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BP Signs $5.6B Agreement to Exit Alaska After 60 Long Years

Zacks Equity Research

BP plc BP announced that it has signed an accord with Hilcorp Energy Co. to divest all its assets in Alaska. The transaction has been valued at $5.6 billion. With the deal's closure by 2020, awaiting approvals from the state and federal bodies, BP will exit Alaskan operations after 60 long years.

Deal Motives

Precisely, the assets to be divested entails BP’s entire upstream and midstream operations in Alaska. This includes the British energy giant’s stake in the Prudhoe Bay — the largest oil field in North America — and the Trans-Alaska Pipeline System — spreading over 800 miles and transporting oil to the Port of Valdez.

Investors should know that in the short term, BP will be getting $4 billion of the total transaction value. The company will receive the additional $1.6 billion once the buyer attains certain financial goals from this asset.

Previously, Alaska was competing with some OPEC members, when the U.S. state pumped crude volumes at a rate of two million barrels every day. However, Alaska has lost its appeal and is presently the sixth largest oil-producing state in the United States.

Overall, the U.S. shale plays that have been gaining prominence following the surge in oil production, backed by fracking, has snatched the limelight from Alaska, where the fields are depleting. Eventually, BP has redirected its focus to more profitable projects across the world.  Investors should know that the latest agreement to divest Alaska operations is part of the company’s $10-billion asset divestment program in 2019 and 2020.

With the sale of BP’s Alaskan business, other major companies reportedly may also follow suit. Notably, among the leading energy players that still operate in Alaska is Exxon Mobil Corporation XOM.

Zacks Rank & Key Picks

BP currently carries a Zacks Rank #3 (Hold). Meanwhile, better-ranked players in the energy space include World Fuel Services Corporation INT and Delek Logistics Partners, L.P. DKL. Both stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

World Fuel beat the Zacks Consensus Estimate the prior four quarters, the average positive earnings surprise being 16.4%.

Delek Logistics is likely to see earnings growth of 4.9% through 2019.

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