BHP Billiton (BLT) has sold its onshore US oil and gas portfolio for $10.8bn (£8.2bn) in cash. Oil and gas supermajor BP (BP.) is acquiring the lion’s share, taking what it calls “world-class unconventional assets” in the Eagle Ford, Haynesville and Permian shale basins. BP says the $10.5bn deal will be “accretive to earnings and cash flow”, and could be funded within its “existing financial frame”.
As is customary with these sort of deals, commentary has immediately centred on a complicated question: who wins? The initial reaction of the market suggested that BHP had landed a price towards the top end of analysts’ expectations. Although valuations of $10bn-plus had been floated in various news reports, analysts at BMO Capital Markets estimated that the market had been pricing in closer to $8.2bn for the assets.
The commodities giant's London-listed shares climbed 4 per cent on the news, and management pledged “to return net proceeds from the transactions to shareholders”.
Yet the sale, a key goal of activist shareholder Elliott, caps a disappointing period of ownership for BHP and its long-term investors. The group initially entered the low-breakeven unconventional acreage in 2011, but failed to turn the assets into a cash-generative business and suffered repeated write-downs amid a fall in oil and gas prices.
As to how BP might improve upon this track record, analysts at RBC believe further asset deals may be required to counter the “checkerboard nature” of the Permian assets, which the bank believes could limit the ability to drill longer laterals and reduce costs. More focus might help, too. “There’s plenty of running room for BP to add value straight away as the assets have been under-invested for the past two years,” suggested Maxim Petrov, senior analyst at Wood Mackenzie.
Rystad Energy shale analyst Alisa Lukash suggested the deal would bolster the supermajor’s portfolio, and will prove “vital in relation to BP’s efforts to maintain its overall production levels through 2025”.
