BP to sell Alaskan properties to Hilcorp Energy for $5.6 billion

LONDON: British oil major BP agreed to sell all its Alaskan properties for $5.6 billion to privately held Hilcorp Energy Co, exiting a region where it operated for 60 years.

The deal, which includes interests in the most prolific oil field in US history at Prudhoe Bay, and the 800-mile (1,300-km) Trans Alaska Pipeline, is part of BP’s plan to raise $10 billion over the next two years through asset sales to further strengthen its balance sheet, it said.

For years, BP has been reducing its role in Alaska, where oil production has fallen with declines at the Prudhoe Bay field. BP, which began working in Alaska in 1959, is the operator and holds a 26% stake in Prudhoe, where production began in 1977.

In 2014, BP sold Hilcorp half its share of an Alaskan project. This year, the two were due to decide whether to go ahead with an ambitious $1.5 billion offshore project that requires construction of a man-made island.

The acquisition fits Hilcorp’s historical strategy of acquiring mature fields from major oil companies and slashing costs. The company, founded in 1990 by Texas oilman Jeffery Hildebrand, has operations across the United States.

Hilcorp spokespeople did not reply to requests for comment.

“This deal vaults Hilcorp to be the second-largest Alaska producer and reserves holder, behind only ConocoPhillips,” said Rowena Gunn, a Wood Mackenzie energy analyst. Hilcorp must show it can maintain output at Prudhoe Bay, where BP has been the operator, she said.

Prudhoe has to date produced over 13 billion barrels of oil and is estimated to have the potential to produce more than one billion further barrels. BP’s net oil production from Alaska in 2019 is expected to average almost 74,000 barrels per day.

The deal calls for a $4 billion initial payment to BP with the remaining $1.6 billion in earnout payments over time.

“We are steadily reshaping BP and today we have other opportunities, both in the US and around the world, that are more closely aligned with our long-term strategy and more competitive for our investment,” BP Chief Executive Officer Bob Dudley said.

The Alaska sale pushes BP closer to its goal of selling $10 billion of properties following the 2018 acquisition of BHP’s US shale assets, a $10.5 billion deal that catapulted the London-based company into a major Texas shale producer.

BP previously had said that most of the disposals would come from its shale assets, particularly natural gas fields. The sale would help BP reduce its debt, which rose to 31% of its market capitalization by the end of June.

The sale faces regulatory approvals, including by the state of Alaska.

State Senate Minority Leader Tom Begich said he expects the legislature to hold hearings and review Hilcorp’s environmental and safety record, which included a natural gas pipeline leak in Alaska’s Cook Inlet that lasted for months in the winter of 2016-17.

“I want to make sure they’re not just pumping hard and walking away,” said Begich. “I don’t want to be left with a mess to clean up.”

The divestment comes months after BP agreed to sell its interests in the Gulf of Suez oil concessions in Egypt. It also has sought to sell US shale assets in Colorado, Texas, Oklahoma and Wyoming.

BP said about 1,600 employees are currently part of its Alaskan business, adding that it was “committed to providing clarity about their future as soon as possible as part of the transition process with Hilcorp.”

Meanwhile, oil prices rose on Wednesday, with US crude gaining 1.3% after an industry report showed stockpiles in the United States, the world’s biggest oil user, fell more than expected, easing worries about economic growth due to the China-US trade war.

Brent crude futures climbed 59 cents, or 1.0%, to $60.10 a barrel. West Texas Intermediate (WTI) crude futures gained 70 cents, or 1.3%, to $55.63 a barrel.

US crude stockpiles fell sharply last week as imports dropped, plummeting by 11.1 million barrels, compared with expectations for a 2 million-barrel draw, data from industry group the American Petroleum Institute (API), showed.

The US government’s weekly report is due Wednesday morning and if the official numbers confirm the API data then it will be the biggest weekly decline in nine weeks.

“The mammoth crude inventory draw has, at least for the time being, put to rest those US recessionary doom and gloom fears that have been hanging over oil markets like a dark cloud,” said Stephen Innes, managing partner at Valour Markets.

Still, concerns about global growth amid the raging trade war between the United States and China, the world’s two biggest crude oil consumers, are likely to cap gains.

US President Donald Trump said on Monday that he believed China was sincere about wanting to reach a deal, while Chinese Vice Premier Liu He said China was willing to resolve the dispute through “calm” negotiations.

On Tuesday, however, concerns about trade resurfaced after China’s foreign ministry said it had not heard of any recent telephone call between the United States and China on trade, and that it hopes Washington can stop its wrong actions and create conditions for talks.

Crude oil prices have fallen about 20% from 2019 highs hit in April, partly because of worries that the US-China trade war is hurting the global economy and could dent oil demand.

“Global recession risks are higher than at any stage since the (global financial crisis) and the US is not immune,” Morgan Stanley said.

China’s Commerce Ministry last week said it would impose additional tariffs of 5% or 10% on 5,078 products originating from the United States, including crude oil, agricultural products and small aircraft.

In retaliation, Trump said he was ordering US companies to look at ways to close operations in China and make products in the United States.

Reuters