U.S. shale oil company BPX Energy will be generating $1 billion in annual cash flow next year for its parent company, BP Group Plc, and it easily surpassed the $90 million synergies expected after its $10.3 billion acquisition of Texas oil field assets.
BP (NYSE: BP) outlined the 2019 results of BPX Energy on Tuesday as part of London-based energy giant's 2019 fourth-quarter earnings call.
BPX Energy is the Denver-based division overseeing onshore, continental U.S. oil and gas exploration and production. It was created with BP's acquisition of mining giant BHP Billiton’s oil and gas division, a deal which closed in late 2018 and was the largest acquisition by BP in 20 years.
The division was able to find $240 million in saving from the newly bought Texas assets, some of it from reducing productions by 10%, the company said. The savings should swell to $400 million by the end of this year, helping BPX Energy hit its lofty free-cash flow projections, said Brian Gilvary, CFO of BP.
“The synergy number is significantly higher than what we first set,” he said. “Everything we see gives us absolute confidence in that $1 billion.”
BPX Energy employs about 200 people in Denver and hundreds more people in Houston, Oklahoma City and across the regions where it operates wells.
Before the Denver division was created, BP's onshore business in the continental U.S. had focused on natural gas production, and it has operated for years in the San Juan Basin area of southwest Colorado and in southern Wyoming.
The acquisition from BHP Billiton bought it 500,000 acres of oil and gas assets in Texas’ Permian-Delaware Basin, Haynesville and Eagle Ford oil fields.
It shifted focus in the U.S. away from natural gas to unconventional crude oil and associated liquids.
On Tuesday, the company said it has scaled down work in the Haynesville oil fields in Texas to focus solely on the Permian and Eagle Ford areas.
A look at the new Denver headquarters of BPX Energy, the onshore U.S. oil and gas division of London-based energy giant BP.
BPX Energy produced an average of 124,000 barrels of crude oil and natural gas liquids per day in 2019, more than double the crude oil and liquids production it notched in 2018 before the BHP Billiton acquisition.
Counting 2.175 billion cubic feet of "dry" natural gas production, BPX Energy produced the equivalent of 499,000 barrels daily in 2019, a 43% jump in overall oil, gas and liquids production compared to the year before.
BPX Energy's production is expected to decline in 2020, largely because it's selling natural gas-producing assets to focus on its West Texas crude oil and liquids business, which has higher profit margins than natural gas, the company said.
"We estimate the impact of divestments to be in the range of 200,000 to 250,000 barrels of oil equivalent a day in 2020," Gilvary said, noting more than half of that volume will be reductions in its dry natural gas production as a result of divestments.
He explained BP sold or is selling about $9 billion in assets — including BPX Energy natural gas operations — mostly to private equity buyers, Gilvary said.
BP had, when it acquired the Texas oil assets for BPX Energy, forecast selling $10 billion in assets to offset what it spent. That was nearly completed in 2019. BP projects divesting another $5 billion assets in coming months.
2018 revenue
| Rank | Prior Rank | Business name |
|---|---|---|
1 | 1 | DCP Midstream LP |
2 | 2 | Encana Corp. |
3 | 3 | Antero Resources Corp. |