BP has agreed to buy the US shale oil and gas assets of mining giant BHP Billiton for $10.5bn in a move the company said will upgrade and reposition its US onshore business.
The deal, which is BP’s biggest in nearly 20 years, will secure the UK-based company a position in the Permian basin in Texas, one of the top oil fields in the world and the centre of the US shale boom.
BP will also pick up assets in the Eagle Ford and Haynesville basins in Texas and Louisiana. In total, the assets have a combined production output of 190,000 barrels of oil equivalent per day, as well as 4.6 billion barrels of oil equivalent resources.
In a statement made on July 27, BP CEO 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.”
BHP Billiton’s shale assets have a combined production output of 190,000 barrels of oil equivalent per day, as well as 4.6 billion barrels of oil equivalent resources
The company also announced it would hike its quarterly dividend for the first time in almost four years, as well as action a $6bn share buyback.
“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,” said Brian Gilvary, BP’s Chief Financial Officer. With the company’s planned divestments and buybacks, Gilvary said the “major step forward” is expected to be delivered for a net investment of around $5bn.
BHP put its shale assets up for sale in August 2017 after investors – led by US activist hedge fund Elliott Management – pressured the company to sell its onshore business, which had been hampered by enormous writedowns. The firm’s share price rose as much as three percent following the announcement.
BHP paid more than $20bn for the assets in 2011, spending a further $20bn developing the fields. However, when oil prices collapsed at the end of 2014, BHP began to struggle. The company will take a final one-off charge of $2.8bn in its 2018 financial year results.
The acquisition signals a big shift for BP – which has spent the years since the 2010 Deepwater Horizon rig disaster paying off over $65bn in penalties and other costs – as well as the broader oil and gas industry. With oil prices sitting at multi-year highs, the industry looks ready to get back into growth mode.