BHP Billiton Limited’s US$10 billion divestment program kicks up a notch as M&A interest heats up

BHP Billiton Limited (ASX: BHP) may divest its shale assets sooner than what the market is expecting. Here’s what to expect…

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Shares in BHP Billiton Limited (ASX: BHP) is leading the market this morning and talk that it may announce the sale of its shale assets sooner than most were expecting won’t hurt sentiment either.

The world’s largest miner rallied 0.5% to $30.81 as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) struggles to hold its head above breakeven.

A report from Bloomberg said that BHP is prepared to break its US shale oil business into seven packages to accelerate the sales process, which could reap US$10 billion or more in total.

The miner is also willing to consider an asset swap for offshore conventional oil wells in the Gulf of Mexico.

The shale division is regarded as the ugly duckling in BHP’s portfolio, but as I wrote yesterday, this dog could steal the earnings season spotlight later this month when the miner hands in its results.

The price of oil has bounced strongly since BHP’s board came under intense pressure from activist shareholder Elliott Management Corp to divest its unconventional oil and gas assets that the miner overpaid for in 2011 (US$20 billion to be more exact) when the oil price was hovering around US$100 a barrel.

Fears of a glut in oil supply due to the sharp ramp-up in production from shale oil producers and falling demand from the electrification of vehicles have also abated somewhat and US President Donald Trump is dismantling regulations and taxes to make US oil exports more competitive.

This leaves BHP effectively firing on all cylinders with surprisingly resilient commodity prices and strong cost control bolstering its bottom line.

The oil price recovery also bodes well for other oil and gas producers although I am expecting a pick-up in corporate activity that will provide a big kick to the sector.

There are rumours of takeover interest in Oil Search Limited (ASX: OSH) and Woodside Petroleum Limited (ASX: WPL), although cashed-up Woodside could also be a buyer of assets.

As it stands, there is already a bidding war for AWE Limited (ASX: AWE) with Mineral Resources Limited (ASX: MIN) as one of the bidders, and there’s a suitor in the wings for Santos Ltd (ASX: STO).

High commodity prices won’t be the only thing investors will need to keep an eye out for in 2018!

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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