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Why the battle for BHP Billiton Limited’s oil assets could be firing up

The share price of BHP Billiton Limited (ASX: BHP) is inching higher today as speculation of an upcoming bidding war for its unconventional oil assets heat up.

The stock climbed 0.1% to $31.55 in late morning trade and it could soon retest its 2018 high of $31.90 that it hit in mid-January.

In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) has dropped 0.25% into the red with other mining heavyweights Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) also losing ground.

The rise in the overnight oil price and a report from Bloomberg that UK oil giant BP plc is mulling a bid for some of BHP’s onshore shale assets are probably behind the stock’s outperformance today.

No final decision has been made by BP, according to Bloomberg, so shareholders shouldn’t get too excited although it’s a very positive sign that BP is interested enough to be considering such a move.

It’s not surprising though. Crude prices are hovering around two-and-a-half year highs as it marches closer to US$70 a barrel and shale oil has become the “Soupe du jour” once again.

Interest in this unconventional asset class has not been this hot since 2011 when the oil price surged past US$100 a barrel – about when BHP was on its $50 billion shale oil buying spree and we all know how that party ended (with a big hangover!).

But the surprisingly resilient oil price has once again made shale a desirable asset and it won’t only be BP that is licking its lips.

BHP is selling around 800,000 acres of ground in the Eagle Ford, Permian, Haynesville and Fayetteville basins, according to Bloomberg, and the Big Australian is hoping to get at least US$10 billion for the assets.

It has also been reported before that Royal Dutch Shell is sniffing around the assets and I won’t be surprised to see a few private equity type groups among the suitors as Harbour Energy’s bid for Santos Ltd (ASX: STO) shows the level of interest from the private equity sector towards energy assets.

Who can blame them given the bullish outlook for oil? Increasing number of commodity analysts have been turning bullish on oil and this group has a tendency to be conservative on their outlook on this part of the cycle (click here to read more about the upgrades).

It will be a few months yet before investors get to see the hands of potential bidders as BHP is expecting to receive final bids by the end of June.

In the meantime, this transaction makes BHP a good oil proxy – a title that has traditionally been bestowed on energy majors like Oil Search Limited (ASX: OSH) and Woodside Petroleum Limited (ASX: WPL).

The experts at the Motley Fool is also tipping another hot sector to outperform over the medium to long-term. This niche sector is already making a big impact on markets around the world and the trend is expected to accelerate.

Click on the link below to get your free report on this sector and to find out what stocks are best placed to ride this upcoming boom.

Japanese Billionaire’s Prediction Will Give You Goosebumps

When a veritable investing and entrepreneurial genius speaks, it pays to listen.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. 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 Scott Phillips.

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