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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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BP Exits Alaska To Double Down On Shale

After roughly six decades in Alaska, BP is getting out.

BP announced the sale of its Alaska operations to Hilcorp Energy Co. for $5.6 billion. The sale includes BP’s stake in the Prudhoe Bay oil field, the largest oil field in North America that once produced 1.5 million barrels per day at its peak in the late 1980s. Hilcorp will also acquire BP’s stake in the Trans-Alaskan Pipeline.

BP was the central player in the development of both the oil field and the long-distance pipeline that moves oil from Alaska’s North Slope to its southern coast for export at the Port of Valdez. BP CEO Bob Dudley said the sale is part of “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.”

“Psychologically, it’s a hit to Alaska,” Larry Persily, a journalist and former federal and state official, told the Wall Street Journal. “BP and its predecessor companies have been here for decades, and Alaska clearly isn’t as important in global oil as it used to be.”

Alaska’s production has declined steeply from over 2 million barrels per day in the late 1980s, to under 500,000 bpd today. Falling production creates challenges for the pipeline system.

For BP, priorities are shifting elsewhere. Notably, it bought up U.S. shale assets from BHP Billiton last year for $10 billion, and the British company has also vowed to divest $10 billion worth of assets between 2019 and 2020. In that context, BP’s sale of Alaska can be viewed as a pivot from mature conventional drilling operations to U.S. shale. “We see this move as part of a strategic shift by BP to focus further on US tight oil assets, having acquired a large portfolio from BHP last year,” Espen Erlingsen, Rystad Energy’s head of upstream research, said in a statement.

As Liam Denning notes in Bloomberg Opinion, BP’s sale is a sign of the times. Oil majors have been “retreating from traditional strongholds” in the last few years, pressured by shareholders to cut spending and steer clear of budget-busting megaprojects. Just about all of the majors have exited from Canada’s oil sands and many of them have been pulling out of the North Sea, for instance. Related: Natural Gas Prices Poised For Dramatic Price Increase

Others agree. “BP’s divestitures in Alaska are in line with the trends seen globally among major oil and gas companies in recent years,” Espen Erlingsen of Rystad Energy said. “The largest E&P companies have been steadily divesting mature late-life assets in order to finance exploration and development in new regions.”

“The Majors are making progress with their divestment campaigns. This will mean long-held assets and territories will be let go,” Rowena Gunn, an analyst at Wood Mackenzie, wrote. “This will not be the last deal in the region. ExxonMobil may be next to follow BP, Anadarko, Pioneer and Marathon in the list of companies having sold out of Alaska.”

Hilcorp has kept its plans close to the vest, but some experts speculate that the deal could lead to some short-term job losses, but also a potential increase in spending and activity. The deal instantly makes the company the largest producer in Alaska at about 60 percent of total output. Hilcorp has a checkered environmental and safety record, according to Alaska Public Media and InsideClimate News.

“Hilcorp is somewhat uniquely following a counter-cyclical strategy, really going after these legacy assets that public companies are selling at pretty attractive price points,” Andrew Dittmar, a senior analyst at Enverus, told Bloomberg. It’s a risky bet, and one that does not track with prevailing wisdom.

But the strategy of so many large oil companies these days – betting heavily on U.S. shale – is also riddled with risk. The U.S. shale sector has been burning through cash for years, and independent E&Ps have been beaten down badly by Wall Street this year as investors have largely lost faith in the promises of huge profits from shale. The oil majors have held up better, and they are betting that they can use their size to succeed where smaller companies have failed. It will take some more time to see if that bet pans out.

By Nick Cunningham of Oilprice.com

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