State regulators have asked Hilcorp, the independent oil company buying BP’s Alaska assets, to disclose whether and how the pandemic-driven crash in oil prices will affect its ability to seal the $5.6 billion deal.
In an 18-page order Thursday, the Regulatory Commission of Alaska asked BP and Hilcorp affiliate companies to answer 32 different questions, including whether “recent changes in financial markets” have affected Hilcorp’s ability to finance the deal.
“If market conditions have not impaired access to capital, please explain the sources of capital for this acquisition,” the order said.
Hilcorp’s finances have become an increasing area of focus for those following the deal amid a historic crash in the price of oil last month — driven by both plummeting demand and a feud between Saudi Arabia and Russia over whether to further reduce production in response. Alaska North Slope crude prices have plummeted from $50 a barrel in early March to $22 by Friday.
Hilcorp has not said exactly how it plans to raise the full $5.6 billion, but ratings agencies have said that heavy borrowing could cause them to reduce the company’s credit rating.
Two watchdog groups also say they’re concerned about whether Hilcorp’s debt levels could affect its ability to operate safely.
In a letter to the RCA before the order was issued, the Prince William Sound Regional Citizens’ Advisory Council said the commission should require Hilcorp to file “new and updated financial statements” to reflect the “current investment environment.”
“Much has changed since Hilcorp submitted its initial financial statements and sales agreement with BP. The changes are of a magnitude that the analysis of Hilcorp’s financial fitness might be affected,” wrote Donna Schantz, the director of the council, which was created after the 1989 Exxon Valdez oil spill.
“The council is not opposed to this transaction,” she wrote. “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 Alaska Public Interest Research Group sent a similar letter to the RCA on Friday. It praised the commission for its request for additional information about the effects of the oil price crash. But it argued that Hilcorp should still be required to provide complete updated financial statements, which the RCA has not asked for.
“Without requiring updated financials, the RCA will be evaluating a company whose past financial statements bear little relationship to reality,” said the letter, written by the research group’s policy analyst, Phil Wight.
A Hilcorp spokesperson, Luke Miller, declined to comment. The company’s founder, Jeff Hildebrand, participated in a White House meeting between President Donald Trump and oil company executives Friday, where he told the president he was there representing “the family-owned businesses that are in this industry.”
BP, in an announcement Wednesday, said its broader asset sale initiative that includes the Hilcorp deal “remains on track,” though the timing of when it receives the money from the sales “may be revised as transactions complete, particularly while volatile market conditions persist.”
“This includes the sale of our Alaskan business to Hilcorp, which we continue to expect will complete during 2020, subject to regulatory approvals,” the announcement said. “We will provide further information on this transaction going forward, as appropriate.”
In its order Thursday, the commission said it wants the additional information from BP and Hilcorp “to assist us in our analysis of whether Harvest Alaska’s proposed acquisition of BP’s Alaskan assets meet our statutory standards.” Other questions involve liability and insurance, along with the operations of pipelines that a Hilcorp affiliate is acquiring stakes in, including the trans-Alaska pipeline.
The companies’ responses are required by May 4.