BP Goes All Cash On Acquisition

BP is opening its wallet ready to leave the European competitors to bite the dust. In regards of spending, BP is ready to spend enormous cash toward new investments.

While Equinor ASA and Total SA are still keeping a tight budget in place, BP is prepared to take some risks. After an outstanding earning estimates in the third quarter, the UK oil major reserved a plan to issue new equity to fund a $10.5 billion acquisition, doing it all in cash instead.

With a turnaround follows a 14% surge in benchmark crude prices this year to more than $75/bbl, which inflate cash reserves among producers and boosted confidence across the industry. BP’s management is in favor of an all-cash deal.

“The thing which has helped get us over the line is that in the last four months, prices have firmed,” Chief Financial Officer Brian Gilvary said by phone. “We do see oil prices staying pretty firm around $70.”

BP is committed to buy the package of U.S shale assets from BHP Billiton Ltd, by purchasing cash there is few logistical costs than from issuing shares.

With the completion of the acquisition of BHP’s U.S. unconventional assets in a landmark deal that significantly upgrade BP’s U.S. onshore oil and gas portfolio to drive long-term growth.

The acquisition as closed on schedule Oct 31 adds oil and gas production of 190,000 bpd and 4.6 bpd of discovered resources in the liquids-rich regions of the Permian and Eagle Ford basin in Texas and in the Haynesville nature gas basin, in East Texas and Louisiana.

It is estimated to generate more than $350 million of annual pre-tax synergies and is expected to boost upstream pre-tax free cash flow by $1 billion t, to $14-15 billion in 2021.

BP is also changing its name to BPX Energy. The change marks a new era of growth for BP’s U.S. onshore oil and gas unit which has been operated as a separate entity since 2015.

With the cash spend BP ration of debt to equity could rise by early 2019 to its targeted limit of 30%. The company will dispose as much as $6 billion of assets to reduce that figure.

BP has ticked off about $400 million in asset sales out of a $3-billion target for 2018. Gilvary said the company is certain it will meet that goal and that it will complete the separate $5-billion to $6-billion program, which mostly consists of aging onshore fields in the U.S. Lower 48 states.

“We know we already have multiple bidders on all of those assets and we are looking in terms of breaking it up into a significant number of parcels,” he said in a Bloomberg television interview. “So, we’re pretty confident we’ll have no issue with that.”