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Yesterday, Nerd Leaks tweeted this:
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Quick recap on Prey 2's rocky history. Human Head stopped working on Prey 2 in November 2011 shortly before the game reached alpha after Bethesda tried to buy the studio through milestone abuse. Human Head, hoping Bethesda would honor their original arrangement, attempted to negotiate with Bethesda. Things were moving forward until March 2012, when talks stalled. Zenimax released a warning to Human Head to return to work through a Dutch news outlet that Prey 2 was going to be cancelled next week. That all stopped on April 9th, 2012 after Human Head announced plans to make Rune II.
On April 19th, Bethesda released an extremely passive-aggressive update, before giving the project to Obsidian who worked on it for a few months. Unfortunately, since they didn't have the source code, or rights to use any of the internal tech Human Head owned (mega-textures, global-based lighting, etc), it was doomed from the start. It was cancelled and quietly removed from Bethesda's upcoming titles on their site in August 2012.
In May 2013, Kotaku and a Prey fan site revealed that Arkane Austin (who were unhappy with the situation and leaked the news) had been ordered to reboot Prey 2. This was later confirmed in leaked emails shortly after the news broke. The Austin team, which was previously a satellite studio, licensed the Cryengine in mid-2013 and staffed up in early 2014. Bethesda's Pete Hines continued to lie about the project being cancelled for years before casually mentioning to someone from CNET at Aussie PAX 2014 that Human Head's game was over.