The BP Sale To Hilcorp Looks Like A Win For Everyone
David Blackmon, Forbes, August 28, 2019
In a deal that will no doubt be characterized as surprising by some, but really should come as no surprise to anyone, BP announced on Tuesday that it has agreed to sell all of its remaining Alaskan operations to Houston-based independent producer Hilcorp. The deal, worth $5.6 billion, will result in BP’s exit from the state of Alaska after 60 continuous years of operations there. The deal will make Hilcorp the second-largest producer in Alaska behind ConocoPhillips and includes all of BP’s Prudhoe Bay assets as well as its midstream assets in the state. Attaining the status of a major player in a state is nothing new for Hilcorp, which already ranked as the nation’s largest privately held upstream company and the operator of more wells than any other company in the lower 48 states.
Reactions to the sale:
From the Washington Examiner, Daily on Energy:
BP’S ALASKA EXIT NOT A GOOD SIGN FOR ANWR DRILLING: BP’s exit from producing oil and gas in Alaska should dampen expectations for the level of industry interest in drilling in the Arctic National Wildlife Refuge.
At least that’s the argument some Democrats were making in reaction to BP selling all of its Alaska assets to privately held Hilcorp Energy for $5.6 billion after the British oil giant had operated for 60 years in the state.
“If BP thought it could have squeezed a nickel out of drilling in the Arctic Refuge, it wouldn’t have hesitated to annihilate it,” Senator Ed Markey of Massachusetts tweeted Tuesday. “Their exit is further evidence that there is absolutely no reason to turn the Refuge over to the oil and gas industry. All risk, no reward.”
ANWR lease sale is coming soon: Republicans are closer than ever to achieving their goal of drilling in the long-off limits Arctic National Wildlife Refuge, known as ANWR, after Congress as part of the GOP tax cut bill of 2017 voted to allow energy exploration in a 1.5 million-acre section of the refuge, known as the “1002 area,” where billions of barrels of oil are believed to lie beneath the coastal plain.
However, it has been an open question on how interested energy companies would be in the opportunity, with oil prices hovering at low levels in the mid- $50s per barrel and competition steep from in the nation’s lower 48 shale regions.
“ANWR could be a big find, and big finds imply fat margins, but this is not a time of oil scarcity,” Kevin Book, managing director for research at ClearView Energy, told me. “Companies may not want to tie up capital on 10-year megaprojects if there’s a faster cash turn waiting onshore. Plus, nobody wants to drill the next multi-billion-dollar duster at $55 per barrel.”
The Interior Department is expected any day to release an environmental impact statement assessing the risks of drilling in ANWR, a necessary step before the agency conducts a lease sale, which the Trump administration is planning for this year.
Any actual drilling wouldn’t happen for 10 to 15 years. But Democrats and environmental groups have accused the Trump administration of rushing the environmental review and leasing process before the 2020 election, when a Democrat could win the White House and block the planned sales.
Will industry come? The level of interest won’t be known until the lease sale happens, and it’s unclear if BP would have participated, industry allies are quick to point out.
“Shut up and let the sale happen,” said Robert Dillon, an energy consultant and former senior staffer for Republican Senator Lisa Murkowski of Alaska, who led the push in Congress for opening ANWR to drilling. “If nobody shows up you’ve got your answer.”
BP was part of a group of big oil companies that helped drill an exploratory well in ANWR in the mid-1980s, the only well ever drilled in the refuge.
Alaska oil production trends: BP’s exit from Alaska more broadly shows the trend of declining production in the frontier oil producing state, and how major companies are moving on to chase opportunities in shale.
Oil production in Alaska has fallen from more than 2 million barrels per day in 1988 — more than any other state — to 464 barrels per day in 2018, according to the Department of Energy, an amount less than four shale producing states.
“This will not be the last deal in the region,” Wood Mackenzie analyst Rowena Gunn said in a note to reporters Tuesday. “ExxonMobil may be next to follow BP, Anadarko, Pioneer and Marathon in the list of companies having sold out of Alaska.”
David Hayes, a former deputy secretary of the Clinton administration’s Interior Department, told me BP’s exit is “consistent with two realities” of oil exploration and production in the Alaskan Arctic.
Oil and gas operating costs in the Alaskan Arctic are higher than in other fossil fuel producing areas in the U.S., and many of the current oil fields in Alaska are becoming mature.
Expanding opportunities into long-protected and remote areas like ANWR could be a risky bet given those realities, and the added scrutiny major companies are facing over their contribution to climate change.
“I suspect that both of these factors played into BP’s thinking,” said Hayes, who now the State Energy & Environmental Impact Center at New York University School of Law.
Jumping the gun? Alaska-based industry groups, however, say it would be wrong to interpret BP’s move out of the state as a bad sign for ANWR.
Rebecca Logan, executive director of the Alaska Support Industry Alliance, told me it’s not surprising to see smaller companies like Hilcorp take over the aging oil fields in the state, because they are more willing to invest in drilling for oil that is harder to get.
“It’s shocking to people to have a company that’s been here for 60 years leave,” Logan said. “But it’s a leap to say what this means for ANWR. The lease sale will show us the level of interest. Regardless of sales and acquisitions, companies will make that decision based on other factors.”