BP pays $10.5 billion for BHP shale assets to beef up U.S. business

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(Reuters) – BP Plc (BP.L) has agreed to purchase U.S. shale oil and gasoline assets from international miner BHP Billiton (BLT.L) (BHP.AX) for $10.5 billion, increasing the British oil main’s footprint in oil-rich onshore basins in its largest deal in almost 20 years.

FILE PHOTO: BHP Billiton Chief Executive Andrew Mackenzie is silhouetted towards a display screen projecting the corporate’s brand at a spherical desk assembly with journalists in Tokyo, Japan June 5, 2017. REUTERS/Kim Kyung-Hoon/File Photo

The acquisition marks a giant turning level for BP because the Deepwater Horizon rig catastrophe within the Gulf of Mexico in 2010, for which the corporate continues to be paying off greater than $65 billion in penalties and clean-up prices.

“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,” BP chief Executive Bob Dudley stated in an announcement.

In an additional signal of the upturn in its fortunes, BP stated it could enhance its quarterly dividend for the primary time in almost 4 years and introduced a $6 billion share buyback, to be partly funded by promoting some upstream assets.

The sale ends a disastrous seven-year funding by BHP within the shale business, which traders led by U.S. hedge fund Elliott Management have been urgent the corporate to jettison for the previous 18 months. BHP put the business up for sale final August.

Investors and analysts stated the sale worth was higher than anticipated and have been happy that BHP deliberate to return the proceeds to shareholders.

“It was the wrong environment to have bought the assets when they did but this is the right market to have sold them in,” stated Craig Evans, co-portfolio supervisor of the Tribeca Global Natural Resources Fund.

Analysts stated they’d assumed BHP would get between $eight billion and $10 billion in money for the assets.

BHP first acquired shale assets in 2011 for greater than $20 billion with the takeover of Petrohawk Energy and shale gasoline pursuits from Chesapeake Energy Corp, however suffered as gasoline costs collapsed, forcing it to e-book huge writedowns.

The world’s largest miner stated it could file an additional one-off shale cost of about $2.eight billion post-tax in its 2018 monetary 12 months outcomes.

U.S. BOOST FOR BP

The deal, BP’s largest because it purchased oil firm Atlantic Richfield Co in 1999, will enhance its U.S. onshore oil and gasoline sources by 57 %.

BP will purchase BHP’s unit which holds the Eagle Ford, Haynesville and Permian assets for $10.5 billion, giving it “some of the best acreage in some of the best basins in the onshore U.S.,” the corporate stated.

It beat rivals together with Royal Dutch Shell (RDSa.L) and Chevron Corp (CVX.N) for the assets, which have mixed manufacturing of 190,000 barrels of oil equal per day (boe/d)and four.6 billion barrels of oil equal sources.

BP stated the transaction would enhance its earnings and money circulation per share and it could nonetheless have the ability to preserve its gearing inside a 20-30 % vary.

The firm additionally stated it could enhance its quarterly dividend by 2.5 % to 10.25 cents a share, the primary rise in 15 quarters.

Meanwhile, a unit of Merit Energy Company will purchase BHP Billiton Petroleum (Arkansas) Inc and the Fayetteville assets, for $zero.three billion.

Tribeca’s Evans welcomed the clear exit for money, moderately than asset swaps which BHP had flagged as a risk.

“It leaves the company good scope to focus on their far better offshore oil business,” he stated.

BHP Chief Executive Andrew Mackenzie stated the corporate had delivered on its promise to get worth for its shale assets, whereas the sale was per a long-term plan to simplify and strengthen its portfolio.

BHP (BHP.AX) shares rose 2.three % after the announcement, outperforming the broader market and rival Rio Tinto (RIO.AX)(RIO.L).

BP stated it could pay the $10.5 billion in installments over six months from the date of completion, with $5.25 billion of the consideration to be raised via the sale of latest shares.

Elliott had no instant touch upon the sale announcement.

Reporting by Sonali Paul, further reporting by Aditya Soni in Bengaluru; enhancing by James Dalgleish and Richard Pullin

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