BHP Billiton to acquire Petrohawk Energy for ~$15 billion. Is BHP/Petrohawk a fair deal? Yes. Deal priced fairly as BHP acquires assets undervalued due to Petrohawk’s capital constraints.

Highlights

•   Largest Oil and Gas M&A deal till date in 2011
•   All cash offer at a substantial premium
•   Gives BHP a focused position in Haynesville shale, Eagle Ford shale and Permian basin
•   Price premium is justified based on sum of parts valuation
•   A compelling strategic benefit for BHP
•   Ironically, limited impact on broader market 

Largest Oil and Gas M&A deal till date in 2011

In the largest M&A deal till date in 2011, Australian Mining major BHP Billiton (BHP) and Houston based Oil and Natural gas explorer Petrohawk Energy Corp (HK) have entered into a definitive agreement for BHP to acquire HK. The offer price of $38.75 per share of Petrohawk, represents a total equity value of approximately $12.1 billion and a total net debt of $3 billion (Petrohawk's debt stood at $3.8 billion as of June 30, 2011 and has been adjusted for certain midstream asset sale proceeds of $800 million),

BHP has engaged Barclays Capital and Scotia Waterous while Petrohawk has engaged Goldman Sachs as their respective financial advisors in connection with this $ 15.1 Billion transaction. This is the largest oil and gas deal since the acquisition of XTO Energy by ExxonMobil for $41 billion in 2009.

All cash offer at a substantial premium

Source: BHP Billiton

BHP has made an all cash offer that is hard to    refuse. The offer is at the upper end of target prices given by 27 brokers and is at a substantial premium to not only 30 day trailing price but also to its 52 week high trading prices.

 Not surprisingly, Petrohawk shares surged 63% on the announcement of this deal.

For Petrohawk, an opportunity rich and capital starved company, this is a timely opportunity to unlock the value of its portfolio. BHP is taking no chances with the offer price. It is probably offering at the top end of what it believes is the value of these assets in order to close the deal very quickly. The offer will commence on 25-July-2011 and the deal is expected to close in Q3 2011.

BHP gets a focused position in Haynesville shale, Eagle Ford shale and Permian basin

Petrohawk has a concentrated portfolio of high quality assets in Haynesville and Lower Bossier shale, Eagle Ford shale and Permian basin. The company has approximately 1,000,000 net acres in Texas and Louisiana; estimated 2011 net production of approximately 950 MMcfe/d (90% gas); year-end 2010 reported proved reserves of 3.4 Tcfe (92% gas and 78% located in Haynesville play); current non-proved resources base of 32 Tcfe for a total risked resource base of 35 Tcfe.

Petrohawk resource base 

Source: BHP Billiton

Haynesville and Lower bossier shale assets:
-- Location: Across numerous parishes in Northwest Louisiana, primarily in Caddo, Bossier, Red River, DeSoto, Webster and Bienville parishes and also in East Texas, primarily in Harrison, Panola, Shelby and Nacogdoches counties;
-- Approximately 345,000 net risked acres;
-- As of December 31, 2010, 2,656 Bcfe of proved reserves (38.3% proved developed reserves);
-- Estimated 2011 net production of approximately 650 MMcfe/d;
-- Risked resource base of 22 Tcfe.

Eagle Ford Shale assets:
-- Counties: La Salle, McMullen, Karnes, DeWitt and Zavala counties;
-- Approximately 332,000 net risked acres;
-- As of December 31, 2010, the proved reserves for the region were approximately 736 Bcfe (22.6% proved developed);
-- Estimated 2011 net production of approximately 210 MMcfe/d;
-- Risked resource base of approximately 13.5 Tcfe;
-- Petrohawk has a joint venture in Eagle Ford Shale midstream with Kinder Morgan holding 25% interest and Petrohawk holding the remaining 75% operated interest. The assets include 280 miles gas gathering plus 112 miles of condensate gathering, which is expected to be in service by year end 2011.

Permian basin assets:
-- Estimated 325,000 net acres which Petrohawk acquired in May 2011 for $455 million;
-- 70% of the acquired acreage is located in Delaware basin while 30% of the acreage is split between Northern and Southern Midland basin. 90% of the total acquired acreage is operated and is primarily located in Loving, Reeves and Culberson counties.

Petrohawk’s current production and proved reserves are 90% and 92% gas respectively, but the liquids share is expected to rise over the next two years. BHP has announced its intention to increase capex beyond what Petrohawk had planned. That increase will most likely be focused on liquids production.

Petrohawk production and revenue split by hydrocarbon

Source: Petrohawk Energy Corp

This acquisition will result in a 30% increase in BHP’s proved reserves, and together with the Fayetteville acquisition earlier this year increase the resource base by 300%. BHP plans increase production at 10% CAGR to reach one million barrel per day in by FY15.

Source: BHP Billiton

Price premium is justified based on relative valuation of the assets based on acreage in the same or adjacent areas ….

We have estimated the deal value break up as follows:

	Region	Sub-region	Value ($MM)	Acreage/Resources	Metric
1	Haynesville acreage value (1)		3,623	345,000 Acres / 3,224 MMBOE	$10,500/Acre or $1.12/BOE
2	Eagle Ford Shale Acreage Value(2)	Hawkville	2,464	224,000 Acres / 1,673 MMBOE	$11,000/Acre or $1.47/BOE
		Black Hawk	1,224	58,300 Acres / 454.5 MMBOE	$21,000/Acre or $2.69/BOE
		Red Hawk	100	50,000 Acres	$2,000/Acre
		Total	3,788	332,300 Acres / 2,127.5 MMBOE	$11,400/Acre or $1.78 BOE
3	Permian Basin acreage value!		455	325,000 Acres	$1,400/Acre
4	Midstream asset value*		995
5	Proved Reserves value (3)		6,239	565.233 MMBOE of 1P and Production of 158.333 MBOE/d	$11.04/BOE or $39,428/Daily BOE
	TOTAL DEAL VALUE		15,100

                                                                                                                                            (#Source: DPS estimates)

 …. Since it offers a compelling strategic benefit for BHP

BHP management has highlighted strategic benefits from this deal as follows:

•         Exposure to the US market
•        Balance to BHP’s currently offshore weighted portfolio
•        Access to the high quality operational performance of Petrohawk team

Ironically, limited impact on broader market

Immediately after the deal announcement, speculation started on other likely takeovers. But we believe nothing has changed in the market to specifically fuel more deal making. Is there any pressure on any peer group to do a deal? No, BHP is one of its kind. Does Petrohawk being taken out create a shortage of assets that will make buyers scurry to do a deal? No, there are plenty of assets on the market. According to DPS study of Deals in Play, more than $90 billion worth of oil and gas assets are on the market as of July 2011. This volume of supply is the same as what existed at the beginning of 2011 and approximately double the volume of supply in early 2010.

As BHP plans to increase Petrohawk’s capital spend, this deal will result in higher US gas production. This in turn will exert a further downward pressure on gas prices.

Analyst comments

Analysts who see this as a Value buy

-- 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."

-- 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 have held back its true value."

Analysts who see this acquisition In Line

-- 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 Petrohawk’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.”

-- According to Robert Morris 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 acre. Robert comments “… which appears quite aggressive given that Petrohawk’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.

Analysts who consider this deal Overvalued

-- 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.”

Other comments

-- 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.”

Context - BHP deals history

BHP has done two quick deals in succession in US shales – the current deal and the February 2011 deal to acquire Chesapeake’s Fayetteville assets for $4.75 billion. However, these two deals came after a very long lull, the last significant oil and gas deal by BHP before these two was in late 2006 when Anadarko sold its Genghis Khan discovery in deepwater GOM to BHP, Hess and Repsol for $1.326 billion.

In this interim period, BHP had unsuccessfully attempted two large acquisitions, Rio Tinto and Canadian Potash Corp, to further build a dominant position in mining. In spite of BHP reiterating its commitment to oil and gas, the market continued to speculate about a potential divestiture of BHP Petroleum. With the two deals in US shales, that issue has been laid to rest.

Context - Petrohawk deals history

M&A deals by Petrohawk since 2008

Announce Date	Buyers	Sellers	Deal Value ($MM)	Deal Type	US Sub Region
7/14/2011	BHP Billiton	Petrohawk Enegy Corp	15,100	Corporate	Haynesville Shale
5/5/2011	Petrohawk Enegy Corp	(Undisclosed)	455	Acreage Only	Permian
12/31/2010	Petrohawk Enegy Corp	(Undisclosed)	303	Acreage Only	Eagle Ford Shale
12/31/2010	Petrohawk Enegy Corp	(Undisclosed)	215	Acreage Only	Haynesville Shale
12/23/2010	ExxonMobil	Petrohawk Enegy Corp	650	Property	Fayetteville Shale
8/9/2010	EV Energy Partners	Petrohawk Enegy Corp	123	Property	Mid-Continent
3/15/2010	WildHorse Resources LLC	Petrohawk Enegy Corp	320	Property	Mid-Continent
3/1/2010	Lime Rock Resources	Petrohawk Enegy Corp	155	Property	Mid-Continent
3/1/2010	(Undisclosed)	Petrohawk Enegy Corp	20	Property	Mid-Continent
2/24/2010	Petrohawk Enegy Corp	Aref Energy Holding Co	117	Acreage Only	Eagle Ford Shale
11/2/2009	Petrohawk Enegy Corp	Swift Energy	39	JV	Eagle Ford Shale
9/21/2009	Merit Management Partners	Petrohawk Enegy Corp	376	Property	Permian
8/6/2009	Petrohawk Enegy Corp	JKX Oil & Gas	10.1	Acreage Only	Haynesville Shale
8/1/2009	Petrohawk Enegy Corp	(Undisclosed)		Acreage Only	Haynesville Shale
7/15/2008	Petrohawk Enegy Corp	Mainland Resources Inc		Acreage Only	Haynesville Shale
4/8/2008	Petrohawk Enegy Corp	(Undisclosed)		Acreage Only	Haynesville Shale
1/8/2008	Petrohawk Enegy Corp	Aspect Energy LLC	222.5	Acreage Only	Fayetteville Shale

Context - Corporate acquisitions in US shales

Announce Date	Buyers	Sellers	Deal Value ($MM)	SubRegion
7/14/2011	BHP Billiton	Petrohawk Enegy Corp	15,100	Haynesville Shale
6/2/2011	ExxonMobil	Phillips Resources Inc; TWP Inc	1,690	Marcellus Shale
12/1/2010	Antero Resources Corp	Bluestone Energy Partners	180	Marcellus Shale
11/15/2010	Williams	Dakota-3 E&P Company LLC	925	Bakken Shale
11/9/2010	Chevron	Atlas Energy	4,300	Marcellus Shale
7/27/2010	Hess	American Oil & Gas Inc	384.65	Bakken Shale
7/20/2010	ExxonMobil	Ellora Energy Inc	570	Haynesville Shale
5/28/2010	Shell	East Resources Inc	4,700	Marcellus Shale
4/21/2010	Exco; BG	Common Resources LLC	446	Haynesville Shale
3/21/2010	Consol	CNX Gas Corp	985.8	Coalbed Methane
12/14/2009	ExxonMobil	XTO	41,000	Multiple

Foot Notes:

! Based on MAY-2011 Petrohawk's Permian Basin acquisition

*as estimated by the buyer

(1) Haynesville comparable deals

Based on JUL-2010 Exxon-Ellora transaction in Haynesville, the $/Acre is assumed to be $10,500/Acre.
Out of all recent significant Haynesville deals, the Ellora acreage was the only one in close proximity to the Petrohawk acreage.

The other high value deals in Haynesville involving undeveloped acreage were, Exco/BG acquiring assets from Southwestern Energy and Common Resources, in two separate transactions. The acreage in these two transactions were mainly in Texas, whereas Petrohawk’s majority Haynesville acreage lies in large part in Louisiana.

(2) Eagle Ford comparable deals

Hawkville

The value is derived from JUN-2011 Statoil/Talisman-SM Energy adjusted deal metric of $14,610/Acre and discounted for the higher share of dry gas acreage in Petrohawk's portfolio. Other comparable deals (but slightly more distant from Petrohawk’s acreage) are KNOC-Anadarko at adjusted price of $13,975/Acre and Mitsui-SM Energy at $11,035/Acre

Black Hawk

Based on JUN-2011 Marathon-KKR/Hilcorp deal, the $/Acre is assumed to be $21,000/Acre.

(3) Metrics for US gas producing properties

This is the residual deal value. The implied $39,428/Daily BOE in this deal compares well with the average for all gas weighted US deals since 1-Jan-2010 at $41,052/Daily BOE. The implied metric for proved reserves at $11.04/BOE is slightly higher than the average for all gas weighted US deals since 1-Jan-2010 at $9.84. However, the proved reserves number used in this deal are as of yearend 2010, and the current figure is likely to be higher because of significant ongoing drilling.

Sub Region	$/Daily BOE (Adv. Est.) (avg)	$/Proved BOE (Adv. Est.) (avg)
Eastern	83,149	9.17
GC Onshore	34,114	14.81
Gulf of Mexico (Deep)	14,368	9.48
Gulf of Mexico (Shallow)	14,681	11.60
Mid-Continent	47,891	8.69
Multiple
Permian	40,168	9.88
Rockies	35,809	7.56
West Coast	31,074	15.15
Total	41,052	9.84

Source: Derrick E&P Transactions Database. US producing properties, Deal Value > $10 million, Announce Date on or after 1-Jan -2010, Hydrocarbon = gas

Source Documents: 

Acquisition ppt

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Petrohawk july 2011 ppt

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SM Energy divests Marcellus assets to Endeavour for $80 million. Plans to focus more on liquids rich plays.

SM Energy Company has agreed to sell its Marcellus shale assets in McKean and Potter Counties, Pennsylvania, to Endeavour International for total cash proceeds of approximately $80 million. The transaction includes SM Energy's entire leasehold position in the play of approximately 42,000 net acres as well as associated pipeline assets. There are currently three producing wells on the acreage with the average first quarter production of 2 MMCFE/d. As of year-end 2010, there were 5.6 BCFE of booked reserves related to these assets, of which 50% were classified as proved developed.

Deal Value Analysis

In a simple way, the metric of this deal is calculated as $1,905/acre. However, the assets being sold include 2 MMCFE/d of production, which if valued at $40,000/BOE, yields ~$13 million for reserves. After deducting for the reserves, the acreage value remains at ~$67 million or $1,595/acre.

Source: SM Energy

What’s happening in Marcellus Shale

The Marcellus shale play runs through northern Appalachia, primarily in Pennsylvania, West Virginia, New York, and Ohio. It is part of the Devonian black shale and the thickness of the gas-producing rock is as much as 900 feet. The formation runs an estimated 600 miles north to south, and is estimated to hold as much as 500 trillion cubic feet of natural gas, about 50 tcf of which is recoverable using current technology. It is one of the richest gas formations in North America.

The proximity to customers in Eastern urban centers is what makes the Marcellus so desirable. Fort Worth-based Range Resources was one of the early players in the Marcellus and still has a huge position in the play. Recently, Range divested Barnett assets to focus on Marcellus Shale. Norway’s Statoil has signed a joint venture with Chesapeake to work together in the Marcellus, and other US and foreign companies also are involved in drilling and infrastructure development.

A substantial amount of drilling for natural gas locked in the Marcellus Shale is occurring in Pennsylvania. There are two reasons for that:

• First, of course, is that much of the Marcellus Shale lies under Pennsylvania.
• Pennsylvania does not collect a severance tax on natural gas.

The following interactive chart shows the recent Marcellus Shale deals.

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SM Energy’s Outlook

With these many beneficial facts about Marcellus shale, why is SM Energy divesting its Marcellus assets.

SM Energy is trying to accelerate its liquids rich production; thereby the company is ramping up drilling programs in Eagle ford and Bakken/Three Forks. Approximately 84% of SM Energy’s current capital budget is focused on three core liquids-rich resource plays- Eagle Ford Shale; Bakken / Three Forks and Granite Wash. The company is planning to attain +20% production growth in 2011.

In addition, SM Energy recently divested non-operated position and portion of operated position in Eagle Ford to Mitsui; and Statoil and Talisman, respectively. This clearly says that, SM Energy is interested in focusing on its core liquids rich plays; and hence the reason for divesting Marcellus assets.

Marathon Oil cashes out Hilcorp & KKR for $3.5 billion in Eagle Ford shale sale

Fast & furious

Hilcorp’s founder just moved up the list of Forbes richest Americans with last month’s announcement that Marathon Oil would acquire his subsidiary Hilcorp Resources Holdings, LP’s assets in the Eagle Ford for $3.5 billion. Also lining its pockets is partner, Kohlberg Kravis Roberts & Co LP, who invested $400 million alongside HRH’s parent affiliate Hilcorp Energy Company in a 60:40 joint venture just 11 months ago. KKR’s “quick flip” is a wonderful story line when you consider the New Yorkers pulled the same trick with East Resources last year. There, KKR invested $325 million in advance of the Marcellus rush and turned that initial investment into $1.5 billion in less than a year when Shell came calling with $4.7 billion. Now KKR has pocketed another billion plus from a major, proving that every once in a while, Wall Street guys can make money in oil and gas. 

Looking back—

Those on the sell side of Hilcorp include some of the industry’s greatest majors, aka Amoco, Chevron, Exxon, Texaco and probably Marathon; who all spun off non-core assets so they could focus on more supposed profitable projects overseas. Fast forward, these same majors are now back, fast and furious, acquiring some of the same lands they once sold to independents like Hilcorp. And like KKR, the top guns at Hilcorp probably never imagined the quick riches they might receive selling assets to the likes of Marathon. But here we are.

As for Marathon—

This transaction tips the scale in South Texas shale sales and possibly recasts a deal for Forest who is still looking for answers on their acreage. Shortly after this deal, SM Energy reported two JVs for its Eagle Ford acreage, reaping more than $900 million. Mitsui paid ~$11,000 per acre and Talisman and Statoil teamed to pay ~$14,600 per acre.

In addition, Marathon’s generosity must feel good for all recent Eagle Ford claim jumpers (PVA & Rosetta drilling their own projects); promotees (Lewis, Chesapeake & Pioneer) and promoters (BP, CNOOC & Reliance) who now look prudent for early bets in the play. If you take the math further, some might argue that $10,000 per acre looks cheap now. 

But not cheap enough? If you consider the Koreans recent $14,000 per acre purchase for the right to play on Anadarko’s JV acreage, lands once owned by TXCO, an old fashioned exploration firm who went belly up on the eve of the Eagle Ford... never to fully realize the full potential of its South Texas acreage thanks to its untimely timing. As Hilcorp and KKR just proved... timing is everything.

Behind the numbers

For those that like simple math the Marathon metrics yield $25,000/acre based on the price of $3.5 billion divided by 141,000 acres. However, the deal does include 7,000 boe/d, which, if priced at $70,000-$80,000 boe/d, yields $490-$560 million for the proved reserves and only ~$2.98 billion for acreage. These calculations then translate into metrics of $20,851-$21,348 per acre, well above the $13,975 per acre set in Anadarko/KNOC JV transaction announced in March. But the Marathon deal is all cash, whereas Anadarko’s JV is all carry, widening the gap even further between the acreage valuations for the two transactions on a discounted cash basis.

KeyBanc Capital Markets analyst, Jack Aydin, who booked the deal at $21,100 per acre notes the value of this transaction “is toward the high end of the market’s expectations and considerably higher than other recent transactions in the play” where prices have run from $8,000-$15,000 per acre.  PLS also estimates the average price per net acre for 14 Eagle Ford transactions to be $8,400 per net acre. Wells Fargo analysts were more succinct. They called the deal “very rich”.

The following interactive chart shows the recent Eagle Ford transactions sorted by $/acre-

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What’s behind the $25,000 per acre? 

Some are starting to see the Eagle Ford condensate window as the best onshore play in the country. Marathon sees 400-500 mmboe resource potential from its position. Crunching the numbers, $3.5 billion for 473 mmboe of total risked reserves works out to $7.40/boe.  Looking at the acreage from a resource perspective works out to 3,355 boe per acre. (473 mmboe/141,000 net acres). Eyeing Marathon’s disclosure, the breakout by window is telling.  Of the 473 mmboe risked resource, 250 mmboe are under the 41,000 net acres in the condensate window – or 53% of the resource on 29% of the acreage.  Marathon’s EUR for the condensate window is 965 mboe, versus 645 mboe for the volatile oil and 445 mboe for the black oil windows. That’s in the ballpark of Petrohawk’s guidance for Blackhawk acreage with EURs of 1,070 mboe, also in Karnes and Dewitt counties.

Assuming the boe’s are valued equally across the play, the condensate window acreage would be valued nearly two times higher than volatile oil window and three times as much as black oil window.

To see what other operators are reporting about "Eagle Ford", use our oil and gas document library:

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Plans—

Overall, the Eagle Ford acquisition brings Marathon’s resource holdings to almost a million net acres across North America including the Eagle Ford, Bakken, Woodford Niobrara and in-situ position in Alberta, Canada. As it spins away from refining, these assets will give Marathon 35-40 working rigs in the U.S. and a strong oil sands push in its Birchwood in-situ acreage which altogether could create 175,000 boe/d of new unconventional volumes in the 2016-2017 timeframe, 1/2 that from the Eagle Ford.

QUICKLOOK

• Marathon doubles down on the Eagle Ford.
• New Marathon E&P unit needed a deal.
• Metrics “high” and “rich”.
• Quick flip for Hildebrand & KKR nets billions.
• Second big shale deal for KKR who also invested in East Resources.
• Marathon replaces the Koreans as the most aggressive buyer in the Eagle Ford.

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 

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By Region

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Source Documents:

Acquisition ppt

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Petrohawk july 2011 ppt

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E&P Opportunities in North Africa

There are 20 opportunities recorded in Derrick’s “Deals in Play’” database for the region of North Africa comprising Algeria, Egypt, Morocco, Mauritania and Egypt.

Out of these 20, 12 opportunities are for stakes in exploration blocks previously awarded, 5 are opportunities relating to developing undeveloped discoveries, 1 is for a stake in a producing field and 1 is for stakes in multiple asset types (appraisal/pre-development discoveries & 1 producing field) (Map 1)

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Figure 1: Map of North Africa with locations of opportunities shown by colored circles. Circles are colored based on the asset type. Place cursor over circles for additional information on the opportunity. Click on circles to get detailed opportunity break down (pop ups need to be allowed).

The maximum opportunities are in Morocco (8), followed by Tunisia (7), Egypt (3), Algeria (1) and Mauritania (1).

Derrick has valued the following packages (developing discoveries & producing fields) - (Table 1)
1. Dana Petroleum offers 25% in exploration concession offshore Egypt
2. Roc Oil to divest package of assets offshore Mauritania
3. Canamens Energy seeks farm-in partner(s) for two licenses offshore Morocco
4. Atlas Petroleum and Eurogas seek farm-in partner for Sfax permit, offshore Tunisia
5. Cooper Energy to farmout interest in offshore Tunisian field

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Table 1: Derrick valued deals are shown with their asset types (transaction type), deal value and country. Squares are colored according to hydrocarbon type. Place cursor over squares for additional information on the opportunity. Click on circles to get detailed opportunity break down (pop ups need to be allowed), asset information and deal value.

North Africa presently accounts for 29% of total opportunities present in Africa

Uganda Oil and Gas Exploration in 2011 & 2012

Although the hunt for oil in Uganda dates back to the 1920’s, commercial discoveries have only been made in the last 5 years. The dominant player by far has been Tullow Oil which has had proven discoveries of a billion barrels with yet to be drilled (P50) estimates of another 1.5 billion barrels. The discovery of these significant reserves has ushered in a new chapter in Uganda’s development, and generated renewed interest in the petroleum potential in the country. Uganda has 10 exploration blocks that run from the Sudan border in the north through Lake Albert on the western border with Democratic Republic of Congo and south to Lake George.  However, only 5 blocks have been licensed. The other blocks are due to be licensed after the government completes a new regulatory framework over oil exploration. These blocks are Blocks 3B, 3C, 3D and 4A. The government has said it is planning a new licensing round later this year and is offering 5 blocks. 

Tullow initially planned to have first oil production by 2011, but tax disputes between the newly acquired Heritage Oil and the Ugandan government have led to a delay with first oil now expected to flow in 2012. The other 2 players who have been active are Tower Resources and Dominion Petroleum. However, these companies have so far been unsuccessful with limited drilling attempts.

The status of exploration activity in Uganda and exploration plans for 2011 and 2012 is looked at below. 

The following table is an extract from Derrick Petroleum Services “Exploration Database” which here shows limited information about exploration drilling in Uganda in 2011 and 2012. Further information on ownership and recent activity is provided below the table and map that follows. 

Block/ License Name	Operator	Status	Wells planned in 2011	Wells planned in 2012+	Date of last update
Block 3A	Tullow Oil	Announced		2	7/8/2011
Block 1	Tullow Oil	Announced	1		6/7/2011
Block 2	Tullow Oil	Ongoing	1		4/6/2011
Exploration Area 4B or EA4B	Dominion Petroleum Ltd	Ongoing		2	7/13/2011
Block EA5	Tower Resources Plc	Ongoing	1		5/18/2011

Source: Derrick Petroleum Services ‘Exploration Database’

Figure 1: Map of blocks and hydrocarbon fields in Uganda. Source: Heritage Oil & Gas. Note: All Heritage blocks in map have been acquired by Tullow Oil.

Block 3A
 Tullow Oil operates this block with 33.33% interest with partners CNOOC and Total also having 33.33% interest each. The Kingfisher-1 well was drilled in 2006 and subsequent appraisal has shown this to be a major field with the Kingfisher-3 well establishing 200 million barrels of recoverable reserves. 2 other prospects, the structurally attractive Pelican prospect and the large Crane prospect have been mapped on seismic and were announced to be drilled in 1H 2010. However, at the time of writing they are yet to be drilled, and pending further announcement it is likely that this will occur only in 2012.

Block 1/ Exploration Area 1 (EA1)
Tullow Oil also operates this block with 33.33% interest and with partners CNOOC and Total also having 33.33% interest each. Block 1 or Exploration Area 1 (EA1) is located at the northern end of Lake Albert, onshore Uganda and covers an area of 3659 sq kms. A successful 3 well drilling program (Warthog-1/Ngiri, Buffalo-1/Jobi-1 & Giraffe-1/Rii) was completed in 2008 unlocking a billion barrel potential in the Block. This was said to be the largest onshore oil discovery in Sub-Saharan Africa in over 20 years. This was followed by the drilling of the Ngiri-2 well in 2010. 2 wells were drilled in 2011, the Jobi-East-1 (to test the Jobi East prospect adjacent to the giant Jobi-Rii oil field )and Mpyo-3 appraisal well.

Jobi-East-1 discovered 20 metres of net hydrocarbon bearing reservoir.  Successful logging and sampling operations confirmed the presence of oil in two zones of high quality reservoir totalling 15 m of net pay. In addition, gas was also logged and sampled within sands totalling 5 m of net pay. The well was drilled by the OGEC RR600 and reached a total depth of 563 m. It has been suspended allowing for future re-entry to conduct production testing operations. An accelerated drilling campaign comprising up to four Jobi-East appraisal wells is planned for the second half of 2011 to assess the full extent of this important new oil accumulation.

The Mpyo-3 well intersected 21 m of oil bearing reservoir sands at a depth of 340 metres. The well was drilled 1.6 km southeast of Mpyo-1 in a down-dip location within a fault block adjacent to the Mpyo-1 discovery. Successful logging operations confirmed the sands to be of good quality and that they contained highly viscous oil similar to that encountered in Mpyo-1. The well was drilled by the OGEC IRI-750 to a total depth of 513 m and was suspended allowing for future re-entry to conduct production testing operations.

Pending further announcement, it is unlikely that any new exploration wells will be drilled on this block in 2H 2011. However upto 4 Jobi East appraisal wells are planned to be drilled in 2011.

Block 2/ Exploration Area 2 (EA2)
Tullow Oil also operates this block with 33.33% interest and with partners CNOOC and Total also having 33.33% interest each. Block 2 or Exploration Area 2 (EA 2) covers an area of about 3,900 sq km and is located on the eastern edge of Lake Albert of Butaiba region in Uganda. Tullow Oil has planned an eight-well program in Block 2 which commenced in March 2008. Out of the eight wells, two were drilled in 2008 and five were drilled from Q1-Q3 2009 with the last well expected to be drilled in late July 2009. Karuka-2 and Nsoga-1 exploration wells were drilled in Mar & May 2009 respectively. Nsoga-1 was a commercial discovery. Elsewhere in Block 2, Ngassa-2 was also drilled around the same time and in September 2009 it discovered oil. The well has been suspended as an oil producer. Kigogole-3 well was drilled in June 2009 and was suspended as a future producer. Wahrindi-1 was drilled in July 2009 and it encountered four meters of net oil pay. The last well, Ngara-1 was completed in August 2009 and was suspended as a future oil producer. According to Tullow, the Butiaba E&A prospect is scheduled to be drilled in 2011 on Blocks 1 and 2.

Block 5/ Exploration Area 5 (EA5)
Block EA5 is a 6,040 sq km license area situated at the northern end of the Albertine Graben in northern Uganda. The first exploration well, Iti-1 was completed in June 2009 and was found to be dry. The second well, Avivi-1 was spudded on February 13, 2010 and also failed to encounter hydrocarbons. Tower Resources operates the block with 100% interest although Global Petroleum, which funded most of the cost of Iti-1 and 25% of the cost of Avivi-1, has earned the option to take a 25% interest in the license. In May 2011, Tower Resources announced that a seismic survey is ready to begin so that a well can be drilled before the end of 2011.

Block 4B/ Exploration Area 4B (EA4B)
Exploration Area 4B or EA4B covers an area of 2,021 sq km in the Lake Edward and Lake George segment of the Albertine Graben. The adjacent basins, Southern and Northern Lake Albert and the Pakwach, have been the sites of several major oil discoveries, including those of the Kingfisher, Warthog and Buffalo-Giraffe (Jobi-Rii) fields. In November 2008, Dominion completed the acquisition of 371 kms of 2D seismic data onshore and 130 kms on Lake Edward. According to their July 2009 update, Dominion had identified four ready-to-drill prospects in this block which had an unrisked gross recoverable resource potential of 378 mmboe. The first exploration well Ngaji-1 was spudded on the block on June 21, 2010. However the well did not encounter any significant hydrocarbons in it. Dominion Petroleum operates the block with a 100% interest. As of July 2011, Dominion's current exploration efforts in this area are focused on two prospects: Prospect B, with 49.4 mmboe net prospective P50 resources; and the Izzy Prospect, with 83.7 mmboe net prospective P50 resources (management estimates). In 2011, Dominion intends to acquire 300-500 km of new 2D seismic in the Lake Edward Basin as well as carry out a surface geochemistry survey. It is assumed that the 2 prospects mentioned above will be drilled in 2012 after processing and interpretation of seismic and analysis of geochemistry data.

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1H-2011 Deal Watch. M&A deal flow reached $71 billion in 1H- 2011, down 20% compared to $88 billion in 1H-2010. Better results expected for full year 2011 with ~$50 billion worth of assets available for sale.

Quick Facts of 1H-2011 Vs 1H-2010

• 1H-2011 global M&A deal flow settled at $70.554 bil lion with 758 transactions against the 1H-2010 M&A deal flow of $88.319 billion with 753 transactions.

• Low M&A deal flow in 1H-2011 is attributed to the cancellation of the three significant deals worth $15 billion. The cancelled deals are- BP/Rosneft shares swap worth $7.8B; Novatek’s acquisition of 49% stake in Sibneftegaz for $1.3B; PetroChina/Encana Cutbank Ridge JV worth $5.5B
• Split of Asset and Corporate transactions- 62%/38% against 2010 split of 68%/32%. Corporate transactions have relatively increased inspite of the cancellation of the two big corporate deals-BP/Rosneft and Novatek/Sibneftegaz
• Conventional deal activity in US dropped to $9.5 billion (-113%) from 1H 2010 value of $20.3 billion, whereas unconventional activity remained the same with ~$17.5 billion.
• Permian Basin and Eagle Ford Shale deals led the conventional and unconventional areas with 31% and 35%, respectively.

Top 10 deals of 1H-2011 (by deal value)

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Active buyers of 2011

The study on the 2010 and 1H-2011 transactions says that Asian companies like CNOOC, PetroChina, Mitsui, KNOC and Marubeni are really keen on shelling out dollars on the North American shales. Looking ahead, Asian investors are expected to be the most active buyers in 2011, followed by the North American firms or other IOCs.

Deal activity by Country/Region in 1H-2011

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United States:

United States has contributed the maximum or 39% of  the total deal volume. It is observed that many new comers including BHP made an entry into to the US Shale market. In addition, Eagle Ford acreage metric has reached a new benchmark level of $20,000-$24,000/acre.

Following are the significant deals in US in 1H-2011:

• Chesapeake divests Fayetteville assets to BHP Billi ton for $4.8B
• Marathon acquires additional Eagle Ford acreage from Hilcorp and KKR for $3.5B
• KNOC and Anadarko form Eagle Ford JV ($1.6B)
• Chesapeake and CNOOC form Niobrara JV ($1.3B)
• SM Energy and Mitsui form Eagle Ford JV ($680M)
• Marubeni acquires 30% interest in Marathon's Niobrara acreage for $270M

Quick look at the metrics in US

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Canada:

Canada has contributed 10% of the total deal volume. It has been a busy year with respect to Montney shale formation. Much expected $5.4 billion deal of Petrochina acquiring 50% interest in Encana’s Cutbank Ridge assets was lapsed. However, Encana has again initiated a sale process regarding the same assets and few other unconventional assets in Canada.

Following are the significant deals in Canada in 1H-2011:

• Petronas and Progress Energy form Montney JV for $1.1B
• Talisman and Sasol expand Montney JV ($1B)

India

With very few deals, India has contributed 13% of the total deal volume. $7.2 billion alliance between BP and Reliance was the positive news for the entire E&P sector for India.

Following are the significant deals in India in 1H-2011:

• BP acquires 30% interest in 23 blocks in India from Reliance for $7.2B
• Petronas divests 14.9% stake in Cairn India to Vedanta and others for $2.1B

Africa:

Africa has contributed 12% of the total deal volume inspite of the political unrest that broke in the early 2011.

Following are the significant deals in Africa in 1H-2011:

• IPIC acquires remaining 52.94% stake in Cepsa for $5B
• Pioneer Natural Resources divests Tunisian assets to OMV for $866M
• HRT O&G acquires UNX Energy for $726M
• SPDC sells OML 30 to Conoil for $650M
• SPDC sells 45% stake in OML 42 to Kulczyk Oil led consortium for $600M

2011 Outlook

Although, 1H-2011 deal volume is relatively low when compared to 1H-2010, it is expected that the 2H-2011 will make up the year with approximately $50 billion worth of assets available for sale. There are few significant packages available from Encana, ConocoPhillips, Chesapeake, Apache, Eni and Nexen. The following interactive chart shows the top ten Deals in Play.

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Statistics of the upstream deals announced in 1H-2011

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Note: 1H-2011 M&A review is based on Derrick Petroleum Services’ Global E&P Transactions Database which includes information and analyses of all worldwide E&P transactions.