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July 27, 2018updated 15 Nov 2018 1:49pm

BP to spend $10.5bn in BHP US shale oil and gas assets acquisition

Multinational oil giant BP has agreed an £8bn ($10.5bn) deal to buy US shale oil and gas assets from global mining company BHP.

By Talal Husseini

Multinational oil giant BP has agreed an £8bn ($10.5bn) deal to buy US shale oil and gas assets from global mining company BHP.

The acquisition aims to strengthen BP’s US shale oil and gas production and resources in regions such as the Permian and Eagle Ford oil basins in Texas, and the Haynesville gas basin in Texas and Louisiana.

Wood Mackenzie senior analyst Maxim Petrov told Offshore Technology: “The most valuable part of the package is BHP’s Eagle Ford position given its scale and attractive economics. But the Permian acreage offers the biggest longer term upside, with some of the best break-evens in the play, well below $50 per barrel Brent. Similarly, the Haynesville assets have some of the most attractive shale gas economics outside the Marcellus and nicely compliment BP’s existing acreage in the play.”

“This deal transforms BP’s US business – it will immediately raise its US production by almost a fifth while providing competitive returns and volumes growth. We see BP’s combined US production hitting one million barrels of oil-equivalent per day (bopd) in 2020, with the potential to reach close to 1.4 million bopd by 2025.”

BP America Production Company will acquire 100% issued share capital of Petrohawk Energy, a subsidiary of BHP, for $10.5bn, subject to customary adjustments.

Around $5.25bn will be paid in cash from existing resources. The second half of the investment will be deferred and payable in cash in six equal instalments over the following six months.

BP will finance the deferred investment through equity issued over this period. The transaction is expected to be completed by October.

US shale oil and gas sale boosts shares

From the sale of its US shale oil and gas assets, BHP said that proceeds will return to investors. Shares in BHP ended the day up 2.3% in Australia, at A$34.40 ($25.36). BP’s share price fell by 1.5% after the announcement.

Petrov said: “We still see a need for BHP’s international oil and gas portfolio, although this runs counter the recent industry trend of reducing exposure to conventional assets to focus on US unconventionals.

“We estimate that the remaining upstream business generates almost half of the company’s current dividend pay-out. But we expect a simplification of the portfolio to focus on the core assets in Australia and the deep-water Gulf of Mexico.”

Financing should be feasible under the projected timeframe, with organic capital expenditure in the range of $15bn to $17bn per year until 2021.

BP also intends to make new divestments, worth $5bn to $6bn, primarily from its upstream segment. The proceeds will fund a share buyback programme of up to the same figure over time and the divestments will add to BP’s ongoing programme of $2bn to $3bn annually.

BP chief executive Bob Dudley said: “This is a transformational acquisition for our lower 48 business, a major step in delivering our upstream strategy and a world-class addition to BP’s distinctive portfolio. Given our confidence in BP’s future – further bolstered by additional earnings and cashflow from this deal – we are increasing the dividend, reflecting our long-standing commitment to growing distributions to shareholders.”

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