BHP exits US shale business with US$10.5B sale to BP

In a deal with deep implications for both seller and buyer, the world’s largest mining company BHP Billiton (NYSE: BHP) has sold the bulk of its onshore U.S. oil and gas assets to U.K. oil giant BP (NYSE: BP) for US$10.5 billion in cash.

In a separate, smaller deal announced at the same time, BHP sold similar onshore oil and gas assets in the southeast U.S. to Merit Energy for US$300 million.

The two sales, expected to close in October, mark BHP’s final exit from its costly foray into U.S. shale sector. BHP paid about US$20 billion for the assets seven years ago and spent almost as much developing them. It announced a year ago it was putting the assets on the auction block.

Despite the high acquisition and development costs, the U.S. assets only delivered a third of BHP’s total oil production of 86 million barrels and 40% of its total 636 billion cubic feet of gas for the latest fiscal year ended June 30.

BHP will take an impairment charge of about US$2.8 billion post-tax against the carrying value of its onshore U.S. assets as an exceptional item in the results for its 2018 financial year.

With its net debt currently at the lower end of its target range of US$10 to US$15 billion, BHP will return the net proceeds from the sale to its shareholders.

BHP notes that it has announced or completed more than US$18 billion of divestments over the last six years, in addition to the demerger of South32 (LON: S32).

For BP, the purchase of BHP’s Eagle Ford, Haynesville, Permian and Fayetteville onshore assets is its first new acquisition in the lower 48 U.S. states since its infamous Deepwater Horizon oil rig explosion in the Gulf of Mexico that killed 11 workers and cost BP some US$65 billion in fines in the aftermath of one of the largest environmental disasters in recent American history.