TERMS OF DEAL HAVE CHANGED DUE TO MARKET VOLATILITY
On Sunday evening, BP issued a press release confirming its commitment to complete the sale of its Alaska business to Hilcorp, a deal first announced in August 2019. Subject to regulatory approvals, the parties expect to complete the transaction in June 2020.
Because of the recent oil price volatility, BP and Hilcorp have renegotiated the financial terms of the deal, BP said in the press release.
Under the revised agreement, the total amount of the sale remains unchanged at $5.6 billion, subject to customary closing adjustments. However, the structure and phasing of payments has been modified.
The original agreement provided for Hilcorp to pay BP $4 billion near-term and $1.6 billion through an “earnout” thereafter. Hilcorp paid BP a $500 million deposit on signing of the transaction in 2019.
The revised agreement “adjusts the structure and phasing of the remaining consideration to include lower completion payments in 2020, new cash flow sharing arrangements over the near-term, interest-bearing vendor financing and, potentially, an increase in the proportion of the consideration subject to earnout arrangements,” BP said.
The revised agreement is expected to maintain the majority of the value of the transaction. It is also structured with flexibility to phase and manage payments to accommodate current and potential future volatility in oil prices.
“We have worked closely with Hilcorp to reconfirm our commitment to completing this deal. The agreed revisions respond to market conditions while retaining the overall consideration. We look forward to progressing swiftly to completion and for Hilcorp to take over the operation of this important business. We are confident that completion of this sale is the right thing for both parties, for the business and for Alaska,” said William Lin, BP chief operating officer of upstream regions.
BP and Hilcorp have developed detailed transition plans to deliver a smooth handover of operations upon completion to allow Hilcorp to focus on embedding planned operating efficiencies as rapidly as possible.
The transaction is part of BP’s divestment programm to deliver $15 billion of announced divestments by mid-2021. Information about the transaction will be included in BP’s first quarter 2020 results, to be released on April 28.
This is a great idea if you are BP or a share holder. If a business isn’t profitable, what’s the point?
IMO: BP had evolved into a bureaucracy which micro-manages their field ops from headquarters. It’s inefficient, cumbersome, and not very responsive to local events.
Hilcorp upper-management is more local. It’s better suited for managing field ops in Alaska.
BP was losing money on every barrel. Hilcorp has a very good chance of fixing that.
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