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BHP’s Clean Exit from Its US Shale Assets Was a Long Time Coming

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Exiting its US onshore business

BHP (BHP) classified its US (DIA)(DOW) onshore assets as non-core in August 2017 and finally decided to exit them after seven years of investment. Some BHP investors, led by Elliott Management, have believed that BHP’s investment in US onshore oil and gas assets was ill-timed. These investors stepped up the pressure on BHP’s management to shed these assets.

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Overpaid for assets at peak of the cycle

BHP Billiton’s previous chairman, Jacques Nasser, noted in hindsight that a $20.0 billion investment in shale assets made at the peak of the cycle—the assets were acquired in 2011—was a mistake. These assets were bought from Chesapeake Energy (CHK), but they had to be written down many times since then to reflect weaker energy prices (USO)

Energy peers (XLE) ConocoPhillips (COP), ExxonMobil (XOM), Chevron (CVX), and Royal Dutch Shell (RDS.A) have also been negatively impacted by weaker energy prices. However, these companies are currently reaping the benefits of stable or rising prices.

Clean exit to help the company’s focus

BHP Billiton’s CEO, Andrew Mackenzie, noted during the company’s fiscal 2017 earnings call that it had acquired these assets with the intention of becoming an industry leader in shale. BHP had intended to replicate this success around the world. 

Mackenzie noted that two years ago, it became clear that such opportunities to replicate didn’t exist. Along with a regular portfolio review, this trend resulted in the conclusion that these shale assets are non-core to its business.

BHP’s clean exit by selling assets to BP Plc (BP) in cash is expected to allow it to focus on its offshore oil business.

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