By Liam Denning
Back then, BP was on the hunt for “elephants,” or giant oil and gas fields that typically took many years – and country-sized balance sheets – to develop. Hence Browne’s acquisition spree.
The world has moved on. While producers still relish big discoveries, the intervening boom and bust in oil prices has made investors leery of big-ticket investments and more demanding in terms of payouts. Apart from, by and large, holding capex budgets in check, oil majors have been retreating from traditional strongholds, with Royal Dutch Shell Plc virtually leaving the Canadian oil sands, Chevron Corp. recently exiting the U.K. North Sea and Exxon Mobil Corp. putting its Norwegian assets up for sale. BP put its own Norwegian business into a joint venture in 2016.
Meanwhile, they have been diverting cash to dividends and buybacks in order to keep investors onside – BP’s stock yields almost 7% – as well as directing more of their capex to shorter-cycle shale development.
BP paid BHP Group Plc $10.5 billion in cash for its shale assets last year. Besides reducing BP’s leverage at a dicey time for oil prices, the Alaska deal can be seen as swapping out of an old, conventional position to help fund expansion in unconventional oil and gas. In that sense, selling Alaska throws the spotlight on these new assets where, like several of its peers, BP is trying to prove that the majors’ scale – which worked in such places as Alaska – can also be an advantage in shale.
Alaska is viewed by some as a growth area, particularly – with grim irony – as climate change and the energy-dominance aspirations of the current U.S. administration open up more of it for potential development. However, as a sensitive, remote and challenging environment, it carries extra risks and costs for producers, including the potential for future administrations to restrict activity there again. The state’s oil boom truly began when the panic of the 1973 oil shock swept aside opposition to the construction of the Trans Alaska Pipeline. Its future from here will be shaped at least in part by the challenges of excess oil and associated emissions.
Faced with this much change and the need to adapt, there really can be no sacred cash cows.