BP and Hilcorp say the $5.6 billion deal for Hilcorp to buy BP's Alaska
assets is still on, despite the dismal oil market, the state
commissioner of natural resources said Wednesday.
"We're hearing the deal is still on," Commissioner Corri Feige said
in an interview. "I spoke with BP as recently as Monday, as well as
with Hilcorp."
Feige said she expected the deal to close later than the companies
had wanted, and they are now speaking of completing the transaction
later this year rather than mid-year. BP said as much in a briefing to
analysts in March.
It's also possible terms of the deal could change, including BP
having to provide more guarantees. Feige said she has not seen details
of the sale plan but has been told there are contingencies in the deal
for declines in oil markets.
"BP told me they do deals in all kinds of market conditions, when
prices are high, when they're low and at every point in between," Feige
said. "We're told that at this point there doesn't seem to be anything
that will derail this from their perspective."
Feige is the state official who must sign off on the upstream parts
of the purchase, mainly BPs' holdings in the Prudhoe Bay Field.
Another state agency, the Regulatory Commission of Alaska, must
approve Hilcorp's purchase of BP's midstream Alaska assets, mainly the
company's share of the Trans Alaska Pipeline System.
Hilcorp must show it is financially capable of handling operations
and liability for both the upstream and midstream. The state Regulatory
Commission has asked Hilcorp to provide more information on its finances
amid the current oil market situation.The commission asked that the
information be provided by May 4.
LIABILITY GUARANTEES
Feige said the approvals by the state resources department and the
regulatory commission are separate, but that the commission's concern
over finances focuses mainly on liability for oil spills and the
ultimate removal of the pipeline and restoration of right of way, and
that BP has already said it will provide these guarantees. One
unresolved question is whether the guarantees will be from BP's North
American subsidiary, BP North America, or the parent company, she said.
Despite the companies' verbal assurances, Feige said she is keeping a
close eye on key personnel movements between BP and Hilcorp as signs
that things are really on track. She will particularly be watching for a
planned transfer of BP employees out of Alaska set for May, she said.
BP has also told her that some of the transfer may happen earlier as
part of the company's moves to safeguard employees from exposure to the
coronavirus.
Hilcorp is privately held and its finances are private, but the
company has said it plans to finance much of the transaction with debt.
However, in the current market lenders will have to take a very
long-term view of the deal, said Parker Fawcett, S&P Global Platts
analyst for North America production and supply.
"This is a huge deal and it only makes sense in the North Slope
environment if oil prices are over $55-$65/b," Fawcett said. "I don't
believe it makes sense at $40 to $50/b."
Alaska North Slope crude oil has been selling at below $20/b in
recent days. With an average cost of $8-$9/b to move oil from the North
Slope to US West Coast, many of the North Slope fields may now running
at their break-even cash operating costs, Fawcett said.
Despite that, Fawcett believes the companies are taking the long
view, that oil markets will right themselves and that the transaction
will happen.
Neither BP nor Hilcorp would comment Wednesday.
