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Vol. 25, No.19 Week of May 17, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

Revisions in BP-Hilcorp deal include upstream closing first

Kristen Nelson

Petroleum News

Damian Bilbao, vice president of commercial ventures for BP in Alaska, told the Alaska House Resources Committee May 8 that BP is committed to closing the sale of its Alaska assets to Hilcorp. “Overall, we are very pleased with progress” on the transaction, he said.

When he addressed the committee in February, he talked about the effect of uncertainty on the industry.

“Boy, did I nail that one,” Bilbao said May 8.

The drop in oil price, the health response to COVID-19 and the ongoing transition, all created uncertainty for employees, he said, and management in both companies wanted to decrease that uncertainty.

There were three primary changes made to the purchase and sale agreement so that it would work better at today’s oil price, Bilbao said. (BP announced changes to the agreement and its commitment to the sale on April 27.)

The $5.6 billion total consideration remains the same, but the structure and phasing of payments was modified in the revised agreement, Bilbao said, with lower completion payments in 2020 and interest bearing vendor financing, a commonly used tool for lending money from seller to buyer.

The changes also created the option of bifurcating the close of the upstream sale from the close of the midstream sale.

Bilbao said bifurcation addressed uncertainty for employees around the closing date, but said June 30 is still the goal.

Closure is subject to regulatory approvals, he said, but if the companies don’t have midstream approval they would go ahead with the upstream closing and continue to work on the midstream.

The third change is in staffing, with up to 50 BP employees scheduled for early retirement June 30 to remain, as BP employees, and continue to support Prudhoe operations for 90 days. Bilbao said BP was working to notify those employees by May 15.

RCA submittals

BP and Hilcorp submitted additional information to the Regulatory Commission of Alaska, which is working the midstream assets transfer, on May 4, almost 9,700 additional pages in response to RCA’s March request, Bilbao said, with the response as comprehensive and complete as the companies could make it.

Most of the RCA’s questions focused specifically on sensitive information and as a result, so did the responses, he said. Addressing the need for confidentiality he said 75% of the confidential information falls into three categories: risk assessments; DR&R, dismantlement, removal and restoration; and minutes of TAPS owners and Alyeska Pipeline Service Co. meetings.

The first two categories are protected as confidential because they are critical energy infrastructure information with the potential for misuse by someone in preparation for a terrorist attack. Insurance information comprises 17% and contains competitively sensitive information. Of the remainder, 80% are confidential documents - operating agreements, PSA terms - already found confidential by RCA, Bilbao said.

The data is available to commissioners and staff, he said, but is not shared publicly.

The Department of Natural Resources also received this information since both RCA and DNR are entrusted with decisions on asset transfer and have full access to the full response, Bilbao said.

Interest bearing vendor financing

Bilbao said interest bearing vendor financing is a commonly used tool in merger and acquisition transactions and said is a fancy way of saying the seller loans to the buyer and the buyer repays as it would any loan.

He said he couldn’t speak on behalf of Alaska regulators, but one of the reasons industry sometimes uses vendor financing is because it reduces uncertainty on financing - it’s clear where the loan is coming from. He said it is BP’s understanding that the restructuring of the PSA does address some of the regulators’ concerns.

Submittals to RCA

The May 4 submittals to RCA included a public version of the companies’ responses and a petition for confidential treatment of filings which the companies identified as confidential.

The companies said they “have provided narrative and documentary responses to many of the requests … without asserting confidentiality and thereby making the responses and documents public.”

They cited state and federal statutes backing their request that other documentation and narrative responses be held confidential.

Among the arguments for confidentiality the companies cited federal statutes protecting critical energy infrastructure information.

Minutes of the TAPS owners’ meetings “address certain areas that have traditionally been considered confidential, such as attorney-client privileged communications.”

As for Hilcorp financial data, the companies argue, as they have before, that Hilcorp has made a choice to be privately held, shielding them from “public shareholder and market analyst pressures that many of their public peers in Alaska are facing, which is causing them to either exit the State of Alaska or reduce their activity.”

Making the company’s financial data public “would essentially saddle the Hilcorp Entities with the disadvantages of being a publicly-held company without conveying any of the advantages.”


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