How experts say BP and Hilcorp’s blockbuster deal in Alaska could help them both

Energy experts said Wednesday that BP’s decision to sell its Alaska assets to Hilcorp Alaska is part of a global trend as major oil companies turn their attention to big, new prospects.

“This is a time when the super majors are re-balancing their portfolios and focusing on their new growth opportunities,” said Dan Yergin, vice chairman at consulting firm IHS Markit and author of “The Prize,” a Pulitzer-winning book on the petroleum industry.

“BP has a lot of new projects, and they’ve made a significant commitment to shale" in the Permian Basin, he said, referring to the shale field in West Texas and New Mexico.

Meantime, Hilcorp can have a “laser focus on Alaska,” where it’s poised to become the second-largest oil producer if regulators approve the transaction.

“This is the classic case of an independent that can manage the resource with an intensity that a larger company cannot have because of all the other things it’s doing around the world," Yergin said.

BP announced Tuesday it was selling its Alaska assets to Hilcorp, a privately held company based in Houston, Texas, for $5.6 billion. The transaction includes BP’s 26% stake in Prudhoe Bay, the most prolific oil field in the U.S. since launching in 1977, and the source of more than half the 500,000 barrels of oil produced on the North Slope.

[BP’s plan to exit Alaska throws another element of uncertainty into a fragile economy]

Michael Noel, an associate professor of economics at Texas Tech University specializing in oil and gas, said it’s not unusual to see a major oil company sell a big field that’s well past its peak years. North Slope production reached its highest point at 2 million barrels daily in 1988.

“Big oil companies are looking for new reservoirs, and when you get to declining wells, they close down and move somewhere else,” he said.

This deal has the potential to work out like football teams that trade players to come out stronger, he said.

Hilcorp is known for boosting production at aging fields, something it’s done in the relatively small Cook Inlet basin near Anchorage in recent years, he said. Meanwhile, BP can focus on its Permian and deepwater prospects in the Gulf of Mexico and elsewhere.

“The biggest effect that Alaskans will feel from this transaction has so much more to do with the price of oil than who owns the assets,” he said. If oil prices rise, so will hiring and drilling activity in the industry, he said.

BP chief executive Bob Dudley said Tuesday that the deal is part of the company’s strategy to sell $10 billion in assets over two years.

" ... We are steadily reshaping BP and today we have other opportunities, both in the U.S. and around the world, that are more closely aligned with our long-term strategy and more competitive for our investment,” said Bob Dudley, BP chief executive.

Kareemah Mohamed, an associate director with IHS Markit and author of a 2018 report that dubbed Alaska a “super basin” poised for resurgent oil production, said Wednesday that BP’s departure is not indicative of the North Slope’s potential.

“The sale is more of a strategic move that better aligns with BP’s overall corporate strategy,” she said.

Hilcorp should be more likely to explore for new oil than BP, she said. Given its track record, Hilcorp will look to revitalize the North Slope’s mature assets, trying to squeeze more oil out of them.

[Hilcorp sale will cost state $30 million annually in lost revenue, former tax officials say]

Two leading Republican lawmakers, Senate President Cathy Giessel and House Minority Leader Lance Pruitt, suggested Tuesday that a citizen initiative to boost oil taxes on the state’s biggest producers — newly launched but long rumored — may have been a factor in the sale.

“Even with this great news, the departure of one of the world’s largest oil and gas companies should cause us all to be concerned that renewed conversations on oil tax changes are causing great anxiety among producers," Pruitt said in a statement Tuesday.

“BP’s exit raises significant concerns and questions, in my mind, about the impact of Alaska’s political instability on BP’s business decision," Giessel said in a statement. She added in a phone call that she was referencing the initiative and dramatic shifts in the state’s long-term vision with each election.

Robin Brena, a member of the initiative committee and an attorney, said BP has been trying to raise money by selling assets ever since its costly Deepwater Horizon oil spill in the Gulf of Mexico in 2010.

BP took a big step in that direction in 2014, selling stakes in four fields to Hilcorp, and continued the effort with the announcement Tuesday, he said.

“Any suggestion the Fair Share Act had anything to do with BP’s decision to monetize its Alaska assets is uninformed,” Brena said, referring to the name of the ballot proposal that could go before voters in 2020 if approved.

Megan Baldino, a BP Alaska spokeswoman, said in an email Wednesday that the “ongoing oil tax debate and oil tax uncertainty influences the way" BP evaluates its Alaska operations compared to its operations elsewhere.

Justin Furnace, a spokesman with Hilcorp Alaska, said the company made its purchase based on the current production-tax law and other factors.

“The economics of this acquisition were based on what is currently in place,” he said. “That includes commodity pricing, rate of production, tax policy and other factors. The current structure and economics make possible continued investment in Alaska.”

ADN reporter James Brooks contributed reporting.