform depending on the state of the ice.                                                                  
4:01:52 PM                                                                                                                    
REPRESENTATIVE MEARS asked  if there are any other  plans for the                                                               
business that will be built out next year.                                                                                      
4:02:02 PM                                                                                                                    
MR. SAUGIER sought clarification of the question.                                                                               
4:02:08 PM                                                                                                                    
REPRESENTATIVE MEARS restated the  question and asked if drilling                                                               
is the only plan for development next year.                                                                                     
4:02:18 PM                                                                                                                    
MR. SAUGIER  replied that  he is uncertain.  He said  the company                                                               
usually includes work-over  activities, compressor instillations,                                                               
however most of the investment is focused on drilling.                                                                          
4:02:38 PM                                                                                                                    
REPRESENTATIVE MEARS  pointed out  that the amount  of investment                                                               
is  impressive,  but   it  doesn't  mean  much   when  profit  is                                                               
4:03:05 PM                                                                                                                    
SENATOR DUNBAR  asked for a  general sense  of how much  more gas                                                               
would be produced if royalty relief proposals are passed.                                                                       
4:03:53 PM                                                                                                                    
MR. SAUGIER replied he could not provide a definitive answer.                                                                   
4:04:12 PM                                                                                                                    
SENATOR DUNBAR asked for a rough estimate.                                                                                      
4:04:28 PM                                                                                                                    
MR. SAUGIER responded that he could not provide a number.                                                                       
^Presentation: Cook Inlet Gas by HEX/Furie                                                                                      
           PRESENTATION: COOK INLET GAS BY HEX/FURIE                                                                        
4:04:49 PM                                                                                                                    
CO-CHAIR MCKAY  announced the consideration of  a presentation on                                                               
Cook Inlet  Gas by  Furie Operating Alaska  and HEX  Cook Inlet.,                                                               
4:05:23 PM                                                                                                                    
MARK  SLAUGHTER, Chief  Commercial  Officer, HEX/Furie  Operating                                                               
Alaska  LLC, Anchorage,  Alaska,  provided an  overview of  Furie                                                               
Operating Alaska and  HEX Cook Inlet, LLC.  He introduced himself                                                               
and said  he has been  in the Alaska  oil and gas  industry since                                                               
1997 and with  Cook Inlet since 2002. He said  he spent ten years                                                               
working  for ENSTAR  before  moving to  Cook  Inlet Energy,  then                                                               
began working with Furie in 2015.                                                                                               
4:06:26 PM                                                                                                                    
MR. SLAUGHTER  moved to slide  3 and  spoke to the  HEX corporate                                                               
[Original punctuation provided.]                                                                                                
     HEX Corporate Structure                                                                                                  
   • HEX L.L.C. 100% Alaskan Owned                                                                                              
   • HEX Cook Inlet LLC acquired subsidiaries Cornucopia,                                                                       
     Corsair, Furie, and 90% of the KLU on July 1st, 2020                                                                       
   • Newest gas producer in Cook Inlet                                                                                          
   • Furie is the operating company that runs the offshore                                                                      
      platform, gathering line and onshore gas processing                                                                       
   • Gas Sales to Electric Utilities, Gas Utilities, and                                                                        
     Refinery in Southcentral Alaska                                                                                            
MR. SLAUGHTER added  that HEX only produces natural  gas and runs                                                               
clean pipeline inspection gauges (PIG)  through the pipeline on a                                                               
weekly basis.  He said it  also conducts side scan  sonar surveys                                                               
to  identify any  scouring. Once  the  gas reaches  shore, it  is                                                               
processed  and   provided  as  utility-grade  gas   to  corporate                                                               
4:07:47 PM                                                                                                                    
MR.  SLAUGHTER  moved  to  slides  4  and  5  and  spoke  to  the                                                               
infrastructure of the Kitchen Lights  Unit (KLU) as well as other                                                               
HEX and  Cook Inlet leases.  He said  the Kitchen Lights  Unit is                                                               
operated by Furie  and is the largest unit within  Cook Inlet. It                                                               
is  roughly 84  thousand  acres  and there  is  an additional  13                                                               
thousand  acres that  do  not include  unitized  leases. HEX  has                                                               
bought  leases  from the  state  over  the  past three  years  to                                                               
diversify its gas production portfolio.                                                                                         
4:08:37 PM                                                                                                                    
MR. SLAUGHTER moved to slide 5 and spoke to the history of KLU:                                                                 
[Original punctuation provided.]                                                                                                
     HISTORY OF Kitchen Lights Unit (KLU)                                                                                     
     1999 - 2009                                                                                                                
     Escopeta acquires leases  State of Alaska Renaissance                                                                      
     Alaska, Pacific Energy Resources                                                                                           
       • Kitchen Lights Unit approved by State of Alaska                                                                        
     2010 - 2014                                                                                                                
     Spartan 151 Jackup rig arrives in Cook Inlet                                                                               
        • 5 Exploration wells Drilled in KLU                                                                                    
     2015 - 2017                                                                                                                
     Julius R Platform set,                                                                                                     
        • Gas Sales to HEA and other utilities                                                                                  
     2018 - 2019 Energy Capital Partners Assumes Control of                                                                     
        • Hydrates   block   gathering  line   ceasing   gas                                                                    
        • Chapter 11 Re-organization                                                                                            
     2020 - 2024                                                                                                                
     HEX acquires Furie & KLU                                                                                                   
        • Stable  gas production  and sales  to Southcentral                                                                    
          utilities and refinery                                                                                                
        • Permitted and  installed water  handling equipment                                                                    
          for Sterling production                                                                                               
        • HEX &  Furie acquired  Cook Inlet Leases  in 2021,                                                                    
          2022, and 2023 lease sales                                                                                            
        • Acquired used gas  production equipment for ~10-15                                                                    
          MMcfd facilities x3                                                                                                   
        • State of Alaska pays  final Cook Inlet Tax Credits                                                                    
          to pre-HEX lenders                                                                                                    
        • $10  MM invested  in workover  operations in  2023                                                                    
          with hydraulic workover unit                                                                                          
        • October 2023 HEX  pays off AIDEA loan  in full and                                                                    
          ahead of schedule                                                                                                     
        • Purchases Seismic Data from State of Alaska                                                                           
MR. SLAUGHTER added that the  unit itself went into production in                                                               
2015 before firm  gas sales to Homer Electric  commenced in 2016.                                                               
He said  the field ran  off one gas  well, which held  the entire                                                               
supply for Homer Electric.                                                                                                      
4:11:11 PM                                                                                                                    
MR. SLAUGHTER moved to slide 6 and stated that HEX/Furie is the                                                                 
only Alaska-based oil and gas company. He said it is important                                                                  
to support Alaskans.                                                                                                            
4:11:25 PM                                                                                                                    
MR. SLAUGHTER moved to slide 7  and spoke to a graph that depicts                                                               
Furie  employment data.  He said  he  has been  with the  company                                                               
prior to its acquisition four years ago.                                                                                        
4:12:22 PM                                                                                                                    
MR. SLAUGHTER moved  to slide 8 and spoke to  Kitchen Lights Unit                                                               
production data for four wells:                                                                                                 
[Original punctuation provided.]                                                                                                
     Kitchen Lights Unit Production                                                                                           
     Four Production Wells on Julius R Platform (JRP)                                                                           
        • Suboptimal completions in the KLU A-1, A-4 wells                                                                      
          result in lower production rates, more down time                                                                      
             o Illustrated by yellow and purple areas on                                                                        
             o Significant downtime and lower rates related                                                                     
               to solids production                                                                                             
        • Sand control completions in KLU A2A, KLU 3 result                                                                     
          in better initial and long-term performance                                                                           
             o Illustrated by red and orange areas on chart                                                                     
MR.  SLAUGHTER said  the  graph  demonstrates a  large  gap as  a                                                               
result of the pipeline freezing  by the formation of hydrates. He                                                               
noted that  the purple  areas show  a production  spike following                                                               
company  acquisition,  new  management,  and  new  ownership.  In                                                               
December of  2023, ENSTAR approached HEX/Furie  and asked whether                                                               
it  could  increase  production,  so it  was  then  increased  20                                                               
percent despite potential risks. He  noted that two of four wells                                                               
that do not  utilize sand control produce a much  lower volume of                                                               
gas, but are less costly.                                                                                                       
4:13:58 PM                                                                                                                    
MR. SLAUGHTER moved  to slide 9 and spoke to  proposed KLU Beluga                                                               
Drilling plan opportunities:                                                                                                    
[Original punctuation provided.]                                                                                                
     Proposed KLU Beluga Drilling Plan Opportunities                                                                          
        • Significant running room identified                                                                                   
        • Initial wells focused on staying high on                                                                              
          structure, close to existing production and                                                                           
          within sand fairway.                                                                                                  
        • Well completion design determines sustained                                                                           
          production rate                                                                                                       
             o "Simple" completion with no sand control can                                                                     
               potentially deliver 5MMscfd                                                                                      
             o "Complex" completion with full sand control                                                                      
               can potentially deliver upwards of 10MMscfd                                                                      
        • Next well proposed: A-4ST prospect                                                                                    
        • Future high-graded prospects (Program following                                                                       
          A-4ST contingent upon financing)                                                                                      
MR.  SLAUGHTER stated  that complex,  costly wells  could deliver                                                               
ten million  cubic feet  per day.  He noted  that the  company is                                                               
currently  producing 12  million cubic  feet per  day. The  A-4ST                                                               
well is not  producing gas at the anticipated rate  and will need                                                               
to  be  side-tracked.  There  is a  three-mile  radius  from  the                                                               
existing platform  that could be  drilled with a jackup  rig, but                                                               
there is a  limited window to get  a rig into the  area. There is                                                               
only one rig in Cook Inlet,  but it is currently under a contract                                                               
with Hilcorp.                                                                                                                   
4:15:48 PM                                                                                                                    
MR. SLAUGHTER  moved to slide 10  and spoke to the  proposed 2024                                                               
KLU Program:                                                                                                                    
[Original punctuation provided.]                                                                                                
     2024 KLU Proposed Program                                                                                                
        • Subject to                                                                                                            
             o Royalty Relief                                                                                                   
             o Enterprise 151 Rig Availability                                                                                  
             o Other Drilling and Completion Equipment and                                                                      
               Services Availability                                                                                            
             o Permits  State & Federal                                                                                         
             o Financing                                                                                                        
             o Long Term Markets for Natural Gas                                                                                
        • KLU A-4A Sidetrack                                                                                                    
             o Simple vs Complex Completion                                                                                     
             o 5MMcfd vs 10+ MMcfd rates                                                                                        
             o $10MM vs $25MM                                                                                                   
        • New Gas to Market                                                                                                     
             o ~30 Days to Drill                                                                                                
             o ~30 Days to Complete                                                                                             
             o ~60 Days to Bring New Gas Online                                                                                 
                  square4 Deadline for to decide on simple vs                                                                   
                    complex completion this month $3.0M+                                                                        
MR. SLAUGHTER  stated that royalty  relief could be  addressed by                                                               
the legislature to  enable drilling this year.  He said HEX/Furie                                                               
has  the ability  to self-finance  this year,  but the  long-term                                                               
rate is  in question. The  'New Gas to Market'  section indicates                                                               
what could be accomplished with a  jackup rig. He stated that now                                                               
is the time to determine the financing path forward.                                                                            
4:17:56 PM                                                                                                                    
MR. SLAUGHTER  briefly moved to slide  11 and spoke to  the North                                                               
Kenai Onshore opportunity:                                                                                                      
[Original punctuation provided.]                                                                                                
     North Kenai Onshore Opportunity                                                                                          
        • Oil and Gas opportunity with undrilled four-way                                                                       
        • Conventional Oil Targets                                                                                              
        • Biogenic Gas Play Potential                                                                                           
        • Adjacent to existing public roads and regulated                                                                       
          natural gas transmission pipeline                                                                                     
        • 15  24 months to first gas                                                                                            
             o subject to permits & financing                                                                                   
MR. SLAUGHTER said the North Kenai onshore opportunity                                                                          
could not go online faster than 15-24 months, but is                                                                            
included to diversify the company's portfolio.                                                                                  
4:18:24 PM                                                                                                                    
MR.  SLAUGHTER  moved  to  slide  12 and  spoke  to  current  KLU                                                               
[Original punctuation provided.]                                                                                                
     Current KLU Challenges                                                                                                   
        • State of Alaska Approved Burden on KLU                                                                                
             o 12.5% Overriding Royalty Interest                                                                                
             o 12.5% State of Alaska Royalty Interest                                                                           
             o ~10% Carried Working Interest Owners  New                                                                        
              Joint Operating Agreement July 2020                                                                               
          Total Burden approaching 35% on Capital                                                                             
        • Long Term Market Threats to Cook Inlet Natural                                                                        
             o Liquified Natural Gas (LNG) Imports                                                                              
             o Market Replacement by Renewables                                                                                 
             o North Slope Gas                                                                                                  
4:19:40 PM                                                                                                                    
MR. SLAUGHTER  moved to slide  13 and spoke  to a bar  chart that                                                               
depicts  a forecast  for  KLU  from 2024  through  2028. He  said                                                               
production could more than double  with a drilling program and by                                                               
reworking  existing wells.  However, the  economic foundation  of                                                               
the company must be fixed.                                                                                                      
4:20:22 PM                                                                                                                    
MR. SLAUGHTER  moved to slide  14 and spoke  to a bar  chart that                                                               
depicts  the total  royalty  burden  of the  KLU.  The green  bar                                                               
represents   the  standard   12.5   percent   royalty  that   the                                                               
legislature can  adjust. He stated  HEX/Furie went  through DNR's                                                               
process of asking for royalty  relief last year because royalties                                                               
were at 25  percent. DNR denied the request  and offers HEX/Furie                                                               
made  for overriding  royalty interests  were also  rejected. The                                                               
former commissioner  of DNR  and the  Alaska State  Supreme Court                                                               
consider 20  percent royalty to  be an extreme burden.  He opined                                                               
that an adjustment  by the legislature so the  royalty burden was                                                               
between  12.5 to  15 percent  would  allow KLU  to move  forward,                                                               
otherwise it  would have to sit  on the asset. He  noted that HEX                                                               
leases on North Kenai have no overriding royalties.                                                                             
4:22:15 PM                                                                                                                    
MR.  SLAUGHTER  moved  to  slide  15  and  spoke  to  HEX/Furie's                                                               
repeatable pathway to new gas opportunities.                                                                                    
[Original punctuation provided.]                                                                                                
     HEX & Furie's Repeatable Pathway to New Gas                                                                              
          Furie is positioned to bring new gas in 2024                                                                        
          • Existing Production Platform                                                                                        
             o currently producing 12MMcfd                                                                                      
          • Capacity in Gathering Line                                                                                          
          • Existing Processing Facility & Interconnect                                                                         
             Pending Hinderances                                                                                              
          • Economic Burdens                                                                                                    
             o Drives pace of new gas                                                                                           
          • State & Federal Permits i.e. IHA Permit                                                                             
          • Working on Rig Contract & Availability                                                                              
          • Equipment & Service Availability                                                                                    
MR.  SLAUGHTER said  it  is  important for  the  company to  stay                                                               
viable and  continue to  work to produce  gas. He  suggested that                                                               
the state has  the infrastructure and there is no  need to import                                                               
gas  from  Canada or  Mexico.  Royalty  relief  is what  must  be                                                               
addressed to  make the investment  and have the ability  to bring                                                               
additional gas to Cook Inlet.                                                                                                   
4:24:19 PM                                                                                                                    
REPRESENTATIVE MEARS inquired about  the barriers for production.                                                               
She asked  if there  are any state  permits that  are obstructing                                                               
4:24:41 PM                                                                                                                    
MR.  SLAUGHTER  replied  that  the   process  for  permitting  to                                                               
transport a jackup rig is ongoing.                                                                                              
4:25:27 PM                                                                                                                    
REPRESENTATIVE  MEARS  asked  whether  long-term  market  threats                                                               
dampen potential future production and have curved investments.                                                                 
4:25:47 PM                                                                                                                    
MR. SLAUGHTER responded  that it is important  to understand what                                                               
the market is to make investment decisions.                                                                                     
4:26:19 PM                                                                                                                    
REPRESENTATIVE  SADDLER  asked  how  much  royalty  relief  would                                                               
impact production.                                                                                                              
4:26:50 PM                                                                                                                    
MR. SLAUGHTER replied  that a 12.5 to 15  percent reduction would                                                               
allow HEX/Furie to compete with other producers.                                                                                
4:27:12 PM                                                                                                                    
REPRESENTATIVE   SADDLER  asked   for  an   explanation  of   the                                                               
additional burden of the carried working interest.                                                                              
4:27:25 PM                                                                                                                    
MR. SLAUGHTER  replied that  the from  the bankruptcy,  the joint                                                               
operating  agreement  gave them  ten  percent  ownership of  KLU.                                                               
However,  they  do  not  contribute   to  the  costs  of  capital                                                               
expenditures. HEX/Furie  has been  working with DNR  but it  is a                                                               
foundational hinderance to KLU.                                                                                                 
4:28:56 PM                                                                                                                    
REPRESENTATIVE   MCCABE   asked   if  there   are   any   current                                                               
reservations for jackup rigs so work can begin this summer.                                                                     
4:29:13 PM                                                                                                                    
MR. SLAUGHTER  replied that  a commercial  arrangement has  to be                                                               
4:29:44 PM                                                                                                                    
SENATOR  WIELECHOWSKI  asked  if  the  company  is  eligible  for                                                               
royalty relief under existing law.                                                                                              
4:29:50 PM                                                                                                                    
MR.  SLAUGHTER  replied an  application  was  submitted, but  DNR                                                               
suggested consulting with the overriding royalty interest group.                                                                
^Presentation: Cook Inlet Gas by BlueCrest Energy                                                                               
        PRESENTATION: COOK INLET GAS BY BLUECREST ENERGY                                                                    
4:30:48 PM                                                                                                                  
CO-CHAIR GIESSEL announced the consideration of a presentation                                                                  
on Cook Inlet Gas by BlueCrest Energy.                                                                                          
4:31:00 PM                                                                                                                    
BENJY JOHNSON,  President and CEO,  BlueCrest Energy,  Inc., Fort                                                               
Worth,  Texas, presented  an update  on Cook  Inlet Gas.  He said                                                               
there is huge potential that  requires funding and spoke to slide                                                               
[Original punctuation provided.]                                                                                                
     Railbelt Energy Supply/Demand Challenge                                                                                  
          The gas is in the ground, waiting to be produced                                                                      
          Cosmopolitan Tyonek Gas Supply:                                                                                     
        • Already discovered, tested and Proved                                                                                 
             o Structure shape and size is well defined                                                                         
                  square4 3D seismic and >25 drilled penetrations                                                               
             o Productive volume and productivity confirmed                                                                     
                  square4 Logs, cores, rock and gas samples from                                                                
                    multiple wells in the gas sands                                                                             
                  square4 Flow tests indicate productivity levels                                                               
                  square4 Independent engineering  analysis:                                                                    
                    Proved 235 BCF + Probable 65 BCF                                                                            
             o Preliminary   permitting,   engineering   and                                                                    
               design now mostly complete                                                                                       
             o Conventional offshore production platform                                                                        
             o Construction schedule: gas could be online                                                                       
               by Q1/Q2 2027                                                                                                    
             o Known Cosmopolitan volumes could supply up                                                                       
               to 25 percent of total market                                                                                    
             o Development is ready to begin - pending                                                                          
               investment funding                                                                                               
4:33:27 PM                                                                                                                    
MR. JOHNSON moved to slide 2 and spoke to the history of the                                                                    
Cook Inlet Basin:                                                                                                               
[Original punctuation provided.]                                                                                                
     Alaska's Cook Inlet Basin                                                                                                
     • Large northern original fields discovered/developed                                                                      
        in 1950's through 1980's (1.4 billion bbl, 9 tcf to-                                                                    
     • Ninilchik (close to Cosmopolitan) online in 2000                                                                         
               o Currently largest producer (277 bcf to                                                                         
     • Cosmopolitan oil production began in 2016                                                                                
     • Cosmopolitan Tyonek gas can be online in 2027                                                                            
        Energy Balance                                                                                                        
       • Through natural decline and without new sources,                                                                       
        existing Cook Inlet gas production will eventually                                                                      
        fall below needs:                                                                                                       
          o Infill    development    possibilities   (within                                                                    
             existing fields)                                                                                                   
                    • Typically smaller new volumes                                                                             
          o Alaska Gas Line future uncertain Importation of                                                                     
             gas (LNG) is expensive                                                                                             
          o Renewable sources cannot provide sufficient                                                                         
             volumes of low-cost energy                                                                                         
     • Undiscovered new gas fields will require years:                                                                        
          o Explore and Find                                                                                                    
          o Then bring to production                                                                                            
     • Proved substantial Cosmopolitan gas could be online                                                                      
        in time to meet supply needs                                                                                            
MR. JOHNSON  said BlueCrest believes  there is potential  in Cook                                                               
Inlet, but exploration and identification  of reserves takes many                                                               
years so funding is necessary.                                                                                                  
4:34:50 PM                                                                                                                    
MR. JOHNSON moved to slide 3  and spoke to a graphic that depicts                                                               
the development vision for the Cosmopolitan Unit:                                                                               
[Original punctuation provided.]                                                                                                
             Cosmopolitan Unit Development Concept:                                                                           
                Separate Gas Field and Oil Field                                                                              
                        Future Offshore:                                                                                      
     Tyonek  gas sands  are  too shallow  to  be reached  by                                                                    
     onshore  wells. Dry  gas producing  wells drilled  into                                                                    
     gas  reservoirs  and  water injection  wells  into  oil                                                                    
     reservoirs  to improve  oil recovery.  No offshore  oil                                                                    
     production. Water Injection wells                                                                                          
     Additional  Tyonek   Gas  Reserves:  235   BCF  Proved-                                                                    
     Undeveloped   ("PUD")   Plus   large   "Probable"   and                                                                    
     "Possible" (Ryder Scott engineering firm 2015-2021)                                                                        
                          Ongoing Oil:                                                                                        
     "Proved"  - Partially  Developed. "Extended-Reach"  oil                                                                    
     wells drilled  safely from  onshore produce  the deeper                                                                    
     offshore oil with no danger of an offshore oil spill.                                                                      
     Green oil zones are  drilled onshore. These wells drill                                                                    
     oil and some  gas comes up but no danger  of oil spill.                                                                    
     Oil well  has fish bones.  Gas zones overly  oil zones,                                                                    
     technology  does not  allow  to do  this.  There is  no                                                                    
     liquid hydrocarbons associated  with the gas. Otherwise                                                                    
     can pump water and inject this from the platform.                                                                          
4:36:47 PM                                                                                                                    
MR. JOHNSON  moved to slide 4  and spoke to the  structure of gas                                                               
and oil  sands. He said  each of  the wells penetrates  sand. Two                                                               
vertical wells were drilled in 1967  and one was drilled in 2013.                                                               
Some gas  was found  in one  well that was  drilled in  1967, but                                                               
samples determined that gas is present in the other gas sands.                                                                  
4:38:18 PM                                                                                                                    
MR. JOHNSON moved  to slide 6 and showcased a  snapshot of one of                                                               
the oil zones.  He said the image is  three-dimensional and shows                                                               
what the structure looks like.                                                                                                  
4:38:45 PM                                                                                                                    
MR. JOHNSON moved to slide 7 and spoke to proven gas zones:                                                                     
[Original punctuation provided.]                                                                                                
     Cosmopolitan Tyonek Gas is Proved but Undeveloped                                                                        
        • Multiple wells have been drilled through the gas                                                                      
        • Multiple flow tests of the gas zones confirm high                                                                     
          productivity Size and shape of the "trap"                                                                             
          structure is clearly documented                                                                                       
             o 3-D seismic data, hazard and walkaway                                                                            
               seismic surveys, more than 25 vertical well                                                                      
               penetrations above/below/through the gas                                                                         
        • Gas zones are similar to nearby Ninilchik field                                                                       
          (15 miles north)                                                                                                      
             o Ninilchik is currently the largest Cook                                                                          
               Inlet gas producer and has already produced                                                                      
               more than 277 BCF                                                                                                
4:39:12 PM                                                                                                                    
MR. JOHNSON moved to slide 8 and summarized the Cosmopolitan gas                                                                
[Original punctuation provided.]                                                                                                
     Cosmopolitan Gas Field Summary:                                                                                        
        • Reservoir shape, size, and productivity now well-                                                                     
        • Gas production will require a small offshore                                                                          
             o Dry gas only  no liquid hydrocarbons: (no                                                                        
               chance of oil spill) Subsea pipeline: 3                                                                          
               miles to existing onshore facility                                                                               
                  square4 Recent sea floor surveys confirm safe                                                                 
                    pipeline route                                                                                              
                  square4 Onshore facility is already connected                                                                 
                    into Enstar gas pipeline system                                                                             
             o Platform/facilities    design     and    cost                                                                    
                  square4 Preliminary design completed                                                                          
                  square4 Final construction design  pending                                                                    
             o Platform gas wells  standard Cook Inlet                                                                          
             o Time to first-gas: approximately 30-40                                                                           
               months from funding                                                                                              
        • Production Design Volume                                                                                              
             o Current total Railbelt average daily demand                                                                    
               is ~200 MMSCFD                                                                                                   
             o Cosmopolitan production design capacity is                                                                       
               ~50 MMSCFD                                                                                                       
        • Critical path: Investor participation in new Cook                                                                     
          Inlet project                                                                                                         
MR. JOHNSON said a lot of time  and money has been spent over the                                                               
past few  years on the  design and identifying  cost projections.                                                               
He  stated that  the daily  demand for  Railbelt was  268 million                                                               
standard  cubic feet  per day  (MMSCFD)  as of  last week,  which                                                               
demonstrates high demand.                                                                                                       
4:41:15 PM                                                                                                                    
REPRESENTATIVE RAUSCHER  asked what  the state  could do  to help                                                               
develop the field and get gas to the market.                                                                                    
4:41:28 PM                                                                                                                    
MR.  JOHNSON  replied  that  funding  is  needed.  He  said  some                                                               
investors are willing  to put in hundreds of  millions of dollars                                                               
to get it  done. Changes to the law have  caused some uncertainty                                                               
for investors.  While royalty relief  improves the  economics, it                                                               
is not a dealbreaker. The state  could also guarantee a state- or                                                               
development-based loan.                                                                                                         
4:43:06 PM                                                                                                                    
REPRESENTATIVE  RAUSCHER   asked  for  the  total   cost  of  the                                                               
4:43:11 PM                                                                                                                    
MR. JOHNSON  replied that the  total investment cost for  gas and                                                               
preliminary oil  is about $400  million, but the state  would not                                                               
necessarily need to cover the full amount.                                                                                      
4:43:53 PM                                                                                                                    
REPRESENTAIVE   ARMSTRONG   asked   if  the   Alaska   Industrial                                                               
Development  and  Export   Authority  (AIDEA)  could  potentially                                                               
provide funding.                                                                                                                
4:44:05 PM                                                                                                                    
MR. JOHNSON  replied that he is  unsure what the state  could do.                                                               
He said AIDEA  has loaned money to BlueCrest for  a drilling rig,                                                               
but  he is  uncertain  whether  AIDEA could  meet  the high  cost                                                               
4:44:30 PM                                                                                                                    
REPRESENTATIVE  ARMSTRONG asked  if BlueCrest  had inquired  with                                                               
MR. JOHNSON  replied that  BlueCrest has not  asked but  is still                                                               
working with AIDEA on the drilling rig loan.                                                                                    
4:44:45 PM                                                                                                                    
REPRESENTATIVE  SADDLER  asked  about  the  financial  impact  of                                                               
former Governor Walker's veto of the oil and gas tax credit.                                                                    
4:45:03 PM                                                                                                                    
MR.  JOHNSON  replied  that  it was  the  primary  obstacle.  The                                                               
company subsequently cannot find investors to take the risk.                                                                    
4:45:26 PM                                                                                                                    
REPRESENTATIVE  SADDLER  asked  BlueCrest  to  elaborate  on  the                                                               
impact of instability.                                                                                                          
4:45:34 PM                                                                                                                    
MR. JOHNSON replied  that investors must feel  confident in their                                                               
investment and return.                                                                                                          
4:46:14 PM                                                                                                                    
REPRESENTAIVE  MEARS  thanked  him   for  being  open  about  the                                                               
investment  situation.  She  said  some support  from  the  state                                                               
through  royalty   relief  makes  a  difference.   She  asked  if                                                               
investment   would  allow   the  company   to  expand   into  gas                                                               
4:46:46 PM                                                                                                                    
MR.  JOHNSON  replied  that  the  development  plan  is  for  oil                                                               
reservoirs  and  does  not  include  the  gas  project.  However,                                                               
BlueCrest is working diligently to  find investors so the company                                                               
can begin the project.                                                                                                          
4:47:15 PM                                                                                                                    
REPRESENTATIVE  MEARS asked  how many  gas wells  BlueCrest could                                                               
drill once funding is received.                                                                                                 
4:47:23 PM                                                                                                                    
MR.  JOHNSON replied  that drilling  could not  begin until  late                                                               
into 2026.  The plan is  to put a rig  on the platform  and drill                                                               
thereafter. One well can access several reservoirs.                                                                             
4:48:02 PM                                                                                                                    
CO-CHAIR  GIESSEL  asked  if  a   permit  was  obtained  for  the                                                               
4:48:04 PM                                                                                                                    
MR.  JOHNSON  replied  that  prep  work is  done,  but  a  permit                                                               
application is not submitted until drilling factors are certain.                                                                
4:48:18 PM                                                                                                                    
CO-CHAIR  GIESSEL asked  for the  projected time  to acquire  the                                                               
4:48:22 PM                                                                                                                    
MR. JOHNSON replied  that the total time is about  12 months, but                                                               
much of it is administrative.                                                                                                   
4:48:48 PM                                                                                                                    
SENATOR CLAMAN asked  if it is correct that  without an investor,                                                               
the process could not start.                                                                                                    
4:49:09 PM                                                                                                                    
MR. JOHNSON replied  that is correct. He said  BlueCrest is ready                                                               
to  begin the  gas  project and  has spent  tens  of millions  of                                                               
dollars on the engineering components.                                                                                          
4:49:46 PM                                                                                                                    
CO-CHAIR MCKAY noted  that all three oil  companies are privately                                                               
owned so  they risk  millions of  dollars of  their own  money to                                                               
drill and produce  oil and gas in Alaska. He  said profit margins                                                               
on oil are  different than profit margins on gas,  which are much                                                               
^Presentation: Cook Inlet Gas by ENSTAR                                                                                         
             PRESENTATION: COOK INLET GAS BY ENSTAR                                                                         
4:50:29 PM                                                                                                                  
CO-CHAIR MCCKAY announced the consideration of a presentation on                                                                
Cook Inlet Gas by ENSTAR.                                                                                                     
4:50:43 PM                                                                                                                    
JOHN  SIMS, President,  ENSTAR  Natural  Gas Company,  Anchorage,                                                               
Alaska, presented  an update on  Cook Inlet Gas.  He acknowledged                                                               
the efforts  of Hilcorp and others  to get the state  through the                                                               
recent freezing weather.  Maintaining critical pipeline pressures                                                               
in the transmission systems is the aim.                                                                                         
4:53:21 PM                                                                                                                    
MR. SIMS moved to slide 2 and provided a brief history of                                                                       
[Original punctuation provided.]                                                                                                
     About ENSTAR                                                                                                             
        • Established in 1959                                                                                                   
        • 230 employees                                                                                                         
        • 152,000 customers                                                                                                     
        • 25 communities served                                                                                                 
        • 3,560 miles of pipeline                                                                                               
MR. SIMS added that several jobs were brought back from Michigan                                                                
to Anchorage.                                                                                                                   
4:54:12 PM                                                                                                                    
MR. SIMS moved to slide 3 and spoke to Cook Inlet Gas Natural                                                                   
Storage Alaska (CINGSA):                                                                                                        
[Original punctuation provided.]                                                                                                
     About CINGSA                                                                                                             
        • Constructed in 2012 in response to significant                                                                        
          concerns about Cook Inlet gas supply About CINGSA                                                                     
        • 11 Bcf storage capacity                                                                                               
        • 150 Mmcf max injection/withdrawal                                                                                     
        • 3 Firm Customers                                                                                                      
        • 3 Interruptible Customers                                                                                             
        • Provides deliverability for more than 40 percent                                                                      
          of ENSTAR demand on a cold day.                                                                                       
MR. SIMS said the 11  Bcf storage capacity cost $160 million                                                                    
dollars and is fully  regulated by the Regulatory Commission                                                                    
of Alaska (RCA),  which is a partnership  between the Alaska                                                                    
Gas  Transmission  Company  and   Cook  Inlet  Region,  Inc.                                                                    
4:55:06 PM                                                                                                                    
MR. SIMS moved to slide 4 and spoke to the Utility Working                                                                      
[Original punctuation provided.]                                                                                                
     Utility Working Group                                                                                                    
        • Hilcorp/Utilities Annual Update meeting                                                                               
            April 12, 2022                                                                                                      
            Stated they would not extend existing contracts                                                                     
        • Creation of the Utility Working Group                                                                                 
            April 15, 2022                                                                                                      
             o ENSTAR, Chugach, MEA, GVEA, HEA, IGU                                                                             
                 Later included AEA, DNR                                                                                        
            Hired Berkeley Research Group (BRG)  November                                                                       
          10, 2022                                                                                                              
MR. SIMS added  that the latest annual  update meeting determined                                                               
that Hilcorp  was not interested in  extending existing contracts                                                               
at the same level as what they were in the past.                                                                                
4:56:00 PM                                                                                                                    
MR.  SIMS moved  to  slide 5  and explained  the  bar chart  that                                                               
demonstrates combined utilities' annual  demand. He explained the                                                               
legend colors and  said the green represents  what DNR classified                                                               
as the  lower risk uncontracted  demand. These were  demands that                                                               
were  not met  by  existing  contracts that  DNR  expected to  be                                                               
supplied by Cook Inlet reserves.                                                                                                
4:57:13 PM                                                                                                                    
MR. SIMS  moved to  slide 6 that  lists gas  supply opportunities                                                               
under the phase 1 assessment. He  noted that these are not ranked                                                               
in a specific order and provided examples.                                                                                      
4:57:47 PM                                                                                                                    
MR. SIMS  moved to  slide 7  and described  the project  team for                                                               
phase 2.  He said several professional  consultants evaluated the                                                               
projects to  determine what makes  the most  sense to bring  in a                                                               
majority of gas.                                                                                                                
4:58:33 PM                                                                                                                    
MR. SIMS moved  to slide 8 and spoke to  the summary findings for                                                               
schedules under phase 2:                                                                                                        
[Original punctuation provided.]                                                                                                
     Summary Findings for Schedules  Phase II                                                                                 
        • None of the Options meet the LNG demands for the                                                                      
          4-year milestone (first gas 4Q2027)                                                                                   
        • Greatest time unknowns are related to FERC and US                                                                     
          Corp of Engineers permitting durations, time to                                                                       
          modify or construct in-water piers                                                                                    
        • Risks are high for FSRU Options due to tides and                                                                      
          winter effects at Cook Inlet                                                                                          
        • Long-lead procurement items must be started and                                                                       
          commercial agreements concluded before permits                                                                        
          are issued                                                                                                            
MR. SIMS said most utility  contracts expire with Hilcorp in 2027                                                               
and  2028. He  noted that  studies, contractors,  and consultants                                                               
informed CINGSA  that none of  the other corporations  could meet                                                               
the timeframe to bring in imported LNG until 2030.                                                                              
5:00:17 PM                                                                                                                    
MR.  SIMS  moved  to  slide  9  and  briefly  explained  timeline                                                               
[Original punctuation provided.]                                                                                                
     2010 vs. 2024                                                                                                            
        • In 2010, Cook Inlet utilities faced similar concerns                                                                  
          under different circumstances.                                                                                        
        • CINGSA is proof that legislative support for energy                                                                   
          security matters.                                                                                                     
        • Today, quick, bold action is required to serve this                                                                   
          region in the short and long-term.                                                                                    
        • Additional storage is required under any scenario and                                                                 
          should be regulated for price transparency.                                                                           
5:01:15 PM                                                                                                                    
MR. SIMS moved  to slide 10 and  11 and spoke to  the charts that                                                               
depict  Cook Inlet  and combined  utilities' demand.  He said  in                                                               
2023,  only  one  entity  was successful  in  drilling.  He  said                                                               
Hilcorp  is not  open to  extending existing  contracts, so  more                                                               
activity is  needed in 2024  to meet gaps  in 2025. As  time goes                                                               
on, the challenge comes as temperatures warm.                                                                                   
5:03:09 PM                                                                                                                    
MR.  SIMS moved  to slide  12 and  spoke to  gas supply  contract                                                               
terms.  He  said  the  all-requirements  contract  has  not  been                                                               
available   since   2003.    Consequently,   there   are   higher                                                               
deliverability expectations from markets.                                                                                       
5:04:31 PM                                                                                                                    
MR. SIMS moved to slide 13 and highlighted the utility duty to                                                                  
[Original punctuation provided.]                                                                                                
     Utility Duty to Serve                                                                                                    
        • This duty is not shared by producers, IPPs, or                                                                        
          anyone else  in this  state. It is  our obligation                                                                    
          Sec.   42.05.291.   Standards   of   service   and                                                                  
          (a)   Each  public   utility  shall   furnish  and                                                                    
          maintain  adequate,  efficient, and  safe  service                                                                    
          and facilities.  This service shall  be reasonably                                                                    
          continuous  and without  unreasonable interruption                                                                    
          or delay.                                                                                                             
MR. SIMS said  the industry must consider the  importation of LNG                                                               
to comply  with market expectations.  He noted that there  are no                                                               
other industries that  have the same duty to  serve. He expressed                                                               
confidence in Cook Inlet, but acknowledged current challenges.                                                                  
5:05:47 PM                                                                                                                    
MR. SIMS moved to slide 14 and explained the next steps forward:                                                                
[Original punctuation provided.]                                                                                                
     What now?                                                                                                                
        • Timely actions is required to avoid a gap in                                                                          
            Short-term:  Need strong support for  Cook Inlet                                                                    
          exploration and production activities.                                                                                
            Long-term:  Decisive action  on a  large natural                                                                    
          gas supply project.                                                                                                   
        • Ultimately, customers - Alaska residents and                                                                          
          businesses - are on the hook for cost impacts.                                                                        
        • Working to minimize impact, but longer we wait,                                                                       
          the fewer options available and at higher rates.                                                                      
MR. SIMS said encouraging tax credits or identifying solutions                                                                  
is crucial to ensure gas availability in the state.                                                                             
5:06:39 PM                                                                                                                    
MR. SIMS moved  to slides 15 and 16 and  shared actions the state                                                               
could take:                                                                                                                     
[Original punctuation provided.]                                                                                                
     Additional storage is key                                                                                                
        • Under every scenario, additional natural gas                                                                          
          storage is required:                                                                                                  
            Added Cook Inlet deliverability                                                                                     
            Support new projects coming online                                                                                  
        • In November, CINGSA filed with the RCA to expand                                                                      
          its facility to provide additional service                                                                            
5:07:17 PM                                                                                                                    
MR.  SIMS moved  to slide  17 and  elaborated on  the chart  that                                                               
depicts  the home  energy rebate  program and  normalized average                                                               
annual residential customer usage.                                                                                              
5:07:52 PM                                                                                                                    
MR.  SIMS moved  to  slide  17 and  briefly  highlighted the  two                                                               
bullet points on Cook Inlet Energy:                                                                                             
[Original punctuation provided.]                                                                                                
     Cook Inlet Energy: An Alaska Issue                                                                                       
        • Energy costs in Rural Alaska.                                                                                       
        • Local businesses support communities beyond                                                                           
          Anchorage with cargo, goods, and services.                                                                          
5:08:02 PM                                                                                                                    
MR. SIMS moved to slide  18 and summarized key considerations. He                                                               
said he  commented to  the Regulatory  Commission of  Alaska that                                                               
the  renewables are  unhelpful amidst  peak  demand. During  peak                                                               
days, wind energy was an  unreliable source of energy for Alberta                                                               
Energy. If  the market provided an  unsubsidized energy solution,                                                               
it  would be  more expensive.  Royalty relief  could not  coexist                                                               
with an interruptible  contract and is not what  the state should                                                               
[Original punctuation provided.]                                                                                                
     Key Considerations                                                                                                       
          • There is no unsubsidized energy solution that                                                                       
             will reduce the cost of power or space heating                                                                     
             in the next 10 years.                                                                                              
          • Any incentive or tax relief must be linked to                                                                       
            firm contracts for Cook Inlet utilities.                                                                            
          • The second worst thing for Alaska is to import                                                                      
             LNG. The worst thing is to do nothing                                                                              
5:10:24 PM                                                                                                                    
SENATOR WIELECHOWSKI  stated that  on April  3, 2020,  CINGSA and                                                               
the  CEOs  of  Matanuska  Electric Assocation  (MEA)  and  Golden                                                               
Valley  Electric  sent a  letter  to  the Governor  stating  that                                                               
Hilcorp controls  80 percent and  noted that the  least expensive                                                               
way to  resolve this was  to ensure production would  occur under                                                               
existing  leases. He  noted  that the  letter  also claimed  that                                                               
Hilcorp  was subject  to its  lease obligations  and the  consent                                                               
decree, and inquired about the response that was received.                                                                      
5:11:13 PM                                                                                                                    
MR.  SIMS replied  that every  tool in  the toolbox  needs to  be                                                               
evaluated  to ensure  no  other entities  take  advantage of  the                                                               
state  and ensure  leaseholders fulfil  obligations. He  said the                                                               
consent decree  had a  price range that  was supposed  to provide                                                               
security for  consumers in  the state.  Hilcorp stayed  below the                                                               
price  range  the  entire  time despite  having  the  ability  to                                                               
increase  it. There  are not  many entities  that are  willing to                                                               
invest hundreds  of millions of  dollars. He opined  that royalty                                                               
relief  is  worthwhile  to  prevent  having  to  import  LNG  and                                                               
increase the  cost of energy  for every Alaskan. It  is important                                                               
to consider ways to save money for consumers.                                                                                   
5:13:48 PM                                                                                                                    
SENATOR CLAMAN asked  him to expand on gas storage  as a solution                                                               
and wondered how the state could assist.                                                                                        
5:14:03 PM                                                                                                                    
MR. SIMS replied  that energy storage is important.  He said when                                                               
looking at year-round production markets  in the lower 48 states,                                                               
injection  storage  acts  as  a secondary  option  to  having  no                                                               
buyers. It also opens up market  potential. There is a very small                                                               
market for Cook Inlet gas, so investment is helpful.                                                                            
5:15:05 PM                                                                                                                    
SENATOR  KAWASAKI  asked  how  much   storage  space  exists  for                                                               
CINGSA's existing framework.                                                                                                    
5:15:20 PM                                                                                                                    
MR. SIMS responded that CINGSA had  an open season and has 11 Bcf                                                               
of available capacity.  He said each one of  the utilities claims                                                               
a certain  amount of that  capacity, so there is  no availability                                                               
for new  customers. Proprietary storage  is utilized to  meet the                                                               
needs of existing contractual obligations.  If CINGSA was open to                                                               
third-party storage, unsold gas could be injected for later use.                                                                
5:16:25 PM                                                                                                                    
SENATOR KAWASAKI  asked under what circumstances  a company would                                                               
want to bury gas if they already have firm commitments.                                                                         
5:16:54 PM                                                                                                                    
MR. SIMS replied that he is uncertain.                                                                                          
5:17:00 PM                                                                                                                    
REPRESENTAIVE MCCABE asked why coal  hasn't been considered given                                                               
that there  is currently 590 years  worth of coal in  Healy. Yet,                                                               
when there was an emergency situation, coal was not considered.                                                                 
5:17:39 PM                                                                                                                    
MR. SIMS expressed his company's  duty to serve its customers. He                                                               
said  Golden  Valley  Electric  was  a  part  of  that  emergency                                                               
conversation and  it was  known how much  energy they  could have                                                               
sent had it been needed.  The state should consider a diversified                                                               
portfolio for power generation to avoid frequent binds.                                                                         
5:18:48 PM                                                                                                                    
REPRESENTAIVE  MCCABE commented  that it  is possible  to produce                                                               
clean energy  using coal  and it  is the  solution to  fixing the                                                               
energy problem  in the short term.  He opined that it  would take                                                               
ten years to establish a  floating supply ship. He suggested that                                                               
repairs to the Healy 2 would  take only three years and gas could                                                               
be stored until a delivery system was completed.                                                                                
5:19:56 PM                                                                                                                    
REPRESENTAIVE MEARS stated that  there are options for businesses                                                               
and  residents  to  make  changes  including  infrastructure  and                                                               
energy usage.  She acknowledged that  there is federal  money and                                                               
other opportunities that are available.                                                                                         
5:20:51 PM                                                                                                                    
SENATOR  BISHOP stated  the legislature  has heard  from the  gas                                                               
industry  for six  years. He  said there  are 60  years worth  of                                                               
energy reports but action has  not been taken, so the legislature                                                               
must do something this session.                                                                                                 
5:21:35 PM                                                                                                                    
SENATOR WIELECHOWSKI noted  that the state has  a 100-year supply                                                               
of gas  at its doorstep.  He commented that one  company controls                                                               
80 percent  of that reserve and  wondered how much more  it would                                                               
cost consumers in Alaska if LNG is imported.                                                                                    
5:22:15 PM                                                                                                                    
MR. SIMS replied  that LNG is unavailable for  import until 2030.                                                               
He opined that residents will leave  the state and the state will                                                               
have difficulty paying  for its heating bills. Energy  is a major                                                               
economic issue  in Alaska and  should be addressed  this session.                                                               
The current  outlook and  forecast are not  good. The  LNG option                                                               
that  would begin  in 2030  is costly,  so there  are significant                                                               
economic challenges.                                                                                                            
5:24:32 PM                                                                                                                    
REPRESENTAIVE ARMSTRONG  stated her  perspective that  the chance                                                               
to capitalize  on the value  chain, like the mining  industry, is                                                               
lost  if families  cannot  heat their  homes.  She expressed  her                                                               
obligation to  identify a  solution and  expressed disappointment                                                               
to be in this position.                                                                                                         
5:25:28 PM                                                                                                                    
MR. SIMS  replied that it  is important  to understand this  as a                                                               
staged issue.  He asked the  committee to focus on  the long-term                                                               
5:26:27 PM                                                                                                                    
CO-CHAIR MCKAY  opined that this is  not a time to  panic, become                                                               
emotional or  irrational, and  stated his  belief that  the state                                                               
has the capability to solve the problem.                                                                                        
5:27:22 PM                                                                                                                    
There being  no further  business to  come before  the committee,                                                               
Co-Chair Giessel adjourned the  Joint Resources Committee meeting                                                               
at 5:27 p.m.