Washington — BP's decision to sell off the entirety of its Alaska operations may signal that an ongoing policy push by the Trump administration may not be enough to jumpstart sluggish oil and natural gas production in the state, lobbyists and analysts told S&P Global Platts this week.
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The administration is planning to auction drilling rights for the coastal plain of the Arctic National Wildlife Refuge later this year, considering an expansion of drilling in the National Petroleum Reserve-Alaska and still plans to eventually offer leases in the Chukchi and Beaufort seas.
But, sources said, BP's $5.6 billion sale of its upstream and midstream assets in Alaska to Hilcorp Energy shows that the Trump administration's plans will not be enough to counter the relatively high costs and risks of production there.
The US government may be opening more of Alaska to drilling, but there appears to be an ever-decreasing number of producers willing to go there.
"Alaska's never been shy on supply ... but is it economically viable?" asked Kara Moriarty, president and CEO of the Alaska Oil and Gas Association, in an interview Wednesday.
Crude oil output in Alaska has fallen from about 2.01 million b/d in 1988, when it was tied with Texas as the top US oil producing state, to a projected 475,000 b/d this year, according to the US Energy Information Administration. Alaska is currently in sixth place in oil production, behind: Texas, North Dakota, New Mexico, Oklahoma, and Colorado, according to the EIA.
This is largely due to Alaska's remoteness and severe weather conditions causing high breakeven prices, currently at about $55/b Brent equivalent for onshore and $65/b Brent equivalent for offshore, according to S&P Global Platts Analytics. US shale, by comparison, has breakeven prices of about $45/b Brent equivalent, according to Platts Analytics.
Rene Santos, an analyst with Platts Analytics, said that uncertainty over federal policies has raised questions around future Alaska output. Many of the areas Trump now wants to open to drilling were blocked by President Obama, and there are no guarantees that areas could be closed by future administrations.
Additionally, opposition from environmental groups make exploration and development in Alaska a challenge, Santos said.
The Interior Department's draft proposal, expected to offer numerous lease sales offshore Alaska, remains on indefinite pause due a US District Court decision in March which upheld a permanent ban on drilling in about 114 million acres of the US Arctic Ocean and 3.8 million acres in the north and mid-Atlantic Ocean.
In a supplemental assessment released in April, the National Petroleum Council, a federally-appointed group of industry representatives which advises the federal government on energy policy, openly questioned the value of drilling offshore Alaska.
"In light of concerns with climate change, continued growth in the US Lower 48 states' unconventional oil and gas production, and challenging economics, one might ask if the potential benefits of US Arctic exploration and development are worth the risk," the report states.
And fewer companies, it appears, are willing to take on that risk.
Following the BP sale, ConocoPhilips and Hilcorp will control over 72% of Alaska's production, according to Wood Mackenzie.
In a statement Tuesday, following BP's announced sale of its Alaska assets, US Senator Lisa Murkowski, an Alaska Republican, congratulated Hilcorp for its willingness "to make such significant investments in one of the most prolific and under-explored basins in the world."
One industry lobbyist said BP's decision to leave Alaska was "not surprising" as production in the North Slope continues to decline. But, the departure does not necessarily mean there is less interest in ANWR or offshore Alaska, just that commercial strategies may be shifting.
"Like other regions areas of the US, like in shallow Gulf of Mexico waters or California's refining sector, that doesn't mean there isn't money to be made and the North Slope would appear to fit much better with Hilcorp's business model," the lobbyist said.
AOGA's Moriarty said unlike Shell's decision to leave Alaska and abandon its assets, Hilcorp will be taking over BP's assets.
"It's not necessarily a reflection of commercial interest, but of different company priorities," she said. "BP just has a different set of priorities."
In addition to ConocoPhillips and Hilcorp, ExxonMobil remains in Alaska, while Repsol and Eni have some active programs in the state. Numerous smaller companies have operations in smaller fields in less remote areas.
"There is still commercial interest in the state," Santos said.
-- Brian Scheid, brian.scheid@spglobal.com
-- Edited by Jeff Mower, newsdesk@spglobal.com