Alaska in spotlight as BP sells oil and gas assets to Hilcorp for $5.6bn

Hilcorp BP Alaska oil gas XCD Energy
Alaska’s North Slope could see a ramp-up in oil and gas activity as the region’s ‘rejuvenation expert’ snaps up BP’s acreage.

Oil and gas activity on Alaska’s prolific North Slope could get a boost after the region’s biggest private operator Hilcorp scooped up BP’s entire Alaskan assets for a hefty $5.6 billion.

The most notable asset in the deal is BP’s 26% operating stake in Prudhoe Bay, the third largest oilfield in North America by proved reserves and which has produced more than 13 billion barrels of oil to-date.

The British oil supermajor has held interests in the region for more than 60 years but has recently been reducing its presence in conjunction with declining production at the maturing Prudhoe Bay field.

Houston-based independent Hilcorp, on the other hand, has built a reputation in the region for giving new life to aging conventional oilfields, and has had success in finding and developing additional reserves in and near those fields.

At a purchase price of $5.6 billion, the assets still hold a lot of value with experts believing Hilcorp will look to rejuvenate the maturing assets and potentially extend their production life.

Flow-on effect to industry

This is encouraging news for nearby operators and explorers, including juniors such as XCD Energy (ASX: XCD), which holds close to 150,000 acres of oil and gas leases in the region.

Speaking with Small Caps, XCD managing director Dougal Ferguson said Hilcorp’s acquisition would create “positive flow-on effects” in the local industry because it points to “increased activity and additional expenditure on the North Slope”.

He added that Hilcorp, which has been active in the Cook Inlet for years, would likely be looking at cutting costs and increasing returns by adopting more innovative techniques.

He said this is good news for companies such as XCD, which is also trying to find new and different methods than the majors’ traditional “gold-plated” ways.

“None of this is negative. The fact that BP is selling for $5.6 billion means it’s not selling a late life asset. BP has taken the cream and now the new guys will come in, no doubt cut costs and extend the life of these fields with new and innovative thinking,” Mr Ferguson said.

BP’s exit from Alaska

After more than six decades in the region, BP’s sale of its Alaskan interests is part of the company’s plan to raise $10 billion through non-core asset sales to strengthen its balance sheet and focus on opportunities that aligned closer to its long-term strategy.

These aren’t the first assets the major has passed onto Hilcorp. In 2014, it divested its interests in the Endicott and North Star fields and half of its stake in the Milne Point and Liberty fields to the private operator.

Hilcorp Alaska BP oil gas XCD Energy
BP’s sale to Hilcorp includes interests in the Prudhoe Bay oil field, Point Thomson gas field and the trans-Alaska pipeline system.

Last year, it also sold its interest in the Kuparuk field to fellow oil major ConocoPhillips, another operator in the region.

This latest transaction, the final sale of its remaining interests in the region, include its operating stake in the Prudhoe Bay oilfield, as well as its 50% equity in the Hilcorp-operated Milne Point and Liberty projects.

Other interests in the deal include a 32% interest in the ExxonMobil-operated Point Thomson project, as well as varying stakes in the Trans Alaska, Point Thomson and Milne Point pipeline systems and the Alyeska Pipeline Service Company.

The sale also includes a 25% interest in the Prince William Sound Oil Spill Response Corporation and non-operated interests in exploration leases in the Arctic National Wildlife Refuge (ANWR) – a region east of the North Slope that had been off limits to oil and gas drilling until the end of 2017.

Willow oil project makes progress

Meanwhile, the US Department of the Interior’s Bureau of Land Management (BLM) recently issued a draft environmental impact statement (EIS) for ConocoPhillips’ Willow project, also on Alaska’s North Slope.

The BLM said that among the considered alternatives, it preferred the company’s proposed master development plan, which includes up to five drill sites, a central processing facility, an operations centre pad, hundreds of miles of pipelines, gravel and ice roads, and up to two airstrips.

ConocoPhillips is also proposing to build a temporary gravel island at Atigaru Point in near-shore state waters north of the project for offloading and storing modules.

The company submitted its plan for developing the 2017 oil discovery more than a year ago and the BLM has held six public scoping meetings on the proposal.

If developed as per the ConocoPhillips’ plan, the $4-6 billion project is expected to produce up to 130,000 barrels of oil per day at its peak, with first oil anticipated in late 2024.

Over an estimated 30-year operational life, the field is expected to cumulatively produce more than 590 million barrels of crude.

It too marks a major step for a region that has been explored for years but remains mostly undeveloped.

Mr Ferguson said the BLM’s endorsement of a Willow development is a positive for XCD, as its Project Peregrine leases are located about 35km south of the oilfield and the development of Willow will bring new infrastructure to the region and within striking distance of its Project Peregrine.

“If a discovery is made at Project Peregrine, where we are chasing the same Nanushuk shallow oil play as the Willow field, this new infrastructure shows there is a roadmap to development,” he said.

According to Mr Ferguson, the general industry view to date has been that the XCD leases are too remote or too far south and therefore too costly to develop.

“It is arctic, and it is a remote area, but as Willow is developed over the next few years, the Conoco operated half-billion-barrel resource will commence production and that can only be positive for XCD given our proximity to the Willow field.”

“This shows that our lease area can be developed economically, and the regulators and local communities are supportive of development in this region,” he added.