BP sale of Alaska assets to Hilcorp has impacts well beyond Prudhoe Bay

Hilcorp Energy’s pending $5.6 billion acquisition of BP’s Alaska assets has implications well beyond what happens to the oil remaining in the Prudhoe Bay field.

That’s because the London-based oil major’s reach in the state isn’t limited to operations at the legendary oil field, which BP holds a 26 percent stake in. ConocoPhillips and ExxonMobil each hold a 36 percent share of Prudhoe Bay and Chevron has the remaining 1.1 percent interest.

BP also holds a one-third share of the $4 billion Point Thomson gas field on the North Slope, which is operated by ExxonMobil and is a linchpin to the proposed roughly $40 billion Alaska LNG Project.

A spokeswoman for ConocoPhillips Alaska said company officials heard the same rumors leading up to the deal that everyone else in the industry did, but they have not seen the details of the transaction and could not comment on it.

Additionally, BP is one of two companies — Chevron is the other — that knows the results of the only oil well drilled in the Arctic National Wildlife Refuge coastal plain.

After 60 years in Alaska, BP had also become one of the largest charitable givers in the state. It contributed more than $4 million last year to education causes and nonprofits in Alaska. Houston-based Hilcorp donated $315,000 to charitable causes in the state last year, according to the companies.

[How experts say BP and Hilcorp’s blockbuster deal in Alaska could help them both]

BP has long been a primary proponent of the Alaska LNG Project; the company was part of the consortium that started work on the plan to export North Slope natural gas in 2013 through a partnership with the state.

Then, when the companies decided in February 2016 to step away from Alaska LNG amid collapsed oil and global LNG prices and let the state continue the work, BP was the first producer to formally reengage the project when it agreed to provide technical assistance to the state-owned Alaska Gasline Development Corp. starting in December of that year.

That assistance preceded BP becoming the first company to sign a binding gas sales precedent agreement with AGDC in May 2018. The terms of the confidential agreement, which is still in effect, according to AGDC, include gas price and volume figures.

ExxonMobil later signed a similar confidential deal with AGDC last September.

Finally, in late May BP committed up to $10 million to help AGDC fund the remainder of the Alaska LNG Project environmental impact statement being analyzed by the Federal Energy Regulatory Commission.

ExxonMobil also put up $10 million to finish the Alaska LNG EIS. Scheduled for completion in mid-2020, a favorable decision from FERC on the EIS is seen by most industry experts as a major step towards de-risking the project and one that could help attract investors.

Under Gov. Michael J. Dunleavy AGDC leaders have said they plan to finish the FERC EIS process and pitch the project to private sector investors and operators they hope would take it over.

It all appears to counter the decision to sell the company’s share of North Slope gas — estimated to be about one-fourth of the roughly 35 trillion cubic feet of available gas resources — which BP Alaska leaders regularly touted as the largest undeveloped gas resource in its broad global portfolio and one they hoped to monetize.

It’s worth noting that the BP-Hilcorp transaction is subject to several state and federal approvals and isn’t expected to close until sometime next year.

Economist Ed King, who worked on Alaska LNG in its early stages under former Gov. Sean Parnell’s administration, said in an interview that BP’s willingness to exit the state and sell the gas resources as part of that suggests the company didn’t have faith that Alaska LNG would be built anytime soon.

“We’ve all known for a long time that it’s an economically challenging project,” King said.

In the midst of the transition to state leadership of Alaska LNG in mid-2016, the international energy consulting firm Wood Mackenzie forecast that an oil company-led project would not meet the return thresholds typically required by oil companies to make it economically attractive. However, the tax exempt status a state-sponsored LNG project would enjoy along with other factors could make it viable, Wood Mackenzie representatives said to legislators at the time.

[Hilcorp sale will cost state $30 million annually in lost revenue, former tax officials say]

BP Alaska spokeswoman Meg Baldino wrote via email that the company plans to honor the $10 million commitment. She also noted that BP would still have the opportunity to participate in Alaska LNG if it’s built, potentially as a purchaser of the project’s LNG.

As for Hilcorp, AGDC spokesman Tim Fitzpatrick said the company had not engaged in recent discussions about the gasline project with the agency. AGDC officials speaking on background said Hilcorp had a positive view of the project in its early stages several years ago but also said Hilcorp had not discussed the project with them of late.

Spokespersons for Hilcorp did not respond to multiple questions and requests for comment for this story.

While Hilcorp’s official view of North Slope gas sales is unclear, the company should also be getting a leg up in the quest for the untapped oil many believe is below the Arctic National Wildlife Refuge coastal plain.

According to BP’s Baldino, Hilcorp will get all of BP Alaska’s lease holdings within the boundaries of ANWR and the associated data, which includes the results of the KIC-1 well — the only oil well drilled in the refuge — in 1986.

The longstanding leases jointly held by Chevron and BP are over much of the 92,000 acres of ANWR in-holdings that are owned by Kaktovik Iñupiat Corp., or KIC, that surround the Native village of Kaktovik on the northern edge of the 19 million-acre refuge. Arctic Slope Regional Corp. owns the subsurface rights to the acreage.

The companies teamed up to drill the well about 15 miles from the village and have managed to keep the well data, and whether or not it hit oil, under wraps.

Interior and Bureau of Land Management officials in Alaska have consistently said they intend to hold a lease sale for the roughly 1.5 million-acre coastal plain this year after the environmental impact statement evaluating oil and gas development in the area is complete. Congress also mandated a second lease sale in the 2017 tax overhaul legislation that carried the ANWR rider.

When it comes to oil, King said he will be watching how many of the roughly 1,600 BP Alaska employees Hilcorp retains to operate Prudhoe Bay and the company’s nearby fields and prospects, which it also purchased from BP in 2014.

Hilcorp is known for boosting production or at least holding it steady in mature oil and gas fields, which is partly why the company’s acquisition of BP’s Prudhoe assets was not a surprise to many industry observers.

However, King noted doing so profitably usually means a smaller workforce. He surmised that the number of personnel in the field likely won’t change much and Hilcorp’s smaller corporate structure is also a way the company keeps downward pressure on overhead.

“I’m really curious if they’re taking a look at some of the projects that have been on the shelf,” King said of Hilcorp’s plans for the Prudhoe field, adding that some marginally economic infield oil projects have been dismissed while BP has been the operator.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.