The British Petroleum, BP has finally put an end to all rumours and speculations by declaring its intention to buy BHP Billiton’s US onshore unconventional assets for US$10.5 billion. The package will include some of the best-in-class tight oil acreage in the Eagle Ford and the Permian, and shale gas assets in the Haynesville, says Maxim Petrov, senior analyst, Wood Mackenzie.
According to Maxim, 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 Maxim noted were initially acquired by BHP in 2011 but the cash generation and capital requirements ultimately proved unsuitable for the company, drawing attention to opportunities for BP to add value straight away as the assets have been under-invested for the past two years.
BP which according to him was previously underweight to US tight oil compared to its peers now has a deal with the capacity to transform its US business – raise its US production by almost a fifth while providing competitive returns and volumes growth. They estimate BP’s combined US production hitting 1 million boe/d in 2020, with the potential to reach close to 1.4 million boe/d by 2025.
Maxim said they saw a need for BHP’s international oil and gas portfolio, even though it runs counter the recent industry trend of reducing exposure to conventional assets to focus on US unconventionals. Maintaining that the remaining international assets provide strong cash flow, revenue diversification and is vital he said, to servicing the dividend. They have also estimated that the remaining upstream business generates almost half of the company’s current dividend payout. Maxim says they expect a simplification of the portfolio to focus on the core assets in Australia and the deepwater Gulf of Mexico.