It does make me wonder how much development there has been within Valve for anything '3' related. Has a story/plot even been hashed out? Any actual assets? Is anything HL3 related banned internally? Perhaps they even got some development started and worked on it for a few months but then the structure made it too easy to move away if you didn't like the direction/story/art style? Who knows!?
There was development on episode 3, that much is pretty certain, but that's where things seemed to have went **** up. Episodes 1/2/3 Valve initially said were meant to be part 3, then at some point they changed their minds when development of the episodes took longer than expected. Valve said it was meant to be 6-8 months between episodes initially, though that was soon proved wrong.
According to hl3 fandom page this is what happened:
Behind the scenes at Valve, it had become clear over the course of developing the
Half-Life 2 episodes that the team had an issue of scope creep: the episodes were planned to shorten the amount of time between
Half-Life games (given the six-year time span between the first and second game), but
Episode Two's development took much longer than anticipated and the results appeared to be much closer to sequels to
Half-Life 2 than simple episodes. When the team was unable to come up with an episodic conclusion that matched the excitement and technological innovation associated with a
Half-Life game, the obvious solution was to create a much larger next installment for the franchise, one that they could ship with the new Source 2 engine once it was finished.
[2]
Episode Three was quietly cancelled during this time, with the only official announcement coming from
Gabe Newell in a 2011 interview, where he confirmed that Valve had moved on from the episodic model of developing software.
[3]
Following this, a number of projects planned as a potential
Half-Life 3 were developed, some of which were still being worked on as late as 2014.
[4] Although leaks over the years showed that Valve internally referred to many of these as
Half-Life 3, none of the design experiments became a full-length
Half-Life game due to a lack of excitement on the developers' end and the extended development cycle for Source 2. This, coupled with the pressure to create the increasingly anticipated follow-up to
Episode Two ultimately prevented another
Half-Life from seeing the light of day for nearly a decade.
And basically that's where we still are today, waiting on an alleged Source 2 Half Life 3.