Sale of BP’s Alaska assets to Hilcorp under scrutiny

Additional information needed to address concerns

Storage Tanks at Valdez Marine TerminalThe sale of BP’s Alaska assets to Hilcorp Energy Company and affiliates is still pending approval by the Regulatory Commission of Alaska, or RCA, and other state agencies.

The RCA, within Alaska’s Department of Commerce, regulates utilities and pipeline carriers in the State of Alaska. Other State of Alaska agencies are advising the RCA on aspects of the transaction and have their own statutory authority to approve or deny the transaction.

Hilcorp’s request for confidential financial documents is questioned

Hilcorp filed financial information in late 2019 and requested that the RCA keep those documents and the sales agreement confidential. They argued that releasing these documents to the public would cause “competitive harm.”

During a comment period last November, and again during a hearing in February, the RCA heard from many members of the public, including the Council, who encouraged more transparency by releasing the financial information. The Council is seeking assurances that equipment, personnel, commitment to safety, and the resources necessary to prevent and adequately respond to an oil spill will remain at current levels or above.

In February, the RCA ordered that the sales agreement would remain confidential, and required Hilcorp to submit further information with specific details on how releasing the financial documents would hurt their business as claimed. Hilcorp also needed to convince the RCA that the harm to Hilcorp would outweigh the public’s interest.

On March 12, the RCA ruled that the financial documents would remain confidential.

An unexpected twist

Soon after that March 12 ruling, the financial markets tumbled due to the coronavirus pandemic and oil prices collapsed. A March 25 letter from the Council to the RCA recommended that the RCA require updated financial information to assist with its fit, willing, and able analysis. The Council was encouraged by an order from the RCA on April 2, which asked Hilcorp and Harvest to submit additional details on their financial fitness in the wake of the coronavirus crisis. As The Observer went to press, the Council was waiting to hear about Hilcorp’s response, which was due May 4.

“As we have stated in the past, the Council is not opposed to this transaction,” the Council stated in its March 25 letter. “It just wants to be sure the state conducts its due diligence responsibilities and that Hilcorp is fit and able to carry-out its significantly increased and critically important responsibilities associated with this transaction, including the prevention of oil spills and the capacity to respond if one should occur.”

The RCA has set a self-imposed deadline of September 28 for its final approval of the sale.

Who is responsible for oversight?

Several departments in Alaska’s government are involved in this sale. The Department of Commerce, Department of Natural Resources, the Attorney General, the Department of Environmental Conservation, the Department of Fish and Game, and the Department of Labor and Workforce Development all have a role.

Department of Commerce: The five-member RCA, as well as the Alaska Oil and Gas Conservation Commission, are under this department. Both commissions are “quasi-judicial,” meaning they hold hearings, conduct investigations, and make decisions much like a court trial.

Their role is to determine whether Hilcorp and its affiliates are financially fit and able to own and support the operation of BP’s Alaska assets, and whether the transaction is in the best interest of the state. The Alaska Oil and Gas Conservation Commission oversees financial bonding for this transaction.

Department of Natural Resources: Within this department, the Division of Oil and Gas has several responsibilities. The State Pipeline Coordinator is working with the RCA to ensure the companies are financially fit. Other sections are conducting legal analyses, monitoring changes in land leases and permits, and managing the change of operators.

The division’s commercial section is also examining the companies’ financial resources. The section has their own in-house experts plus they contract with an independent third party for additional analysis.

If the sale is approved, this section will be responsible for continually monitoring Hilcorp and affiliates’ financial fitness in the future. They will review annual financial statements from the companies and can request additional insurance coverage if the company’s financial situation changes.

Department of Environmental Conservation: This department is responsible for ensuring the companies prove they have the financial resources to prevent and clean up any spills, and that any necessary changes are made to existing contingency plans.

Department of Fish and Game: This department oversees permits that could adversely affect Alaska’s fish habitats.

Department of Labor and Workforce Development: This department has been assisting BP employees that have been laid off due to the sale.

Dismantling the pipeline and terminal

The lease agreement includes a commitment to dismantle and remove all equipment and restore the land to an acceptable condition after the system is no longer operating.

The sales agreement states that BP will retain the responsibility for decommissioning existing assets. As the new owners, Hilcorp and its affiliates would be responsible for any additional equipment or infrastructure installed after the sale is complete.

In 2005, the cost of decommissioning the Trans Alaska Pipeline and Valdez Marine Terminal was estimated at over $2.6 billion.

The operators of the pipeline system collect tariffs to pay for this future commitment. Currently, it is estimated that the owners have collected over $5 billion. The money is not in a trust, however. BP and the other owners keep this money and note the obligation in their annual financial reports.

In 2004, the Council recommended this money be placed in an external trust in case the pipeline changed owners. The Council reiterated this in recent comments to the RCA.

It is unclear to the Council how this commitment to dismantle could be enforced, potentially 40 years in the future, with BP, a company that would no longer have a presence in the state. Hilcorp and its affiliates’ role in this commitment is still being examined.

The April order by the RCA required additional information on this issue to be submitted by May 4.

Read more

Council-sponsored report from 2004 by Richard Fineberg on dismantling the pipeline and restoring the land: 

Trans-Alaska Pipeline System Dismantling, Removal and Restoration (DR&R): Background Report and Recommendations





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