BHP in talk to swap onshore shale ground for offshore oil assets

BHP is in talks to swap onshore US shale ground with offshore oil assets, a move that could limit cash returns on its US shale exit.

A drilling rig at BHP’s Fayetteville shale project in Arkansas. (Supplied)

BHP oil and gas chief Steve Pastor says the miner is in talks to swap some onshore US shale ground with big conventional offshore oil assets, in parallel with its asset sale process, in a development that could add growth to the big miner but would limit cash returns to shareholders from the exit of its shale assets.

Mr Pastor said the company is fielding strong interest for the onshore assets, which are valued at $US11 billion on its books, and on which more datarooms were opened yesterday.

But he said BHP was chasing greater value than the oil futures curve, which has prices falling back to around $US51 a barrel after 2020.

“The main value lever will be the price interested parties are using in their valuation and there’s a pretty significant range between what we view as a reasonable mid-case price expectation and the strip price for both oil and gas, so we’ll have to see what comes in,” Mr Pastor said after a presentation to the CERA oil conference in Houston when asked if he thought book value was achievable.

He said a trade sale for cash was the preferred route but that asset swap conversations were proceeding in tandem.

“We’re advancing asset swap opportunities for assets that have characteristics that are a good fit within our core strategy, so they need to be tier one, high quality conventional oil assets in regions where we have demonstrated ability to perform well, synergistic with our current position,” Mr Pastor said.

“Those are relatively few and far between, but there are some counterparties that have those types of assets with those characteristics and those discussions are advancing nicely. It could be some combination between asset swaps and cash.”

In an earlier talk at the conference, Mr Pastor said any cash received from the sale would likely go back to shareholders.

In August, BHP said it would exit the assets, which were acquired in 2011 for $US20bn and have had that much again spent on them for next to no free cash generation, after a campaign by activist holder Elliott galvanised broader investor discontent over the acquisitions.

The company will pursue a demerger if the sale process does not achieve the right results.

Mr Pastor said more than 24 companies had signed confidentiality agreements to enter the data room for the Fayetteville gas assets in Arkansas.

The remaining data rooms, for the EagleFord and Permian shale oil ground in Houston and the Haynesville gas ground in Louisiana.

“I would expect more than double that (24) execute confidentiality agreements in the data rooms for the other assets,” Mr Pastor said.