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Business deals

BHP unloads US shale assets in return to minerals

With sale to BP, mining giant to focus on copper and iron ore

The massive Escondida mine in Chile is a major part of BHP's copper holdings.   © Reuters

SYDNEY -- BHP will sell its U.S. shale oil and gas interests to BP for $10.5 billion as it concentrates on its core iron ore and copper portfolios, the Anglo-Australian mining giant said Friday.

BHP's transfer of valuable acreage, primarily in Texas, to the British energy multinational represents a major step in its wholesale exit from the shale sector. A unit of U.S.-based Merit Energy agreed to take over BHP's shale business in Arkansas for $300 million.

The U.S. shale operations generated $2.14 billion in sales for BHP in the full year ended June 2017, but they accounted for only about 6% of total revenue. Meanwhile, iron ore earned 38% of sales in the same period, and 44% of earnings before interest, taxes, depreciation and amortization. The copper business, mostly located in Chile, accounted for 22% of sales.

BHP, the world's top miner, reported record output of iron ore and copper last fiscal year, and expects iron ore to outdo that performance this fiscal year. Last month, it decided to invest in a $3.4 billion South Flank iron ore project in Western Australia together with Japanese trading houses Itochu and Mitsui & Co.

Even with the U.S.-China trade war, BHP believes demand for high-grade Australian iron ore will remain resilient, especially among Asian buyers. The spread of electric vehicles is seen supporting demand for copper as well.

Over the past few years, BHP has been focusing resources on its strengths in iron ore, copper, coal and petroleum. In 2015, it spun off noncore operations into standalone company South32. BHP expanded to shale oil in 2011, but the subsequent slump in crude prices subjected the business to a spate of impairment charges. The group ended up swinging to a $6.38 billion loss in the year ended June 2016.

CEO Andrew Mackenzie has long placed shale on the chopping block, and he indicated that there is more to come in BHP's operational reshuffle. "The sale of our onshore U.S. assets is consistent with our long-term plan to continue to simplify and strengthen our portfolio," he said in a statement Friday.

Meanwhile, the deal with BHP is BP's first major acquisition in the U.S. since the disastrous Deepwater Horizon oil leak in the Gulf of Mexico in 2010. BP is positioning its American shale assets front and center in its portfolio as a new growth business. It joins U.S. majors ExxonMobil and Chevron, which are engaging in large-scale development in the Permian basin stretching across western Texas and New Mexico, with oil and gas output shipped to their own refineries and petrochemical facilities along the Gulf of Mexico. The latest deal gives BP a key upstream source for its own downstream facilities in the U.S.

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