No panic over news BP will sell San Juan Basin assets Transaction 'not a fire sale,' local leaders say

John R. Moses | The Farmington Daily Times

FARMINGTON — The announcement that BP American Production Co. plans to sell its San Juan Basin holdings seemingly hasn’t rung alarm bells in San Juan County.

Some local leaders and an industry expert said they are encouraged because this isn’t a fire sale of distressed assets, but rather a planned sale to accomplish a corporate fundraising goal.

A letter from a BP American Production Co. executive Tuesday informed his employees the oil industry leader intends to sell all San Juan Basin assets over a period of two years to buy assets in the Permian Basin and elsewhere to improve BP’s holdings and profits.

BP did not return a request for comment.

The BP executive noted that business will go on as usual during those years, which was good news to many.

As state Rep. Rod Montoya, R-Farmington, noted Thursday, the damage to San Juan County’s economy — and to charities like the United Way — has been felt already. New buyers of existing assets mean an opportunity to engage with a new business that may be running leaner and looking for opportunities for success and — perhaps — community involvement.

“It can be a good thing, it really can,” Montoya said of change in the oil and gas industry.

Montoya cited the assets purchased by Hilcorp, a firm that has been working on its wells over the past year. He said, “Hilcorp, quite frankly, has kept people working.”

A new buyer for BP’s assets, Montoya said, is “not going to invest that kind of money to shut things down.”

He’s hoping the Trump administration can make progress on exports of liquefied natural gas to other countries, which he hopes would boost prices and thus potentially develop interest in San Juan Basin assets.

BP left Farmington last year

The San Juan Basin assets are among many the corporation plans to sell to fund the purchase of other oil and gas assets. BP in the same letter also announced plans to pull out of the Anadarko Basin in Oklahoma and Texas, and the Arkoma Basin in Oklahoma as part of a plan to fund the $10.5 billion purchase of U.S. assets from BHP Billiton.

This is the second regional cutback in a little more than a year for BP, which announced plans last year to relocate its corporate office to Denver from Texas.

BP America Inc. closed its Farmington office in July 2017, resulting in the loss of 40 local jobs. With those employees went corporate charitable contributions that had gone to help San Juan County nonprofit groups.

Other employees relocated to BP's operations center in Durango, Colorado.

Part of a shifting corporate landscape

BP plans to keep operating and exploring during a two-year window while it seeks a buyer, the letter from BP executive Dave Lawler, BP America’s CEO.

That continuity offers some level of comfort to local leaders usually reacting to an announcement that assets have already been sold, or jobs are moving elsewhere.

Warren Unsicker, chief executive officer of the Four Corners Economic Development, Inc., is taking a wait-and-see approach.

“There is an ongoing shift in ownership of energy assets in the San Juan Basin that is driving renewed activity in the oil and gas fields of our region,” Unsicker said via email. “BP is the latest in this transition, and we are hopeful that they are working with a buyer that will be as engaged in the community and create continued prosperity in the industry.”

Expert praises BP

Energy Magazine columnist Dan Fine, who is the state of New Mexico natural gas coordinator, said BP will be selling not just the natural gas wells but technology it developed to better recover that gas in the Mancos Shale fields it owns.

Fine said BP is responsible for “discovery of the sweet spot in the Mancos Shale,” and said, “the new buyer will be paying for both the natural gas resources and the technology” necessary to harvest those resources.

Unlike past owners, Fine said, “BP added value to the basin.”

Instead of having a “fire sale” mentality, he noted BP plans a two-year period to sell its assets at full value to raise up to $6 billion to fund the purchase of global mining and petroleum giant BHP Billiton’s U.S. oil and gas assets.

The nuts and bolts

On July 26, Brian Gilvary, BP’s chief financial officer, referred to the pending sale obliquely in a release acknowledging BP’s purchase of “470,000 net acres of licences, including a new position for BP in the liquids-rich Permian-Delaware basin, and two premium positions in the Eagle Ford and Haynesville basins.”

“The financial repositioning we have delivered in recent years and the confidence we have in our outlook for free cash flow allow us to take this extremely attractive opportunity now without any adjustment to our financial frame,” Gilvary said in the release. “This is fully consistent with our commitment to financial discipline and creating value for shareholders. With our planned additional divestments and buybacks, we expect to deliver this major step forward for a net investment of around $5 billion.”

On July 27, BHP announced the sale, as well. The deal could close in October.

BP touted Mancos assets

It was about a year ago when BP promoted a major natural gas discovery in the Mancos Shale fields.

BP released production figures detailing the most productive well drilled in the San Juan Basin in 14 years, producing 12.9 cubic feet of natural gas per day over 30 days, the company said then.

Statements by the same CEO who announced the sale this week indicate that BP believes in the basin’s potential, even if it decided to sell the assets.

“We are delighted with the initial production rate of this well,” said U.S. Lower 48 onshore business CEO Lawler in August 2017. “This result supports our strategic view that significant resource potential exists in the San Juan Basin and gives us confidence to pursue additional development of the Mancos Shale, which we believe could become one of the leading shale plays in the U.S.”