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BP selling interests in four North Slope fields to new Alaska player, Hilcorp

Lisa Demer
BP

BP, one of Alaska's major producers, is selling interests in four small North Slope oil fields to a relatively new Alaska oil producer owned by a Texas billionaire.

Neither BP nor Hilcorp Alaska LLC would disclose the price but an analysis cited in Forbes suggested that Hilcorp could be paying at least $1.5 billion. Hilcorp Energy, the parent company, is owned by Houston billionaire Jeffery Hildebrand. It's one of the biggest privately held, independent oil and gas companies in the country.

BP is not pulling out of Alaska and will continue to operate the Prudhoe Bay oil field, the largest in North America, said spokeswoman Dawn Patience. BP's share of the fields being sold produce just under 20,000 barrels of oil a day, which is less than 15 percent of BP's North Slope production of about 140,000 barrels a day, she said.

Under the deal, which still needs state and federal regulatory approval, Hilcorp will gain an interest in and operate three small oil fields -- Endicott, Northstar and Milne Point -- and will have an interest in a fourth field, Liberty.

Hilcorp has become a major player fast in Alaska oil and gas production. Officials announced in 2011 that it was buying Chevron's oil and gas assets in Cook Inlet. It went on to buy Marathon's facilities and now is the dominant producer of oil and natural gas in and around Cook Inlet, including the gas that heats Anchorage homes.

Bill Barron, director of the oil and gas division in the Department of Natural Resources, said it's common for major oil producers to sell interests in aging fields to smaller, more aggressive players.

The deal should be good for Alaska, he said. Hilcorp invested in Cook Inlet, reversed a 20-year decline in oil production there and committed to fulfilling contracts to fill natural gas needs, Barron said.

"They've been critical players in turning the Inlet around with different ideas and different concepts and an influx of well-needed capital," Barron said.

In Cook Inlet, Hilcorp produces the equivalent of more than 30,000 barrels of oil a day, counting natural gas converted into its oil equivalent, the company said.

Major producers go after the big riches and easier-to-get oil, but Hilcorp attacks the sections that had been bypassed the first or second time around. Hilcorp can do that because of its lower overhead; it doesn't have the significant expenses in exploration, lobbying and corporate offices around the world that oil majors do, Barron said.

Hilcorp spokeswoman Lori Nelson said acquiring an interest in North Slope fields fits with Hilcorp's strategy.

"We have a good track record of increasing production in mature and challenging areas," Nelson said. The company aims to reduce operating costs and extend the life of a field, she said. "Hilcorp is kind of a lean and mean type of operator."

The sale will allow BP to concentrate on extracting oil from Prudhoe Bay, where production has been declining for years, as well as the state's new liquefied natural gas project and pipeline, BP officials said.

BP so far is the No. 1 donor to an effort to kill a ballot referendum set for the August primary election that aims to repeal oil tax cuts passed by the Legislature last year. Hilcorp also has contributed but on a much smaller scale, giving about $21,000 so far compared to more than $3.6 million from BP.

Both oil companies Tuesday said the tax changes are important to new investment aimed at reducing the decline in production.

BP said it still plans to bring two new drilling rigs to the North Slope and spend $1 billion over five years with the support of the other owners, Patience said. Hilcorp plans to make "major investments" too, Nelson said.

Most of the 250 BP employees working at the four fields will be offered jobs at Hilcorp, both companies said.

BP is selling:

• All of its interests in Endicott, located three miles offshore and the first continuously producing offshore field in the Arctic. Endicott averages about 5,000 barrels a day;

• All of its interests in Northstar, with about 6,800 barrels a day and located six miles northwest of Prudhoe Bay;

• Half of its interest in Milne Point, which is producing about 15,800 barrels a day. It's 25 miles west of Prudhoe Bay; and

• Half of its interest in Liberty, located on federal leases six miles offshore in the Beaufort Sea. Liberty, which has been owned 100 percent by BP, is not yet producing and BP plans to submit production plans to federal regulators this year.

The deal should close by the end of the year, the companies said.

Reach Lisa Demer at ldemer@adn.com or 257-4390.

 


By LISA DEMER
ldemer@adn.com
Contact Lisa Demer at LDemer@adn.com or on