Oil and gas company BP says the sale of its Alaska business to Hilcorp is still on, but under revised financial terms as oil prices fall. The company says it expects to complete the sale in June.
BP confirmed its commitment to close the multi-billion dollar sale in a statement late Sunday. It follows reports that the deal was in jeopardy as the coronavirus pandemic crushes demand for oil and sends crude prices crashing.
BP says it renegotiated the deal’s financial terms with Hilcorp. The price is still $5.6 billion, but how and when Hilcorp pays has changed.
“The agreed revisions respond to market conditions while retaining the overall consideration,” William Lin, BP chief operating officer of upstream regions, said in the statement.
Related: Oil prices fell to a historic low. Here’s what that means for Alaska.
Originally, Hilcorp had agreed to pay $4 billion in the near term, and $1.6 billion later. Last year, the company paid BP a $500 million deposit. The revised agreement includes lower payments this year, among other changes, according to BP.
The sale includes BP’s stakes in the massive Prudhoe Bay oil field and trans-Alaska pipeline. It’s one of Alaska’s largest oil industry deals, and will push Hilcorp into the position of second-largest oil producer in the state.
BP says the two companies have developed detailed plans to hand over the assets.
In a statement Monday, Hilcorp President Jason Rebrook said the company is excited about its future in Alaska, “and we look forward to continuing to safely develop Alaska’s natural resources.”
“In the weeks ahead, we will continue to work with BP, the State of Alaska, and others to ensure a seamless transition process as we complete this transaction,” he said.
BP says the June timeline is subject to regulatory approvals.
The Regulatory Commission of Alaska is still reviewing a key piece of the deal involving pipeline assets. The state regulators have asked Hilcorp to disclose whether and how the pandemic-driven oil price collapse will affect its ability to close the deal, and the company’s response is due by May 4. The RCA has said it will make a final decision on the transfer of pipeline assets by Sept. 28.
Related: Alyeska imposes 10% cut to North Slope production as COVID-19 hammers oil demand
BP Alaska President Janet Weiss said in a statement late Sunday that the company will continue to work with regulators “and demonstrate that BP remains committed to completing the sale, even in these volatile and difficult market conditions.”
“If necessary due to timing of approvals, we will complete part of the deal in June, transferring the upstream business to Hilcorp, while continuing to work with regulators for approval of the sale of the midstream,” Weiss said.
“The future will be tough,” she said, “and I believe the best thing for a more rapid economic recovery for Alaska is the timely completion and approval of this deal, enabling more competitive oil down TAPs.”
The sale is part of BP’s plan to divest $15 billion by mid-2021.
Larry Persily, a longtime observer of the oil industry, says the Sunday night statement from BP did not surprise him.
“To me that says that BP and Hilcorp wanted to reassure the market, investors, shareholders that, ‘Hey, no matter what you’ve heard, no matter what you’ve speculated on, this deal is moving ahead,'” he said.
Persily said it makes sense that the two companies agreed to renegotiate the terms of the deal given cratering oil prices. There isn’t much of an alternative, he said.
“Hilcorp is a logical buyer for BP’s Alaska assets,” he said. “There are no other potential buyers of any credibility with money in their pocket, that I’m aware of, that were waiting for the Hilcorp deal to fall through so they could step in.”
The value of a barrel of Alaska North Slope crude crumbled to negative $2.68 last Monday, a historic low. It crawled back to just over $11 by the week’s end. Oil companies have announced spending cuts, and service companies have laid off workers.
Persily said Hilcorp’s plan to close the deal confirms that the company believes there is still potential for profit on the North Slope.
“I think, within the industry, there is a strong belief that prices will begin to turn up once supplies are cut enough and supply and demand come back into balance,” Persily said.
Reach reporter Tegan Hanlon at thanlon@alaskapublic.org or 907-550-8447.
Correction: An earlier version of this story misstated the timeline for RCA’s final decision on the transfer of pipeline assets.
