Transparency is the foundation of public trust: RCA should require release of Hilcorp financial information

Donna Schantz

By Donna Schantz
Executive Director

Public trust in our oil spill prevention and response system took many years to rebuild after the 1989 Exxon Valdez oil spill. It took a commitment to transparency, listening and engaging stakeholders in developing and maintaining the system of safeguards we have today for the Valdez Marine Terminal and associated tankers. Alyeska Pipeline Service Company initiated many of the spill prevention and response improvements by working with regulators and the public, a testament to their ongoing commitment to the people, environment and safety.

Photo of Donna Schantz
Donna Schantz

This system is now widely regarded as one of the best in the world. Strong State of Alaska statutes and regulations have been a major driver of this robust system. The lack of significant spills in Prince William Sound over the last 30 years indicates the effectiveness of industry meeting or exceeding regulatory requirements.

In enacting the Oil Pollution Act of 1990, Congress determined that only when local citizens are involved in oil transport will the trust develop that is necessary to change the system from confrontation to consensus, and so the Act called for creation of citizen councils.

The Prince William Sound Regional Citizens’ Advisory Council was created to provide a voice for citizens, those with the most to lose in the event of a large spill. Our council is a unique partner for industry and regulators, giving them a platform to provide information, answer questions, listen to stakeholders and cultivate the long-term relationships that are necessary to establish public trust. Involving local citizens in the process of independently verifying the state of readiness to prevent and respond to oil spills helps build trust.

The inability to verify is at the core of concerns the council currently has regarding the upcoming sale of BP’s Alaska assets to Hilcorp, including the transfer of 49% ownership of the Trans Alaska Pipeline System. There is a lack of information available for the public to determine whether Hilcorp and/or Harvest is financially fit, willing and able to safely and reliably operate the Valdez Marine Terminal and associated tankers in Prince William Sound.

When BP and Hilcorp/Harvest filed with the Regulatory Commission of Alaska to request approval of the transfer of operating authority, Hilcorp/Harvest also filed a petition for confidential treatment of certain financial information. Meanwhile, the public has been asked to provide comments and participate in a public process without access to this information. How can the public be expected to make meaningful comments when important information is not available?

For the past 40 years, every owner of the Trans Alaska Pipeline System has disclosed financial information to the investment community in order to be publicly traded. The public deserves to have access to Hilcorp/Harvest’s financial information in order to determine whether the transfer of operating authority to Hilcorp/Harvest is in the best interest of the public.

The Regulatory Commission of Alaska has said it will make a determination by March 12, 2020, on whether the financial statements will be disclosed to the general public. Under Alaska law, records of all public agencies are open to inspection by the public, unless specifically provided otherwise. The council urges the commission to take a position of full transparency by allowing public access to basic financial information. Safeguarding our state by ensuring Hilcorp/Harvest’s ability to respond to a major spill and properly clean up as assets are shutdown must outweigh concerns about privacy for this information.

Alaskans should be welcoming Hilcorp/Harvest and supporting the successful transfer and operation of these assets that are so important to the state. The public should be looking forward to building cooperative and collaborative relationships founded upon the transparent sharing of information. We know from experience that Congress was right when they said that only when stakeholders feel informed, heard and included in the process, will trust and acceptance develop. Transparent access to information regarding the transfer of assets from BP to Hilcorp/Harvest is essential to building public support and trust.

Shares of pipeline and terminal expected to change hands this year

Storage Tanks at Valdez Marine Terminal

Lack of public information about BP to Hilcorp sale leads to concerns

Late last year, Hilcorp Energy Company announced that they intend to purchase all of BP’s Alaska-related assets. These assets include approximately 49% interest of the Trans Alaska Pipeline System and Alyeska Pipeline Service Company.

Assuming the deal goes through, Hilcorp will take over BP’s facilities on Alaska’s North Slope and their affiliate Harvest Alaska LLC will take over BP’s share of the pipeline and terminal. Harvest’s specialty is “midstream” operations, which means moving oil from the production site to a destination such as a refinery or shipping terminal.

Harvest representatives have stated that their company has grown mostly through acquiring existing facilities and operating them through the end of the facility’s life. They have said that their experience with issues that occur in aging facilities, such as corrosion, would be a benefit for the pipeline and terminal, which is now over 40 years old.

The pipeline, the Valdez terminal, and the tanker escort system are all managed by Alyeska Pipeline Service Company. Currently, Alyeska is jointly owned by BP Alaska; ConocoPhillips Transportation Alaska, which owns 29%; ExxonMobil Pipeline Company, which owns 21%; and Unocal Pipeline Company, which owns a little over one percent. Alyeska is directly responsible for all maintenance, operations, legal, accounting, and personnel activities in these facilities. Hilcorp and Harvest have stated that Alyeska will retain control and responsibility over these facilities. They also said that decisions would still be made by consensus between the three majority owners: Hilcorp, ConocoPhillips, and ExxonMobil.

Overseas Shipping Group is planning to purchase Alaska Tanker Company, from whom the new owners will charter tankers to transport oil from the terminal. This means the current tankers are expected to remain shipping oil from the Valdez Marine Terminal for Hilcorp.

Sale pending approval

Before the sale can be completed, the Regulatory Commission of Alaska must approve the transaction. This commission regulates utilities and pipeline carriers in the State of Alaska. Other state agencies will weigh in on the transaction as well.

After the announcement, questions arose about whether Hilcorp has the financial and organizational capacity to safely operate the system and to prevent and respond to oil spills and other safety or environmental incidents.

Hilcorp and Harvest requested that the commission keep their financial documents and the sale agreement confidential. The companies are private, meaning they do not sell shares of stock to the public and are subject to less oversight. The companies provided all requested financial documents to the commission, but argued that because they are private, divulging financial information to the public would put them at a competitive disadvantage during future business negotiations.

Many of the submitted comments, including the Council’s, recommended release of financial documents and a more transparent process. The commission has not made the decision whether to grant this request.
Concern over incidents and regulatory citations

The commission held a public comment period on the sale in late 2019.

“The Council is concerned over Hilcorp’s documented track record of significantly reducing operating costs,” the Council stated in their comments. The Council cited Alaska Department of Environmental Conservation’s online spill records, which shows that over the course of Hilcorp’s operations in Alaska, which began in 2012, over 90 crude oil spills or discharges were attributed to the company. These incidents included the death of an employee in 2018, and a 2017 gas leak in Cook Inlet that lasted over four months.

The Council pointed out that Hilcorp’s disproportionately high number of incidents were during operation of systems much smaller than the pipeline system they plan to purchase and recommended heightened scrutiny of the sale.

Implications for end of life of the pipeline system

Part of the lease agreement for the pipeline includes an obligation on the part of the owners to dismantle and remove the equipment and restore the land to a satisfactory condition after the system is shut down. This includes the pipeline and the terminal. As part of the sale agreement, BP will retain the responsibility to pay for these expenses. It is not clear what regulatory agency will have the authority to ensure BP’s resources are available at that time.

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