BP pays $10.5 billion for BHP shale assets to beef up US business

BHP first acquired shale assets in 2011 for more than $20 billion with the takeover of Petrohawk Energy and shale gas interests from Chesapeake Energy Corp. (AFP)
Updated 27 July 2018
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BP pays $10.5 billion for BHP shale assets to beef up US business

BENGALURU: BP has agreed to buy US shale oil and gas assets from global miner BHP Billiton for $10.5 billion, expanding the British oil major’s footprint in oil-rich onshore basins in its biggest deal in nearly 20 years.
The acquisition marks a big turning point for BP since the Deepwater Horizon rig disaster in the Gulf of Mexico in 2010, for which the company is still paying off more than $65 billion in penalties and clean-up costs.
“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 said in a statement.
In a further sign of the upturn in its fortunes, BP said it would increase its quarterly dividend for the first time in nearly four years and announced a $6 billion share buyback, to be partly funded by selling some upstream assets.
The sale ends a disastrous seven-year investment by BHP in the shale business, which investors led by US hedge fund Elliott Management have been pressing the company to jettison for the past 18 months. BHP put the business up for sale last August.
Investors and analysts said the sale price was better than expected and were pleased that BHP planned 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,” said Craig Evans, co-portfolio manager of the Tribeca Global Natural Resources Fund.
Analysts said they had assumed BHP would get between $8 billion and $10 billion in cash for the assets.
BHP first acquired shale assets in 2011 for more than $20 billion with the takeover of Petrohawk Energy and shale gas interests from Chesapeake Energy Corp, but suffered as gas prices collapsed, forcing it to book massive writedowns.
The world’s biggest miner said it would record a further one-off shale charge of about $2.8 billion post-tax in its 2018 financial year results.
The deal, BP’s biggest since it bought oil company Atlantic Richfield Co. in 1999, will increase its US onshore oil and gas resources by 57 percent.
BP will acquire 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 US,” the company said.
It beat rivals including Royal Dutch Shell and Chevron Corp. for the assets, which have combined production of 190,000 barrels of oil equivalent per day (boe/d) and 4.6 billion barrels of oil equivalent resources.
BP said the transaction would boost its earnings and cash flow per share and it would still be able to maintain its gearing within a 20-30 percent range.
The company also said it would increase its quarterly dividend by 2.5 percent to 10.25 cents a share, the first rise in 15 quarters.
Meanwhile, a unit of Merit Energy Company will buy BHP Billiton Petroleum (Arkansas) Inc. and the Fayetteville assets, for $0.3 billion.
Tribeca’s Evans welcomed the clean exit for cash, rather than asset swaps which BHP had flagged as a possibility.
“It leaves the company good scope to focus on their far better offshore oil business,” he said.
BHP Chief Executive Andrew Mackenzie said the company had delivered on its promise to get value for its shale assets, while the sale was consistent with a long-term plan to simplify and strengthen its portfolio.
BHP shares rose 2.3 percent after the announcement, outperforming the broader market and rival Rio Tinto.
BP said it would pay the $10.5 billion in instalments over six months from the date of completion, with $5.25 billion of the consideration to be raised through the sale of new shares.
Elliott had no immediate comment on the sale announcement.


Egypt stock market plunges as retail investors take flight

Updated 19 September 2018
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Egypt stock market plunges as retail investors take flight

  • Biggest index drop in Egypt since mid-2016
  • Saudi Arabia outperforms in Gulf

LONDON: Egyptian stocks tumbled to their lowest level this year on Wednesday as retail investors took flight.
A sharp rise in Suez Canal revenues, a major foreign exchange earner for the country, was not enough to quell investors concerns about the strength of the currency.
The main Egyptian stock index lost 3.8 percent which some fund managers blamed on generally negative sentiment toward emerging markets worldwide as well as more local speculation about possible currency devaluation.
“Our channel checks suggest the sell-off in the Egyptian market is local retail and institutions driven, on currency fears and speculation over a further round of devaluation,” said Vrajesh Bhandari, portfolio manager at Al Mal in Dubai, Reuters reported.
“Selling is further intensified as margin calls are triggered and technical support levels break down. The country canceled three consecutive Treasury auctions, citing investors’ unrealistic yield demands.”
Egypt’s Suez Canal revenues rose to $502.2 million in August up 6.7 percent from a year earlier according to official data released on Wednesday.
Elsewhere regional stock markets closed mostly lower with the exceptions of Abu Dhabi which edged 0.2 percent higher and Saudi Arabia, the best regional performer, which rose by 1.1 percent.
Saudi stocks are benefiting from the strong oil price which eased slightly yesterday but still hovered just under $79.
OPEC and some other oil producers including Russia will meet in Algeria on Sept. 23 to discuss how to allocate supply increases within their quota framework to offset the loss of oil exports from Iran following the introduction of sanctions by the US.
Those measures will come into force on Nov. 4 and data suggests that buyers are already retreating from Iranian crude purchases.
A key question for the oil price as well as regional stock markets in the weeks ahead will be the extent to which other Gulf oil exporters can compenaste for the loss of Iranian supplies by pumping more.