In a move that will upgrade and materially reposition its US onshore oil and gas business, 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.
On completion, USD 5.25 billion, as adjusted, will be paid in cash from existing resources. USD 5.25 billion will be deferred and payable in cash in six equal instalments over six months from the date of completion. BP intends to finance this deferred consideration through equity issued over the duration of the instalments. Subject to regulatory approvals, the transaction is anticipated to complete by the end of October 2018.
Bob Dudley, BP group chief executive, says, “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.”
BP has agreed to acquire assets with 470,000 net acres of licences, 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.
Bernard Looney, BP’s Upstream chief executive, says, “This is a major upgrade for one of BP’s key Upstream regions, giving us some of the best acreage in some of the best basins in the onshore US. I believe our dynamic, highly efficient team will be able to unlock the full potential of these assets. This will increase our target for free cash flow from the Upstream by USD 1 billion, to USD 14-15 billion in 2021, and provide opportunities for continuing growth well into the next decade.”
The acquisition will significantly increase the liquid hydrocarbon proportion of BP’s production and resources in the US 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 US 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.