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Australian mining giant BHP announced it will sell its U.S. shale assets to Britain's oil major BP for $10.5 billion.  BHP about a year ago said it would sell them after it had determined "are non-core and we are actively pursuing options to exit these assets for value".


BHP fayetteville night

BHP had bought the U.S. Shale assets in the oil boom for around $20 billion.

BP Plc ($BP)  agreed to buy the U.S. shale oil and gas assets from BHP Billiton ($BLT.L) ($BHP.AX) for $10.5 billion. The acquisition is for around 500,000 producing acres marks and is seen as a turning point for BP since the Deepwater Horizon rig disaster in the Gulf of Mexico in 2010, for which the oil company is still paying off more than $65 billion in penalties and clean-up costs.

“This is a transformational acquisition for our (onshore U.S.) 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.

BP also 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.

From BHP's point of view it brings to an end it's disastrous shale venture in the U.S. The losses were for around $19 billion of shareholders’ funds. 

BHP Announced Selling It's Shale Assets Last August

In August last year $BHP announced it will sell its shale assets after it had determined "are non-core and we are actively pursuing options to exit these assets for value".  Activist investor Elliot Associates had been pressuring BHP since they joined BHP's share register in April. The resources giant said it expects to sell part of its acreage in the Hawksville in the September quarter.

BHP entered the shale business at the height of the fracking boom in 2011, they have since taken pre-tax write-downs of about $13 billion on the business. 

Shell and Andarko were favored to bid for the acreage along with private equity. Macquarie back in August had valued the shale business between $US8 billion and $US10 billion, mostly on the Permian and Eagle Ford, while valuing the gas-focused Haynesville and Fayetteville plays at $US1.9 billion-$US2.4 billion combined. Credit Suisse has meanwhile said BHP shouldn't accept less than $US11 billion.

"We will be flexible with our plans and commercial in our approach. We are examining multiple alternatives but will only divest for value," BHP said in a statement last year.

"Execution of these options may take time which we will use to continue to complete our well trials, acreage swaps and investigate mid-stream solutions to increase the value, profitability and marketability of our Onshore US acreage."

BHP announced the decision after delivering a standout profit result where it tripled it's dividend threefold. The huge result was driven by a strong performance by it's iron ore division, where earnings before interest and tax surged to $U7.2 billion from $US3.7 billion in 2016.

BHP Shale Assets

BHP at the same time announced they will ramp up investment in its Mag Dog Phase 2 oil project and the recently confirmed Spence Growth Option project.

Chief executive Andrew Mackenzie described 2017 as a "very strong financial year". The sale of shale was not a forced sale but a straegic sale to concentrate on offshore oil and its mineral amnd mining segments, it's tier one assets.  "Free cashflow was $US12.6 billion, our second highest on record. We used this cash to reduce net debt by nearly $US10 billion and return $US4.4 billion to shareholders," he said. "Productivity gains across our simpler portfolio of tier one assets increased our return on capital to 10 per cent.

Activist shareholder and hedge fund Elliott Management holds 4.1 percent of BHP’s London-listed shares had been trying to gain support from other shareholders to persuade BHP to sell the shale oil and gas business.

Last month (July 2017)  BHP Chairman Nassar was quoted as saying “If you had to turn the clock back, and if we knew what we knew today, we wouldn’t do it, of course we wouldn’t do it, but go back and put yourself in our position at that time,” and “We bought exactly what we thought we were buying, but the timing was way off.”

From The Traders Community News Desk

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