Mount Redoubt can be seen acoss Cook Inlet from North Kenai Beach on Thursday, July 2, 2022. (Photo by Erin Thompson/Peninsula Clarion)

Mount Redoubt can be seen acoss Cook Inlet from North Kenai Beach on Thursday, July 2, 2022. (Photo by Erin Thompson/Peninsula Clarion)

Utilities, state lawmaker call on state to investigate Hilcorp compliance with Cook Inlet leases

A state lawmaker and the leaders of four major electric utilities are calling for the State of Alaska to investigate whether or not Cook Inlet’s biggest gas producer is violating its state lease agreements and contributing to a looming shortfall of Cook Inlet natural gas.

Hilcorp Alaska LLC is the subject of two separate letters sent to senior state officials since early April, in which multiple groups call on the state to ensure the company is fulfilling the obligations described by lease agreements it has with the State of Alaska.

Both pieces of correspondence reference a looming shortfall of natural gas supply in the Cook Inlet basin. The Alaska Department of Natural Resources’ 2022 Cook Inlet Gas Forecast found that demand for Cook Inlet gas could outpace supply as early as 2027 without additional development in the basin’s active fields.

Hilcorp, the largest natural gas supplier in Alaska, told stakeholders in spring 2022 that while it has enough gas supply to fulfill its current contracts it has with utilities, it does not have enough gas reserves to enter into new contracts. Homer Electric Association, which covers more than 25,000 member owners on the Kenai Peninsula, gets about 86% of its energy from natural gas.

HEA, whose current contract with Hilcorp expires in 2024, joined two other publicly regulated utilities serving communities in Alaska’s Railbelt and ENSTAR Natural Gas in calling for the state to ensure lease compliance by Hilcorp.

The group in an April 3 letter addressed to Gov. Mike Dunleavy said that the least expensive way to offset looming energy shortfalls is by continuing to produce gas from wells under existing leases between Hilcorp and the State of Alaska. The letter stops short of making specific accusations toward Hilcorp, but says the state should ensure the company, which has market dominance in Alaska’s oldest oil and gas producing basin, is in compliance.

“We hope the State of Alaska is ensuring Hilcorp is acting consistent with its leases, in light of the Alaska Constitution’s requirement that the State of Alaska ‘encourage the settlement of its land and the development of its resources by making them available for maximum use consistent with the public interest,’” the letter says.

The letter is signed by Homer Electric Association General Manager Brad Janorschke, Matanuska Electric Association CEO Anthony Izzo, Golden Valley Electric Association CEO John Burns and ENSTAR Natural Gas Company President John Sims.

Sen. Bill Wielechowski, D-Anchorage, sent his own letter June 26 to Alaska Attorney General Treg Taylor and Department of Natural Resources Commissioner John Boyle calling for an inquiry into whether or not Hilcorp “neglected or evaded its Cook Inlet duties as a reasonably prudent operator” with respect to exploratory activities in Cook Inlet.

Citing the letter sent to Dunleavy by ENSTAR and the three electric utilities, Wielechowski suggests that Hilcorp has violated its state leases by failing to explore new areas within its boundaries for undiscovered oil and gas deposits and not acting with “reasonable diligence” when it comes to development and production.

Wielechowski points to Hilcorp’s 2019 acquisition of BP Alaska and the company’s “admitted inexperience with exploratory work” as potential contributing factors to what he says is Hilcop’s “neglect.”

“The State must assess … whether Hilcorp neglected or evaded its Cook Inlet duties as a reasonably prudent operator and in furtherance of exploratory activities in Cook Inlet,” Wielechowski writes. “The State must seek appropriate legal recourse or demand other remedies for conduct contravening lease obligations, to compensate the State and the people of Alaska for consequential harms and to deter similar future conduct.”

In a June 27 statement provided to the Peninsula Clarion by Hilcorp’s Alaska Government and Public Affairs Manager Luke Miller, Hilcorp said it has invested more than $1 billion in new projects in Cook Inlet since 2012. This year, Hilcorp “plans to spend several hundred million dollars in the Cook Inlet,” and to operate four rigs and drill “nearly 20” wells, the statement says.

“Hilcorp is working closely with the Railbelt Utilities to find solutions to our natural gas supply challenges,” the statement says. “These solutions include significant new capital investments, new commercial arrangements, new Cook Inlet platforms, advancing North Slope natural gas options, and exploring opportunities to repurpose existing infrastructure for renewable energy.”

Presentations on the status of Cook Inlet’s oil and gas future delivered earlier this year to state lawmakers can be located on the Alaska Legislature’s website at akleg.gov.

Reach reporter Ashlyn O’Hara at ashlyn.ohara@peninsulaclarion.com.

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