Alaska Policy Commentary  ·  July 24, 2026

Hilcorp's July 22 Letter Isn't Really About Alaska LNG — It's About a Permanent S-Corp Tax That Stays Whether the Pipeline Gets Built or Not

Read past the tax policy arguments and Hilcorp's seven-page letter reveals the real concern: the Senate created a new income tax specifically targeting Hilcorp and its owner — and if HB 381 passes with that provision, the tax is permanent regardless of whether Alaska LNG ever gets built. Hilcorp isn't protecting the pipeline. It's protecting its balance sheet from a tax that outlasts the project.

By Tom Lamb  ·  Alaska Policy Series  ·  July 24, 2026

Hilcorp Alaska sent a seven-page letter to the Alaska Legislature dated July 22, signed by Senior Vice President Luke Saugier. The stated subject is the pass-through entity tax provision in HB 381 — a new income tax the Senate added that Hilcorp says is targeted specifically at it and its owner. The letter objects to the tax on multiple grounds: it's structurally unworkable, it would reduce Cook Inlet investment, it raises constitutional concerns under Alaska's single-subject rule, and it would harm the economics of the Alaska LNG Project.

But read past those arguments and the real concern becomes clear. The Senate didn't just add a tax on Alaska LNG pipeline revenues. It created a new income tax on S-corporations and pass-through entities — structured specifically to target Hilcorp and its owner, Jeff Hildebrand. And here is the problem Hilcorp's lawyers identified that most observers missed: that tax doesn't go away if Alaska LNG fails.

If HB 381 passes with the S-corp provision intact, Alaska has a new permanent income tax on Hilcorp's Cook Inlet operations, its North Slope investments, and its owner's personal income — regardless of whether the pipeline ever reaches FID, regardless of whether a single molecule of North Slope gas ever flows to Nikiski, regardless of whether the project is abandoned in 2027 or 2035. Hilcorp isn't writing this letter to protect Alaska LNG. It's writing it to protect its balance sheet from a tax that was explicitly designed to target it and will outlast the project that supposedly justified it.

That is the real message. Everything else in the letter is supporting argument.

"The proposed income tax was developed to target Hilcorp and its owner." That tax stays on Alaska's books whether the pipeline is built or not. Hilcorp isn't protecting the project. It's protecting itself from a permanent tax that outlasts it.

What Hilcorp Actually Is — and Isn't

Hilcorp is the operator of both Prudhoe Bay and Point Thomson — the two fields that will supply Alaska LNG's gas. As operator it manages the fields, proposes drilling programs, plans development, and executes capital investments. That is significant authority. But operating a field is not the same as owning the gas in it.

Who Actually Owns Alaska LNG's Gas Supply

Point Thomson — primary gas source: ExxonMobil 62.36% · Hilcorp 36.99% · Others 0.65%

Prudhoe Bay — secondary gas source: ExxonMobil 36.4% · ConocoPhillips 36.08% · Hilcorp 26.36% · Chevron 1.16%

Gas Sale Precedent Agreement status: As of May 18, 2026, all three major producers — Hilcorp, ExxonMobil, and ConocoPhillips — have signed Gas Sale Precedent Agreements with Glenfarne. All three are non-binding. No binding supply contracts have been executed by any party.

Bottom line: ExxonMobil owns the majority of the gas at both fields. ConocoPhillips owns a third of Prudhoe Bay gas. Both have signed non-binding precedent agreements — not binding supply contracts. Hilcorp — as operator — cannot sell what the majority owners haven't executed binding agreements to sell. And a new income tax makes those binding agreements harder to finalize.

The letter acknowledges this indirectly. Saugier writes that Hilcorp holds "minority interests" in the units. He writes that "negotiation of binding long-term pricing agreements" is still ongoing. The Gas Sale Precedent Agreement Hilcorp signed is preliminary and non-binding. The binding commercial agreement — the one Glenfarne needs for FID — has not been executed.

Reading the Subtext — Five Sentences That Reveal the Real Argument

The letter's surface argument is about the tax. Its subtext is about Hilcorp's seat at the table. Five passages reveal what is actually being communicated:

Five Passages — What They Actually Mean

"Every molecule of natural gas expected to supply the project will originate from fields operated by Hilcorp."
Not ownership — indispensability. Without Hilcorp's operational cooperation, there is no gas flowing to the pipeline regardless of who owns the working interests.

"Hilcorp has worked closely with the developer of the Alaska LNG Project."
Past tense. Not "Hilcorp is a committed partner going forward." The framing signals that continued engagement is conditional — not guaranteed.

"Negotiation of binding long-term pricing agreements requires the parties to have a clear understanding of future costs."
Translation: we haven't signed a binding supply agreement. The tax makes it harder to get there. FID cannot happen without binding gas supply agreements. Hilcorp is the upstream negotiating party.

"Exempting only the Alaska LNG Project from the proposed tax does not eliminate the increased costs created by the tax; it merely imposes them elsewhere in the value chain."
This is Hilcorp saying: you cannot exempt Glenfarne and leave us exposed. Our costs flow directly into Glenfarne's gas costs. You cannot solve the midstream tax problem while creating an upstream tax problem.

"The proposed income tax must be understood in its broader context... this bill does not establish a generally applicable tax across that broad universe of businesses. Instead, the provision was developed to target Hilcorp and its owner."
This is not a legal argument. It is a grievance. Hilcorp is telling the Legislature: you have singled us out while making us responsible for delivering the gas the project needs. That is not a sustainable position.

The Tax That Outlasts the Project — Why This Is Hilcorp's Existential Concern

The Senate's pass-through entity tax provision was not drafted as a sunset clause tied to Alaska LNG's commercial operations. It was not drafted to expire if the project fails to reach FID. It was not drafted to disappear if Glenfarne walks away in 2027 or 2035. It is a permanent structural change to Alaska's income tax code — one that Hilcorp's own letter says was "developed to target Hilcorp and its owner."

Consider what that means in practice. If HB 381 passes with the S-corp provision and Alaska LNG fails — through cost overruns, financing collapse, gas supply economics that don't pencil out, or any of the other risks this series has documented — the pipeline never gets built. The property tax break Glenfarne received never generates offsetting revenue because there are no operations. The clawback is invoked. Alaska pays to reclaim its own assets at a price Glenfarne sets.

And Hilcorp still pays the new income tax. Every year. On its Cook Inlet operations. On its North Slope investments. On Jeff Hildebrand's personal income from his Alaska operations. Permanently. Because the Senate attached a targeted income tax to a pipeline bill without building in any mechanism to remove it if the pipeline fails.

What HB 381's S-Corp Tax Actually Does to Hilcorp

If Alaska LNG succeeds: Hilcorp pays a new income tax on its Alaska operations — reducing the after-tax wellhead netback it needs from Glenfarne — increasing Glenfarne's gas costs — pushing project economics closer to the 30% profitability cliff the DOR identified.

If Alaska LNG fails: Hilcorp still pays the new income tax. Permanently. On Cook Inlet. On the North Slope. Because the tax wasn't written to go away when the project does.

If Hilcorp reduces Cook Inlet investment in response: Southcentral Alaska's gas supply tightens before North Slope gas arrives — creating the near-term supply crisis the pipeline was supposed to prevent.

Constitutional risk: If Hilcorp's single-subject challenge succeeds in court, HB 381 may be thrown out entirely — taking both the pipeline tax break and the S-corp provision with it, but after years of legal uncertainty that delayed project financing.

The Legislature created a scenario where Hilcorp loses in every outcome. Pay the tax and reduce Cook Inlet investment. Pay the tax and make North Slope gas supply economics worse. Watch the project fail and pay the tax anyway. Challenge the law in court and create years of uncertainty that makes FID financing impossible.

That is not a legislative strategy designed to advance Alaska LNG. It is a legislative accident — a targeted income tax provision attached to an energy bill without thinking through what happens if the energy project it was supposed to fund never materializes. Hilcorp's letter, read in this light, is not a defense of the pipeline. It is a company protecting itself from a permanent tax that was written without an exit.

The Legislature and Glenfarne built HB 381 around the pipeline and terminal — the midstream and downstream infrastructure. The upstream gas supply was treated as a given. ExxonMobil, ConocoPhillips, and Hilcorp would eventually sign gas supply agreements, gas would flow, and the pipeline would run. HB 381 never addressed upstream economics.

Hilcorp is now saying what this series has been saying since May: the upstream is not a given. The economics run through the gas producer. If you make the operator's costs higher, you make Glenfarne's gas more expensive, which affects offtake pricing, which affects FID financing. You cannot solve the midstream tax problem while creating an upstream tax problem.

Sen. Myers identified this in his June 7 commentary — noting that Glenfarne makes money from tolls, not from the commodity value of the gas. That means the gas price negotiated between Hilcorp and Glenfarne directly determines whether the toll revenue covers debt service. A new tax on Hilcorp increases the gas price it needs to negotiate — which reduces Glenfarne's margin — which makes the project economics tighter — at a moment when the project is already, per the DOR, within 30% of its profitability cliff.

The Constitutional Argument — The Most Dangerous Point in the Letter

Buried near the end of page four is the argument that has received the least attention and may have the most legal consequence. Hilcorp's lawyers are raising Article II, Section 13 of the Alaska Constitution — the single-subject requirement:

"HB 381 combines amendments to Alaska's property tax statutes intended to establish a volumetric tax framework for a future natural gas pipeline project with provisions substantially restructuring the State's income tax laws. Those subjects appear too disparate and insufficiently related to satisfy Alaska's constitutional single-subject requirement."

This is not a policy argument. It is a legal argument that the bill as passed by the Senate may be unconstitutional on its face — regardless of whether it makes economic sense, regardless of whether the Governor signs it, regardless of what the conference committee decides. If Hilcorp's single-subject challenge is correct, HB 381 could be thrown out in Alaska Superior Court within months of enactment.

The letter notes that "members of the Conference Committee" acknowledged the structural problems with the pass-through entity tax "moments before the legislation was passed." A Legislature that passed a constitutionally questionable provision while acknowledging its structural problems in the same breath has created exactly the legal vulnerability Hilcorp is now exploiting.

The Precedent Agreements — and Why They Don't Solve the Problem

On May 18, 2026, Glenfarne announced that all three major North Slope producers — ConocoPhillips, ExxonMobil, and Hilcorp — had signed Gas Sale Precedent Agreements. This was presented as a significant milestone. It is a milestone — but a limited one. All three agreements are non-binding. No binding supply contracts have been executed. FID cannot happen without binding contracts.

Hilcorp owns 37% of Point Thomson and 26% of Prudhoe Bay. It is the operator. It signed a non-binding precedent agreement two months ago. Today it is writing a seven-page letter to the Legislature saying the new income tax makes it "extraordinarily difficult" to finalize the binding supply agreements those precedent agreements were supposed to lead to.

ExxonMobil owns 62% of Point Thomson and 36% of Prudhoe Bay. It signed a non-binding precedent agreement. It has said nothing publicly about HB 381 — no letter to the Legislature, no public statement of support or opposition to the tax structure that supposedly threatens the project it is the majority gas owner of.

ConocoPhillips owns 36% of Prudhoe Bay gas. Same precedent agreement. Same public silence on HB 381.

Hilcorp's letter is a warning from the minority operator who has engaged publicly. The silence from ExxonMobil and ConocoPhillips — the majority owners who have not — is a louder signal than anything in Hilcorp's seven pages. Three non-binding precedent agreements and one alarmed letter do not constitute a committed gas supply for a $44–54 billion pipeline project.

"Three non-binding precedent agreements and one alarmed letter do not constitute a committed gas supply for a $44–54 billion pipeline project. ExxonMobil owns 62% of Point Thomson. It has said nothing about HB 381. That silence is more informative than any statement Glenfarne has made."

The Wellhead Economics — Why the Tax Makes a Bad Situation Worse

Hilcorp's letter is ultimately about money — specifically, about whether producers can earn a sufficient return at the wellhead to justify signing binding long-term gas supply contracts with Glenfarne. The new income tax makes that calculation worse. But the baseline was already razor thin.

Henry Hub natural gas today is $2.94/MMBtu. The 2018 AGDC benchmark estimated producers would need $1–2/MMBtu at the wellhead. That benchmark was established when Henry Hub averaged $3.15/MMBtu. Eight years of inflation have not been applied to it publicly. And the wellhead price is what producers actually receive after deducting the pipeline tariff from whatever Asian buyers pay.

The Wellhead Pricing Cascade — Today's Market

Asian LNG spot price (JKM) today: ~$12–13/MMBtu

Less liquefaction cost at Nikiski: ~$3.00–3.50/MMBtu

Less pipeline tariff (807 miles): ~$3.00–4.00/MMBtu

Less shipping to Asia: ~$1.50–2.00/MMBtu

Wellhead netback to producers at $12–13 JKM: $2.50–4.50/MMBtu — barely above the 2018 benchmark

JKM in 2024 dropped below $8/MMBtu. At $8 JKM: wellhead netback = negative to zero.

Effect of new income tax on Hilcorp: Reduces after-tax netback — meaning Hilcorp needs a higher wellhead price from Glenfarne to achieve the same return. That higher price increases Glenfarne's input costs, pushing it closer to the 30% profitability cliff Sen. Myers identified.

Cook Inlet gas — the gas Hilcorp produces for Southcentral Alaska today — trades at approximately $7–9/MMBtu under long-term contracts. That is three to four times the wellhead netback producers would receive from Alaska LNG at current Asian market prices. Hilcorp invests $400–500 million annually in Cook Inlet because the return justifies it. The question its letter is really asking is whether the North Slope gas supply economics — already marginal at current JKM prices — remain viable after a new income tax reduces the after-tax netback further.

The answer matters because binding gas supply agreements cannot be signed at a price that doesn't work for the producer. And FID cannot happen without binding gas supply agreements. The tax is the trigger — but the underlying wellhead economics are the structural problem no tax break or tax increase fully resolves.

Before the conference committee finalizes HB 381, the Legislature should require answers to three questions that Hilcorp's letter makes unavoidable:

Four Questions the Conference Committee Must Answer

1. What are the commercial pricing terms in the three non-binding Gas Sale Precedent Agreements — and at what wellhead price do producers need to sign binding supply contracts to achieve acceptable returns at current Asian LNG market prices?

2. What is the impact of the new income tax on Hilcorp's required wellhead price — and has the Department of Revenue modeled how that price increase affects Glenfarne's project economics and FID timeline?

3. If Hilcorp's single-subject constitutional challenge is correct, what happens to HB 381 when challenged in Alaska Superior Court — and has the Legislature obtained independent constitutional counsel's opinion?

4. Why have ExxonMobil and ConocoPhillips — who signed Gas Sale Precedent Agreements in May 2026 — said nothing publicly about HB 381, the tax structure that supposedly threatens the project they are the majority gas owners of?

What Hilcorp Doesn't Say — The Pipeline Cost Problem That Dwarfs the Tax

Hilcorp's letter covers seven pages. It does not mention — once — the construction cost of the Alaska LNG pipeline. That omission is not accidental. Construction cost is Glenfarne's problem, not Hilcorp's. But it is directly connected to Hilcorp's wellhead economics — and its absence from the letter is the most important thing the Legislature should notice.

A more expensive pipeline requires a higher toll to service its debt. A higher toll reduces the wellhead netback to producers. A lower wellhead netback makes binding supply agreements harder to justify economically. The S-corp tax and the construction cost problem converge at exactly the same point — the wellhead price producers need to sign binding agreements — and Hilcorp chose to address only one of them.

What Hilcorp's Letter Doesn't Mention — But the Legislature Must

Construction cost overruns — not mentioned: Public Citizen's June 2026 analysis shows average LNG project cost overruns of 59.7%. LNG Canada — the most comparable project — ran 130% over budget. Applied to Glenfarne's $44.5B low-end estimate, the project could cost $71–102 billion. Every dollar of overrun increases the pipeline tariff — reducing Hilcorp's wellhead netback — making binding supply agreements harder to justify regardless of the tax outcome.

Dalton Highway upgrade — not mentioned: Alaska DOT&PF faces $1.5–2.3 billion in road upgrades to support construction traffic — borne by the state, not Glenfarne. Construction delays from an inadequate road increase costs and delay the revenue that would service the pipeline debt — further compressing wellhead returns.

Asian LNG price volatility — not mentioned: JKM fell below $8/MMBtu in 2024. At that price, wellhead netback to producers goes negative even without a new income tax. The S-corp tax is not the largest risk to binding supply agreements. Market price volatility is — and it can't be legislated away.

DOR's 30% profitability cliff — not mentioned: DOR modeling shows more than a 30% construction cost increase makes the project unprofitable. The S-corp tax adds pressure at the margin. A 59.7% average industry cost overrun destroys the economics entirely. Hilcorp chose not to say so — because doing so would require acknowledging the project may not work regardless of how the tax question is resolved.

Removing the S-corp tax makes the project slightly less unviable. It does not make it viable. A Legislature that removes the tax, passes HB 381, and declares the path to FID clear will have solved the smallest of the problems standing between Alaska and a working gasline — while leaving the largest ones untouched.

Hilcorp's letter is a focused legal and economic argument designed to remove a specific tax. It is not a comprehensive assessment of whether Alaska LNG can be built at a price the market will bear. The Legislature should read it as what it is — a well-constructed defense of Hilcorp's financial interests — and not mistake it for a project feasibility endorsement.

The real question this letter raises is not whether the pass-through entity tax is constitutional. It is whether anyone has actually secured the gas supply, the construction financing, and the market economics needed to build a project whose construction costs will likely dwarf the tax dispute that consumed three special sessions. Hilcorp's letter is silent on all of those questions. The Legislature should not be.

Tom Lamb  ·  July 24, 2026  ·  Alaska Policy Series  ·  thomasalamb.blogspot.com

Sources: Hilcorp Alaska LLC letter to Alaska Legislature dated July 22, 2026 (via Alaska Landmine); Petroleum News working interest data; Alaska Beacon; Alaska Landmine; Public Citizen "Billions Over Budget" June 2026; EIA Short-Term Energy Outlook July 2026; Trading Economics Henry Hub July 24 2026; Alaska DOT&PF project records. This post is independent public policy analysis and makes no allegation of legal wrongdoing by any party.