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Vol. 19, No. 17 Week of April 27, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

Hilcorp on Slope

Acquiring BP’s interests in Milne Point, Endicott, Northstar, Liberty

Kristen Nelson

Petroleum News

Hilcorp, which began buying Alaska producing properties in Cook Inlet in 2011, is now establishing a presence on the North Slope as a working interest owner and operator.

In a major North Slope sale, announced April 22, BP has agreed to sell interests in some smaller fields to Hilcorp Alaska LLC. The deal includes all of BP’s interests in the Endicott and Northstar oil fields and a 50 percent interest in Liberty and Milne Point. BP’s interests in oil and gas pipelines associated with those fields are also included.

Hilcorp will become the operator at Endicott, Milne Point and Northstar. BP said it expects to submit a development plan for the offshore Liberty field, which is in federal waters, by the end of the year.

BP said it would focus on Prudhoe Bay, which it operates, and on an Alaska liquefied natural gas project. BP’s other interests on the North Slope, including interests in the Kuparuk River field and Point Thomson, are not affected.

Hilcorp, which began operations in Cook Inlet in January 2012 when its 2011 purchase of Chevron’s Cook Inlet assets closed, and which acquired Marathon’s Cook Inlet assets in 2012, is one of the largest privately held U.S. oil and gas companies. Its focus is on increasing production from mature fields, fields which major oil companies developed but are no longer a fit for the developer.

BP’s focus

“This agreement will help build a more competitive and sustainable business for BP in Alaska,” BP Upstream Chief Executive Lamar McKay said in a statement. “It will allow us to play to two of our great strengths, managing giant fields and gas value chains. We will now concentrate on continuing development and production from the giant Prudhoe Bay field and working to advance the future opportunity of Alaska LNG.”

“There are some big benefits from this transaction,” Janet Weiss, president of BP’s Alaska region, said in a statement. “BP will be able to focus on maximizing production from Prudhoe Bay and advancing the Alaska LNG opportunity. Hilcorp takes ownership of two mature oil fields ready for new investment and activity and it will operate a third field that is primed for accelerated production. And, the state gets another accomplished operator working the North Slope. Thanks to tax reform, Alaska is now on course for increased investment and production and even the possibility of LNG.”

Expansion for Hilcorp

Hilcorp noted that this will be the company’s third major acquisition in Alaska since 2012, when the company’s purchase of Chevron’s Cook Inlet interests closed and it also acquired Marathon’s Cook Inlet assets.

“We are excited about this acquisition. Our ability to bring new life to mature basins is a great fit for these assets,” John Barnes, senior vice president of exploration and production for Hilcorp, said in a statement.

Hilcorp emphasized its commitment to safe and responsible resource development and said it is looking forward to bringing new energy to the North Slope while remaining committed to its Cook Inlet operations. The company said it would make the necessary investments to support energy needs in Alaska.

State reaction

Alaska Gov. Sean Parnell said in an April 22 statement that the “announcement means another entrepreneurial company will be working to accelerate production and find additional reserves on the North Slope.”

“Hilcorp has a proven record of improving production in Cook Inlet, and their new North Slope commitment shows the More Alaska Production Act created the right environment to attract new companies and competition to the North Slope.”

Noting passage April 20 by the Legislature of enabling legislation for state participation in an Alaska LNG project the governor said the announcement “builds on BP’s previous commitments of billions of dollars in new oil investment at Prudhoe and Alaska’s legacy fields, and reflects a focus on advancing the Alaska LNG Project, and unlocking gas from Prudhoe and Pt. Thomson.”

Alaska Department of Natural Resources Commissioner Joe Balash told Petroleum News that what they’ve seen Hilcorp do in Cook Inlet “is outstanding and the indications we’ve gotten about what they intend to do with these North Slope assets suggests they will bring the same vigor and commitment of capital.”

Balash said it is “the kind of transition you see in mature basins, going from majors to large independents,” and said “we take great comfort in that large independent being Hilcorp, a company already in Alaska that we have some familiarity with.”

He said it’s also encouraging that BP will be focused on the Alaska LNG opportunity and said the state needs BP’s full focus on Prudhoe Bay to accelerate black oil recovery so the gas can be produced from that field.

Employees affected

BP said some 250 employees are associated with the assets included in the agreement and the majority of the BP employees at or supporting Milne Point, Endicott and Northstar are expected to be offered positions with Hilcorp with no break in employment.

Hilcorp said its immediate focus would be on the affected employees.

“Maintaining a local workforce with experience working these fields is critical to our success on the Slope,” Barnes said. Hilcorp said it would have a designated transition team to manage the workforce changeover.

Tax structure impact

BP said it remains committed to its plans for increased Prudhoe Bay investment resulting from passage of Senate Bill 21, the state’s 2013 tax reform. Those plans include two new drilling rigs, one scheduled for 2015 and one for 2016, for $1 billion in incremental investment over five years, with activities expected to account for 200 Alaska jobs and 30 to 40 additional wells being drilled each year.

Hilcorp also cited recent tax changes affecting North Slope operators, calling them an encouraging sign for the long-term viability of its operations as well as the overall oil and gas industry in Alaska.

The assets

Milne Point, some 25 miles west of Prudhoe Bay, was discovered in 1969 and began production in 1985. BP became the operator at Milne Point in 1994 and currently has 100 percent ownership in the field; Hilcorp is acquiring 50 percent of Milne.

Northstar is some six miles northwest of Prudhoe Bay offshore in state and federal waters. Production started from the field in 2001; current ownership is BP 98.6 percent, Murphy 1.4 percent.

Liberty is on federal leases some six miles offshore in the Beaufort Sea east of Prudhoe Bay. BP drilled the Liberty discovery well in 1997 and currently owns 100 percent of the field.

Endicott is some three miles offshore and started production in 1987 as the first continuously producing offshore field in the Arctic. Current ownership is BP 68 percent, ExxonMobil 21 percent and Chevron 11 percent.

BP said the assets included in the sale represent some 19,700 barrels of oil equivalent a day of net production for BP, less than 15 percent of the company’s net North Slope production.

In 2013, BP said, net BP production from Milne Point was about 15,800 boe per day (BP is retaining 50 percent ownership at Milne Point); its average net production from Northstar was some 6,800 boe per day and average net BP production from Endicott was about 5,000 boe per day.

Production from Hilcorp-operated fields in Cook Inlet averaged 12,235 barrels per day in February, the most recent month for which Cook Inlet production data is available from the Alaska Oil and Gas Conservation Commission.

Subject to state and federal regulatory approvals, the deal is expected to close at the end of the year; financial details were not disclosed.



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