BP Creates Independent U.S Onshore Oil & Gas Business

06.03.2014 -

Oil and petrochemicals giant BP is creating a new business to manage its U.S. onshore oil and gas assets, in what the UK group hopes will allow it to compete more effectively with the smaller independent companies dominating the country's shale industry.

BP will wholly own the U.S business, which is planned to be operated as an independent entity, led by a separate management team.

Analysts told the news agency Bloomberg that the spin-off plan may reflect the difficulties that oil majors such as ExxonMobil and  Shell have faced in trying to make money from U.S. shale gas exploration.

All of the companies have suffered from the decline in U.S. natural gas prices due to the shale boom. Shell took a $2.1 billion writedown on its assets there last year, and its upstream Americas business made a loss. The Dutch group has meanwhile put some of its North American shale holdings up for sale.

Experts point out that the U.S. shale boom has largely been driven by smaller independent exploration companies that developed techniques for hydraulic fracturing and horizontal drilling more quickly than larger integrated groups. Many of these independent operators are now seen as outperforming the majors.

In a strategy update, BP chief Bob Dudley said the UK group's U.S. onshore business has "become less competitive." Lamar McKay, head of BP's upstream, or exploration and production, division, added that the spin-off of the business would drive innovation and facilitate decision making as well as improving cost management.

While some observers believed BP could sell the new unit if its U.S. business performance does not improve - the group also has been hit by liabilities from the 2010 Deepwater Horizon disaster - Dudley told journalists at the briefing that this "will remain a critical part of BP's portfolio over the long-term." The move "creates optionality for us," Bloomberg quotes the CEO as saying.