In sign of North Slope evolution, privately owned Texas company targets Chevron’s Alaska assets

A Chevron subsidiary currently owns a small share of the pipeline that connects the Kuparuk oil field, pictured here, to the trans-Alaska pipeline. Chevron is proposing to sell its stake to a new Texas oil and gas company, Pontem Alaska Midstream. (ConocoPhillips photo)

A little-known Texas company is proposing to buy a share of a key North Slope pipeline from Chevron — a bid that’s reviving questions about the Alaska oil industry’s capacity to decommission aging infrastructure and pay damages in the event of a spill.

The executives behind Pontem Alaska Midstream, the firm that wants to make the acquisition, have a long track record in finance, and parent company Pontem Energy Capital has access to cash through “institutional pools of capital” and “​​ultra-high net worth” families, Pontem and Chevron have told regulators.

But they’ve revealed few details about the assets currently owned by Pontem, which wants to buy a stake in the North Slope pipeline that connects the Kuparuk and Alpine oil fields with the Trans Alaska Pipeline System.

And the companies say that because Pontem is a new business, it has no audited financial statements to share with the Regulatory Commission of Alaska, or RCA. That’s the state agency that Pontem and Chevron are asking for expedited approval to transfer Chevron’s 5% interest in 37 miles of pipeline that move as much as 175,000 barrels of oil a day and are poised to carry even more, as new projects come online.

Attorneys working with the companies also asked Republican Gov. Mike Dunleavy’s administration earlier this year to transfer Chevron’s minority interests in three major North Slope oil fields to Pontem — including Chevron’s stake in the massive Prudhoe Bay deposit. 

For reasons neither company would explain, the attorneys withdrew that request earlier this month, according to correspondence with Dunleavy’s administration.

Pontem’s ambitions on the North Slope come four years after Hilcorp, a large independent oil business, finished buying out shares of the trans-Alaska pipeline and oilfield assets owned by multinational company BP. 

That multibillion dollar deal drew pushback from watchdogs, who wanted more assurances about privately owned Hilcorp’s finances and its ability to pay for infrastructure and spill cleanup. Hilcorp received RCA permission to shield its financial statements from public disclosure during the acquisition approval process, in spite of a lawsuit by the City of Valdez that attempted to force their release.

Pontem’s proposed acquisition of Chevron’s stake in the Kuparuk pipeline, industry observers said, raises near-identical concerns. It also highlights a transition underway in Alaska’s oil industry, in which the large, multinational corporations that financed initial developments are giving way to smaller, less financially well-endowed businesses.

“We should continue to expect more of that,” said Antony Scott, a former member of the regulatory commission.

“What we see here with this new company taking over this 5% interest is, it’s so new it does not even have audited financials,” Scott added. “And the problem, of course, is that there are very substantial potential liabilities that come with operating in the oil and gas business.”

Pontem’s president, Jeff Bartlett, and its chief financial officer, Rusty Kelley, did not respond to requests for comment.

Their company’s affiliates have recently invested in a few other Alaska projects on both the North Slope and in Cook Inlet, outside Anchorage. Those properties produce only small amounts of oil — some 2,000 barrels a day.

Chevron and Pontem, in their 17-page joint request to the RCA, say that because the deal is for only a minority interest in the pipeline, the commission should issue their approval without a hearing, and they’re asking for action by Sept. 30.

The companies say the pipeline will continue to be operated as before, with a 95% interest controlled by an affiliate company of ConocoPhillips — a multinational oil company that’s Alaska’s largest petroleum producer. And they say that Pontem will have liability and pollution insurance for its 5% ownership stake.

“The transfer of this small ownership interest will not have any effect on the Kuparuk Pipeline’s rates, terms, or services, on day-to-day operations or to the managing partner or the personnel,” Pontem and Chevron said in their filing.

Chevron also did not answer questions about the proposed transaction, though a spokeswoman, Paula Beasley, confirmed that the company’s North Slope assets have been for sale since 2022.

Those assets include small stakes in multiple major oil fields: a 1.16% share of the Prudhoe Bay deposit, a 5% stake in the Kuparuk River field and a 26% stake in the Duck Island unit, which includes the Endicott area. A likely price for those assets was some $500 million when Chevron announced its intent to sell two years ago, Reuters reported.

Pontem and Chevron had originally applied to transfer Chevron interests in all three fields to Pontem, according to a letter from an attorney sent to the Alaska Department of Natural Resources. 

But in that letter, dated Sept. 5, the attorney, Ramona Monroe, said the request was being withdrawn. She did not directly explain why, though she wrote that the Chevron leases would instead be acquired by other parties that exercised their “preferential rights.” 

That’s an industry term referring to a right of first refusal sometimes held by companies that own oil fields in partnerships: If one chooses to sell its stake, the partners have “preferential rights” to buy it. 

In Chevron’s case, it owns the Duck Island unit in a partnership with Hilcorp, the Prudhoe Bay field in a partnership with ExxonMobil, Hilcorp and ConocoPhillips and the Kuparuk field in a partnership with ConocoPhillips and ExxonMobil.

Monroe’s letter indicates that at least one of those partner companies decided to buy Chevron’s shares of the 280 separate oil leases that Pontem originally planned to take over.

ExxonMobil did not respond to a request for comment. ConocoPhillips and Hilcorp declined to comment.

Changing face of Alaska oil

Scott and other oil experts said that the proposed Pontem acquisition of the pipeline stake, and the company’s attempt to acquire Chevron’s shares in the oil leases, are the latest examples of the North Slope oil industry’s changing makeup . 

“A major — in this case Chevron — is looking to divest of its small working interest in a major field, and a private oil and gas investor is willing to scoop it up,” said Brad Keithley, a longtime Alaska oil and gas attorney.

The North Slope has, for decades, been one of the United States’ biggest oil-producing basins. And from its earliest days in the 1960s, the development of its resources has been the domain of big, well-financed multinational companies. 

Those firms had the balance sheets needed to pay the huge costs of finding and drilling for oil in the area, with its harsh winter climate and long distance from shipping and logistics hubs.

But oil production from the North Slope peaked in the 1980s, at 2 million barrels a day, and since then, it’s been on a long decline. 

That’s made the North Slope less attractive to major companies like Chevron and BP, which excel at finding and bringing big oil fields online — but whose many layers of management and high overhead costs can sometimes impede the smaller projects and adjustments needed to efficiently extract oil from declining fields. 

In addition, conservation and some tribal groups have convinced some investors and insurers to stop supporting projects in Alaska’s Arctic, saying that oil development there contributes to climate change and disturbs the environment in a sensitive region.

Those trends have coincided with several decisions by major companies to divest from the North Slope in recent years. 

BP, with decades of history in the region, announced in 2019 that it was selling its assets to Hilcorp. Shell, earlier this year, said it would return to the state a batch of North Slope leases that were once seen as holding a lucrative deposit of oil. And Eni, a multinational oil company based in Italy, announced in June that it would sell two major North Slope fields to Hilcorp — the same company that bought BP’s assets.

Experts say the shift away from the major, publicly traded companies is significant because the smaller, privately owned businesses replacing them pose more risk to the state.

Those risks come in two areas, they say. 

One is companies’ performance of their expensive obligation to remove their production infrastructure when it’s no longer profitable — a commitment laid out in the leases they sign with the state. 

The other is their capacity to pay damages in the event of a major accident, like an oil spill.

Experts say the major companies are much more likely to meet their obligations because of their deep pockets, diverse assets and a desire to preserve their public and political reputations. 

Those protections don’t exist in the same way for smaller, privately held companies, said Scott, the former regulator. 

“There’s no reason to think that they’re going to have money in the bank, just sitting around, adequate to do decommissioning, which could potentially be very expensive,” said Scott, who once worked at the Alaska Department of Natural Resources reviewing and overseeing oil company transactions like the proposed Pontem-Chevron deal.

Scott pointed to a similar process that’s been unfolding over a longer period in Cook Inlet, Alaska’s first major oil and gas producing basin — where, in 2009, a small company filed for bankruptcy and left the state facing a bill of tens of millions of dollars for oil and gas infrastructure removal before another company eventually agreed to take it over.

In the inlet, decommissioning existing oil and gas infrastructure is likely to cost $1 billion or more, according to a recent analysis by Alaska Public Media and APM Reports, and one offshore platform has produced no oil and gas since 1992 but still hasn’t been removed.

The North Slope has far more oil and gas infrastructure in place than Cook Inlet. 

And the transition toward smaller businesses in both areas makes it essential for Alaska regulators to subject proposed acquisitions to close scrutiny and to require financial assurances from companies — like extra bonding and commitments from parent corporations — that protect the state’s interests, Scott said.

Nathaniel Herz welcomes tips at natherz@gmail.com or (907) 793-0312. This article was originally published in Northern Journal, a newsletter from Herz. Subscribe at this link.