BP and Hilcorp renegotiate terms on Prudhoe Bay, TAPS deal; Hilcorp to take over ownership of Prudhoe Bay in June

It’s a reassuring development. Despite chaos in oil markets, the BP-Hilcorp deal is on track. In fact, things are moving faster than many thought possible.

BP wants to complete the transfer of the Prudhoe Bay field, crown jewel of the deal, by June. The pipeline part, due to some regulatory issues, will come later in the year.

The two companies have renegotiated terms on Hilcorp’s acquisition of BP’s Alaska assets, which include the company’s share in the Prudhoe Bay oilfield and Trans Alaska Pipeline System.

certain of the financial terms have been adjusted in view of difficult oil market conditions, BP said in a press release issued late Sunday. The announcement was made to allay concerns in financial markets and in Alaska that the sale would be postponed due to current market conditions.

“These are incredibly challenging times. Our priority remains the health and safety of our workforce, and safe operations at Prudhoe Bay. We will continue to work with regulators to answer their questions and demonstrate that BP remains committed to completing the sale, even in these volatile and difficult market conditions,” said Janet Weiss, BP Alaska president.

“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,” mainly BP’s ownership in the trans-Alaska oil pipeline, Weiss said in the statement.

“The future will be tough 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,” she said.

In a statement, Jason Rebrook, President of Hilcorp Energy Company, said, “We are excited about what the future holds for Hilcorp 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.”

“We are proud of the work we have done in Alaska over the last eight years, and plan on being an important part of the Alaska economy and community for many years to come,” Rebrook said.

Under the revised agreement, the total consideration for the sale remains unchanged at $5.6 billion, subject to customary closing adjustments, BP said in a press release. However, the structure of the consideration and phasing of payments has been modified. The original agreement provided for Hilcorp to pay BP $4.0 billion near-term and $1.6 billion through an earnout thereafter. Hilcorp paid BP a $500 million deposit on signing of the transaction in 2019.

William Lin, BP’ chief operating officer for its upstream regions, said, “The revised agreement adjusts the structure and phasing of the remaining consideration to include lower completion payments in 2020, new cash flow sharing arrangements over the near-term, interest-bearing vendor financing and, potentially, an increase in the proportion of the consideration subject to earnout arrangements.”

“The revised agreement is expected to maintain the majority of the value of the transaction. It is also structured with flexibility to phase and manage payments to accommodate current and potential future volatility in oil prices,” Lin said.

“BP and Hilcorp have developed detailed transition plans to deliver a smooth handover of operations upon completion to allow Hilcorp to focus on embedding planned operating efficiencies as rapidly as possible,” he said.

Under the deal Hilcorp would become operator of the Prudhoe Bay field on behalf of itself as well as ConocoPhillips and ExxonMobil, which own the majority interest in the field along with BP (soon to be Hilcorp).

Prudhoe is now producing about 295,000 b/d, over half of total North Slope production of some 500,000 b/d. However, Alyeska Pipeline Service Co. announced a temporary 50,000 b/d reduction of Trans Alaska Pipeline System throughput last Friday to reduce crude oil inventory in storage tanks at the Valdez Marine Terminal. The reduction will be shared on a pro-rate basis among all North Slope producing companies including BP and Hilcorp.

Hilcorp now operates several smaller North Slope fields acquired from BP in 2014 that includes the Milne Point, Northstar and Endicott fields. The company is also developing Liberty, an offshore oil accumulation owned jointly by HIlcorp at BP and 100% by Hilcorp after the sale.