Tuesday, February 22, 2011

BHP debuts in US shale business by purchasing Chesapeake's Fayetteville assets for $4.8 billion

BHP Billiton has made its first move into the US shale gas business with the acquisition of Fayetteville shale assets from Chesapeake for $US4.75 billion cash. Chesapeake's Fayetteville shale assets include approximately 487,000 acres of leasehold and producing natural gas properties located in Arkansas. This is the second largest position in one of the largest gas fields in the world. This acquisition will increase BHP Billiton's net reserve and resource base by 45%. These assets currently produce approximately 415 MMcf/d and include development options that will support substantially higher production over a 40 year operating life. The assets include 2.4 Tcf of proved reserves and 10 Tcf of total risked resource potential. The transaction also includes midstream assets with approximately 420 miles of pipeline.

It’s a material asset with room to grow:
The acquisition is consistent with BHP Billiton's strategy of investing in large, long-life, low cost assets with significant volume growth from future development. BHP said it is paying $1.77/Mcf of proved reserves which is consistent with the recent ExxonMobil’s acquisition of Petrohawk’s Fayetteville assets for $1.92/Mcf. BHP aims to triple daily production from the new asset as the field is developed, and plans to spend $800 million to $1 billion a year over 10 years to develop the field, BHP chief Michael Yeager said.

Unconventional gas to quench the thirst of US gas demand:

Chesapeake says, “Enormous value created through JV transactions – More to come in 2011”
This Fayetteville transaction is in line with Chesapeake’s 2011-12’s “25/25” plan, ie., reducing debt by 25% by selling assets, while increasing production by 25%. Chesapeake’s drilling capital to be invested in liquid plays will move from 10% in 2009 to 70% in 2012. In 2010, Chesapeake invested ~$5.0 billion of leasehold in liquids-rich plays which will be largely recovered from JV partners in next few years. In the past two years, Chesapeake has created enormous value through JV transactions and more to come in 2011…


  1. BHP Petroleum chief Michael Yeager said regarding the deal, "I'm bullish that US gas prices would improve as demand for cleaner energy grows and even at current levels, the company would make healthy earnings margins on shale gas".

    To learn more see this: http://www.livemint.com/2011/02/22081637/BHP-Billiton-makes-475-bn-pu.html?h=A1

  2. Prasad Patkar, who helps manage about $1.8 billion including mining stocks at Platypus Asset Management Ltd comments on the transaction, “BHP has entered a new business but has met the criteria that they have articulated for acquisitions, that is, tier-one, low-cost, long-life and expandable assets.”

    Read more: http://www.bloomberg.com/news/2011-02-21/bhp-buys-chesapeake-unit-for-4-75-billion-adding-u-s-shale-gas-assets.html

  3. BHP on the lookout for acquisition opportunities, it has committed $US80 billion to new projects and expansions over five years.........Chesapeake Fayetteville assets might just be the beginning

    Analysts suspect BHP's hunting ground for oil and gas acquisitions will be confined to the US market although Woodside Petroleum ($US34 billion market value) is a possible candidate, given Shell's remaining holding is seen to be up for grabs. US companies possibly fitting BHP's bill include Anadarko ($US40 bn), Cobalt ($US5.3 bn), Noble Energy ($US15 bn) and Plains ($US5.4 bn).....http://bit.ly/e8z9NO



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