Last week the Landmine published a story about a newly introduced bill from Senator Jesse Bjorkman (R – Nikiski) that included a provision to allow the state to acquire private overriding royalties (ORRI) in Cook Inlet. After the near power grid failure in Southcentral Alaska earlier this month due to the extreme cold temperatures, there has been a big focus on Cook Inlet gas in the Legislature.

Bjorkman’s bill proposes that the state acquire private overriding royalties, through eminent domain, that are “equal to the average annual income generated by the overriding royalty interest over the preceding five years, multiplied by two.” The aim of the provision in the bill seems simple: the state acquires the overriding royalties, and through royalty relief, eliminates them.

The bill also proposes that, “The Department of Natural Resources may approve an overriding royalty interest only if, when combined with the royalty share of the state, the total royalties on the unit would not exceed 20 percent.”

The Landmine has obtained a December letter from Furie sent to one of its overriding royalty owners. The letter proposes to do precisely what Bjorkman’s bill does. The letter was sent from Mark Slaughter, Furie’s chief commercial officer, to Taia Energy, owned by Houston based geologist/geophysical interpreter, Carl Marrullier.

Marrullier told the Landmine he obtained a small overriding royalty in exchange for free work he did in the unit many years ago. He said he only started collecting the royalties around eight years ago.

The letter informed Marrullier that the Kitchen Lights Unit – the Cook Inlet field that Furie operates – “remains challenged.” John Hendrix bought Furie’s assets out of bankruptcy for a fire sale price of $15 million in 2019. He was aware of the overriding royalties when he bought it.

The letter concluded by offering Marrullier $149,819.74 for his .25% overriding royalty. “That amount is calculated by multiplying the total ORRI payments that you received during the period from December 2022 to November 2023 by 200%,” the letter said. That is the same multiplier in Bjorkman’s bill. The only difference is Bjorkman’s bill averages annual payments over five years, multiplied by two. Furie proposed the previous year’s payment, times two.

The letter also mentions the 20% cap on royalties that is in Bjorkman’s bill. “As was discussed in the July 26th letter, the KLU is challenged by the fact that, in addition to the 12.5% State of Alaska landowner royalty, there is an additional 12.5% ORRI burden. The 25% combined royalty and ORRI burden is 5% more than the 20% total royalty and ORRI burden which the State has previously concluded is too much for the State to approve,” the letter said.

Last week Senator Bjorkman told the Landmine that John Hendrix did not talk to him about or inspire this provision in the bill.

In an interview today, Bjorkman maintained that the provision in the bill was not at the request of Hendrix. “This provision is for everybody operating in Cook Inlet. I worked with the Department of Natural Resources and the producers on this bill. The state needs a mechanism to make sure gas fields in Cook Inlet are economic and capable of meeting the needs of utilities and the Marathon refinery, “Bjorkman told the Landmine, “It’s the right thing to do. It protects overriding royalties by giving them some value, but it’s ultimately up to the courts.”

Marrullier recently sent an open letter to Lieutenant Governor Nancy Dahlstrom (R – Alaska), Senators Click Bishop (R – Fairbanks) and Cathy Giessel (R – Anchorage) – the co-chairs of the Senate Resources Committee – Representative Tom McKay (R – Anchorage), the chair of the House Resources Committee, DNR Commissioner John Boyle, and several other state officials.

The letter references the Landmine’s story last week about Bjorkman’s bill, which he says is “thinly vailed and targets royalty owners from the Kitchen Lights Unit, Cook Inlet AK.”

In the letter Marrullier said, “Mr. John Hendrix seems to be trying to bully or maneuver the state into doing what he wants. I believe Mr. John Hendrix is duping naïve state legislators into effectively stealing for him under the guise of ’eminent domain’ legislation.”

Marrullier lists numerous arguments in the letter against the provision:

1. 1. The state CANNOT invoke “eminent domain” UNLESS there is NO OTHER recourse available. This legislation WILL NOT hold up in a court of law! You can be assured the small royalty owners will litigate; thus, wasting state funds.
   2. The state, by buying a royalty, real property, from an owner, at a “distressed/discounted price,” and turning around and GIVING it away is effectively state sanctioned THEFT. Further it is using state funds to benefit ONE entity/individual, one Mr. John Hendrix, owner/CEO, of Hex/Furie.
   3. The state senators, by enacting such a ludicrous law, are rewarding an imprudent operator, of a producing gas field. This is a dereliction of their fiduciary duties to the state and peoples of Alaska.
   4. The proposed legislation is effectively targeted to benefit ONE individual or company, one Mr. John Hendrix, owner/CEO, of Hex/Furie.

Marrullier concludes the letter by calling for an audit of Furie, their removal from the Kitchen Lights Unit, and appointing an independent third party to operate the property.