Hilcorp’s $5.6B Alaska deal draws extra scrutiny from regulators after oil price crash

State regulators want more details about Hilcorp Alaska’s “access to capital” as it seeks to buy BP Alaska’s assets after the historic plunge in oil prices.

The Regulatory Commission of Alaska on Thursday issued an 18-page order asking, among other questions, if recently altered market conditions have “impaired" Hilcorp’s ability to borrow money to finance the $5.6 billion deal.

“Explain whether recent changes in the financial markets have impacted (Hilcorp Alaska and related companies’) access to the capital necessary to fund this transaction,” the state commission asked.

As part of the blockbuster deal, the commission is weighing the proposed sale of BP’s stake in the 800-mile trans-Alaska pipeline and related pipelines. The agency expects to make a final decision by Sept. 28.

The new order asks for additional details from Hilcorp and BP across a host of areas, including planned upgrades to pipelines, financial protections for “unplanned incidents" and other needs, as well as assurances surrounding funding for the trans-Alaska pipeline’s future dismantlement.

The price of oil over the last month plummeted to levels not seen in nearly two decades. Alaska North Slope crude bottomed out at $21.80 a barrel on Wednesday, amid a price war between Saudi Arabia and Russia, as well as the historic collapse in demand amid the economic shutdown caused by the coronavirus.

North Slope prices briefly topped $70 a barrel at the start of the year. The plunge has hit oil companies hard, causing cutbacks in Alaska’s oil patch in recent weeks.

[ConocoPhillips, Oil Search cutting Alaska spending by $270M]

Major credit rating agencies Moody’s Investors Service and Standard & Poor’s have previously questioned whether Hilcorp will take on too much debt to finance the deal. The agencies have put Hilcorp on notice for a potential credit rating downgrade. The company’s current rating is a good one, they have said.

Luke Miller, a Hilcorp Alaska spokesman, did not immediately respond to a request for comment on Monday.

BP said in a market update on Wednesday that the timing for payments, under its plan to take in $10 billion before 2021, may be “revised” during volatile market conditions.

“This includes the sale of our Alaskan business to Hilcorp which we continue to expect will complete during 2020, subject to regulatory approvals,” BP said. “We will provide further information on this transaction going forward, as appropriate.”

BP and Hilcorp have previously said they hope to complete the transaction by June of this year.

[Hilcorp’s $5.6B Alaska deal draws close look by credit rating agencies]

In its order, the commission asks how much “financial reserves” Hilcorp has set aside to fund Alaska operations. The agency raises the question in a section about Hilcorp’s “financial fitness.”

“Have the recent turmoil in capital markets affected (Hilcorp Alaska and related companies’) anticipated ability to secure adequate financial reserves to fund Alaskan operations?” the commission asks.

“If (Hilcorp Alaska and related companies) are not impacted by capital markets, is it because (they) independently have the capital necessary to fund obligations related to its Alaskan operations?” the commission asks.

[Hundreds of BP Alaska employees begin to move on, with a mix of feelings from ‘bittersweet’ to ‘ecstatic’]

The Prince William Sound Regional Citizens’ Advisory Council sent a letter to the commission last week addressing the need for updated information from the companies amid the market turbulence. The Alaska Public Interest Research Group also raised those concerns in a letter on Friday.

The agency wants a response from the oil companies by May 4.