Oil infrastructure at Prudhoe Bay

Flames shoot from oil processing facilities at Prudhoe Bay in Deadhorse, Alaska

Hilcorp Energy takes the reins as operator at the Prudhoe Bay field Wednesday. Prudhoe is the state’s largest oilfield, producing over half the oil moving through the Trans Alaska Pipeline.

On Monday, June 29, the commissioners of Alaska’s Department of Natural Resources, or DNR, and Department of Environmental Conservation approved the transfer of BP’s oil and gas leases to Hilcorp Energy Company as part of the $5.6 billion sale the two companies announced in August 2019.

Experts in DNR’s Division of Oil & Gas, DEC, other departments on the Governor’s Oversight Committee on the BP-Hilcorp Transaction, as well as outside experts contracted to analyze Hilcorp’s financials, conducted a detailed analysis of the proposed transaction and secured necessary agreements to ensure it was in the state’s best interest.

“Today’s announcement represents a major milestone in the BP-Hilcorp review process,” said Governor Mike Dunleavy. “I thank the Department of Natural Resources and Department of Environmental Conservation for their diligent efforts to protect Alaskans’ interests throughout every step of this historic transaction.”

The deal is to take effect at midnight, June 29.Approval by the Regulatory Commission of Alaska on BP’s sale of its “midstream” assets, mainly an approximate half interest in the Trans Alaska Pipeline System, is expected to come later.

The handover marks the final exit by BP from Alaska after 60 years. BP has been divesting itself of Alaska assets gradually for several years and earlier sold smaller North Slope fields to Hilcorp as well as half of the larger Milne Point field and Liberty, an undeveloped offshore deposit.

The company also sold its stake in Kuparuk River, the second largest oilfield on the slope, to ConocoPhillips.

Hilcorp said that it won’t likely change the number of workers employed at Prudhoe Bay but that there would be fewer employees in Anchorage than were at BP’s offices.

Hilcorp is a major independent company based in Houston that has built a reputation for acquiring mature producing assets and investing to build production. In 2012 and 2013 Hilcorp purchased declining Cook Inlet fields from Chevron and Marathon Oil, invested and within a few years increased the Inlet’s oil production by over two thirds.

Similarly, Hilcorp has increased production at the Milne Point field and slowed the decline at Northstar.

Prudhoe has been gradually declining since 1988 although BP, as operator, has managed to slow the decline and to almost flatten it. The expectation is that Hilcorp will attempt, with a much bigger field, to replicate its accomplishments in Cook Inlet and at Milne Point.

As it leaves Alaska BP leaves a long string of accomplishments. The company basically led early exploration of the North Slope in 1961 with Sinclair Oil, a U.S. company, as partner.

Atlantic Richfield and Humble Oil, predecessors to ARCO Alaska and ExxonMobil, began exploring the slope as partners soon after BP and Sinclair. Sinclair dropped its partnership with BP just before the state’s Prudhoe Bay lease sale, to its later regret.

ARCO and Humble drilled the first discovery well at Prudhoe but BP’s discovery well on its leases followed shortly.

Prudhoe was the largest oil discovery in North America and after 50 years it is still the largest producing field.

Prudhoe’s discovery led to building of the Trans Alaska Pipeline System, billions of dollars in oil revenues to the state of Alaska and creation of the Alaska Permanent Fund the dividend on the Fund’s earnings paid to citizens.

Through the years, however, BP also led the way on significant innovations in the Alaska industry including the first horizontal production wells that were drllled laterally. Horizontal drilling was to set off a revolution in the world’s oil industry, allowing companies to tap underground deposits miles from the surface location of rigs.

It also eventually led to the combining of horizontal drilling with large-scale hydraulic fracturing, which unlocked vast resources of oil locked in shale.

Another accomplishment by BP was the building of the first offshore Arctic oilfields, first the Endicott field in shallow water in 1986 and then Northstar, in 2000, in deeper water several miles offshore. Northstar’s development also required the first Arctic subsea pipeline built to move oil from Northstar ashore.

There were other firsts, such as drill rigs that were specialized for the Arctic and also mobile, built on large wheels so they could be moved from well location to well location faster and more efficiently.

But BP had it stumbles in Alaska, too. A series of oil spills from interfield pipelines in 2006 led to a costly partial shutdown of the field while repairs were made. There was also damage to the company’s reputation when it became known that cutbacks in maintenance had contributed to corrosion, leading to the leaks.

BP was also largely unsuccessful in new exploration in the 1980s and 1990s leading the company to focus on in-field development, leaving exploration largely to other companies. This is an irony considering that BP explorers basically led the way to Prudhoe Bay in the early-to-mid 1960s.

While the company was successful in purchasing some producing assets from other companies, investing and increasing production, a prime example being the then-small Milne Point field, it stumbled when it purchased Badami, a small field east of Prudhoe.

Despite BP’s high hopes reservoir problems at Badami limited its output far below BP’s estimates.

While BP had its technology successes like horizontal drilling Hilcorp, in more recent years, has shown it can be a leader in this also. After it became operator at Milne Point Hilcorp began aggressively developing the large resource of viscous, or thick, oil there and began employing a polymer injection project to boost production.

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