State Agencies Approve Transfer of BP’s Upstream Assets to Hilcorp
The commissioners of Alaska’s Department of Natural Resources (DNR) and Department of Environmental Conservation (DEC) have approved the transfer of BP’s oil and gas leases to Hilcorp Energy Company as part of the $5.6 billion sale the two companies announced in August 2019.
“Today we are significantly growing and strengthening our footprint in Alaska,” said Jason Rebrook, president of Hilcorp Energy Company. “I’m especially proud of the team that’s worked diligently over the past 11 months to close this transaction and put us in a position to be ready for day one operations.”
Hilcorp immediately acquires BP’s interests in the Prudhoe Bay, Milne Point, and Point Thomson fields, as well as the operatorship at Prudhoe Bay. The midstream component of the transaction is expected to close in Q3 2020, pending regulatory approval.
In August 2019 BP announced it would exit Alaska, selling its business to Hilcorp for a total consideration of $5.6 billion. The sale includes BP’s entire upstream and midstream business in the state, including BP Exploration (Alaska) Inc., which owns all of BP’s upstream oil and gas interests in Alaska, and BP Pipelines (Alaska) Inc.’s interest in the Trans Alaska Pipeline System (TAPS).
According to William Lin, BP executive vice president, regions, cities & solutions, the transfer marks a new era for Prudhoe Bay. “[Prudhoe Bay] is a world-class field and Hilcorp is well-positioned to take it into the future and maximize value for the State of Alaska. We wish them the very best for this next phase of Prudhoe Bay’s long life.”
Subject-matter experts in DNR’s Division of Oil & Gas, DEC, other departments on the Governor’s Oversight Committee on the BP-Hilcorp Transaction (GOC), and outside experts contracted to analyze Hilcorp’s financials, conducted a diligent, thorough analysis of the proposed transaction and secured necessary agreements to ensure it was in the state’s best interest.
“Today’s announcement represents a major milestone in the BP-Hilcorp review process,” said Governor Mike Dunleavy. “I thank the Department of Natural Resources and Department of Environmental Conservation for their diligent efforts to protect Alaskans’ interests throughout every step of this historic transaction.”
With major operations in the Cook Inlet and on the North Slope, Hilcorp is one of the largest oil and gas producers in Alaska. Since entering the North Slope in 2014, Hilcorp has invested more than $700 million dollars at Milne Point and doubled production there. In April 2020, total production at Milne Point reached 36,000 barrels of oil per day (BOPD) for the first time since May 2008. Hilcorp expects to reach 40,000 BOPD at Milne Point by the end of 2020.
Hilcorp has nearly tripled its Alaska workforce as a result of this transaction. Growing from roughly 550 employees to more than 1,450, Hilcorp expects to add more in the coming months.
“We look forward to continuing to drive economic growth, create Alaskan jobs, and contribute to local economies for decades to come,” said Greg Lalicker, CEO of Hilcorp Energy Company. “Hilcorp is committed to safely and responsibly developing Alaska’s natural resources.”
State law requires DNR to consider whether to approve the transfer of BP’s working interest in 176 oil and gas leases within the Prudhoe Bay, Point Thomson, and Milne Point oil and gas units on the North Slope. BP’s 256 surface use permits have also been amended to reflect modifications, including the new permit holder. Hilcorp will also assume the role of operator of the Prudhoe Bay unit. Making this determination required significant due diligence, evaluating Hilcorp’s financial standing and obtaining financial assurances for the substantial increase in lease, permit, easement, and right-of-way obligations this deal represents. An agreement to guarantee secondary liability for dismantlement, removal, and restoration (DR&R) of existing facilities and contaminated sites has also been secured from BP Corporation North America.
“After ten months of in-depth analysis, stress-testing of Hilcorp’s financial capacity to hold and operate these assets, and successfully securing secondary liability guaranties from BP, I am confident that the transfer of these leases and facilities both protects and advances Alaska’s interests.” said DNR’s Commissioner Corri Feige.
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DEC’s role in this process included the transition of environmental permits and plan approvals, ensuring Hilcorp’s financial responsibility for these facilities, and establishing responsibility for existing contaminated sites.
DNR and DEC’s actions represent final state review and approval of the transfer of BP’s upstream assets—those involved in producing oil and gas before it enters the midstream for transport to the market for refining into products. The most significant element of BP’s midstream assets in Alaska is the Trans Alaska Pipeline System, and review of this transfer is ongoing. DNR’s State Pipeline Coordinator is continuing to apply the “fit, willing, and able” (FWA) test in evaluating Hilcorp’s ability to accept and manage the midstream assets. The Regulatory Commission of Alaska is continuing its own FWA analysis and will render a separate decision, which will be issued by September 28, 2020.
“I am proud of our employees and contractors who have done extraordinary work to make this a safe and seamless transition,” said Janet Weiss, regional president of BP Alaska. “And to the State of Alaska, we deeply value our role in Alaska’s history, and thank the governor and his team for positioning Prudhoe Bay for many more years of competitive production.”
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2020 Best of Alaska Business Awards
Welcome to the 5th Annual Best of Alaska Business awards. First and foremost, thank you to our readers who took the time to nominate the businesses that you see provide exceptional services to Alaskans. We publish the results, but you awarded these businesses with recognition for the hard work they do in their very varied fields.