By Miguel Bustillo and Bradley Olson 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 28, 2019).

BP PLC is exiting Alaska after six decades, marking the latest blow to the state's oil industry, which has diminished amid the rise of shale drilling in the continental U.S.

The British oil company is selling all of its Alaska assets, including its share of the giant Prudhoe Bay oil field and its interests in the Trans-Alaska Pipeline System, to Hilcorp Energy Co. for $5.6 billion. Privately held Hilcorp, based in Houston, is Alaska's largest private operator.

For BP, it is the end of an era. The London company and its predecessors have been producing and exploring for Alaskan oil for decades, and participated in many of the largest discoveries on the state's remote northern edge. BP was also a key player behind the development of the 800-mile Trans-Alaska Pipeline, which carries crude to the Port of Valdez.

"Alaska has been instrumental in BP's growth and success for well over half a century and our work there has helped shape the careers of many throughout the company," BP Chief Executive Bob Dudley said.

"However, 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," he added.

On its own, Alaska once pumped two million barrels a day, enough crude to rival some members of the Organization of the Petroleum Exporting Countries. Now, Alaska is only the sixth-largest producing state in the U.S., behind Texas, North Dakota, New Mexico, Oklahoma and Colorado, all of which have seen output surge due to fracking.

"Psychologically, it's a hit to Alaska," said Larry Persily, a journalist and former federal and state official working on oil and gas issues in the state. "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."

Wood Mackenzie analyst Rowena Gunn said other major companies could follow BP in leaving the state. "This will not be the last deal in the region," she said. Exxon Mobil Corp. is the biggest remaining oil-and-gas company in the state.

Yet even with the departure of a giant company like BP, the state has seen renewed interest from operators after a number of large discoveries in recent years. ConocoPhillips, Spain's Repsol SA, Italy's Eni SpA and small explorer Armstrong Oil & Gas have all been involved in identifying new opportunities in Alaska.

Hilcorp will pay BP $4 billion in the short term and a $1.6 billion earnout from the assets afterward, the company said. They will be part of the company's Hilcorp Alaska affiliate. The deal is subject to state and federal approval, and the companies expect it to close by next year.

"Energy is a cornerstone of the Alaskan economy and this investment will help drive growth in local energy production, jobs and state and local revenue for many years to come," said Hilcorp Energy President Jason Rebrook. "Hilcorp has a proven track record of bringing new life to mature basins."

Hilcorp has acquired BP assets in Alaska before, including a 2014 deal for BP's interests in four oil fields and associated pipelines. Mead Treadwell, a former Alaska lieutenant governor, said he was happy to see Hilcorp continue to expand in the state.

"Hilcorp has proved itself in Alaska as a low-cost operator that is very, very interested in expanding production," he said.

The sale is part of a larger BP initiative to divest $10 billion in assets over 2019 and 2020, the company said.

BP said it started working in Alaska in 1959. It drilled the initial confirmation well for the Prudhoe Bay oil field in 1968, and began producing oil from it in 1977. The oil field has to date pumped 13 billion barrels, making it the most prolific in American history, the company said. BP has remained its operator and currently has a 26% working interest in the field.

BP also said it owns exploration lease interests in the Arctic National Wildlife Refuge, among other Alaska holdings. But the company's production in the region has fallen over time. BP estimates its net oil production from Alaska will average 74,000 barrels a day this year.

--Russell Gold contributed to this article.

Write to Miguel Bustillo at miguel.bustillo@wsj.com and Bradley Olson at Bradley.Olson@wsj.com

 

(END) Dow Jones Newswires

August 28, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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