BP BP Plc

By Sarah Kent 

LONDON -- BP PLC is acquiring some of the hottest assets in U.S. shale country, a signal that the once embattled company is revving up ambitions to regain its footing among the world's oil giants.

The $10.5 billion deal for the bulk of Australian miner BHP Billiton Ltd.'s shale assets is BP's largest in almost 20 years. The company on Friday also raised its dividend for the second quarter -- a sign of financial strength it hadn't been able to muster since just after oil prices slumped in 2014.

BP is making strong progress on a five-year plan to reverse years of retrenchment after its fatal blowout in the Gulf of Mexico. The 2010 disaster forced the company to sell off billions of dollars in assets and has so far cost more than $65 billion in clean up and legal fees. But a landmark $20 billion settlement with the U.S. government in 2015 cleared the way for the company to grow again.

Last year, it started up a record seven new projects, including the giant Khazzan gas project in Oman and the Zohr gas development offshore Egypt. It is expecting to increase production by 5%, helping it to generate $13 to $14 billion of free cash flow by 2021 and return to its former size in terms of production by the end of the decade.

Friday's shale-asset deal will boost BP's cash-flow target by $1 billion, while adding 190,000 barrels a day of new oil and gas production and 4.6 billion barrels of still-untapped resources, the company said. It builds BP's position in some of the most desirable oil-producing regions in the world, including the Permian in West Texas.

"This is deeply strategic deal in one of the most prolific basins in the world," chief financial officer Brian Gilvary said.

Exploration and production chief Bernard Looney said that up to now, BP's shale business was seen by some as "a superior operations team on an inferior set of assets." The deal for BHP's assets changes that, he said. "It takes us into the very heart of the most talked about oil play in the world today."

To secure the deal, BP beat out bids from rivals including Royal Dutch Shell PLC and Chevron Corp., according to a person familiar with the matter. In June, CEO Bob Dudley said 60 companies had participated in the first round of talks.

Big oil companies are pouring money into shale assets, scrambling for access to the best acreage in Texas. While historically, they have struggled to compete with more nimble independents in U.S. shale country, the big players have upped their game in recent years.

At a time of volatile oil prices, shale is particularly appealing because shale projects pay off faster compared with the big offshore projects that are the bread and butter of companies like BP and Chevron. BP sold off its acreage in the Permian in 2010 to help pay for its Gulf of Mexico liabilities.

"This deal transforms BP's U.S. business," said Maxim Petrov, senior analyst at Edinburgh-based consultancy Wood Mackenzie.

Write to Sarah Kent at sarah.kent@wsj.com

(END) Dow Jones Newswires

July 27, 2018 13:27 ET (17:27 GMT)

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