In a move that will upgrade and reposition its U.S. onshore oil and gas business significantly, BP has agreed to acquire a portfolio of world-class unconventional oil and gas assets from BHP. The acquisition will bring BP extensive oil and gas production and resources in the liquids-rich regions of the Permian and Eagle Ford basins in Texas and in the Haynesville gas basin in Texas and Louisiana.
Under the terms of the agreement, BP America Production Company will acquire from BHP Billiton Petroleum (North America) Inc. 100% of the issued share capital of Petrohawk Energy Corporation – the wholly-owned subsidiary of BHP which holds the assets – for a total consideration of USD 10.5 billion, subject to customary adjustments.
Upon completion of the transaction, USD 5.25 billion, as adjusted, will be paid in cash from existing resources. The balance will be deferred and payable in cash in six equal installments over six months from the date of completion. BP intends to finance this deferred consideration through equity issued over the duration of the installments. Subject to regulatory approvals, the transaction is anticipated to complete by the end of October 2018.
“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,” said Bob Dudley, BP group chief executive.
BP has agreed to acquire assets with 470,000 net acres of licenses, including a new position for BP in the liquids-rich Permian-Delaware basin, and two premium positions in the Eagle Ford and Haynesville basins. The assets have combined current production of 190,000 barrels of oil equivalent per day (boe/d), about 45% of which is liquid hydrocarbons, and 4.6 billion barrels of oil equivalent (boe) resources.
The acquisition will significantly increase the liquid hydrocarbon proportion of BP’s production and resources in the U.S. onshore, to around 27% of production and 29% of resources from the current 14% and 17% respectively.
BP’s existing US onshore oil and gas business currently produces around 315,000 boe/d from operations across seven oil and gas basins in five states with resources of 8.1 billion boe. Since BP established it as a separate business organization with new management four years ago, it has grown production and improved capital efficiency, with unit production costs reduced by 34% since 2013.
The combined business will continue to be led by David Lawler, CEO of BP’s existing U.S. onshore business. BP estimates that post-integration it will deliver more than USD 350 million of annual pre-tax synergies through sustainable cost reductions and commercial and trading opportunities unique to BP.
BP’s total production in the U.S. today is approximately 744,000 boe/d – c.315,000 boe/d from the US onshore business, c.320,000 boe/d from the Gulf of Mexico, and c.109,000 boe/d from Alaska. Following completion of this transaction and the sale of BP’s interest in the Greater Kuparuk Area in Alaska, which is also expected to complete in 2018, BP’s U.S. production is expected to be approximately 885,000 boe/d.
After integrating the acquisition with BP’s existing U.S. onshore business, the transaction will be accretive to BP’s earnings and cash flow on a per share basis. BP expects the acquisition to be fully accommodated within its current financial frame, with organic capital expenditure in a range of USD 15-17 billion a year out to 2021 and gearing maintained within a 20-30% range.
Following completion of the acquisition, BP intends to make new divestments of USD 5-6 billion, predominantly from the upstream segment. The proceeds are intended to fund a share buyback programme of up to USD 5-6 billion over time. The divestments will be in addition to BP’s ongoing programme of around USD 2-3 billion divestments a year.