BP might sell off Prudhoe assets

CASH FLOW: Amount company plans to spin off for debt triples.

July 31, 2010 

Speculation has blazed up again, perhaps with greater intensity than ever, that BP will sell part or all of its ownership stake in Prudhoe Bay and perhaps other North Slope oil fields.

BP stoked the conjecture when it announced July 27 that it will divest assets worth $25 billion to $30 billion over the next 18 months. That's triple the amount the company previously said it would spin off to help meet huge expenses associated with the catastrophic Gulf of Mexico rig explosion and oil spill.

BP said its divestiture target includes the $7 billion deal BP and Apache Corp. announced July 20 for an assortment of assets in western Canada, Egypt and the Permian basin of Texas and New Mexico.

Future sale properties will come "primarily in the upstream business, and selected on the basis that they are worth more to other companies than to BP," the company said.

This process of "portfolio high grading" will leave the company with "a smaller but higher quality" exploration and production business, BP said.

"We have done a review of assets around the world," BP's incoming chief executive Bob Dudley said in the July 27 news conference. He didn't specify, however, exactly where BP is looking to sell.

The company said it was taking a charge of $32.2 billion to reflect the impact of the Gulf disaster, including spill response costs to date of $2.9 billion and $29.3 billion in expected future costs such as damage claims, fines and lawsuits.

The financial impact on BP has been very substantial, "but our businesses around the world are performing well and our cash flow is strong," said BP's chairman, Carl-Henric Svanberg. The London-based company said its capital spending for this year and 2011 will be about $18 billion a year, "in line with previous forecasts."

RAMPANT SPECULATION

A couple of weeks ago, the chatter out of Wall Street and London was that Apache might pay as much as much as $12 billion for BP properties on the North Slope.

That didn't happen, as Apache spent elsewhere.

But now, given BP's much higher divestiture target, the speculation seems hotter than ever that BP surely will sell its Prudhoe stake and perhaps its interest in other fields, including the many Prudhoe satellites, the BP-operated Milne Point field and the Conoco Phillips-operated Kuparuk field. In all, BP has partial or whole interest in 21 North Slope fields and runs 15 of them, according to its annual report filed with the U.S. Securities and Exchange Commission.

Although BP is a minority owner, it runs vast Prudhoe.

State records show that BP holds a 26.36 percent working interest in the Prudhoe Bay unit, Exxon Mobil owns 36.40 percent, Conoco Phillips owns 36.08 percent, and Chevron holds 1.16 percent.

BP said its most recent annual report that its net share of production from Prudhoe Bay was 69,000 barrels per day in 2009.

Overall, BP's Alaska production was 181,000 barrels per day in 2009, with 45,000 barrels coming from Kuparuk, 24,000 from Milne Point and 43,000 from other sources such as the offshore Northstar field.

Aside from its interests in these fields, BP also holds other very important assets in connection with its Alaska operations, including a 46.9 percent stake in the 800-mile trans-Alaska pipeline, and partial ownership of a fleet of new double-hulled oil tankers.

The speculation is that BP will look to sell mature or declining assets such as Prudhoe.

"The most likely buyers," The New York Times wrote July 27 on its DealBook news service, are BP's partners in Prudhoe -- Exxon, Conoco and Chevron.

NOT SO FAST

If past experience is any indication, however, a sale to these partners, particularly Conoco, could present difficult problems.

In 1999, after BP's takeover of Atlantic Richfield Co. was announced, the Federal Trade Commission stepped in with antitrust concerns. Arco at the time held a big stakes in both Prudhoe and Kuparuk, two of the nation's largest oil fields. The FTC opposed the merger on grounds that BP could exert too much control over West Coast gasoline markets.

The solution was to carve out Arco's Alaska assets and deal them to a third player, Phillips Petroleum out of Oklahoma.

But Exxon temporarily threw that plan into disarray when it filed a lawsuit in Arco's hometown of Los Angeles asserting that it had the right of first refusal to buy Arco's North Slope properties but wasn't given the chance.

Eventually, Exxon was satisfied, Phillips ultimately acquired Arco Alaska, and Phillips in 2002 merged with Conoco to become what we known today as Conoco Phillips.

If BP does move to sell some or all of its Prudhoe stake, the transaction probably will be complex, with all the field's heavyweight owners having some say in the matter. And maybe government regulators, too.


The Anchorage Daily News/adn.com contributed to this article.

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