BP Alaska split signals big oil shift
BP once said that their initials once stood for “Beyond Petroleum” but now it might as well stand for "Beyond Prudhoe" Bay.
After 60 years, British Petroleum, one of the corporations that put the “big" in big oil, wants to pack up and leave Alaska with a proposed $5.6 billion dollar sale of its Alaskan North Slope assets to Hilcorp Energy, a company that says it has a record of “bringing new life to mature basins”. The sale, if approved by regulators, will be the end of an era where big oil went North and overcame big challenges to provide domestically produced oil in a world where the U.S. was dependent on foreign sources of oil and looking for alternatives to Arab oil that was withheld from the U.S. during the Arab oil embargo. It provided hope that the U.S. would have at least some sources of oil that could not be cut off by other countries for political reasons.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| BP | BP PLC | 28.99 | -0.32 | -1.09% |
Yet times are changing and so is the belief that big oil still has to be as big as it once was. BP has been on a mission to become a leaner and meaner oil producer. Part of it has been strategic but part of it has been because of its need to divest itself of assets because of the Deepwater Horizon disaster. Big oil is increasingly turning away from long term projects and resisting injecting cash into old fields in favor of the quicker and less expensive turnaround of shale oil. While a shale well will never last 60 years like the North Slope can, a company can get in cheap, make some money and go onto the next well.
Other Big Oil companies like Exxon Mobil may also start to divest away from Alaska as it looks to cut costs and be more efficient.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| XOM | EXXON MOBIL CORP. | 117.83 | -0.23 | -0.19% |
What this means for Alaska is that it may be some time before there is a rush to explore for more oil. Alaska’s aging oil fields need a cash infusion as production has peaked and needs investment and exploration to hold off or reverse the decline. The state that gained mythical and pop culture status as a state that gave its citizens oil money may see that revenue start to dry up.
Vox reported, “the Alaska Permanent Fund is a state-owned investment fund established using oil revenues. It has, since 1982, paid out an annual dividend to every man, woman, and child living in Alaska. In 2015, with oil prices high, the dividend totaled $2,072 per person or $8,288 for a family of four. By 2017, it had been cut down to $1,100 due to money being diverted to other purposes; in cheaper gas years, it can dip into the $800 to $900 range.”
The debate of the last decade of drilling for more oil in the Arctic National Wildlife Refuge has quieted down. New laws have allowed for more exploration in Alaska on lands previously off-limits and the U.S. Interior Department is preparing to sell drilling rights in a small part of the Arctic National Wildlife Refuge later this year. Based on recent developments it's clear those rights won’t go as high as they would have a few years ago.
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But the caribou might not get very lonely missing their drilling friends. Don't declare drilling and exploration in Alaska deal. In a few years when the shale wells start to see production level out and costs rise, Alaska oil will again be hot property. Oil fields that exist will be rejuvenated by companies like Hilcorp Energy Co. for $5.6 billion, ending a six-decade presence in the state as oil production there declines.
Even Russia is showing a desire to have a stake in the Arctic where an abundance of oil has yet to be produced and most assuredly will be needed at some time in the future. And Alaskan residents can hopefully continue to get those oil checks and keep the caribou company.
Phil Flynn is senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn Learn even more on our website at www.pricegroup.com.@pricegroup.com.