BHP Sells Onshore US Assets for $10.8bn (Updates)

(Adds remarks from BP, WoodMac and Rystad in italics)

Anglo-Australian multinational BHP has entered into agreements to sell its portfolio of onshore US oil and gas assets for a combined base consideration of US$10.8bn, the company announced to the Australian Stock Exchange July 27. The assets had been on the market for several months.

BP has agreed to acquire 100% of Petrohawk Energy Corporation, the BHP subsidiary which holds the Eagle Ford, Haynesville and Permian assets, for a consideration of $10.5bn, BHP said.

And, MMGJ Hugoton III, LLC, a company owned by Merit Energy Company, has agreed to take 100% of the issued share capital of BHP Billiton Petroleum (Arkansas) and 100% of the membership interests in BHP Billiton Petroleum (Fayetteville) LLC, which holds the Fayetteville assets, for a total consideration of $0.3bn, it said.

RBC Capital Markets analyst Paul Hissey said the sum BHP fetched for the assets was better than what RBC had been expecting: “We had assumed $8bn in cash consideration for the divestment of these assets some time in the second half of FY19 [July 2018-June 2019], so clearly a larger sum, sooner is a positive by comparison."

Wood Mackenzie senior analyst Maxim Petrov added: "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 breakevens in the play, well below $50/b 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."

BHP CEO Andrew Mackenzie said: “Our priority with this transaction is to maximise value and returns to shareholders. In August 2017, we confirmed that we would seek to exit our US shale assets for value. Following a robust and competitive process, we have delivered on that commitment”.

“The sale of our onshore US assets is consistent with our long-term plan to continue to simplify and strengthen our portfolio to generate shareholder value and returns for decades to come,” he added.

He said that with net debt currently towards the lower end of the company’s target range of $10bn-$15bn, BHP expects to return the net proceeds from the transactions to shareholders.

“We will confirm how, and when, at the time of completion of the transactions,” he said.

BP CEO Bob Dudley added: “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 cash flow from this deal – we are increasing the dividend, reflecting our long-standing commitment to growing distributions to shareholders.”

Update July 30: Consultancy Rystad Energy has said that BP’s $10.5bn acquisition of most of BHP's shale acreage in North America "signals a bold return by the UK oil giant to the lower 48 states and gives it a prominent position in the red-hot North American tight oil play." It said the deal, one of the largest acquisitions in BP’s history, gives it secure access to new projects that can expand its production significantly. Rystad calculates that, assuming a Brent price of $73/b, the assets acquired (which exclude Fayetteville - not included in BP’s deal) carry a value of $10.7bn. In the short term, it expects the assets' production to be around 65,000 boe/d, but to rise rapidly beyond 100,000 boe/d, with an expected plateau at around 150,000 boe/d in the mid-2020s, which it says could be significant to BP whose "legacy production is expected to decline in the medium term." Rystad adds that, following BP's moves, the only majors still that do not hold significant tight oil positions in North America are Eni and Total.