* BP says deal gives it some of best onshore U.S. acreage
* Deal to boost BP earnings, cash flow per share
* BP plans $5-$6 bln share buyback, funded by divestments
* Sale price better than expected, investor, analysts say
* BHP says to return sale funds to shareholders(Adds quote, details, shares)
By Sonali Paul and Ron Bousso
MELBOURNE/LONDON, July 27 (Reuters) - BP Plc hasagreed to buy U.S. shale oil and gas assets from global minerBHP Billiton for $10.5 billion, expanding theBritish oil major's footprint in oil-rich onshore basins in itsbiggest deal in nearly 20 years.
The acquisition marks a big turning point for BP since theDeepwater Horizon rig disaster in the Gulf of Mexico in 2010,for which the company is still paying off more than $65 billionin penalties and clean-up costs.
"This is a transformational acquisition for our (onshoreU.S.) business, a major step in delivering our upstream strategyand a world-class addition to BP's distinctive portfolio," BPChief Executive Bob Dudley said in a statement.
In a further sign of the upturn in its fortunes, BP said itwould increase its quarterly dividend for the first time innearly four years and announced a $6 billion share buyback, tobe partly funded by selling some upstream assets.
BP's London-listed shares were trading 0.4 percent higher at1000 GMT, compared with a 0.6 percent gain in the broaderEuropean energy index.
The sale ends a disastrous seven-year foray by BHP intoshale on which the company effectively blew up $19 billion ofshareholders' funds. Investors led by U.S. hedge fund ElliottManagement have been pressing the company to jettison theonshore assets for the past 18 months. BHP put the business upfor sale last August.
The sale price was better than the $8 billion to $10 billionthat analysts had expected, and investors were pleased that BHPplanned to return the proceeds to shareholders.
"It was the wrong environment to have bought the assets whenthey did but this is the right market to have sold them in,"said Craig Evans, co-portfolio manager of the Tribeca GlobalNatural Resources Fund.
BHP first acquired shale assets in 2011 for more than $20billion with the takeover of Petrohawk Energy and shale gasinterests from Chesapeake Energy Corp at the peak of the oilboom. It spent a further $20 billion developing the assets, butsuffered as gas and oil prices collapsed, triggering massivewritedowns.
The world's biggest miner said it would record a furtherone-off shale charge of about $2.8 billion post-tax in its 2018financial year results.
U.S. BOOST FOR BP
The deal, BP's biggest since it bought oil company AtlanticRichfield Co in 1999, will increase its U.S. onshore oil and gasresources by 57 percent.
BP will acquire BHP's unit which holds the Eagle Ford,Haynesville and Permian assets for $10.5 billion, giving it"some of the best acreage in some of the best basins in theonshore U.S.," the company said.
It beat rivals including Royal Dutch Shell andChevron Corp for the assets, which have combinedproduction of 190,000 barrels of oil equivalent per day(boe/d)and 4.6 billion barrels of oil equivalent resources.
The deal would turn the onshore United States into "aheartland business in the company," Bernard Looney, BP's head ofupstream, said in a call with analysts.
It will bring BP into the oil-rich Permian basin in easternTexas, where production has surged in recent years. With it,BP's onshore oil production will jump from 10,000 barrels perday to 200,000 bpd by the mid-2020s, Looney said.
BP said the transaction would boost its earnings and cashflow per share and it would still be able to maintain itsgearing within a 20-30 percent range.
The company also said it would increase its quarterlydividend by 2.5 percent to 10.25 cents a share, the first risein 15 quarters.
Meanwhile, a unit of Merit Energy Company will buy BHPBilliton Petroleum (Arkansas) Inc and the Fayetteville assets,for $0.3 billion.
Tribeca's Evans welcomed the clean exit for cash, ratherthan asset swaps which BHP had flagged as a possibility.
"It leaves the company good scope to focus on their farbetter offshore oil business," he said.
BHP Chief Executive Andrew Mackenzie said the company haddelivered on its promise to get value for its shale assets,while the sale was consistent with a long-term plan to simplifyand strengthen its portfolio.
BHP shares rose 2.3 percent after the announcement,outperforming the broader market and rival Rio Tinto.
BP said it would pay the $10.5 billion in instalments oversix months from the date of completion, with $5.25 billion ofthe consideration to be raised through the sale of new shares.
An Elliott spokesman declined to comment.
(Reporting by Sonali Paul, additional reporting by Aditya Soniin Bengaluru and Ron Bousso in London; editing by JamesDalgleish, Richard Pullin and Adrian Croft)
