Britain’s BP Re-examined $5.6 Billion Sales Deal Due to Global Oil Price Crash

A British oil company, BP Plc (BP) announced on Monday, April 27, 2020, that it had reconsidered the financial terms of the $5.6 billion sale of its Alaska business to a privately held, Hilcorp Energy Co. (Hilcorp) due to the fresh crash of global oil price. Under the new terms, the company made some changes regarding cash-flow sharing since the fluctuation of oil prices would lead to a lower cash boost than initially planned.

BP’s restructuring of the Sale Deal

Amid the low demand for oil due to travel restrictions imposed by governments across countries, some key producers including Russia had continued its oil output, which led to a sharp decline in oil prices globally. Several deals have been suspended due to the coronavirus outbreak around the world as the pandemic has caused uncertainties of the global market and economy.

As a result of uncertainties due to the pandemic on oil prices, BP had decided to revise its sale deal of Alaska plant. The British oil company said that the new agreement would retain the original sale price with some changes in areas including vendor financing, smaller payments in 2020, and cash-flow sharing in the near term.

The original agreement was agreed upon by the US oil company, Hilcorp to pay $4 billion this year and another $1.6 billion on basis of an earnout over time. BP disclosed that Hilcorp had made a deposit payment of $500 million on the signing of the transaction in 2019 with an expected date to complete the deal in mid-2020.

Pursuing to Complete Transaction

Janet Weiss, BP’s Alaska president, said in a statement, “BP remains committed to completing the sale, even in these volatile and difficult market conditions.” A spokeswoman of BP stated that the company was scheduled to release first-quarter results on Tuesday and could provide additional details on the new terms while it was reported that BP shares rose nearly 4% to close at $24.31 in New York on Monday.

Without explaining the new terms including BP-provided financing on the deal, Hilcorp President Jason Rebrook in a statement said, “In the weeks ahead, we will continue to work with BP, the State of Alaska, and others to ensure a seamless transition process as we complete this transaction.” Meanwhile, Hilcorp is also separately pursuing regulator’s approvals for the purchase of BP’s pipeline operations.

With the new development in the global oil business, US crude oil futures dipped sharply last week and had experienced the deepest slump for the first time in history, due to the constant rise of oil supply when oil demands fell considerably due to the virus pandemic. On Tuesday, US oil futures were trading at $12.28 a barrel.

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