BP Makes $10.5 Billion Shale Deal, Its Biggest Since Deepwater Horizon
LONDON — BP has effectively declared that it has recovered from the Gulf of Mexico disaster.
The London-based energy giant said late Thursday that it would buy an enormous portfolio covering 470,000 acres of shale oil and gas properties in Texas and Louisiana from BHP Billiton of Australia.
The $10.5 billion deal — BP’s biggest in nearly 20 years — signals that the company’s management believes the financial costs of the 2010 Deepwater Horizon oil spill, which have totaled $66 billion, have mostly been paid, leaving it free to contemplate big-ticket acquisitions. The purchase also gives the company a significant foothold in the fast-growing shale industry in the United States, one in which BP had largely been left behind by its major rivals.
“BP was aware that they were late on this crucial global resource theme,” said Roy Martin, an analyst at the energy consultancy Wood Mackenzie.
The agreement with BHP Billiton is BP’s largest since 1999, when it bought Arco, a Los Angeles-based oil company, for $27 billion. Back then, BP was seen as a trendsetter in the global energy industry, snapping up other companies and making an early foray into renewables. It even adopted the slogan “Beyond Petroleum.”
The Gulf of Mexico spill changed all that, though, and the company has been considerably more cautious in making major investments since.
Beyond its symbolic value, analysts said, the BHP deal is a sign that BP is scrambling to catch up with an industry shift.
Shale exploration, which involves drilling long horizontal wells and then injecting fluids, or fracking, to break up rocks beneath the Earth’s surface, had long been carried out by smaller companies. But it has become increasingly attractive to international businesses as oil prices rise and the capacity of the American shale industry increases.
Behemoths like Chevron and Exxon Mobil have moved aggressively to extract oil from shale rock. Chevron is ramping up its spending on shale drilling by 50 percent, and it will soon account for almost a third of its overall expenditure on energy output, according to Wood Mackenzie. Exxon Mobil, which is rapidly developing a swath of acreage it bought last year, is also increasing its spending on shale drilling to a similar proportion.
By comparison, BP had been spending just 10 percent of its overall drilling expenditure on shale, until it reached the BHP deal. But the sheer size of the deal could catapult the British company to second among large companies when it comes to shale oil output in the United States, Wood Mackenzie said.
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“Shale is becoming the realm of Big Oil,” said Rob West, a partner at Redburn, an independent financial analysis firm. Mr. West forecasts that the proportion of major oil companies’ output from shale will double by 2025, an increase from about 10 percent of their production now.