BHP Snaps Up 28% Stake In Shenzi Oil Field For $505M

BHP Group announced that it has signed an agreement with Hess Corp. to buy an additional 28% stake in the Shenzi oil and gas field located in the Gulf of Mexico for $505 million.

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As a result of the deal, BHP’s (BHP) working interest in Shenzi will increase to 72% from 44%. The remaining 28% interest in Shenzi is owned by Spain’s Repsol S.A. For BHP, the acquisition adds 11,000 barrels of oil equivalent per day of production. The company expects the transaction to close by December 2020.

“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.” said BHP’s President of Petroleum Operations Geraldine Slattery. (See BHP stock analysis on TipRanks)

In a separate statement, Hess (HES) stated it was selling its interest in Shenzi to “preserve cash and preserve the long term value of our assets in the current low oil price environment.” Hess said that it will use the sale proceeds to fund its investment in Guyana. The company’s shares closed 4.4% higher on Monday.

On Sept. 30, Credit Suisse analyst Carsten Riek upgraded BHP Group to Buy from Hold and raised the price target to A$39 from A$37. The analyst believes that BHP is a better pick than rival Rio Tinto, citing upside to iron ore, a more attractive risk profile and a more diversified portfolio that provides optionality when iron ore prices fall back to double-digit territory.

The Street has a Moderate Buy consensus for BHP based on 3 Buys versus 4 Holds and no Sells. The average analyst price target of $41.15 implies downside potential of about 21% in the coming months. The shares are down 4.6% year-to-date.