BP buys BHP's L48 assets in 'transformative' $10.5bn deal

BP is buying BHP Billiton's US onshore unconventional assets for US$10.5 billion, ending months of speculation.

The package includes some of the best-in-class tight oil acreage in the Eagle Ford and the Permian, as well as shale gas assets in the Haynesville.

Speaking after the deal was announced, Maxim Petrov, senior analyst, Wood Mackenzie, said: “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 US$50/bbl 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.”

The assets were initially acquired by BHP in 2011, but the cash generation and capital requirements ultimately proved unsuitable for the company.

“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,” he said.

Mr Petrov added: “BP was previously underweight to US tight oil compared to its peers. This deal transforms BP’s US business – it will immediately raise its US production by almost a fifth while providing competitive returns and volumes growth.

“We see BP’s combined US production hitting 1 million barrels of oil equivalent per day (boe/d) in 2020, with the potential to reach close to 1.4 million boe/d by 2025.

“We still see a need for BHP’s international oil and gas portfolio, although this runs counter the recent industry trend of reducing exposure to conventional assets to focus on US unconventionals.

“The remaining international assets provide strong cash flow, revenue diversification and is vital to servicing the dividend. We estimate that the remaining upstream business generates almost half of the company’s current dividend payout. But we expect a simplification of the portfolio to focus on the core assets in Australia and the deepwater Gulf of Mexico.”