SMH: “BHP Billiton’s patience with the most gassy parts of its US shale business appears to be waning, with the company indicating it may soon sell one of the assets it bought during its $US20 billion ($22.7 billion) buying spree in 2011.”
“In documents published ahead of major investor day in London, BHP confirmed it had started “marketing” its Fayetteville shale asset in Arkansas to potential suitors.
“As we look to improve the balance of liquids and gas across our petroleum portfolio, we have initiated the marketing [of] our Fayetteville acreage. However, we will only divest the field if it maximises value for shareholders,” the company said in a statement.
The Fayetteville assets were acquired from Chesapeake Energy for $US4.75 billion, and were purchased six months before BHP spent a further $US15 billion on the shale assets of US company Petrohawk Energy.
Led by former petroleum boss Mike Yeager, the acquisitions quickly became controversial when gas prices in North America plummeted from above $US4 per unit to below $US2 per unit, forcing BHP to focus on the more lucrative market for shale liquids.
The value of the Fayetteville assets, which are dominated by dry gas rather than liquids, were written down by $US2.84 billion in August 2012, and famously caused then BHP chief executive Marius Kloppers to forgo his annual bonus.
Speaking to Australian media in November 2012, Mr Yeager played down the significance of that impairment, saying the longer-term fundamentals for the asset remained strong.
“It is unfortunate we have to have those accounting snapshots, but it’s really about the 30-year outlook, the reserves haven’t changed,” he said.
The decision to consider a sale of the asset comes after an improvement in US gas prices, measured at the Henry Hub interchange in Louisiana, over the past year. The Henry Hub price has averaged $US4.38 over the past 12 months, with prices spiking to multi-year highs in January and February on the back of a particularly cold winter in North America.
The price averaged closer to $US3.17 per unit over the previous two years.
But despite the improving price, many in the investment community believe BHP will struggle to recoup its investment if a sale were made at current prices.
….In keeping with its strategy to maximise production of shale liquids, BHP is now focusing much of the division’s efforts on the Eagle Ford shaleand the Permian shale in Texas. The company has stated that wells in those fields are capable of generating returns on investment of more than 50 per cent; well above the 20 per cent rate of return the company requires to warrant investment in a project.
Despite the Fayetteville shale being put in the shop window, BHP indicated it was not ready to consider a sale of its other prime dry shale gas field, the Haynesville shale, which lies close to the border of Louisiana, Texas and Arkansas.
“In time, we expect to fully develop our Haynesville gas field, given the quality of our acreage,” the company said.”
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