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Vol. 24, No.35 Week of September 01, 2019
Providing coverage of Alaska and northern Canada's oil and gas industry

BP exits Alaska

Sells all interests, including Prudhoe, TAPS and ANWR, to Hilcorp for $5.6B

Kay Cashman

Petroleum News

After more than 60 years in Alaska, BP is withdrawing from the state, having agreed to sell all its assets and operations for $5.6 billion to Hilcorp Alaska, an affiliate of Houston-based Hilcorp Energy, the largest private oil and gas producer in the U.S. The deal includes BP’s interest in and operatorship of the giant Prudhoe Bay oil field, the major said in an Aug. 27 press release.

Hilcorp built its success by buying old, conventional oil assets in the U.S. and more recently in Alaska, and then using its expertise to optimize field performance, as well as find and develop additional reserves in and near those fields.

“Hilcorp has a long and successful history of efficiently investing capital …. to increase production,” Jeffrey D. Hildebrand, chairman and chief executive officer of Hilcorp Energy, said recently.

In early August, Alaska economist Ed King reported encouraging fiscal year 2019 output numbers from Hilcorp’s three producing North Slope oil fields, his data taken from the Alaska Oil and Gas Conservation Commission.

At the Milne Point unit, which went online in 1985, King said Hilcorp had been doing a “tremendous job squeezing additional life out of this mature asset since purchasing it from BP” in 2014.

All told, 8.3 million barrels were produced from Milne Point in FY19 - a million barrels more than in FY18.

At the Duck Island unit, which holds the Endicott field and went online in 1987, he said Hilcorp was able to “maintain a fairly flat production rate over the last two years.” (Previously Hilcorp had boosted output.)

“At only 7,000 barrels per day, it’s unclear how long this field will continue to produce. …. Holding it flat is about as good as we can hope for,” King said.

After starting regular production in 2001, the Northstar field is already nearing the end of its economic life, currently producing about 10,000 bpd for Hilcorp, he said.

“However, Hilcorp has a talent for getting oil out of fields that others are ready to give up on,” King noted. “In fact, the Northstar unit saw an increase of 317,587 barrels of oil (a 9% increase) over FY18.”

Among other things, Hilcorp’s tool chest to increase output from mature fields includes more drilling, reworking wells, reinjecting natural gas and injecting polymer and water into reservoirs.

The company also invests in upgrading old infrastructure to ensure that its pipelines and wells can continue to perform effectively for a long time into the future.

In addition, Hilcorp has a very robust integrity and management program for all its facilities and pipelines, often going beyond what is required from regulators.

Kara Moriarty, president of the Alaska Oil and Gas Association, said BP is one of Alaska’s legacy oil producers and will be missed.

“But Hilcorp has proved its ability to turn around mature Alaska fields by bringing new innovation and ideas into a basin,” she said.

“Hilcorp first arrived in Alaska in 2012. Since that time, it has invested more than $4 billion in Alaska and become the state’s largest producer of natural gas,” she said, while also increasing Cook Inlet oil production from 10,000 bpd in 2012 to 16,000 bpd in 2019.

AOGA’s Aug. 27 press release noted Hilcorp is “currently pursuing several exciting new projects, including Liberty, which is situated in the shallow waters of the Beaufort Sea.”

The big independent is also advancing exploration in the Cook Inlet basin, specifically in the southern Kenai Peninsula, the untapped federal waters of lower Cook Inlet and the Iniskin Peninsula.

Assets included in deal

The sale to Hilcorp encompasses BP’s entire upstream and midstream business in the state, including BP Exploration (Alaska) Inc.

Under the terms of the agreement, Hilcorp will pay BP a total consideration of $5.6 billion, comprising $4.0 billion payable near-term and $1.6 billion through an earnout thereafter.

Subject to state and federal regulatory approval, the transaction is expected to be completed in 2020.

BP’s net oil production from Alaska in 2019 is expected to average almost 74,000 bpd, as compared to second quarter when its net output from the entire U.S. averaged more than 921,000 barrels of oil equivalent per day.

BP operates Prudhoe Bay and holds non-operating interests in the producing Milne Point and Point Thomson fields. It also holds non-operating interests in the Liberty prospect and exploration lease interests in the 1002 area of the Arctic National Wildlife Refuge. (The 1002 area is a strip of coastline that was set aside for potential development by Congress because of its hydrocarbon-rich geology.)

In addition to shares in the Trans Alaska Pipeline System, BP is divesting its midstream interests in the Milne Point Pipeline and the Point Thomson Pipeline.

Hilcorp has been operating in Alaska’s Cook Inlet basin since 2012 and since 2014 on the North Slope when it purchased interests from BP in four operated oil fields. Three of those fields are currently producing more than 75,000 boe a day gross production.

Upstream oil and gas interests included in the sale are:

* Prudhoe Bay, 26% (operator BP).

* Milne Point, 50% (operator Hilcorp).

* Point Thomson, 32% (operator ExxonMobil).

* Liberty prospect, 50% (operator Hilcorp).

* Non-operating interests in exploration leases in ANWR.

Operator Chevron with BP as a 50% partner drilled the KIC exploration well on their ANWR leases in the mid-1980s and have held the results confidential. Arctic Slope Regional Corp. owns the subsurface mineral rights and village corporation Kaktovik Inupiat Corp., owns the surface, hence the well name KIC.

Midstream pipeline interests included in the transaction are:

* TAPS 49%;

* Alyeska Pipeline Service Co., 49%;

* Point Thomson Export Pipeline, 32%;

* Milne Point Pipeline, 50%.

Also included in BP and Hilcorp’s deal is a 25% interest in the Prince William Sound Oil Spill Response Corp.

Weiss: ‘exciting new chapter’

In BP’s announcement Janet Weiss, regional president, BP Alaska, said her farewell to her 1,600 employees and praised them and Hilcorp.

“Today’s announcement marks the start of an exciting new chapter for Prudhoe Bay. Alaska has been a core part of BP for 60 years and saying goodbye will not be easy. Our people have achieved incredible success over the decades developing and maintaining these hugely important assets, but we are confident this sale is in BP’s and the state’s best interests and the business will be best positioned for the future with Hilcorp. We will do all we can to ensure they are able to quickly build on the strong foundation that we and others have built here.”

Dudley: Alaska less competitive

The sale to Hilcorp is a significant part of BP’s plan to divest $10 billion of assets in 2019 and 2020.

Bob Dudley, BP group chief executive, was quoted in the company’s Aug. 27 press release as saying, “we are steadily reshaping BP and today we have other opportunities, both in the U.S. and around the world, that are more closely aligned with our long-term strategy and more competitive for our investment. … Our exit from Alaska does not in any way diminish BP’s commitment to America. We remain very bullish on the U.S. energy sector. In just the last three years we have invested more than $20 billion in the U.S. and we will continue to look at further investment opportunities here.”

Between 2005 and 2018 BP invested over $115 billion in the U.S., more than any other energy investor. Those investments included the onshore Lower 48 and the deepwater Gulf of Mexico, where the company’s focus has been, and Alaska.

The London-based company continues to develop its business in the deepwater Gulf, bringing on a series of new projects from its major producing assets, such as the new $9 billion Argos platform in the Mad Dog field. expected on stream in 2021.

Concern about Alaska’s competitiveness

Among others, state Senate President Cathy Giessel, R-Anchorage, said she is worried that Alaska’s fiscal difficulties and disputes over oil and gas taxation, which will continue into the next legislative session in 2020, might have encouraged BP’s departure from the state.

“I am excited to see Hilcorp expand its investment in Alaska. At the same time, BP’s exit raises significant concerns and questions, in my mind, about the impact of Alaska’s political instability on BP’s business decision. BP has been a legacy investor in Alaska, shaping communities and job opportunities for a couple generations,” Giessel said in a press release.

House Minority Leader Lance Pruitt, R-Anchorage, released a statement after the sale announcement from the Republican minority, saying the “departure of one of the world’s largest oil and gas companies should cause us all to be concerned that renewed conversations on oil tax changes are causing great anxiety among producers. Tens of thousands of jobs are at stake. We must remain focused on cutting expenses and not trying to tax our way to prosperity as a state.”

Another concern raised pertained to BP ‘s commitment to the Alaska Gasline Development Corp. and ExxonMobil regarding the memorandum of understanding signed earlier this year, including payment of up to $10 million, dealing with a potential LNG export project for North Slope gas.

On Aug. 28, BP spokesperson Megan Baldino told Petroleum News in an email that, “the FERC process continues, and BP is honoring its commitment to AGDC and XOM pursuant to the MOU signed in 2019, including payment of up to $10 million.”

Fond farewells to BP

A number of public officials thanked BP for its 60-plus year commitment to Alaska, including Gov. Mike Dunleavy, who said: “We welcome Hilcorp to their next phase in Alaska operations and thank BP for their decades long commitment in bringing Alaska’s mineral wealth to market.

In his press release House Minority Leader Pruitt said, “We .... want to thank BP for decades of investment in our state, our people and our economy.”

U.S. Senator Lisa Murkowski, R-Alaska, issued the following statement: “We thank BP for its long-standing partnership on resource production in our state and for the many significant and lasting philanthropic contributions it has made in our communities.”

Congressman Don Young, R-Alaska, said: “For over 60 years, BP has been an important part of Alaskan communities and a significant contributor to our state’s economy. I would like to thank them for their decades of service. Alaskans are committed to responsible energy development, and BP has been a steadfast partner in this important cause. It is difficult to see a great company leave, not only because of our strong shared history in Alaska, but more critically because so many of our family members and friends have built great careers with this company.”

Mistake on discovery well

In BP’s announcement of the sale to Hilcorp, it said, “BP began working in Alaska in 1959, drilling the confirmation well for the Prudhoe Bay oil field in 1968.”

That is a common mistake that has already brought three irate former ARCO Alaska employees to Petroleum News with clarifications.

In fact, the Sag River No. 1 confirmation well was drilled by ARCO and Exxon.

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