BP announced Tuesday that the company will be selling all of its Alaska businesses to Hilcorp for $5.6 billion.

The sale includes BP Exploration, Inc. which owns BP's upstream oil and gas interests, as well as BP Pipelines, Inc.'s stake in the Trans-Alaska Pipeline System.

Bob Dudley, BP's group chief executive, says the company is reshaping and has opportunities outside of Alaska and in other countries. He says those ventures are more aligned with the company's long-term strategy.

"This transaction also underpins our two-year $10 billion divestment program, further strengthening our balance sheet and enabling us to pursue new advantaged opportunities for BP’s portfolio within our disciplined financial framework," Dudley said in a statement.

The deal

Under the agreement, BP says Hilcorp's payment is made up of $4 billion paid in the near-term and $1.6 billion later. 

"Subject to state and federal regulatory approval, the transaction is expected to be completed in 2020," a press release from BP read. "The deal forms a significant part of BP’s plan to divest $10 billion of assets over 2019 and 2020."

BP came to Alaska in 1959 and began drilling operations in Prudhoe Bay in 1968. In the mid-1970s, the company helped build the Trans-Alaska Pipeline and began producing oil in 1977. 

The interests included in the deal between BP and Hilcorp are:

Upstream oil and gas interests:

  • Prudhoe Bay, 26% (operator BP)
  • Milne Point, 50% (operator Hilcorp)
  • Point Thomson, 32% (operator ExxonMobil)
  • Liberty project, 50% (operator Hilcorp)
  • Non-operating interests in exploration leases in ANWR

Midstream pipeline interests:

  • Trans Alaska Pipeline System, 49%
  • Alyeska Pipeline Service Company, 49%
  • Point Thomson Export Pipeline, 32%
  • Milne Point Pipeline, 50%

Other:

Prince William Sound Oil Spill Response Corporation, 25%

Exit brings uncertainty

Kara Moriarty, president and CEO of the Alaska Oil and Gas Association, called the news of the deal "historic and bittersweet."

“We do not know the full details or implications of this news today, so we are very mindful of the uncertainty this is likely to cause in the short term for many Alaskan employees and contractors," Moriarty said. "I have confidence in both companies and their decision-making as we go through this transition.”

Congressman Don Young says the company's presence in Alaska was important to the growth of the state economy. 

"It is difficult to see a great company leave, not only because of our strong shared history in Alaska but more critically because so many of our family members and friends have built great careers with this company," Young said.

BP has about 1,600 employees in Alaska. According to a press release, 90% of Hilcorp employees are Alaskan.

 

Lawmakers look to the future

Gov. Mike Dunleavy said BP’s departure is significant news for the state and energy production in the North Slope and the pipeline.

“While we are only just reading of this announcement, we look forward to learning more and seeing operational details,” the governor said in a statement.

Sen. Lisa Murkowski echoed Gov. Dunleavy’s comments, adding her support for Hilcorp to invest in Alaska.

“Hilcorp has a strong record of hiring Alaskans and I hope they will continue and strengthen our record of responsible production on the North Slope,” she said.

Senate President Cathy Giessel, R-Anchorage, says BP's decision to leave Alaska raises concerns about whether it was due to the state's political instability. 

"BP has been a ‘legacy’ investor in Alaska, shaping communities and job opportunities for a couple generations," Giessel said in a statement. “If our state is to realize its full economic potential, we must have the patience and long-term vision to be a reliable partner with the private sector. Alaska’s families, businesses and jobs depend on it.”

While BP's Alaska assets will be owned by Hilcorp, the company will remain on the Alaska LNG Project as a contributor. Rep. Geran Tarr, D-Anchorage, says the future of the natural gas project is unknown but she's glad the company is staying on.

"BP’s participation is an important part of why the project has advanced to this stage," Tarr said.

BP came to Alaska in 1959 and began drilling operations in Prudhoe Bay in 1968. In the mid-1970s, the company helped build the Trans-Alaska Pipeline and began producing oil in 1977. 

The BP acquisition is Hilcorp's fourth since the company began operations in the state in 2012. They previously purchased BP's operations in the Alaska North Slope oilfields in 2014. 

Shedding assets

BP’s exit from Alaska can be traced to a 2014 asset sale to Hilcorp, which BP followed up last year with an asset swap with ConocoPhillips.

In 2014, BP sold to Hilcorp all of BP’s interest in the Endicott and Northstar oilfields, plus 50% interest in Liberty and Milne Point fields.

At the time, BP said it gave the company a chance to “focus on maximizing production from Pru

 

dhoe Bay and advancing the Alaska LNG opportunity.”

Last year, BP sold its share — about 39% — of the Greater Kuparuk Area, which ConocoPhillips currently operates.

The two companies simultaneously announced a deal for BP to purchase a ConocoPhillips subsidiary in the North Sea, off the Scotland coast.

Iconic BP buildings

Even as most of the attention is focused on what lies ahead for the North Slope, questions have emerged about BP's headquarters.

It’s a structure that’s almost an iconic fixture in Midtown Anchorage with its signature logo.

Anchorage real estate broker Brandon Spoerhase estimates that office vacancies sit at about 13%. He said that will increase once BP leaves and added that filling the void will take time.

“Anytime you've got a large player whether it's a retail or office, that occupies a large amount of square footage, it's usually not back-filled by another large tenant. It's usually back-filled by a combination of smaller junior tenants and we're seeing that both in the office market and other facets of commercial real estate,” he said.

Spoerhase said BP’s pending departure differs from when Shell left several years ago, because no other company stepped up to replace Shell and its pursuit of offshore oil in the Arctic.

However, the BP Energy Center was not a part of the sale agreement, according to BP Alaska spokesperson Megan Baldino. The details are still being finalized but the company plans to leave the building for the community.

"We are deeply proud of our 60-year history in Alaska and our employees live here, work here and give back here," Baldino wrote in an email. "We are still determining the path forward on charitable giving but will honor our 2019 community investment commitments."

BP is a major donor to many nonprofit organizations in Alaska, in addition to running its BP Alaska Teachers of Excellence program, which has recognized more than 750 Alaska educators since the program launched in 1995.

Who is Hilcorp?

Hilcorp has operations on the North Slope and Cook Inlet.

Unlike BP, it's a privately held company that specializes in purchasing mature fields and extending their resource extraction potential.

“Energy is a cornerstone of the Alaskan economy and this investment will help drive growth in local energy production, jobs and state and local revenue for many years to come,” said Jason Rebrook, president of Hilcorp Energy Company who will lead Hilcorp’s transition team for this transaction. “Hilcorp has a proven track record of bringing new life to mature basins, including Alaska’s Cook Inlet and the North Slope, and we have a clear understanding that an experienced local workforce is critical to success.” 

According to the company website, Hilcorp:

  • Has more than 530,000 gross acres under development or in production; 
  • More than 500 operating wells;
  • More than 400 employees, of which 88 percent are Alaska residents;
  • Nearly $490 million invested in Alaska last year and more than $150 million paid in state taxes and royalties. 

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