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Posts Tagged ‘shale gas’

BHP to Acquire Petrohawk Energy in $12 Billion Deal

July 20, 2011 Comments off

“BHP Billiton Ltd. said Thursday it plans to acquire Petrohawk Energy Corp. for more than $12 billion in cash, giving the Anglo-Australian mining company access to large shale assets in Texas and Louisiana in one of the largest deals of the year. BHP will pay $38.75 per share, a 65% premium to Petrohawk’s closing price on Thursday of $23.49 a share.

The deal marks an important strategic step for BHP, which last year was rebuffed in a highly politicized $38.6 billion bid for Canada’s Potash Corp. of Saskatchewan Inc. One of the largest global mining companies, BHP has been eager to spend its war chest to diversify from minerals and mining into oil and gas. The Petrohawk deal will double BHP’s resource base in oil and gas, allowing the company to increase its production by about 10% for the rest of the decade, the company said.”

Source: Wall Street Journal, July 15 2011

Observations:

  • Key synergies targeted in the deal are in financing new projects: Petrohawk has the reserves, and BHP brings the funds to develop them. The premium of 65% reflects this increased investment, as it values the company on 7.5x PE rather than 4-5x PE.
  • Last February BHP bought a set of shale gas assets from Chesapeake Energy for close to $5bln.
  • In a poll on this blog in February 57% of respondents thought BHP should expand further in the oil & gas arena.

Implications:

  • The $12bln tender offer is all-cash, largely solving BHP’s ‘problem’ of a huge cash pile that some people rather had seen returned to shareholders. With current high iron ore prices the company is generating cash much faster than it is able to invest in organic growth.
  • The acquisition increases the weight of the petroleum business in BHP’s portfolio and makes BHP enter in the top 10 of largest petroleum companies in the USA. This development follows the entry of various large petroleum companies in the mining area through oil sand projects. Still it is unclear if more miners will position themselves as ‘large scale commodity producers’ active in both mining and petroleum businesses.

©2011 | Wilfred Visser | thebusinessofmining.com

BHP to Buy Chesapeake Shale Assets

February 23, 2011 Comments off

“BHP Billiton Ltd. said Monday it is acquiring Chesapeake Energy Corp.’s Fayetteville shale gas holdings in Arkansas and some pipeline assets in a deal totaling about $4.75 billion in cash.

Earlier this month, Chesapeake announced plans to sell about 487,000 acres of its Fayetteville shale holdings as part of a plan to reduce its debt by 25% in two years. The deal would increase BHP’s gas reserves and resources by 45%.

This acquisition would mark BHP’s first shale gas asset. The company, primarily a miner, gets about 20% of its profits from oil and gas. Most of its assets are in Australia, the Gulf of Mexico, Algeria and Pakistan. The Arkansas asset would likely supply natural gas mostly to utility companies.”

Source: Wall Street Journal, February 22 2011

Observations:

  • ExxonMobil started a run to acquire shale gas assets in December 2009 by paying $41bln for XTO Energy (incl. taking on $10bln debt). The deal was made contingent on the senate investigation into hydraulic fracturing; the method used to enhance production of gas from shale.
  • BHP pays $1.77/Mcf of proved gas reserves, about 30% below the price paid by ExxonMobil for XTO, but in line with recent other acquisitions in the industry.

Implications:

  • BHP can still expand in the oil and gas industry without triggering the regulatory roadblocks it faces when trying to expand its position in many mined commodities. It would therefore not be unlikely if it makes more acquisitions in the industry. Some analysts critique the diversification of the company, arguing that shareholders have little benefit from the combination of mining and oil/gas in one firm.
  • The natural hedge created by combining mining & oil/gas (benefiting from higher oil/gas prices on the sales side while being hurt at the same time in fuel and electricity prices) does enable the company to promise a steady cash flow to investors.

©2011 | Wilfred Visser | thebusinessofmining.com