Abu Dhabi, UAEThursday 14 November 2019

BP quits Alaska in Dh20bn Hilcorp deal

Sale of UK energy major's Alaskan properties part of BP's plan to raise $10bn over two years

BP workers at an oil transit pipeline at the Prudhoe Bay oilfield in Alaska. The firm is selling all of its assets in the state. AP
BP workers at an oil transit pipeline at the Prudhoe Bay oilfield in Alaska. The firm is selling all of its assets in the state. AP

British oil major BP agreed to sell all its Alaskan properties for $5.6 billion (Dh20.56bn) to privately held Hilcorp Energy, exiting a region where it operated for 60 years.

The deal, which includes interests in the most prolific oilfield in US history at Prudhoe Bay, and the 1,300 kilometre Trans Alaska Pipeline, is part of BP's plan to raise $10bn over the next two years through asset sales to further strengthen its balance sheet, it said.

For years, BP has been reducing its role in Alaska, where oil production has fallen with declines at the Prudhoe Bay field, according to Reuters. BP, which began working in Alaska in 1959, is the operator and holds a 26 per cent stake in Prudhoe, where production began in 1977.

In 2014, BP sold Hilcorp half its share of an Alaskan project. This year, the two were due to decide whether to go ahead with an ambitious $1.5bn offshore project that requires construction of a man-made island.

The acquisition fits Hilcorp's historical strategy of acquiring mature fields from major oil companies and slashing costs. The company, founded in 1990 by Texas oilman Jeffery Hildebrand, has operations across the United States.

Hilcorp spokespeople did not reply to requests for comment.

"This deal vaults Hilcorp to be the second-largest Alaska producer and reserves holder, behind only ConocoPhillips," said Rowena Gunn, a Wood Mackenzie energy analyst. Hilcorp must show it can maintain output at Prudhoe Bay, where BP has been the operator, she said.

Prudhoe has to date produced over 13 billion barrels of oil and is estimated to have the potential to produce more than 1 billion further barrels. BP's net oil production from Alaska in 2019 is expected to average almost 74,000 barrels per day.

The deal calls for a $4bn initial payment to BP with the remaining $1.6bn in earnout payments over time.

"We are steadily reshaping BP and today we have other opportunities, both in the US and around the world, that are more closely aligned with our long-term strategy and more competitive for our investment," BP chief executive Bob Dudley said.

The Alaska sale pushes BP closer to its goal of selling $10bn of properties following the 2018 acquisition of BHP's US shale assets, a $10.5bn deal that catapulted the London-based company into a major Texas shale producer.

BP previously had said that most of the disposals would come from its shale assets, particularly natural gas fields. The sale would help BP reduce its debt, which rose to 31 per cent of its market capitalisation by the end of June.

The sale faces regulatory approvals, including by the state of Alaska.

State senate minority leader Tom Begich said he expects the legislature to hold hearings and review Hilcorp's environmental and safety record, which included a natural gas pipeline leak in Alaska's Cook Inlet that lasted for months in the winter of 2016-17.

"I want to make sure they're not just pumping hard and walking away," said Mr Begich. "I don't want to be left with a mess to clean up."

The divestment comes months after BP agreed to sell its interests in the Gulf of Suez oil concessions in Egypt to Dubai-based Dragon Oil for an undisclosed sum. It also has sought to sell US shale assets in Colorado, Texas, Oklahoma and Wyoming.

BP said about 1,600 employees are currently part of its Alaskan business, adding that it was "committed to providing clarity about their future as soon as possible as part of the transition process with Hilcorp".

Exxon Mobil may be next to sell Alaskan assets, according to Wood Mackenzie. The oil major wants to raise $15bn from sales globally by the end of 2021. In the past few years Anadarko Petroleum, Pioneer Natural Resources and Marathon Petroleum have sold out of the state, according to Bloomberg.

Updated: August 29, 2019 05:16 AM

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