UK-headquartered oil giant BP has announced it is continuing with the sale of its business in Alaska to US-based producer Hilcorp. Hostile market conditions caused by the Covid-19 pandemic have led the companies to renegotiate the deal.
Both companies have said they are committed to the $5.6bn deal, first announced in August 2019. Subject to approvals, the deal is set to be completed in June 2020.
The modified agreement has changed how Hilcorp will pay for the assets. Originally, it would have paid BP $4bn in the near term, paying the rest through an earnout agreement to share profits. It will now share a greater part of profits from the purchase with BP as well as some of its cash flow. Exact details of the deal were not provided.
The sale will include stakes in four fields, two of which are jointly owned by BP and Hilcorp, with the latter operating them. Interests in three pipelines, most notably the Trans-Alaska Pipeline System, will be sold, as well as 49% of the Alyeska Pipeline Service Company. BP will also sell its 25% stake in an oil spill response company and its exploration arm in the area, BP Exploration (Alaska).
Understanding the background to the sale
BP has had a presence in Alaska since 1959 and has produced more than 13bn barrels from the Prudhoe Bay reserve since 1977.
Around then, BP helped build the Trans-Alaska pipeline, an 800-mile pipeline linking the north and south coasts of Alaska. Construction took three years, passing through some geologically active areas.
BP is going through a $15bn sell-off of assets ending in mid-2021. When it was originally announced, this was a $10bn process, which the company was using to refocus its business.
BP upstream regions COO William Lin said: “We have worked closely with Hilcorp to reconfirm our commitment to completing this deal. The agreed revisions respond to market conditions while retaining the overall consideration. We look forward to progressing swiftly to completion and for Hilcorp to take over the operation of this important business. We are confident that completion of this sale is the right thing for both parties, for the business and for Alaska.”
Executives react to the deal
When it announced the sale, the BP CEO at the time Bob Dudley said: “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 Alaska regional president Janet Weiss said: “Alaska has been a core part of BP for 60 years and saying goodbye will not be easy. Our people have achieved incredible success over the decades developing and maintaining these hugely important assets, but we are confident this sale is in BP’s and the state’s best interests and the business will be best positioned for the future with Hilcorp.”
Further information on the deal will be given tomorrow in the company’s first-quarter results.
Hilcorp’s interest in the assets
Hilcorp owns several smaller fields to the North of BP’s assets. It also operates some of the BP assets in a 50/50 split.
The company was founded in 1989 and is the largest independent, privately-owned oil and gas exploration and production company in the US. It has more than doubled its combined production since 2013, operating solely within the US.