Oil Patch Insider: BP annual financial report shows changes for Alaska subsidiary

It was a wacky year for the accountants at BP Exploration (Alaska) Inc.

The Alaska subsidiary of British giant BP plc reported an increase in revenue despite steadily declining oil production and rapidly declining oil prices. But even though revenue went up, profits fell, thanks in large part to a change in accounting practices.

Of the five North Slope operator-producers, only BP Exploration (Alaska) and ConocoPhillips Alaska Inc. offer specific figures for Alaska earnings. While ConocoPhillips reports these figures quarterly, BP only provides them annually.

The annual 20-F filing - the U.S. Securities and Exchange Commission form for foreign companies operating in the United States - is a useful tool for measuring North Slope activities. This year, though, the balance sheet reflects anomalies as well as trends.

BP Exploration (Alaska) reported $6.2 billion in total revenues for 2014, which was up more than 15 percent from the $5.4 billion in revenues the company reported for 2013.

In November 2014, BP Exploration (Alaska) closed on the sale of two and two halves North Slope units to Hilcorp Alaska LLC. Through the $1.25 billion deal, Hilcorp acquired BP’s interest in the Duck Island unit (and Endicott field) and the Northstar unit as well as a 50 percent stake in the Milne Point unit and the undeveloped Liberty prospect. (The deal includes a $250 million carryover if the two companies develop the Liberty field.)

Even through revenues were up, profits fell, thanks in large part to a change in accounting practices. BP Exploration (Alaska) previously made certain purchases through an affiliate company, but now makes those purchases directly. So while the company earned $840 million in profits in 2013, it only earned $458 million in profits in 2014.

Putting those anomalies aside, a more basic and well-known trend emerges.

BP Exploration (Alaska) produced 127,000 barrels per day of oil in 2014, down more than 7 percent from 137,000 bpd in 2013. Even with the decline, Alaska remains the third most-productive subsidiary in the BP portfolio after the deepwater Gulf of Mexico and Angola. The company produced more oil in Alaska than it did in Europe, South America and Australia, combined. That said, Alaska - along with the U.K. and Australia - is one of only three subsidiaries where production is steadily declining.

BP Exploration (Alaska) also produced 11 million cubic feet of natural gas per day in 2014, down from 21 mmcf per day in 2013. The gas production is a byproduct of oil production. The company maintains considerably natural gas operations in the Lower 48, Trinidad & Tobago and relatively smaller operations across Asia, Africa and Australia.

The steady increase in oil prices over the past decade - with the exception of the crash in late 2008 and early 2009 - often offset or even eliminated the effect of declining production for North Slope oil producers. Those higher prices persisted through the first eight months of 2014, before beginning a rapid decline sure to color 2015 balance sheets.

Falling oil prices lowered profits but also lowered Alaska production taxes, which have a progressive feature tied to commodity prices. BP Exploration (Alaska) paid $833 million in taxes in 2014, down from $1.5 billion in 2013, according to the taxation related line items on the 20-F balance sheet. Those figures only include a portion of the total government take, which includes royalties and other payments. All told, BP Exploration (Alaska) paid some $2.25 billion in obligations last year, according to the company.

- Eric Lidji