The oil industry and the Dunleavy administration are pretending the proposed BP-Hilcorp transaction is a fiat accompli — a done deal — despite the fact that neither can answer basic questions critical to Alaska’s public interest. This simultaneous ignorance and insistence on a rushed review were two of the biggest takeaways from a Feb. 26 legislative hearing during which legislators heard from BP, Hilcorp, and Governor Dunleavy’s Department of Natural Resources.
First, under legislators’ praise for Hilcorp’s investment in the state was a palpable concern over the Texas firm’s fitness to own Alaska’s most important oil assets. The Department of Natural Resources revealed that Hilcorp is the most heavily bonded oil company in Alaska. For years, state regulators have known that Hilcorp is a middling company and have mandated it pay significant money up front as an insurance policy against possible default on its obligations. Quite simply, state regulators see Hilcorp as the riskiest oil company in Alaska.
When one legislator asked if BP was really needed to be secondarily liable for Hilcorp, Natural Resources Commissioner Corri Feige did not miss a beat: She said BP’s secondary liability was “very important” to protect the state.
It’s not just Alaskans who have serious questions about Hilcorp’s resourcefulness and debt-to-equity ratios. The Wall Street Journal recently reported, “Hilcorp’s current plan is to fund its $5.6 billion purchase entirely with debt.” And money isn’t cheap these days for the oil industry, especially for smaller, higher-risk firms like Hilcorp; it recently had to pay 8.5% interest to secure more debt. Because Hilcorp wants to borrow so much money at such a high cost of capital, Moody’s Investors Service is considering a downgrade to Hilcorp’s credit rating. No wonder investors are asking Hilcorp founder Jeffrey Hildebrand to contribute some of his own money toward funding this proposed deal.
If investors are asking Mr. Hildebrand to contribute personal funds to mitigate their risk, is it not appropriate for the state of Alaska to also seek similar assurances from heavily leveraged Hilcorp to protect our lands and waters? At the very least, the public needs financial transparency from Hilcorp.
A second notable feature of the hearing was the Dunleavy administration’s insistence that the proposed deal is entering the final period — despite so many serious unanswered questions. Commissioner Feige told legislators that if this were a baseball game, the state is headed into the sixth inning, or two-thirds of the way through reviewing the deal. But consequential questions still beg for answers:
• What authority does the state of Alaska have to compel BP — a foreign firm that will no longer be doing business in Alaska — to pay its multibillion-dollar obligations (namely legacy oil infrastructure cleanup) to Alaskans?
• If BP were to go bankrupt, what would happen to the billions of dollars it has collected for dismantling the pipeline? Since these funds were collected from tariffs on public oil and will be spent employing Alaskans to clean up our lands, why aren’t these billions escrowed in an Alaska bank account?
• Does Hilcorp have the financial wherewithal to clean up a major oil spill and make Alaskans whole? Can Commissioner Feige and the Dunleavy administration say with confidence that Hilcorp has the means to clean up a spill on par with the Exxon Valdez?
• Why is only Harvest — not its parent company Hilcorp — liable for pipeline dismantling and cleanup? Why won’t the Regulatory Commission of Alaska mandate that Harvest’s parent company also be liable for cleaning up legacy infrastructure, as regulators required of BP Pipelines in 1974?
Throughout this entire process, BP and Hilcorp have pretended as if they were selling assets that involved their private oil reserves. But the reality is that Hilcorp is asking to partner with Alaskans to develop and transport public oil over our lands and waters. Commissioner Feige stated there will be no “extra innings,” but this deal is too important for Alaska’s future to be rushed.
It’s no surprise the oil companies are eager to limit public review and ignore pressing questions, but why are Commissioner Feige and the Dunleavy administration rushing ahead when so many critical questions remain unanswered? When it comes to managing our resources and protecting our unparalleled lands and waters, this is no game.
Philip Wight lives in Fairbanks and is a policy analyst for the Alaska Public Interest Research Group. He recently completed his doctoral dissertation in history, “Arctic Artery: The Trans-Alaska Pipeline System and the World it Made.”