Oil giant BP is snapping up BHP Billiton US shale gas assets in a 10.5 billion US dollar (£8 billion) deal.
The move will see BP acquire BHP’s Petrohawk Energy subsidiary – which holds a raft of assets the oil firm is keen to take over.
BP said the deal will “upgrade and materially reposition” its US oil and gas business.
The company said it will pay 5.25 billion dollars in cash once the deal is completed, with the remaining half of the payment to be paid out over six instalments over the following half year.
The deal is expected to be completed by the end of October this year.
BP chief executive Bob Dudley said: “This is a transformational acquisition for our Lower 48 business, a major step in delivering our Upstream strategy and a world-class addition to BP’s distinctive portfolio.
“Given our confidence in BP’s future – further bolstered by additional earnings and cash flow from this deal – we are increasing the dividend, reflecting our long-standing commitment to growing distributions to shareholders.”
The dividend for the second quarter has been raised 2.5% to 10.25p per ordinary share and will be paid out in September.
BP added that it plans to offload five to six billion dollars (£3.8 billion-£4.6 billion) worth of assets from its upstream operations once the deal is finalised, which will help fund a share buyback of the same size.
Those divestments will be on top of its ongoing programme that is targeting two to three billion dollars (£1.5 billion-£2.3 billion) in divestments per year.
BP shares were down nearly 1% in morning trading, while BHP Billiton was among the best performers on the FTSE 100 after rising more than 3.6%.
Michael Hewson, chief market analyst at CMC Markets, said: “BP shares have slid back after it announced it was buying BHP’s US shale assets for 10.5 billion US dollars, ahead of next week’s trading update where there is some concern that it might fall short of expectations given this week’s disappointing update from sector peer Royal Dutch Shell.
“Any thoughts that BP might be looking to pay down its 40 billion dollar debt pile appear to have reduced on the back of this acquisition and while oil prices remain in their current sweet spot, one can’t help thinking that BP management are leaving it late to do so.
“This remains the company’s Achilles heel in the event of another downturn.”
Fellow oil giant Shell earlier this week reported lower-than-expected second-quarter earnings despite rising 30% to 4.7 billion US dollars (£3.6 billion).
Overall in the first half of 2018, Shell said underlying earnings on a current cost of supply basis jumped 37% to 10.1 billion US dollars (£7.7 billion) for the six months to June 30 thanks in part to surging oil prices.