Alaska’s top oil and gas official is worried that Anadarko Petroleum’s takeover of Kerr-McGee and asset sales to help pay for the colossal merger between two industry titans could end up delaying or possibly killing North Slope projects planned by both companies this year.
The good news is that Anadarko and Kerr-McGee have no overlapping properties on the North Slope, and a merger would create “a larger, stronger single company,” Bill Van Dyke, acting director of the Alaska Oil & Gas Division, said in a June 28 interview with Petroleum News.
“But if you look at these kinds of marriages in the past, there always seems to be some period of uncertainty, a wait-and-see period until the dust settles,” he said. “Hopefully they will decide to hang on to all the Alaskan assets and move forward.”
On June 23, Anadarko unveiled a bold plan to acquire Kerr-McGee and another highly successful Lower 48-based E&P independent, Western Gas Resources, in friendly deals collectively valued at $24.3 billion. For Kerr-McGee alone, Anadarko offered $16.4 billion in cash, plus the assumption of debt and other liabilities estimated at $1.6 billion. Anadarko expects both transactions to close during this year’s third quarter ending Sept. 30.
Anadarko’s goal is to pay down about $15 billion of acquisition debt within the next year or so, with proceeds coming partly from cash flow and the issuance of equity, but also from the sale of non-core properties owned by Anadarko, Kerr-McGee and Western Gas. Just days after the merger announcement, Anadarko said it planned to sell all of its Canadian assets and use those proceeds to pay down merger-related debt. (See story on page 9.)
Divestitures unlikely until mergers close in fallHowever, it’s clear that many of the property divestures, including any Alaska assets held by Anadarko and Kerr-McGee, likely would not occur until after the mergers close in late September, just about the time companies begin to ramp up projects on the North Slope.
“Canada was identified early on as an asset with a high valuation, so we announced our intentions. As for what assets of the other two companies (that) might be divested, it is way too early to tell that. Those decisions will not be made until after closing,” Anadarko spokeswoman Teresa Wong told Petroleum News June 29.
Houston, Texas-based Anadarko maintains a huge acreage position in Alaska, holding title to roughly 570,400 acres of state leases, plus federal leases in the National Petroleum Reserve-Alaska, and has exploration rights to Native lands in the gas-prone Brooks Range foothills area. Anadarko also is a minority partner in the ConocoPhillips-operated Alpine field just east of the big Kuparuk River field, also operated by ConocoPhillips, a long-time Anadarko partner on the slope.
After a hiatus on the drilling front, Anadarko this winter had planned to operate one exploration well at the company’s Jacob’s Ladder prospect and one or two exploration wells in the foothills area.
“They drilled one well on their own a couple of years ago, but they haven’t been out there drilling on their own,” Van Dyke noted. “What they’ve said in the past is that they’re trying to put together a multi-well, multi-year exploration program, and it looks they’ve put that together.”
Kerr-McGee appeared close to Nikaitchuq approvalKerr-McGee, a relative newcomer to Alaska with 29,093 state acres under lease, operates the offshore Nikaitchuq unit north of the Kuparuk River field, and appeared close to sanctioning the project for development before Anadarko’s June 23 merger announcement. Kerr-McGee and its partners had planned to conduct appraisal work at Nikaitchuq this winter.
“It’s sort of a pilot program to drill and test, to check on well rates and fluid properties and that sort of thing, one last appraisal effort before they go full scale into a development” Van Dyke said.
With Anadarko back in the exploration game and Kerr-McGee and partners on the verge of approving Nikaitchuq development, Van Dyke is concerned the Anadarko-Kerr-McGee merger and timing of asset sales could slow things down.
“Both companies have plans to do things in Alaska this fall and winter,” Van Dyke said. “Hopefully those plans won’t get put on the shelf while they decide what they are going to do with various assets, asset teams and company philosophy. I think it (merger) certainly has the possibility to work very well in Alaska, but then again it could go the other direction, too. My worry is that there’s certainly a chance we will lose that momentum and that would not be good for Alaska.”