Retirement jobs are often meant to be time-fillers, an activity that is mostly enjoyable and provides some walking around money without unnecessary stress.
They’re almost always part-time.
John Hendrix, on the other hand, bought a bankrupt gas company.
But it’s clearly more than a hobby. For him, it’s about what to do to not retire.
“It’s fun,” Hendrix, 64, insisted in an interview. “If you’re an Alaskan and you’ve worked in oil and gas and you have an opportunity and you have one chance to strike, why not go for it? We made sure that we protected ourselves in regards to what we had in the bank — we could cover it, my wife and I — and we decided to go for it.”
In a separate interview, his wife Candace Hendrix largely confirmed the simple enthusiasm that led to them buying Furie Operating Alaska last year.
He learned of the opportunity through some consulting work he was doing for an area utility, according to Candace, who didn’t see much reason to object.
“My daughter and I always felt like this was something John was meant to do,” she said. “I have a lot of faith in John because he is so high-energy and he’s capable of doing so many things at once. I knew it was risky…but we just couldn’t see John retire.”
That mindset led the Hendrixes to bid on and ultimately win — with the help of a since bought-out silent partner — the Cook Inlet gas producer in a December 2019 bankruptcy auction.
Disagreements between the parties involved in the complex bankruptcy stretched it out for nearly 11 months before the sale was complete. John took over as owner and CEO of the formerly Texas-based Furie in July 2020 under their new company Hex LLC.
Furie leaders filed for bankruptcy in August 2019 when the company owed lenders approximately $440 million and while itself owed about $105 million in refundable tax credits from the State of Alaska, according to the bankruptcy petition.
In 2015, Furie installed the Julius R platform over the Kitchen Lights gas field in the central portion of Cook Inlet at a cost of roughly $200 million, according to Hendrix; it was the first new development platform the Inlet built since the 1980s.
However, the company’s financial challenges were significant; Furie absorbed a loss of $58.5 million in 2017 despite netting $25.4 million from gas sales, according to bankruptcy court filings. The situation worsened in 2018 when the company sold $42.8 million of natural gas but took a loss of nearly $152 million.
Furie lost $21.4 million in the first quarter of 2019, when a freeze-up in a gas production pipeline kept the company from supplying Homer Electric Association and Enstar Natural Gas Co. with gas for more than a month.
The hydrate freeze-up is what Hendrix and other industry experts familiar with the situation blame for ultimately pushing the company into bankruptcy. For one, it forced Furie leaders to buy approximately $17 million worth of gas from other Inlet producers to cover their supply contracts with regional utilities, he said.
Getting back to basics
About a month after taking over Furie, Hendrix told the Journal the company, which also sought to explore for oil under prior leadership, needed to get “back to basics” and focus revenue-generating natural gas production.
Just more than a year in, optimizing Furie’s operations is for the most part going well, he said, reciting several instances in which he found what he concluded to be unnecessary or overly costly processes, equipment, or even operational approaches.
He believes Furie’s onshore Nikiski gas processing facility is “way overbuilt” — he estimated it at about $50 million — for what the company was doing and currently does, for one.
As a result, a generator meant to power the gas compressors can’t run full-bore as intended to maximize efficiency and is therefore ostensibly useless under normal operations.
It currently costs about $50,000 per month to power the facility, according to Hendrix.
“It’s cheaper for us, because the equipment is so inefficient — to buy electricity from Homer Electric than to generate it ourselves. So HEA buys our gas, (in periodic spot sales) generates electricity, and sells it back to us cheaper than we can do it,” Hendrix said. “We’re looking at a few things we need to do.”
Furie leaders also recently added a desalinization unit to the Julius R platform so they could supply their own drinking water and cut out the steep delivery costs.
“Every time a boat comes out it costs us between $12,000 and $22,000 one way, “ he said, later joking that he gave his operations crew an inspirational deadline to make sure the desalinizing unit is working. “I told them ‘we’re not delivering any more water after September.’”
A petroleum engineer raised in Homer, Hendrix was general manager of Apache Corp.’s operations in Cook Inlet prior to becoming former Gov. Bill Walker’s oil and gas policy adviser in 2016.
He wears his pride for Alaska on his sleeve and a major part of turning around Furie was overhauling its mostly imported workforce into one predominantly comprised of Alaskans, according to Hendrix.
“We wanted to bring jobs to Alaskans and that’s what we’ve done. We’ve done everything we’ve said we were going to do and we’re proud of it,” he said.
Since informing the small former Furie operations crew last fall that the company would no longer be paying for travel to and from Nikiski, Furie has gone from one Alaskan on payroll to nearly two dozen; one employee agreed to stay on under the new terms.
It was that enthusiasm for Alaska and reinvesting in the Kenai Peninsula that coaxed Hendrix’s first hire, Kevin Smith, who is now Furie’s operations superintendent, out of comfortable retirement in Soldotna.
The two were connected through mutual friends who thought they would work well together.
“The thing that really hooked me was John wanted to make it local hire,” said Smith, who retired from BP when the British major sold its Alaska assets to Hilcorp in a deal that closed last year. “To be honest I really don’t want to work too much longer but I want to help him set this business up.”
After having a pilot project to allow the company to discharge its produced water into the Inlet approved by state regulators, Furie has mostly alleviated the risk of future hydrate freezes aside from one minor event, according to Smith.
“We definitely did our homework on all of that and were prepared so it wouldn’t take us down for a long time,” he explained.
To that end, officials with Enstar Natural Gas Co., which holds Furie’s lone firm supply contract, said the producer has met all of its obligations under Hendrix’s ownership.
Part of bringing Furie’s focus back to Alaska has also been an emphasis on using local, rather than Lower 48, vendors, Smith added.
“We’ve had pretty good luck sourcing things; I’ve actually been mildly surprised,” he said.
Hendrix emphasized the fundamental belief that hiring local in an industry such as oil and gas where employees are often transient can help workers gain a sense of pride in their jobs that translates to better performance, alluding to how the company now sends small but important samples 15 miles from the platform to shore via subsea pipeline instead of air.
“They devised a way of sending water samples in for our produced water just like you use at the bank system. We put it inside a (pipeline) pig and we ship it to shore and get the sample delivered back at the facility. We don’t have to fly helicopters back and forth for samples. It cuts back on our production a little bit for the day but that kind of innovation is great,” he described, adding that the company’s total yearly helicopter charter bill is down from about $550,000 to $250,000 since he took over.
“There’s just a lot of extra costs out there.”
The omnipresent hurdle to improving Furie’s position, according to Hendrix, has been the state, and specifically Alaska’s oil and gas property tax regime.
As he explains it, Furie was purchased for $5 million in cash, with contingencies for former creditors, after first winning the auction with a $15 million bid.
They put up $2.5 million and $5 million from the $7.5 million AIDEA loan that capitalized an account to provide initial operating cash for the company as required by Furie’s creditors, according to Hendrix.
As part of the deal Furie must also pay $15 million to the creditors who currently hold $103 million in unpaid state exploration and development tax credits if the state does not pay them off by July 2025.
“I’ve got to have development enough to pay the $15 million. We have to make sure that in due time — we’ve got that $15 million at a 7 percent note — that we’ve covered that by the year 2025. We have to set aside money for that and for future development but $1.6 million just came out so we’re back to square one,” he said.
An AIDEA spokeswoman confirmed Hex’s loan is current.
Hendrix noted that in addition to meeting its financial obligations, Furie went the last 12 months without a lost time injury or environmental incident as well.
The $1.6 million is Furie’s annual oil and gas property tax bill from the state, according to Hendrix, and he can’t understand how it can be justified based on what the company was bought for last year.
He claims state property tax assessors have valued Furie’s assets at $81.2 million.
“I love this state. I want to support this state. I want to make sure that what we spend goes to the state, but I don’t want to be unfairly and unjustly tapped when we’re a struggling company coming out of bankruptcy,” Hendrix said. “What they had before was a lot of expenses they shouldn’t have had to pay, that’s some of why they went under before we picked them up. How in the hell do you buy something for $5 million and they assess just the tangible part at $81.2 million? It was a fair auction; anyone could come in and bid on it and we won the bid.”
The crux of the issue is the state’s longtime method for valuing often unique oil and gas facilities in the state.
Revenue officials could not speak directly to Furie’s taxes, but offered general information on the Tax Division’s process for assessing oil and gas facilities, which at the highest level relies on replacement cost valuation minus depreciation.
That means the relatively new Julius R platform — built in 2015 — and the onshore facility still carry significant value.
Former Furie officials estimated the value of the company’s assets at between $10 million and $50 million in their initial bankruptcy filings.
“If I grow the company to where it’s worth $81 million I’m willing to pay it,” Hendrix said. “You would not put that platform out there for the resources out there today and that’s our problem with the property taxes. The question back is always, ‘well, what would you pay to do it now?’ and we wouldn’t do it.”
After having an appeal to the little-known State Assessment Appeal Board rejected last spring, Hendrix said he sees no other option but to sue the state over the matter.
“It’s going to cost us a lot of money and it’s going to impact our future on how we spend money, how we employ people but it’s another baseline foundational thing that we have to fix,” Hendrix said of the taxes. “Can you imagine paying 33 percent property tax on something you just bought? How do you make money? How do you employ people?
“They’re treating our gathering line like it’s the Trans-Alaska Pipeline; it’s not, it’s a 10-inch pipeline that’s 15 miles long.”
Despite the tax issue, and his clear frustration with it, Furie’s first solvent year has largely gone well, according to the Hendrixes.
“He feels good about it,” Candace said. “Even when it’s stressful he still feels like it was the right decision; he’s just so happy to be back in Alaska.”
Smith described it with the perspective of a 40-year Peninsula resident.
“A guy from Homer, from East End road just bought a platform out in the Inlet,” he said. “That’s pretty cool.”
Elwood Brehmer can be reached at [email protected]