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BP Exits Alaska After 60 Years in Sale to Hilcorp

Kevin Crowley
BP Exits Alaska After 60 Years in Sale to Hilcorp

(Bloomberg) -- BP Plc agreed to sell its entire business in Alaska to closely held Hilcorp Energy Co. for $5.6 billion, ending a six-decade presence in the state as oil production there declines.

The deal includes BP’s operating stake in Prudhoe Bay, the largest-producing oil field in U.S. history, as well as all its Alaskan pipelines. It makes Hilcorp, the oil company founded by Texas billionaire Jeffery Hildebrand, the second-largest producer in the state behind ConocoPhillips.

It’s the latest example of a supermajor retiring from the frontier oil discoveries of the late 20th century that cushioned them from OPEC’s ascendancy and forced them to learn to drill in some of the harshest and most forbidding corners of the globe.

Alaska, like Canada’s oil sands and the North Sea, is receding into a second-tier oil province as field depletion, cost-cutting and the rise of shale diminish the appeal of those resources.

The state’s oil output has slumped from its heyday in the late 1980s as discoveries dried up and major producers sought easier-to-produce crude elsewhere, most recently from shale rock in Texas. Hilcorp, along with ConocoPhillips, is one of the few big oil companies still interested in investing fresh capital in the state, which is home to protected ecosystems.

BP’s announcement on Tuesday surprised the market, with the divestment “proving that no asset is sacred even if it is 60 years old and synonymous” with the company, said Oswald Clint, an analyst at Sanford C. Bernstein Ltd. “We see the transaction as a positive catalyst, which should help the shares recover lost ground this year.”

BP has declined more than 10% in the past four months amid weakening oil prices. The stock rose as much as 1.8% in London on Wednesday, and traded up 1.7% at 496.35 pence as of 9:29 a.m. local time.

The disposal includes BP’s stake in the Trans-Alaska Pipeline System, which has been running below capacity for years as oil production in the state has declined.

Wood Mackenzie Ltd. values the BP assets at a “slight premium” to the $5.6 billion purchase price, almost a third of which will be paid subject to production over time. But for BP the sale is strategic, as it shifts more toward shale basins and natural gas. It also accounts for the majority of its two-year, $10 billion divestment plan.

“The Alaska transaction puts BP in a good position to reach its divestiture target,” Jason Gammel, an analyst at Jefferies LLC, said in a note. “The transaction is expected to close in 2020 and the upfront cash would reduce BP’s gearing by 2 percentage points.”

Hilcorp’s Reach

In the past five years, Hilcorp has bought more than $6 billion of oil and gas assets, and produced about 108,000 barrels of oil equivalent a day of liquids, according to its website. The company in 2017 acquired assets in the San Juan Basin of New Mexico for $3 billion, and has holdings in Wyoming and Alaska.

Prudhoe Bay has produced about 13 billion barrels over its life and has a further 1 billion barrels of potential, BP said.

“Our production estimates for Alaska upstream are declining by about 5% to 7% per annum,” Biraj Borkhataria, an analyst at RBC Europe Ltd., said in a note. “This deal highlights that it remains a buyers’ market for upstream assets, and big price tags require selling high-quality assets such as this one.”

Exxon Mobil Corp. may be next to sell Alaskan assets, according to Wood Mackenzie. The oil major wants to raise $15 billion from sales globally by the end of 2021. In the past few years Anadarko Petroleum Corp., Pioneer Natural Resources Co. and Marathon Oil Corp. have sold out of the state, according to Wood Mackenzie.

Alaska’s annual production peaked at 2 million barrels a day in 1988, the year before the Exxon Valdez oil spill. Last year, it averaged 479,000 barrels a day.

The U.S. Interior Department is preparing to sell drilling rights in the Arctic National Wildlife Refuge later this year. The refuge’s coastal plain, known as the 1002 area, is thought to contain billions of barrels of oil, but tapping it was off-limits for decades until 2017, when Congress ordered the government to sell drilling rights there under the premise it would raise money to offset tax cuts.

BP was one of the original partners in building the 800-mile (1,300-kilometer) Trans-Alaska Pipeline System in 1977, designed to bring oil from the North Slope to the port of Valdez on Alaska’s southern coast. It was one of the largest privately funded construction projects in history. BP holds a 49% stake in the pipeline, with ConocoPhillips, Exxon and Unocal Pipeline Co. holding the remainder.

(Corrects company name in 14th paragraph.)

--With assistance from Rachel Adams-Heard, Jennifer A. Dlouhy, Tina Davis and Joe Carroll.

To contact the reporter on this story: Kevin Crowley in Houston at kcrowley1@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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