A Tale of Two Patches: Slope, Inlet Oil & Gas Fortunes Diverge
Atlantis is an offshore supply vessel acquired this summer by HEX to overcome the challenges of operating in Cook Inlet.
Photo Credit: HEX
It was the better of times, it was the could-be-better of times. Attendees of the Alaska Oil and Gas Association (AOGA) annual conference heard upbeat reports of North Slope oil and gas activity, whereas reports from Cook Inlet operators were defiant in the face of looming challenges.
Pushing Harder and Harder
“Cook Inlet is a challenging place to do business,” said Luke Saugier, senior vice president at Hilcorp Alaska. “The results that we are realizing are pretty ‘skinny.’”
Texas-based Hilcorp produces in both basins, so it is keenly aware of the difference. Cook Inlet is facing a gap in natural gas production, with demand overtaking production capacity as early as this winter. Saugier noted that Hilcorp subsidiary Harvest Alaska is retooling the Kenai LNG facility to accept imports of liquified natural gas, but he characterizes that move as buying time until a longer-term solution, presumably a North Slope natural gas pipeline, comes to Southcentral’s rescue.
The amount of gas beneath Cook Inlet is not the problem; the basin simply has not enough wells to release lower-pressure gas fast enough to deliver 70 billion cubic feet per year, storing the summer surplus for the winter draw-down. Local energy utilities have said gas storage capacity should double.
Saugier notes that the amount of gas currently stored could, in theory, satisfy this winter’s demand. However, much of the volume is contractually committed for future winters, saved like seed corn. “Because there is overall enough gas in storage, we can reach a commercial solution that will get us through the winter,” Saugier says. “We do have ‘line of sight’ to some other very sure source of gas in 2029. Without that, there would be no way to redistribute the gas this winter.”
Not that Saugier was pessimistic. “Fortunately, most of our projects are successful,” he told AOGA attendees. “Our pace of execution is increasing over time as we push harder and harder.”
Current Issue
August 2026
However, although drilling activity is increasing, it is far below the level of a decade ago, when four or five companies were drilling in Cook Inlet. “There are only two companies, HEX and Hilcorp, that are drilling wells,” says Saugier. “Despite higher and higher activity levels, we’re seeing roughly flat production. We’re effectively on a treadmill. Each project realizes less gas than the project before it; we’re running harder and harder just to stand still in delivering gas to the local market.”
Natural gas not only fuels home heating and electricity, but it’s a key input at the Marathon Petroleum refinery in Nikiski. Marathon is the next largest gas consumer after Enstar Natural Gas Company and the local electric utilities, burning 3 to 5 billion cubic feet to refine Cook Inlet crude oil into asphalt, gasoline, jet fuel, propane, and other products. The gasoline in every pump in Southcentral is powered by Cook Inlet natural gas—but the propane for sale doesn’t come from Nikiski anymore.
“Right now, we don’t sell propane in this market because we’re having to utilize it to heat our product,” says Casey Sullivan, government and public affairs manager for Marathon. “That’s not a recipe for success for our refinery at all. We’re doing lots of things operationally to make sure we’re continuing to be successful, but this is a challenge for us.”
To meet the challenge, the only Alaskan-owned Inlet gas producer is more than tripling its commitment to Alaska heating by next April. “We are going to 26 million [cubic feet of natural gas] a day, firm contract to Enstar. And this was set up two years ago,” HEX President and CEO John Hendrix told the AOGA conference. “That’s something that should be celebrated!”
Hendrix added that the commitment will increase to 29 million in 2028, but five years from now, he can’t say. “Right now, the biggest thing is the unknown. We have a lot of threats; we don’t have any guarantees that we can sell gas in five years,” he said. “Do I continue to throw $50 million every year at this? When does my being an Alaskan give up and become a businessman? Right now, you’ve got my passion.”
Hendrix shared that HEX has signed an agreement with Tyonek Native Corporation and Cook Inlet Region, Inc. to drill for gas in an onshore oil play. “This is something I was working on, back in my Apache days. Apache had the leases pulled away from them, so we picked up the leases, and we’d like to be drilling that well in the next two years,” Hendrix said.
Apache is a subsidiary of Texas-based APA Corporation, which appeared at the AOGA conference this year as a new member. The company has been developing the Lagniappe properties on the eastern North Slope and, by acquiring Savant and its Badami Unit this year, has become a producer with infrastructure in place. Jim Pickens, director of onshore exploration for APA, told AOGA, “We’re excited to be back here in Alaska. We’re excited to keep moving forward and explore both on the eastern side of the North Slope and perhaps elsewhere.”
HEX also came to the conference as a North Slope player. The company expanded from Cook Inlet in June by winning bids for federal leases in the Arctic National Wildlife Refuge. “We’re proving that we have the ability to attract additional capital that we can use to invest in projects that allow us to punch above our weight,” says HEX CFO Mike Koy.
One of HEX’s two lease tracts is along the western boundary of the coastal plain, closest to existing infrastructure. “The eastern North Slope has had a significant amount of recent investment and, just as important, a significant amount of drilling success. As we know, drilling success begets infrastructure,” Koy told AOGA attendees. He added, “Our immediate plan for the acreage is to shoot seismic, which we’re going to do this winter season and, based on the success of that, follow it up with an exploration and appraisal program sometime in the near future.”
Future Is Now
Photo Credit: Alaska Business
This year’s AOGA conference is the first for Santos as a North Slope producer, having achieved first oil from Pikka Phase 1 on schedule and selling the first load of commercial cargo this month. Bruce Dingeman, EVP and President of Santos in Alaska, told AOGA that Phase 2 begins soon. “We’re gonna do a significant gravel install this winter,” he said. “That will underpin the second drill site, the start of Phase 2 for Pikka. We also have a large state-of-the-art 3D seismic survey that’s gonna cover a significant portion of our northern area. This will allow us to chase these stratigraphic, amplitude-driven features to better define them and exploit them.”
New projects still on the horizon include Willow, a project in the Bear Tooth Unit inside the National Petroleum Reserve-Alaska, aiming for first oil in early 2029. ConocoPhillips Alaska will conduct pre-drilling this winter to be ready for modules on the way, according to President Erec Isaacson. “We have construction of our modules down on the Gulf Coast. It’s getting those from the Gulf Coast, through the Panama Canal on barges all the way up to the North Slope next summer. Once they’re on the North Slope, it’s moving them across on ice roads,” Isaacson says. ConocoPhillips expects the modules to be in place by winter of 2028.
The buzz of anticipation extends to Hilcorp, even though its specialty is improving existing assets. “We have seen steady and intentional growth in our employee base” in the last five years, says Hilcorp Alaska Vice President Denali Kemppel, “A roughly 18 percent growth rate in our workforce.”
Hilcorp doesn’t have new projects like Pikka and Willow to anticipate, but it’s hardly resting. “Since 2021, Hilcorp has drilled over 330 wells, and we’ve shown 173 percent increase in four years in our drilling activity,” Kemppel told AOGA attendees. “This activity level, which is astounding, really shows the confidence in our fields in Alaska.” She noted that Hilcorp’s investment in Alaska projects has grown from about $2 billion in 2021 to about $4 billion in 2025.
One existing asset doubled production by the addition of a single well. “We recently completed the first new development well at Point Thomson in a decade,” Kemppel reports. “Altogether we expect to spend about $180 million just on this phase of the Point Thomson development.” The new well was spudded last November and completed on July 4, adding 6,000 barrels of oil per day from the Point Thomson Unit, which has largely been seen as a natural gas asset.
Tali Birch, general counsel for Santos in Alaska, told AOGA attendees, “The future of North Slope production isn’t something we’re simply talking about anymore; it’s happening now.”
Although the Cook Inlet basin is bracing for a winter of despair, the spring of hope on the North Slope is driving a statewide oil and gas renaissance.
