BP’S Alaska retreat signals end of an era

‘BP has been backing away from costlier, more carbon heavy conventional strongholds’

In the swashbuckling days of Lord John Browne, BP’S crack team of expert geologists targeted “elephants” – monster oilfields in far-flung places that had the potential to transform profits in the blink of an eye. In recent years, the world’s oil majors have been withdrawing from many of the more extreme destinations around the world but BP’S decision to pull out of the icy waters off the coast of Alaska is the most significant retreat of all. The oil giant is offloading its entire Alaskan operations to Hilcorp, a specialist producer run by Texan billionaire Jeffery Hildebrand, for $5.6bn (£4.6bn).

BP has spent decades drilling in Alaska and the US state has proven to be one of its most bountiful hits. Its gigantic 214,000-acre Prudhoe Bay field is the most prolific in US history.

When production began, BP predicted a haul of 9.6bn barrels but it has managed to extract more than 13bn thanks to the latest drilling technology. Its stake in the 800-mile Trans-alaska Pipeline, one of the world’s longest, is also being offloaded.

Under Browne, BP also piled into the Gulf of Mexico, snapping up licences and eventually becoming the biggest player in the region. However, the Deepwater Horizon tragedy changed everything, forcing the company to reverse much of its global expansions.

Bob Dudley, the current chief executive, has done an exceptional job of reshaping BP and attempting to restore shareholder value, despite having to fork out an exorbitant £54bn in fines to US authorities.

Like its big rivals, BP has been backing away from costlier, more carbon heavy conventional strongholds and maturing assets, betting on riskier methods of extraction such as shale drilling

instead. Investor pressure to pull out of more remote and challenging environments is intensifying. Farflung locations such as Alaska come with greater risks and costs, and there is growing scrutiny of the environmental impact of oil drilling.

Crude prices are another factor – the further they fall, the less economic bigger and more expensive projects become. Production in Alaska has been in steady decline since the late Eighties but specialists such as Hilcorp, who can operate at a fraction of the costs of the majors, are only too happy to squeeze the last remaining drops of oil out of overdeveloped fields.

BP has chosen instead to join a new oil rush in the American heartland of Texas, Oklahoma and Louisiana, with the £9bn takeover of BHP’S shale operations last year.

The wilderness of the Deep South still presents sizeable challenges, even for a trailblazer like BP, but it can’t compare to the big-game hunting of Lord Browne.

Out of puff

Investors despise nil-premium, all-share mergers, so it’s no wonder that shares in both Philip Morris and Altria plunged after plans for a $200bn blockbuster tie-up of the tobacco giants was smoked out.

A total of $13bn was wiped off the combined market value of the pair. Shares in Marlboro-maker Philip Morris suffered their largest one-day drop in 16 months on Tuesday, falling 7.8pc to $71.70.

Still, it’s a measure of the cloud that has engulfed the industry that two of its biggest names are prepared to perform a total about-turn and reunite just a decade after becoming separate companies.

The tobacco market is changing rapidly. Smoking rates are tumbling in the Western world. Indeed, although it remains the UK’S biggest killer, public health officials believe the habit is in terminal decline.

Only last month, the Government pledged to end smoking by 2030. Both companies have warned that sales are declining more quickly than expected in major markets such as the United States, Japan and Russia.

To its credit, Philip Morris has been more alive to this existential threat than any of its rivals. It has publicly pledged to transform itself into a company that makes only smoke-free products and has even urged customers to quit the evil weed.

The company, which also makes Chesterfield and L & M, has invested in IQOS, a device that heats tobacco rather than burning it, while Altria paid $12.8bn for a 35pc stake in the popular electronic cigarette Juul last year.

Yet, American regulators are trying to combat a surge in teen vaping and have threatened to ban Juul devices entirely if under age use continues to rise.

This mega-merger is fraught with risks, much like smoking itself.