The sale of BP Alaska to Hilcorp is great news. Though BP was a good neighbor, its business model is no longer the perfect fit for Alaska that it once was. So what changed? Well the nature of the Prudhoe Bay field changed. As more oil was taken out of the field, what was left became harder and more expensive to get. Chasing difficult oil is just not BP’s specialty. That doesn’t make them bad; it’s just who they are.
You can compare what happens in oil fields to eating with chopsticks. At first, when the bowl is full of noodles, all you have to do to get the noodles is push them out of the bowl and into your mouth. However, as there are fewer and fewer noodles, the chopsticks become less effective and you have to change technology. Enter the spoon.
Think of Hilcorp as the spoon — a hi-tech, well-managed spoon designed to get Alaska’s hard-to-get oil out of places that are hard to get to. Hilcorp is famous for coming in behind more-conventional operators who have given up on particular fields, and making those fields lucrative under the Hilcorp banner. This is exactly what we need at Prudhoe Bay. Though we still have oil up there, it’s getting harder to retrieve and we need a company that specializes in making decliners profitable. That is precisely what Hilcorp does.
Case in point: Hilcorp’s investment in Southcentral Alaska completely reversed the production decline in Cook Inlet. The Cook Inlet story has become legendary in the oil and gas world, and we need that story to repeat itself on the North Slope. Likewise, after moving to the North Slope, Hilcorp used cutting-edge technology to squeeze more oil out of older fields like Northstar and Milne Point, where production has been raised to the highest levels since 2009 (30,000 barrels per day at Milne).
Though relatively new to the North Slope, Hilcorp is a known quantity with a stellar record in the Alaska business community. It has a 90% Alaska hire record and in five years has drilled more than 50 wells on the North Slope. In addition, Hilcorp has already invested $5 billion in Alaska and is poised to invest more in the years to come. More investment will also prolong the productive life of Prudhoe Bay and promote prosperity well into the future. Prolonging Prudhoe, even for just a few years, will have massive benefits to the people of Alaska.
It amazes me that people are writing the obituary of the oil business in Alaska. Though prices are stubbornly low, many Alaska oil companies, including Hilcorp, have been aggressively searching for oil, and they have been finding it — in large quantities. Additionally, a new pro-prosperity environment is gaining popularity in Washington, D.C., and the ability to bring these fields into production faster because of fewer regulatory hiccups is becoming a reality. We should be enthusiastic about the future of oil in Alaska.
I have to say, I am not happy to see BP leave even though it is probably for the best. The company was a marvelous corporate citizen. How many times did we see the BP logo on the back of our kids’ jerseys or dangling from a fence at some sport field? How many concerts, parades and community events did we go to that were sponsored by BP? That being said, I have a lot of faith in Hilcorp, and I appreciate how nimble the company is and how easily its people think out of the box. Their efforts in the community have grown over the years, and if it continues to mirror their efforts in the field, I’m sure they’ll do great things. Goodbye, BP, you were a good friend. Hello Hilcorp — now let’s get to work.
Pete Kelly is a former state legislator representing Fairbanks, serving first in the House and then in the Senate.