One of Alaska's biggest oil producers—BP—announced Tuesday that it is selling all of its Alaska operations to Hilcorp, a privately-owned company with a troubled safety and environmental track-record.
The $5.6 billion sale includes BP's stakes in the Trans Alaska Pipeline and the Prudhoe Bay oil field, one of the nation's largest and once its most productive oil field, which BP currently operates.
Hilcorp is a relatively new player in Alaska's oil and gas industry. The Houston-based company's business strategy has been to purchase older oil and gas fields and try to make them profitable—a track-record experts say it hopes to repeat with its new acquisitions.
Since entering Alaska in 2012, Hilcorp has rapidly expanded across the state, from the underwater gas fields in Cook Inlet to the oil fields along the North Slope.
As it has done so, it has amassed a long list of safety and environmental violations. Among the most egregious incidents: three workers were nearly killed in an accident in 2015; a methane leak from an underwater pipeline was not stopped for months in 2017; and in late 2018, an oilfield worker was killed at Milne Point on the North Slope.
The company's litany of violations led to unusually strong language from state regulators, who wrote in a letter to Hilcorp in 2015 saying that a disregard for regulatory compliance was "endemic to Hilcorp's approach to its Alaska operations," and that "Hilcorp's conduct is inexcusable."
"Hilcorp has had a terrible record during its time in Alaska," said Lois Epstein, an engineer and Arctic Program director at The Wilderness Society. "None of those things should have happened."
In the most recent of those incidents, a 36-year-old contract worker, Shawn Huber, was killed when he was struck by a drilling pipe while working on a drilling rig. Hilcorp owned 50 percent of the Milne Point facility and was the main operator at the time of the accident. With the sale announced Tuesday, it becomes the full owner and operator.
The sale also includes BP's 50 percent share in the Liberty Project, an ambitious plan to construct a gravel island five miles off Alaska's northern coast for drilling rigs and production facilities. A reservoir there holds an estimated 150 million barrels of oil, but the project has proven to be more complicated and costly than BP expected when it began the permitting process two decades ago.
That project is awaiting final permits related to its oil spill contingency plan. According to the Liberty Development and Production Plan submitted by Hilcorp in 2014, a worst-case accident there could initially spill more than 90,000 barrels a day into a remote location that is covered with ice most of the year.
With the sale, Hilcorp also assumes BP's shares of several pipelines, including 49 percent ownership of the Trans Alaska Pipeline System, and of other oil fields. Hilcorp did not respond to a request for comment.
BP is selling its Alaska assets in order to shift its business toward more profitable regions. The company has a goal of divesting $10 billion by 2020.
"We have been steadily reshaping BP, focusing investment on assets that offer the best opportunities for competitive growth within our portfolio, while continuing to strengthen our financial performance and better positioning the company for a low-carbon future," said Brett Clanton, senior director of BP's U.S. media affairs.
Why the Sale Could Hurt Alaska's Finances
Hilcorp first purchased major stakes in BP's North Slope holdings in 2014. At the time, oil production in the area had slowed dramatically—to just a fraction of the peak it hit in 1988. The purchase by Hilcorp was viewed as a potential savior for the state, which relies heavily on oil revenue for its budget.
This time, the purchase may have different implications for the state's finances.
"Our corporate taxes are riddled with loopholes," said former 16-year state legislator Les Gara. "Hilcorp is an S corporation, and if you're an S corporation, no matter how high your profits, you do not pay corporate taxes."
Taxpayer information is confidential in Alaska, but Gara said the best estimates put BP's corporate taxes at between $30 million and $70 million. During his final term in office, Gara said he attempted to pass a bill that would close that loophole for highly profiting companies, but he didn't have the support.
Now, with the state's budget in a particularly dire state, he wonders if legislators might think differently about it. Gov. Michael Dunleavy has slashed the state budget—making major cuts to key social services, including Medicaid, help for the elderly and homeless, and the state's university system.
"Given the extraordinary, serious financial problems in the state of Alaska right now, if this means tens of millions of dollars less in revenue for the state of Alaska, that's going to have very serious impacts," Epstein said.
BP's Had Deep Pockets in Event of Oil Spill
BP's record in Alaska is not pristine, either. In 2017 alone, the company had at least 27 accidents including five that put workers' lives at risk. That resulted in an effort to "reset" the safety culture there, according to internal documents found in an investigation by Buzzfeed.
Larry Persily, a former federal coordinator for Alaska gas projects, said many Alaskans still have a soft spot for the company. "BP has been here from the dawn of time, and for us time dawned when we found oil," he said.
Compared to BP's 60 years in the state, Hilcorp's presence represents just a blip on the timeline.
"Some people have said they feel the state needs to keep a closer eye on Hilcorp," Persily said. "They don't have decades of experience here. This is a big bite for them to chew on."
Should anything go horribly wrong—as it did for BP with the Deepwater Horizon spill—Hilcorp also doesn't have the deep pockets that BP does to pay to rectify the situation.
"I think the majors have played a positive role in fostering safer workplaces in Alaska," said state legislator Zack Fields. "I hope that Hilcorp departs from previous practices and really embraces what traditionally has been the big three's record on safety."
Fields said BP had also been more forthright about the threat from climate change. "I hope that Hilcorp embraces that kind of recognition of the very dire threat climate change poses to the state of Alaska," he said.
Another thing that gives some Alaskans pause is the fact that Hilcorp is privately held.
"That means they're less transparent to the public and less subject to being responsive to shareholders and I'm worried about that," Epstein said.
Rowena Gunn, an energy analyst at Wood Mackenzie, said BP's sell-off is part of a shift in Alaska's oil fields that has put more control in the hands of a few companies, including Hilcorp.
"This will not be the last deal in the region," Gunn wrote. "ExxonMobil may be next to follow BP, Anadarko, Pioneer and Marathon in the list of companies having sold out of Alaska. So far ConocoPhilips and Hilcorp have played the consolidating roles—now controlling over 72 percent of Alaska's production."
Published Aug. 28, 2019