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BP sells Alaskan assets to Hilcorp for $5.6 billion as part of divestment plan

Highlights

Deal includes assets, shares in Prudhoe Bay, TAPS

Hilcorp already operates interests in Cook Inlet, North Slope

Anchorage, Alaska — BP is selling its entire Alaska business to Hilcorp Energy for $5.6 billion, the company said Tuesday, as part of its two-year, $10 billion divestment program.

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BP said the transaction includes the company's upstream and midstream assets, and its shares of the Prudhoe Bay oil field, the Trans Alaska Pipeline System, the Point Thomson natural gas and condensate field, the producing Milne Point field, and the offshore Liberty field still under consideration.

BP spokeswoman Meg Baldino said the agreement calls for Hilcorp to become operator of the Prudhoe Bay field, but BP will remain in charge until the transaction closes, which will require state and federal approvals.

BP's interests in the Arctic National Wildlife Refuge, mainly exploration data and lease rights on a private inholding, are also included.

"As a highly capable operator with extensive Alaskan experience, Hilcorp is ideally placed to take this important business on into the future, continuing to optimize its performance and maximize its value for the state of Alaska," BP CEO Bob Dudley said.

Under the terms of the agreement, Hilcorp, a Houston-based major independent, will pay BP a total consideration of $5.6 billion, with $4.0 billion payable near term and $1.6 billion through an earn-out thereafter.

The transaction is expected to be completed in 2020.

MAJOR SHIFT

BP's pending sale is a major shift for the Alaskan oil and gas industry that sees two companies controlling 72% of the state's oil production.

For BP, the deal ends a 60-year presence in the state. In 2014, BP sold its interests in the Endicott and North Star fields and half of its interests in the Milne Point and Liberty fields to Hilcorp. In 2018, BP sold its interest in the Kuparuk field to ConocoPhillips while simultaneously expanding its position offshore the U.K.

"Our exit from Alaska does not in any way diminish BP's commitment to America," Dudley said. "We remain very bullish on the US energy sector. In just the last three years we have invested more than $20 billion in the US and we will continue to look at further investment opportunities here."

BP has 240 lease blocks in the deepwater Gulf of Mexico, and the company's operated and non-operated interests that span Colorado, Louisiana, New Mexico, Oklahoma, Texas and Wyoming had a combined 2.4 billion barrels of oil equivalent reserve base at the end of 2018.

Through its Harvest Midstream Company affiliate, Hilcorp will acquire BP's 48.441% stake in Alyeska Pipeline Service Company, which operates the 800-mile Trans Alaska Pipeline System that carries crude oil from Prudhoe Bay on Alaska's North Slope to Valdez, Alaska, the northernmost ice-free port in North America.

Crude oil production at BP's Prudhoe Bay field averaged 270,000 b/d in 2018 for a net amount of 70,200 b/d given BP's 26% stake in the field. Today, Hilcorp's gross production of 75,000 boe/d accounts for nearly 20% of the company's gross production, which is located entirely within the U.S.

"This deal vaults Hilcorp to the second-largest Alaska producer and reserves holder, behind only ConocoPhillips," Wood Mackenzie analyst Rowena Gunn said. "Continued investment in maintaining Prudhoe Bay will be the company's main endeavour."

Wood Mackenzie said ConocoPhilips and Hilcorp now control over 72% of Alaska's production.

BP had been working in recent years to extend the life of its Prudhoe Bay field, which began producing oil in 1977. Hilcorp specializes in enhancing production from acquired conventional oil and gas assets.

UPSIDE POTENTIAL

"The assets are not without upside," Gunn said. "A 2019 3D seismic campaign will reveal further targets to prolong the legacy field while the company is growing Milne Point production and considering a potential [final investment decision] at the Liberty field."

The North Slope could see more deals in the future, Gunn added: "[Exxon Mobil Corp.] may be next to follow BP, Anadarko, [Pioneer Natural Resources Co.], and [Marathon Oil Corp.] in the list of companies having sold out of Alaska."

Hilcorp has operated in Alaska for seven years and currently operates interests in the Cook Inlet and on the North Slope. In 2017, the company pumped 35,000 barrels of oil equivalent/day from the Cook Inlet and 22,000 boe/d from the North Slope.

Last year, the company said it has spent more than $4.5 billion in Alaska since 2012 -- $1.8 billion in acquisitions, $1.4 billion in operating costs, and $1.3 billion in investments.

"Energy is a cornerstone of the Alaskan economy and this investment will help drive growth in local energy production, jobs and state and local revenue for many years to come," said Hilcorp President Jason Rebrook, who will lead the transition team. "Hilcorp has a proven track record of bringing new life to mature basins, including Alaska's Cook Inlet and the North Slope, and we have a clear understanding that an experienced local workforce is critical to success."

(Corrects Hillcorp's Alaska production numbers from 2017)

-- Tim Bradner and Everett Wheeler, newsdesk@spglobal.com

-- Edited by Jeff Mower, newsdesk@spglobal.com