Shares in BP (LON:BP) have fallen into the red as the company inked a deal to snap up BHP Billiton’s (LON:BLT) shale oil and gas assets in the US for $10.5 billion. The news comes after it recently emerged that the FTSE 100 oil major was in the lead to acquire the assets, which the Anglo-Australian miner was selling amid investor pressure.
As of 09:38 BST, BP’s share price had given up 0.97 percent to 559.00p, underperforming the broader London market, with the benchmark FTSE 100 index currently standing 0.24 percent higher at 7,681.24 points. BHP Billiton’s share price meanwhile has spiked 3.77 percent to 1,735.80p.
BP announced in a statement this morning that it had agreed to acquire BHP Billiton’s US onshore oil and gas business, for a total cash consideration of $10.5 billion, with 50 percent to be paid on completion of the deal, and 50 percent to be deferred over six months. The oil major expects the deal to generate pre-tax synergies of over $350 million a year and to be accretive to earnings and cash flow on a per share basis. The acquisition also increases BP’s Upstream free cash flow target by $1 billion to $14-15 billion in 2021.
“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,” the group’s chief executive Bob Dudley commented in the statement, adding that the company will also increase its dividend for the first time since the third quarter of 2014.
BHP confirmed the deal in a separate statement, with the group’s chief executive Andrew Mackenzie noting that the miner’s priority with the transaction was “to maximise value and returns to shareholders”.
Analysts weigh in on deal
“It was the wrong environment to have bought the assets when they did but this is the right market to have sold them in,” Craig Evans, the co-portfolio manager of the Tribeca Global Natural Resources Fund, told the Guardian. The newspaper also quoted Royal Bank of Canada analysts as saying that they had assumed that BHP would receive $8 billion in cash for the assets.