Last Wednesday BHP announced the sale of its Eagle Ford, Haynesville, Permian and Fayetteville Onshore US oil and gas assets for a combined base consideration of US$10.8 Billion, payable in cash.
The news led to a substantial lift of over 2.2 percent in BHP’s share price on the day. However, such news has been expected for some time, as in August 2017 BHP confirmed they would seek to exit these assets following a competitive sales process.
Apart from Fayetteville, the assets will be held by BHP subsidiary Petrohawk Energy Corporation and are being purchased by BP American Production company. All the sites are located in southern USA, across the states of Texas, Louisiana, and Arkansas.
The relevant onshore US share assets are a fairly substantial part of BHP’s Petroleum division, currently generate around 31 percent of the revenues of the division, and about 25 percent of its earnings – according to the 2017 Annual report.
Despite the sale, BHP still retains significant exposure to oil – although perhaps not as much as some might suspect. From a revenue perspective, Petroleum is already the smallest of BHP’s four reportable segments, behind the Iron Ore, Copper, and Coal segments respectively.
Despite the relative size of the Petroleum division, BHP’s share price has recently been a beneficiary of the strength in oil prices, while seemingly ignoring weakness in some other commoditie’s prices. However, this correlation may weaken by the asset sale.
BHP expects to return the net proceeds of the transactions to shareholders. This may be by way of a special dividend or share buyback. However, the receipt of payment for the sale is staggered – and so the shareholder returns will not necessarily all come at once.
In addition to the S32 demerger, BHP has announced or completed more than US $18 Billion of divestments over the past six years.
If you have any questions about the above or other corporate news, please don’t hesitate to contact your TradersCircle advisor.