News-Miner opinion: The small headline in the Nov. 5, 1959, edition of the Fairbanks Daily News-Miner introduced a new player into Alaska’s minuscule oil industry of the day: “Big firm files here on oil land.”
Now, just shy of 60 years later, a headline in the newspaper spoke quite a bit louder about that big new firm: “BP to shed Alaska assets.”
BP is leaving Alaska. The company announced Tuesday that it is selling all of its Alaska operations to Texas-based Hilcorp Energy for $5.6 billion and that the transaction is expected to conclude next year. The sale includes the Prudhoe Bay field, which BP operates in full but holds a 26% working interest, and the company’s share of the trans-Alaska oil pipeline.
As BP leaves the state, it’s leaving Alaska and its residents with many questions and concerns. Speculation about the reasons for the company’s exit will likely be consuming people — elected officials, oil industry analysts and others — over the ensuing weeks and months.
One of the key topics certain to arise during that speculation is the cost of doing business in Alaska. How does the production cost, including taxes and royalties, in our state compare to the production cost in other states and elsewhere in the world?
BP hinted in its sale announcement that the cost of doing business in Alaska is too high for the company.
“We are steadily reshaping BP and today we have other opportunities, both in the U.S. and around the world, that are more closely aligned with our long-term strategy and more competitive for our investment.”
Note BP’s use of the words “more competitive for our investment.”
You can bet that BP’s departure will be a significant point in the bubbling debate about whether Alaska should increase its oil taxes to bring in more money to prevent additional sharp budget reductions by Gov. Mike Dunleavy.
Other questions and concerns arise from BP’s decision to pack up in Alaska.
Has BP lost faith in the Alaska oil patch?
What about the employees? BP has 1,600 of them in Alaska.
Nonprofits are worrying about the impact on their own budgets because BP has been a tremendous benefactor, having given $4 million to Alaska organizations just last year. How much will Hilcorp, the new owner, provide?
Why does BP want to leave just when the result of the decadeslong effort to open the Arctic National Wildlife Refuge to oil drilling is about to materialize in the form of federal lease sales in the refuge’s coastal plain? Does the company plan to bid on leases before it hands everything over to Hilcorp?
Or is the sale just a further sign, as some analysts view it, that major oil companies are scaling back or divesting in mature fields worldwide to focus on exploration of new fields and the development of shale oil? BP last year wrapped up the $10.8 billion purchase of the U.S. shale holdings of Australian firm BHP.
Perhaps the decision to sell is just a simple matter of having received an offer that was too good to pass up as the company moves along with its two-year plan to divest itself of $10 billion of its holdings.
There’s probably no one reason.
The departure of BP, one of the foremost companies in Alaska’s oil history, is such a monumental change that Alaskans need to understand the reasons behind it.
The Legislature can help achieve that by conducting hearings on the matter. Oil industry officials and analysts have made several appearances in front of legislative committees over the years to comment on proposed changes to the oil tax laws. Alaskans need to hear from them again.