London — BP has agreed to buy BHP's onshore US shale assets for $10.5 billion in a "deeply strategic" deal, adding billions of barrels of existing resources in the US' prime shale oil and gas plays.
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The deal, which will be partially funded with new shares, adds 190,000 b/d of oil equivalent to BP's production and 4.6 billion boe discovered resources to BP's upstream operations.
"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 CEO Bob Dudley said in a statement.
BP's existing US onshore oil and gas business currently produces around 315,000 boe/d from operations across seven oil and gas basins.
The BHP assets, which include liquids-rich shale in the Eagle Ford basin in Texas and in the Haynesville gas basin, are 45% liquids and provide significant potential for continuing growth, BP said.
With the acquisition set to boost BP's cash flow and earnings when completed, the oil major increased its upstream free cash flow target by $1 billion to $14 billion-$15 billion in 2021.
It said it also expects the deal to generate pre-tax synergies of over $350 million a year.
The deal ends months of speculation over the potential buyer of BHP's US shale position with numerous rumors over the value of the portfolio. BP's winning bid for the assets, however, was not applauded by investors with BP's shares slipping by 2% at market open in London.
Commenting on the shale reaction early Friday, BP CFO Brian Gilvary said he believes the market has "not had time to digest" the full "deeply strategic" nature of the deal for BP.
The assets were initially acquired by BHP in 2011 but the cash generation and capital requirements proved unsuitable for the company.
"There's plenty of running room for BP to add value straight away as the assets have been underinvested for the past two years," Wood Mackenzie's senior analyst Maxim Petrov said in a note.
"We see BP's combined US production hitting 1 million boe/d in 2020, with the potential to reach close to 1.4 million boe/d by 2025."
BP said it will fund half of the deal with $5.25 billion in cash from existing resources, and the remaining half in deferred payments from new equity issued over the duration of the installments.
Following completion of the acquisition, BP said it intends to make new divestments of $5 billion-$6 billion, predominantly from the upstream segment, to fund share buybacks.
BP confirmed its $15 billion-$17 billion annual organic capital spending plans to 2021, and said its debt gearing, although rising from current levels, will remain within its 20%-30% target range.
BHP will continue to operate the assets until completion of both sales, which is expected to occur by the end of October, the company said.
The Eagle Ford, Haynesville and Permian fields comprise about 526,000 net acres where BHP produces oil, gas and natural gas liquids that are sold both domestically and internationally through the export of processed condensate. As result, the sale is expected to see its influence in the Asian sweet crude market diminish.
BHP has been regularly marketing Eagle Ford condensate in the Asian spot market over the past couple of years. The company's ultra-light US crude supply was often widely referred to by regional refiners as Black Hawk condensate.
However, BHP could cease the sale of US condensate in the Asian market going forward as the company plans to exit its onshore US assets, S&P Global Platts reported previously.
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