Friday, July 15, 2011

BHP Billiton acquires Petrohawk for ~$15 billion in the largest oil and gas M&A deal so far in 2011

BHP Billiton has agreed to acquire Petrohawk for US$38.75 per share by means of an all-cash tender offer for all of the issued and outstanding shares of Petrohawk, representing a total equity value of approximately US$12.1 billion and a total enterprise value of approximately US$15.1 billion, including the assumption of net debt.

Quick facts of the transaction:
  • Provides BHP Billiton with operated positions in the three world class resource plays of the Eagle Ford (332,000 net acres) and Haynesville shales (345,000 net acres), and the Permian Basin (325,000 net acres acquired in May 2011 for an average price of $1,400/acre).
  • Estimated 2011 net production of approximately 950 MMcfe/d.
  • Year-end 2010 proved reserves of 3.4 Tcfe and unproved resource base of 32 Tcfe for a total risked resource base of 35 Tcfe.
  • US$0.39 per Mcfe for total risked resources.

Valuation of the assets being acquired

A look at the split up of deal vale paid for the Haynesville, Eagle Ford and Permian assets-

  • The value for Haynesville Shale acreage is $3,622.5 million (at an assumed price of $10,500/Acre for 345,000 acres or $1.12/BOE of uproved resource potential);
  •  The value for Eagle Ford Shale acreage is $3,784.8 million (at an assumed price of $11,400/Acre for 332,000 acres or $1.78/BOE of unproved resource potential).  
  • The value for Permian basin acreage is $455 million (at $1,400/Acre for 325,000 acres based on the May 2011 transaction value);
  • Midstream assets are valued at $995 million as estimated by the buyer;
  • Remaining deal value of $6,242.7 million is ascribed to Proved Reserves ($11.04/BOE or $39,428/Daily BOE).

Benefits for BHP Billiton:

BHP’s acquisition of Petrohawk is the largest unconventional deal this year, the previous one happened when ExxonMobil bought XTO in 2009. This $15 billion deal has been followed by its recent entry into US shale business by acquiring Chesapeake’s Fayetteville assets for $4.8 billion. With these two back to back unconventional deals, BHP has set itself a strong foundation in unconventional business.

The following are the benefits for BHP through this acquisition.
  • The unconventional assets being acquired are well connected to a pipeline network which Petrohawk recently sold it to Kinder Morgan for $920 million. Therefore, distribution of the produced gas will not be an issue for BHP.
  • BHP’s acquisition of Fayetteville assets boosted its net reserves and resources by 45% and the current acquisition of Petrohawk takes BHP to a next level by doubling the resource base to 11.3 Billion BOE. BHP expects to increase its oil and gas production by 10% per year for the next decade.
  • BHP Billiton Petroleum will become one of the 10 largest independent upstream oil and gas companies in the world based on total resources.

Shale market is ROBUST
The unconventional market in US has seen a total deal volume of ~$33 billion since the beginning of this year against the last year volume of ~$17 billion with the same number of deal count. The following interactive charts show the unconventional deals in the past one year sorted by deal value and region.

By Deal Value 

By Region

Source Documents:


  1. Analyst comments –

    -- Tudor Pickering Holt & Co gave a net asset value of $38.30 to Petrohawk which is much closer to the $38.75 per share price offered by BHP. TPH said “We’ve never questioned HK’s asset quality with blocky, core shale assets in the Eagle Ford, Haynesville, and emerging Permian basin,”....” BHP’s deep pockets and Petrohawk’s deep experience in the shales are a perfect fit.”

    -- The average price is about $15,000 per acre for BHP/Petrohawk deal. According to Andrew Coleman of Raymond James the price per acre isn’t necessarily the best metric to use since the deal also includes a lot of producing wells and midstream infrastructure.

    -- Peter Chilton, Constellation Capital Management portfolio manager, says "Their view on their first shale buy was they were buying at bottom-of-the-cycle prices"…”I guess they see value here."

    -- Glyn Lawcock, head of Australian Resources, says "At the current gas price, it doesn't make sense"… "If the current (U.S.) gas price of low $4 per mmBtu were to hold, then they've paid a big price for something that's not going to generate the returns that they are thinking”…."You've really got to believe that the U.S. gas price will (climb) back up to a minimum of $6 per mmBtu."

    -- Cameron Peacock, a market analyst at IG Markets Ltd, says “the premium is probably a little bit more than expected”…“Paying in advance for future growth is something the analysts often don’t like to see.”

    -- Grant Sporre, Rob Clifford and Gaetan De Buyer, Deutsche Bank AG analysts say “BHP has valued this asset for growth,”…. “BHP is increasingly confident on the future of gas and shale in particular as they continue their broadened push into the shale gas sector.”

    -- Jason Gammel, an analyst at Macquarie says “Petrohawk has an outstanding asset base, but monetary and capital problems has held back its true value."

    -- Charles Kernot, an analyst at Evo Securities says “BHP Billiton would pay around $27 per boe (barrel of oil equivalent) for the proved reserves, which is relatively expensive. However this ignores the sizeable potential of the non-proved resources which are probably viewed as low risk exploration and therefore easier to convert to proved reserves.”

    -- Claudia Mahn, North America energy analyst at IHS says “While this will help the US getting resources out of the ground in the short- to medium-term, these deals could potentially weigh on the country’s energy security down the road, if foreign companies would gain control over significant volumes of unconventional oil and gas production in the US.”

    -- According to Robert Morris and his crew from Citigroup Global Markets, the comparisons are a mixed bag when we look at the per-acre cost in the different shales. Citigroup estimates the cost to BHP for undrilled Haynesville acreage to be about $5,000 per acre. Robert Morris, Citigroup Global Markets analyst, says “… which matches what BHP paid for Chesapeake’s Fayetteville stake earlier this year.” For Petrohawk’s Permian basin acreage, Citigroup estimated the cost to BHP was about $6,200 per acres. Robert comments “… which appears quite aggressive given that HK’s average cost basis is $1.4k/acre.” And for the Eagle Ford acreage, Citigroup estimated the price to be $22,000 per acre, “… which is arguably the high-end of any public transaction to date” according to Robert.

  2. There is a company out of Houston that does really good analysis, PLS Inc. I subscribe and Ill be looking forward to their spin next week.



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