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Vol. 25, No.26 Week of June 28, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

DNR to complete its BP-Hilcorp upstream review prior to June 30

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Kristen Nelson

Petroleum News

Alaska Department of Natural Resources Commissioner Corri Feige told a June 19 meeting of the Governor’s Oversight Committee on BP-Hilcorp Transaction that the department expects an affirmative completion of its review and due diligence the week of June 22, allowing for a June 30 close on the upstream portion of the transaction.

The Regulatory Commission of Alaska is working on the midstream portion and has set a Sept. 28 target for its decision.

As announced by the companies last August, Hilcorp is in the process of acquiring BP’s Alaska assets.

Feige said the most pivotal action over the last couple of months related to changes in the purchase and sale agreement.

BP and Hilcorp notified DNR in early April that they were adjusting terms of the transaction to reflect the global economic shutdown and oil price collapse related to the COVID-19 pandemic. The Division of Oil and Gas had a teleconference with Hilcorp April 28 on the changes and received the amended PSA May 6.

In announcing the changes, BP said the $5.6 billion sale price remains unchanged, while “the structure of the consideration and phasing of payments has been modified.” (See story in May 3 issue of Petroleum News.) BP said changes adjust “the structure and phasing” of remaining payments (Hilcorp has made a $500 million deposit), with lower payments in 2020, “new cash flow sharing arrangements over the near-term, interest-bearing vendor financing and potentially, an increase in the proportion of the consideration subject to earnout arrangements.” BP said the revisions maintain the majority of the value of the transaction.

Leases, permits

DNR has continued to work with a third-party outside consultant, National Economic Research Associates, for financial stress testing. NERA looked at the new terms and had a chance to fold those terms into their final report.

The Division of Oil and Gas, DOG, has undertaken an independent analysis of Hilcorp’s financial model and has completed stress testing based on the amended terms. The focus of the DOG analysis is debt structure and possible impacts to future capital investments. Feige said that under the new terms Hilcorp is somewhat incentivized to invest in North Slope assets. That, she said, gave DNR a certain amount of confidence from the public perspective.

On May 20 DOG received applications for change of control of all oil and gas leases and working interest ownership for assets associated with the transaction. Feige said some 176 leases were involved.

DOG’s Leasing Section has completed its review of the applications and has paperwork ready to proceed once the transaction is approved.

On June 4, DOG received an application for transfer of BP Exploration (Alaska)’s 50% working interest in the Milne Point leases to Hilcorp Alaska LLC, effective July 1. Hilcorp already holds the other 50% interest and is the Milne Point unit operator.

Feige said DOG’s Permitting Section is working to compile a list of all assets associated with the Prudhoe Bay field - pipes, pumps, etc. - all of which need to be catalogued and tied to the associated permit. BP worked closely with DNR and provided a GIS-based inventory of facilities and pipelines associated with the upstream assets at the Prudhoe Bay unit, an inventory which was confirmed against DNR’s permit and facilities inventory list. BP and Hilcorp are now sharing those lists, she said.

Feige also said BP and Hilcorp will be overlapping experienced personnel at Prudhoe for 90 days to ensure a seamless and safe transitions of operations at Prudhoe.

Separate names

BP’s Prudhoe assets will transfer to Hilcorp as Hilcorp North Slope LLC, with other assets carrying the existing Hilcorp Alaska LLC name.

Feige said that upon closing of the transaction, Hilcorp North Slope and Hilcorp Alaska will each carry a $500,000 statewide bond.

DNR and Hilcorp have agreed to amend Hilcorp’s existing financial assurances agreement to include the BPXA assets and increase the financial assurances for dismantlement, removal and restoration, contingent on transaction approval.

DNR has compiled and confirmed a list of transaction-related permits required by DOG and the Division of Mining, Land and Water.

Commissioner Julie Anderson of the Department of Commerce, Community and Economic Development provided an update on behalf of the Alaska Oil and Gas Conservation Commission. She said a $7.65 million bond for Hilcorp North Slope LLC, replacing BXPA’s bond, has already been received.

After July 1, Hilcorp North Slope will provide AOGCC with proof of operator name change, signatories, contact information, etc., to update the commission’s records. And after July 1, Milne Point becomes 100% Hilcorp Alaska LLC (it is currently 50/50 Hilcorp Alaska/BPXA).

DNR actions underway include finalizing agreement to have BP Corporation North America hold the secondary liability for BPXA’s upstream contaminated sites and dismantlement, removal and restoration obligations as they exist at the time of transfer.

DEC requirements

Department of Environmental Conservation approvals are required for changes to oil spill contingency plans and proof of financial responsibility to respond to a spill; for water discharge permits; for air permits; and for solid waste management permits and proof of financial responsibility for monitoring requirements.

DEC Commissioner Jason Brune said there are no anticipated issues on Hilcorp’s oil spill contingency plan and proof of financial responsibility. He said Hilcorp proposes to incorporate new facilities into their existing North Slope plan, with June 30 targeted for plan approval. An initial 45-day public comment closed March 23; a subsequent 10-day comment period closed June 19. He said DEC staff are targeting June 30 for a decision.

A request to cover acquired facilities under associated proof of financial responsibility was submitted June 16 and is under review, Brune said.

- KRISTEN NELSON



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