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BP confirms sale
Upstream, midstream Alaska assets sale to Hilcorp may close separately
Kristen Nelson Petroleum News
Market and regulatory hiccups have raised questions from some quarters over whether BP’s sale of its Alaska assets to Hilcorp would go through. Since the deal was announced in August, the COVID-19 pandemic has decimated demand on top of existing over supply.
On April 26 BP confirmed that it plans to go ahead with sale of its Alaska assets to Hilcorp and said in a statement that while the total sale consideration remains at the $5.6 billion disclosed when the sale was announced in August, financial terms have been adjusted to reflect the market.
BP said it continues to expect sale completion in mid-2020, following renegotiation of financial terms “to respond to the current environment.”
But the sale may occur in two phases - upstream first and then midstream.
The upstream vs. midstream issue was addressed in an April 26 statement from Janet Weiss, BP Alaska president, who said: “If necessary due to timing of approvals, we will complete part of the deal in June, transferring the upstream business to Hilcorp, while continuing to work with regulators for approval of the sale of the midstream.”
Regulatory issues around the transfer of upstream assets appear to be moving along, but midstream issues are tangled in disputes before the Regulatory Commission of Alaska, including whether Hilcorp’s financial information can be held confidential by RCA, an issue which has now moved into Alaska Superior Court.
Generational change The deal sees an international integrated major, BP, exiting a mature oil province as an independent, Hilcorp, which specializes in producing more oil from declining fields, moves into the state. BP was one of the original developers - along with ARCO (now ConocoPhillips) and ExxonMobil - of Alaska’s North Slope, an effort which took the financial muscle only large corporations could bring.
Hilcorp came to Alaska in 2011 when it bought into Alaska’s first oil province, Cook Inlet, as another major, Chevron, moved out. Chevron had Cook Inlet assets through its acquisition of Union Oil Company of California, which with some remaining assets belonging to Marathon Oil and ConocoPhillips, since acquired by Hilcorp, was the last of the original Cook Inlet developers active in the basin.
$5.6 billion unchanged While the total consideration for the sale, $5.6 billion subject to customary closing adjustments, remains unchanged, BP said, “the structure of the consideration and phasing of payments has been modified.”
“We have worked closely with Hilcorp to reconfirm our commitment to completing this deal,” BP Chief Operating Officer William Lin said in BP’s statement.
“The agreed revisions respond to market conditions while retaining the overall consideration,” Lin said. “We look forward to progressing swiftly to completion and for Hilcorp to take over the operation of this important business.”
BP said the original agreement provided for Hilcorp to pay $4 billion in the near term and $1.6 billion “through an earnout thereafter.” Hilcorp has paid a $500 million deposit.
BP said there have been modifications, with the revised agreement adjusting “the structure and phasing of the remaining consideration to include lower completion 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.”
“The revised agreement is expected to maintain the majority of the value of the transaction,” BP said, but with flexibility “to phase and manage payments to accommodate current and potential future volatility in oil prices.”
The sale was announced in August. Alaska Department of Revenue records show a price for Alaska North Slope crude on the West Coast of $61.81 per barrel on Aug. 1. By April, the price plunge drove ANS to a negative $2.68 (April 20), recovering to $11.55 per barrel by April 23 but dropping to $8.56 per barrel on April 28.
Challenging times “These are incredibly challenging times,” Weiss said. “Our priority remains the health and safety of our workforce, and safe operations at Prudhoe Bay.”
“We will continue to work with regulators to answer their questions and demonstrate that BP remains committed to completing the sale, even in these volatile and difficult market conditions,” she said.
“The future will be tough and I believe the best thing for a more rapid economic recovery for Alaska is the timely completion and approval of this deal, enabling more competitive oil down TAPS.”
Jason Rebrook, president of Hilcorp Energy Co., said Hilcorp is excited about its future in Alaska and looks “forward to continuing to safely develop Alaska’s natural resources. In the weeks ahead, we will continue to work with BP, the State of Alaska, and others to ensure a seamless transition process as we complete this transaction.”
“We are proud of the work we have done in Alaska over the last eight years, and plan on being an important part of the Alaska economy and community for many years to come,” Rebrook said.
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