Friday, January 18, 2013

Hilcorp acquisition of Marathon’s Cook Inlet properties cleared by state judge

Tim Bradner
Alaska Journal of Commerce

An Alaska superior court judge in Anchorage approved a Consent Decree Jan. 17 negotiated by state attorneys with Hilcorp Energy LLC, clearing the last hurdle for Hilcorp to acquire Marathon Oil's Cook Inlet producing assets.

Judge Erin Marston gave his approval from the bench following a hearing, state Assistant Attorney General Ed Sniffen said.

Hilcorp had agreed to purchase Marathon's properties, most gas producing, earlier this year for $375 million, but a Federal Trade Commission anti-trust investigation and parallel state investigation put the final transfer on hold. The FTC and state attorneys were concerned because Hilcorp would own 70 percent of the gas supplied to regional utilities, between the former Chevron properties Hilcorp now owns and the Marathon properties

After a lengthy investigation the FTC ultimately turned the matter over to the state, which then negotiated the Consent Decree with Hilcorp in early November. The agreement requires Hilcorp to cap prices for gas sold to utilities and industrial customers at $6.60 per thousand cubic feet, with a 4 percent annual escalator allowed, for five years. The escalator from a $6.60 base price in early 2013 would have the gas cap set at $7.72 per mcf after five years, in 2017, Sniffen said in a November interview.

Hilcorp is also not allowed to sell gas for export, as liquefied natural gas, unless the state attorney general gives an approval. That would not come unless regional needs are met, Sniffen said. The requirement for local needs to be met includes utilities and industrial customers as well as utilities outside Southcentral Alaska who may purchase Cook Inlet gas, he said.

The approval by the court means the acquisition can now go through and the state expects that to happen quickly. "They're anxious to get this wrapped up as quickly as possible,” Sniffen said. “We hope this clears the way for Hilcorp to do the things they have promised to do," in terms of new investments in Cook Inlet's aging oil and gas fields, he said.

In a November interview Sniffen said negotiating the Consent Decree was “a very difficult balancing act for us because we want to protect the local consumers and at the same time give Hilcorp enough of a price incentive to explore for gas,” Sniffen said. The provision prohibiting Hilcorp from selling gas for export as LNG until local utility needs are met also applies to sales to companies “who intend to resell the gas for LNG export,” Sniffen said.

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