BP PLC agreed to sell its entire business in Alaska to closely held Hilcorp Energy Co. for $5.6 billion, ending a six-decade presence in the state as oil production there declines.
The deal includes BP's operating stake in Prudhoe Bay, the largest-producing oil field in U.S. history, as well as all its Alaskan pipelines, BP said Tuesday in a statement. It makes Hilcorp, the oil company founded by Texas billionaire Jeffery Hildebrand, the second-largest producer in the state behind ConocoPhillips.
It's the latest example of a big oil company retiring from the frontier oil discoveries of the late 20th century that cushioned them from OPEC's ascendancy and forced them to learn to drill in some of the harshest corners of the globe.
Alaska's oil output has slumped from its heyday in the late 1980s as discoveries dried up and major producers sought easier-to-produce crude elsewhere, most recently from shale rock in Texas. Hilcorp, along with ConocoPhillips, is one of the few big oil companies still interested in investing fresh capital in the state, which is home to protected ecosystems.
BP, based in London, wants "to create a more growth-oriented asset base," Pavel Molchanov, a Houston analyst at Raymond James Financial Inc., said by email. Alaska "is one of the world's most mature oil-producing areas."
Wood Mackenzie Ltd. values BP's assets at a "slight premium" to the $5.6 billion purchase price, almost a third of which will be paid subject to production over time. But for BP, the sale is strategic.
"We are steadily reshaping BP and today we have other opportunities, both in the U.S. and around the world, that are more closely aligned with our long-term strategy and more competitive for our investment," BP chief executive Bob Dudley said in the statement.
The sale forms the majority of BP's two-year, $10 billion divestment plan. It includes the stake in the Trans-Alaska Pipeline System, which has been running below capacity for years as oil production in the state has declined. BP American depositary receipts rose as much as 1.1% in New York trading.
In the past five years, Hilcorp has bought more than $6 billion oil and gas assets, and produced about 108,000 barrels of oil equivalent per day of liquids, according to its website. The company in 2017 acquired assets in the San Juan Basin of New Mexico for $3 billion, and has holdings in Wyoming and Alaska.
Prudhoe Bay has produced about 13 billion barrels over its life and has a further 1 billion barrels of potential, BP said.
Alaska's annual production peaked at 2 million barrels a day in 1988, the year before the Exxon Valdez oil spill. Last year, it averaged 479,000 barrels a day.
The U.S. Interior Department is preparing to sell drilling rights in the Arctic National Wildlife Refuge later this year. The refuge's coastal plain is thought to contain billions of barrels of oil, but tapping it was off-limits for decades until 2017, when Congress ordered the government to sell drilling rights there under the premise it would raise money to offset tax cuts.
Information for this article was contributed by Rachel Adams-Heard, Jennifer A. Dlouhy, Tina Davis and Joe Carroll of Bloomberg News.
Business on 08/28/2019