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CH2M Hill cancels plan to sell Alaska operations as oil prices tumble

  • Author: Dermot Cole
    | Opinion
  • Updated: September 28, 2016
  • Published January 14, 2015

In the midst of a steep decline in world oil prices, CH2M Hill has scrapped plans to look for a buyer of its oil-field services operation in Alaska and on Sakhalin Island in Russia, the company said Wednesday.

"The preliminary offers that CH2M Hill has received do not adequately reflect the company's assessment of the inherent value of the business. Therefore, in the long-term best interests of our employees, clients, and stockholders CH2M Hill has decided to discontinue the divestiture process," said Patrick O'Keefe, United States managing director for the company.

The company said it received "positive feedback regarding the business from many well-regarded players in the oil and gas sector, which validates the high caliber of this business, management team and talented workforce."

"CH2M Hill will continue investing in the business to enable us to continue serving our clients safely and with distinction, as part of the CH2M Hill family," the company said in a handout.

In a letter sent to some company employees Wednesday, Terry Bailey, a senior vice president and regional manager, said the company has gained a "more thorough understanding that capital investments are needed to make certain improvements in the North Slope camp and for other needs."

"The firm will restart efforts to secure the necessary capital to enable us to continue serving our clients safely and with distinction," the letter said, and added the process "has confirmed the great value that Alaska and Sakhalin bring to the firm."

The Colorado-based company had announced in November it "intends to explore strategic alternatives for the portion of its oil, gas and chemicals business" in Alaska and on Sakhalin Island in Russia.

Since then, oil prices have dropped by $30 a barrel, from $78 to $48. The company said at the time it would maintain some operations and "continue to serve a broad range of clients" in Alaska. The company has 2,900 employees in Alaska and has more than $300 million invested in facilities, equipment and infrastructure, its says on its website.

CH2M Hill had been looking for a buyer for the oil-related businesses it bought from Veco, the company headed by Bill Allen, who was at the center of the political corruption scandal.

CH2M Hill bought Veco in 2007, the same year Allen and a vice president, Richard Smith, pleaded guilty to bribing public officials and other crimes.

Matt Berman, an economist at the UAA Institute of Social and Economic Research, offered an outside look at what may have motivated the reversal.

"CH2M Hill never said they had sold their Alaska oil service business, only that they were thinking about selling it," Berman said in an email. "So this latest announcement means either that CH2M Hill didn't find anyone who thought the business was worth as much as they think it is worth, or that now is just a really bad time to sell oil service businesses in general. If it is the latter, then we'll see it back up for sale as soon as the pace of drilling picks up again and drilling firms have some cash."

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