Resources giant BHP Group Ltd (ASX: BHP) has announced a US$505 million acquisition.
What has BHP acquired?
BHP has announced it is going to acquire another 28% working interest in Shenzi. It’s a six-lease development in the deepwater Gulf of Mexico.
Shenzi is structured as a joint ownership with BHP being the operator with a 44% interest, Hess owning 28% and Repsol owning the final 28%.
BHP and Hess have agreed to a purchase price of US$505 million, subject to the usual pre and post-closing adjustments.
The acquisition will take BHP’s ownership to 72% and add 11,000 of barrels of oil equivalent per day of production.
Why did BHP make this deal?
BHP said it’s consistent with its strategy of targeting counter-cyclical acquisitions in high-quality producing or near producing assets.
The company recognises the potential for price upside over the medium term given the global slowdown in development activity and it’s “well positioned” to benefit from that. It thinks the fundamentals for oil and gass will be attractive for the next decade and likely beyond.
BHP President Petroleum Operations, Geraldine Slattery said: “This transaction aligns with our plans to enhance our petroleum portfolio by targeted acquisitions in high quality producing deepwater assets and the continued de-risking of our growth options. We are purchasing the stake in Shenzi at an attractive price, it’s a tier one asset with optionality, and key to BHP’s Gulf of Mexico heartland. As the operator, we have more opportunity to grow Shenzi high-margin barrels and value with an increased working interest.”
This seems like a smart buy, the best time to buy cyclical assets is near the bottom of the cycle. However, iron ore is near the top of the cycle so I don’t think I could buy BHP shares today for that reason. I’m not a fan of resource businesses in general because of their, at best, variable returns.