BP to buy BHP US shale assets for $10.5bn

BP on Friday said it had agreed to buy BHP’s US shale assets for $10.5bn.

BP said it would pay the $10.5bn in two instalments with $5.25bn paid once the deal is completed and the rest in six cash payments over six months.

Following completion, BP intends to make new divestments of $5bn - $6bn from its upstream assets to fund a share buyback programme.

The company also unveiled a 2.5% rise in its second quarter dividend to 10.25c a share, its first increase since the third quarter 2014.

BHP said the Eagle Ford, Haynesville and Permian fields comprised around 526,000 net acres producing oil, gas and natural gas liquids for sale in the US domestic market and internationally through the export of processed condensate. In the 2018 financial year these assets produced 58.8m barrels of oil equivalent.

BP Upsteam chief executive Bernard Looney said the deal was "a major upgrade for one of BP's key Upstream regions, giving us some of the best acreage in some of the best basins in the onshore US".

"This will increase our target for free cash flow from the Upstream by $1bn, to $14bn-$15bn in 2021, and provide opportunities for continuing growth well into the next decade," he said.

The move is a significant one in the US for BP, which has been labouring under the $65bn cost of the 2010 Deepwater Horizon rig disaster in the Gulf of Mexico which killed 11 workers and devastated the local environment and economy. More than 200m gallons leaked from the well.

For BHP, the sale marks an exit from assets it bought in 2011 and never really capitalised on before putting them on the market in August 2017.

BHP chief executive Andrew Mackenzie, said the sale was consistent with its long-term plan “to continue to simplify and strengthen our portfolio to generate shareholder value and returns for decades to come”.

"With net debt currently toward the lower end of our target range of $10bn to $15bn...we expect to return the net proceeds from the transactions to shareholders. We will confirm how, and when, at the time of completion of the transactions."

BHP said it expected to recognise an impairment charge of about $2.8bn post-tax (or approximately US$2.9 billion pre-tax) against the carrying value of its onshore US assets. The impairment charge will be recognised as an exceptional item in the results for the 2018 financial year, it added.

Analysts at RBC saw the deal as more positive for BHP than BP as it was a higher sale price than the broker's $8bn estimate and an all-cash sale.

"For BP, although we see the merits of enhancing the company’s position in the Haynesville and the Eagleford, we see greater potential synergies for other buyers in the Permian. Our main contention with BHP’s Permian acreage is the checkerboard nature, limiting the ability to drill longer laterals and reduce cost."

"We question whether further asset level deals are required in the play to shore up and increase concentration of acreage."