BHP is set to benefit from a bidding war for its shale oil assets

(Photo by Jeff J Mitchell/Getty Images)
  • BHP now has competing bidders for the entirety of its US shale oil portfolio.
  • Macquarie analysts say that could drive the sale price above their initial forecasts of $US8-10 billion.

BHP could be in line for an extra capital boost, as the tender process for its shale oil assets grows increasingly competitive.

Research from Macquarie indicates that two separate consortiums have made a pitch, along with a separate bid by BP.

The two consortiums — Shell and private equity (PE) giant Blackstone, competing against Chevron and a private PE partner — have lodged early bids in a range between $US7-$9 billion.

“The emergence of multiple bidders is encouraging and we believe that the second round of bids could move towards the top end, if not beyond our $US8-10 billion target range,” the analysts said.

Here’s how each component of BHP shale assets would be valued, assuming a sale in the $US8-10 billion range

Source: Macquarie

Importantly, Macquarie said both groups are offering to buy BHP’s entire shale oil business.

“While BHP has stated that it would look at a break-up sale, trade sale or initial public offering (IPO), we have always believed that a complete sale and exit was BHP’s preferred strategy,” the analysts said.

BHP initially said first bids were due in by the end of June, with a final decision to be made by the end of the year.

But now that two competing offers have been received for the entire portfolio, BHP is likely to move to a second-round offer process.

While that could cause some delays, BHP still expects the sale process to be concluded by the end of 2018.

Macquarie noted that the indicative bid offers still represent a discount to the $US13 billion carrying value of the assets on BHP’s books.

However, the sale could deliver a cash windfall to shareholders, given that BHP is already on track to meet its minimum net debt target of $US10 billion.

“The sale of the shale assets could potentially wipe out all of BHP’s debt, although we expect the majority of the proceeds to be returned to shareholders, likely through increased dividends and a large share buy-back,” Macquarie said.

“Even after factoring a shale sale, we believe BHP could effectively return 100% of earnings in dividends and maintain its net debt level around US$10 billion.”

Macquarie has a 12-month price target for BHP shares of $36.20, a premium of around 6.4% to their current trading value.

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