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Elephant rumor
BP selling Prudhoe Bay to ConocoPhillips, Hilcorp; will be two operators again
Kay Cashman Petroleum News
Every few years a rumor that BP is selling its interest in the Prudhoe Bay oil field surfaces and then disappears when no sale is announced. The latest rumor seems to have some credibility. BP is reportedly selling most of its interest in the giant Prudhoe Bay oil field to ConocoPhillips and Hilcorp, with ConocoPhillips to operate the western half and Hilcorp the eastern of the giant field.
Combining information from trustworthy but unnamed sources and from public information, Petroleum News has pieced together the possible story behind the latest rumor - fictional until confirmed by BP, ConocoPhillips and Hilcorp.
The story begins in April 2014 when BP announced the sale of three smaller producing North Slope oil fields - Milne Point, Endicott and NorthStar, as well as the undeveloped Liberty prospect. The deal included all of BP’s interests in the Endicott and Northstar oil fields and a 50% interest in Liberty and Milne Point. BP’s interests in pipelines associated with those fields were also included.
The two oil fields that are key to today’s rumor are the mature Milne Point and Endicott fields where oil production had been steadily declining.
Hilcorp, which by 2014 had established itself in the Cook Inlet basin and elsewhere as technically skilled at teasing more oil out of mature fields, as well as finding and developing additional reserves, was rumored to be auditioning for a much bigger role; that of Prudhoe Bay operator.
According to PN sources close to the 2014 deal, “on a moment’s notice” BP could have stepped in at any time and “for any reason and taken back either Milne or Endicott.”
Instead, Hilcorp proved itself a very capable operator.
On Aug. 5, Ed King of King Economics Group reported encouraging fiscal year 2019 output numbers from Hilcorp’s three producing North Slope oil fields, his data taken from the Alaska Oil and Gas Conservation Commission.
At the Milne Point unit which went online in 1985, King said Hilcorp had been doing a “tremendous job squeezing additional life out of this mature asset since purchasing it from BP.”
All told, 8.3 million barrels were produced from Milne Point in FY19 - a million barrels more than in FY18.
At the Duck Island unit, which holds the Endicott field and went online in 1987, he said Hilcorp was able to “maintain a fairly flat production rate over the last two years.” (Previously Hilcorp had boosted output.)
“At only 7,000 barrels per day, it’s unclear how long this field will continue to produce. …. Holding it flat is about as good as we can hope for,” King said.
After starting regular production in 2001, the Northstar field is already nearing the end of its economic life, currently producing about 10,000 barrels per day, he said.
“However, Hilcorp has a talent for getting oil out of fields that others are ready to give up on,” King noted. “In fact, the Northstar unit saw an increase of 317,587 barrels of oil (a 9% increase) over FY18.”
Among other things, Hilcorp’s tool chest to increase output from mature fields included more drilling, reworking wells, reinjecting natural gas and injecting polymer and water into reservoirs.
The company also invests in upgrading old infrastructure to ensure that its pipelines and wells can continue to perform effectively for a long time into the future.
In addition, Hilcorp has a very robust integrity and management program for all its facilities and pipelines, often going beyond what is required from regulators.
ExxonMobil, ConocoPhillips agreed At the time of the 2014 unconfirmed agreement to eventually sell Hilcorp a piece of Prudhoe Bay and enable it to eventually take over as operator, the other two major owners in Prudhoe Bay had to agree.
ExxonMobil did but according to rumor, ConocoPhillips’ agreement came with a caveat: the big independent wanted to operate the west side of Prudhoe, which was closest to its most important North Slope assets, allowing Hilcorp to take over the east side of the field, which had been operated by ARCO Alaska prior to the ownership realignment in 2000 when the two Prudhoe units became one under a single operator, BP.
Also in 2000, ARCO Alaska was sold to Phillips Petroleum, predecessor to ConocoPhillips.
Soon will be public As a matter of policy, BP, ConocoPhillips and Hilcorp do not comment on pending transactions.
But the current rumor comes with a public announcement date in “mid-August,” so if that’s true, we don’t have long to wait to find out if this latest rumor is a real deal.
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