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Why the BHP Billiton Limited (ASX:BHP) share price could get a boost on BP bid

Credit: Lucas Walters

It’s not higher commodity prices on the weekend that could excite investors in BHP Billiton Limited (ASX: BHP) today, but news that the world’s biggest miner had received a bid for its unconventional oil assets that is in excess of the US$10 billion management was asking for.

There’s speculation that BP has offered to take all the assets that BHP has put up for sale for an amount above what the miner was hoping to get, according to Reuters.

No specific figure was given and it’s understood that no binding agreement had been reached but the news could send the share price of BHP jumping higher today.

Analysts only expected the miner to sell its shale assets in the Eagle Ford, Permian, Haynesville and Fayetteville basins for around US$8 billion and I think the market had been reluctant to expect anything above US$10 billion even though the oil price has surged higher over the past year.

BHP has been pressured to sell these assets it bought during the height of the last oil boom that ended with crude prices slumping under US$30 a barrel. It’s currently around US$74 a barrel and BHP couldn’t have picked a better time to flog these assets.

It is expected that most of the proceeds from the sale of its US onshore shale assets would be returned to shareholders in some shape or form – such as an off-market share buyback which will enable BHP to release some of its hoard of franking credits back to shareholders.

This is why investors may be scrambling to get back into the stock for the bigger than expected capital return and Reuters reports that a deal with BP could be struck within weeks.

BP is believed to be hungrier than the other bidders in the data room because it is lagging rivals in growing its unconventional oil and gas reserves with management distracted by the Deepwater Horizon disaster.

The resources sector is rife with acquisition deals that are typified by the giants divesting assets and the mid-tiers snapping them up. You only need to look at deals involving Rio Tinto Limited (ASX: RIO), South32 Ltd (ASX: S32) and Whitehaven Coal Ltd (ASX: WHC).

Investors can expect more merger and acquisition (M&A) activity on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) in the second half of 2018, and it won’t just be confined to resources.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Rio Tinto Ltd., and South32 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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