BP Invests $1 Billion in Alaska Drilling Business

Joe Goldman  |

BP announced on Monday that it will invest an additional $1 billion in its Alaskan drilling business. The company said that it is planning to open two new drilling rigs at Alaska’s North Slope by 2016.

The news comes several months after the Alaskan Senate agreed to reform Alaska’s oil tax code. According to the Alaska Journal, the state will reduce oil tax payments by $4 billion - $6.3 billion over the next six years, further incentivizing companies like BP to expand business in Alaska.

Drilling activity in Alaska has been on the decline over the last several years. Tough weather conditions, geographical isolation, and steep tax rates have made it difficult for oil companies to profit in the state. As a result, Alaskan drilling activity has stagnated over the last several years despite higher oil prices since 2009. However, BP is confident about Alaska’s prospects.

According to the Wall Street Journal, BP will have nine active drill rigs in Alaska by 2016. The company is also planning to increase well activity at some of its existing rigs as early as Q4 2013. The rest of the $1 billion investment will go toward upgrading existing facilities. BP also claims that its new investment will add up to 200 new Alaskan jobs.

BP stock has traded sideways since it recovered from the disastrous Deepwater Horizon oil spill in 2010. BP is down 5 percent since the start of 2011 and and has significantly underperformed versus its peers. Over the same time period, Chevron (CVX) is up 33 percent, Exxon Mobil (XOM) is up 21 percent, the Vanguard Energy ETF (VDE) is up 14 percent, and the S&P 500 is up 28 percent.

However, BP is hoping that its expanded Alaskan drilling business will serve as a new catalyst for the company’s profits and could help turn around its stock performance.

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