Two Alaska lawmakers ask federal regulators to investigate Hilcorp over natural gas shortage

Two Alaska state lawmakers are asking the Federal Trade Commission to investigate whether the company Hilcorp Alaska has engaged in “illegal anticompetitive practices” that might have contributed to Southcentral Alaska’s looming gas supply shortage.

Republican Sen. Cathy Giessel, co-chair of the Senate Natural Resources Committee, and Democratic Sen. Bill Wielechowski, wrote in an Aug. 14 letter that Hilcorp has a “virtual monopoly” in the Cook Inlet basin and Hilcorp has shown that it can abuse that dominant position.

That occurred when Hilcorp earlier this year successfully fought an attempt in the Alaska Legislature to require the company to pay state corporate income taxes, telling utilities that a tax hike could jeopardize current and future gas supply contracts, they wrote.

The senators also wrote that Hilcorp’s large share of gas storage facilities is another potential problem amid concerns that Hilcorp “may be seeking exorbitant fees for this gas storage.”

Hilcorp is legally required to produce gas when doing so is commercially viable, they wrote. State consultants and experts have told Alaska lawmakers that new gas development projects are “very likely” to be viable, they wrote. Yet the region faces an “acute gas supply crisis” that Hilcorp has potentially caused, they assert in the five-page letter.

“This letter urges the U.S. Federal Trade Commission to open an investigation into this matter and its surrounding circumstances to determine whether Hilcorp has engaged in illegal anticompetitive practices in Alaska leading to the supply shortage, potentially by manipulating regional and statewide markets in attempt to induce private benefits or gain leverage over state policy affecting the company,” the lawmakers said in the letter.

The Dunleavy administration pushed back on the letter in a statement issued late Monday.

“The Department of Natural Resources agrees that ensuring natural gas availability from Cook Inlet and energy security for Alaskans are of significant public interest and consequence, but we are disappointed that this letter mischaracterizes State oversight of Cook Inlet operators and the activities that have occurred in the basin,” wrote John Boyle, commissioner of the department.

“After more than a decade of diligently monitoring Hilcorp’s production and exploration activities in Cook Inlet, DNR is confident that Hilcorp is meeting its obligations under their State of Alaska leases, unit agreements, and department-approved plans of development and exploration for their activities in the Inlet. We need the Legislature to take up the governor’s proposals to incentivize more investment and activity in Cook Inlet, not invite federal regulators to second guess us at this critical stage,” Boyle wrote.

Hilcorp has drilled 57 wells to search for new gas sources since 2012, said Lorraine Henry, a spokesperson with Natural Resources. No other operator has drilled an exploration well in the last decade, she said.

Hilcorp has also committed to pursuing “scores of wells” and hundreds of millions of dollars in future investment, she said. Hilcorp recently purchased the Spartan 151 jack-up rig for nearly $40 million to ensure the equipment was available for Cook Inlet drilling.

The request for a federal investigation into Hilcorp’s activity in Cook Inlet comes after Wielechowski and other mostly Democratic lawmakers from Alaska unsuccessfully pressed Alaska Attorney General Treg Taylor to investigate the matter under a 2013 consent decree between the state and Hilcorp. Giessel had not signed onto those earlier letters.

Hilcorp, based in Houston, Texas, provides more than 80% of the natural gas produced in Cook Inlet. It began producing natural gas in the aging basin more than a decade ago. In 2022, it warned Alaska’s Railbelt utilities that it does not currently have enough natural gas to renew gas supply contracts in the future, after existing ones expire. That has sent utilities scrambling to find alternative sources of fuel to produce electricity and heat, including importing gas, a proposal that would lead to higher bills.

Enstar, the natural gas supplier in Southcentral, has warned that it could face a shortage of gas as early as next year.

Hilcorp said in a prepared statement Sunday that it has invested significantly in the Cook Inlet basin.

“When we entered the Cook Inlet, the basin was in rapid decline with few companies willing or able to put up the capital required to produce oil and gas from the aging fields,” said an email from Hilcorp spokesperson Luke Miller. “Hilcorp Alaska stepped in and stabilized the Railbelt’s natural gas supply by investing over a billion dollars in the Cook Inlet, drilling more than 160 wells and producing more than 700 billion cubic feet of natural gas.”

“In 2024 alone, we are spending several hundred million dollars in the Cook Inlet Basin, operating four rigs, and drilling more than 20 wells,” Miller said. “Hilcorp Alaska is also working closely with the utilities and regulators to make our natural gas storage assets available for commercial use.”

Hilcorp Alaska will continue to “fully develop” its leases in the basin, and acknowledged that new discoveries are needed, Miller said.

“However, the Southcentral market needs new sources of natural gas supply, specifically as Hilcorp Alaska’s assets are some of the most extensively evaluated and developed in the Cook Inlet Basin,” Miller said.

Hilcorp said in January that Railbelt utilities and other gas producers in Cook Inlet need to identify additional sources of gas.

Wielechowski, a member of the Senate Natural Resources committee, said Monday that he wants the federal government to investigate Hilcorp over the matter because the state hasn’t done so.

“It’s a complete and utter failure by the attorney general’s office to protect Alaskan consumers,” he said.

Taylor and DNR Commissioner Boyle said in a letter to Wielechowski in October that if the Alaska Department of Law “has reason to believe that Hilcorp has not or is not making commercially reasonable efforts to increase the production and development of natural gas from its Cook Inlet properties or has otherwise violated the terms of the consent decree, DOL will take appropriate action.”

Giessel said in a text on Monday that she had no additional comment.

She had voted in support of the tax hike for Hilcorp, saying the state needs money to pay for behavioral health and education. When the tax hike was eliminated in May, she said that Hilcorp owner Jeff Hildebrand “has a pass on corporate income tax that other companies pay.” She suggested that Hilcorp can control “the narrative” by threatening to stifle the Cook Inlet gas supply if they’re forced to pay corporate taxes.

Before Hilcorp acquired the assets of Marathon Oil in Cook Inlet in 2012, the Federal Trade Commission expressed concerns that Hilcorp’s dominant ownership of natural gas storage facilities and pipeline infrastructure in Cook Inlet could hinder efforts to increase gas production, the lawmakers said in the letter.

The agency’s concerns “have been proven valid today,” they said.

The Federal Trade Commission had no comment, Victoria Graham, a spokesperson for the agency, said in an email Monday.

This article has been updated to include comments from the Department of Natural Resources.