Corporate News: BHP Says It Will Buy Shale Gas Holdings
By Gina Chon and Robert Guy Matthews
660 words
22 February 2011
The Wall Street Journal
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English
BHP Billiton Ltd. said Monday that 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%.
BHP's move to acquire Chesapeake Energy's assets comes just three months after it dropped its hostile bid to buy Canada's Potash Corp. of Saskatchewan Inc. for $38.6 billion. BHP failed to win over the Canadian government, which had the right to reject such an acquisition.
With investors clamoring for cash instead of large acquisitions, BHP announced the resumption of a $4.2 billion share buy-back, which was recently expanded to $10 billion.
Also last year, BHP and Rio Tinto Ltd. dropped a joint-venture agreement after facing regulatory hurdles. A hostile BHP bid for Rio Tinto in 2008 also faced opposition government authorities.
Since then, BHP had said that it would invest $80 billion in mining and petroleum projects but that it was still open to other acquisitions, particularly in the oil and gas sector, despite the setbacks it has faced in making deals.
The Chesapeake acquisition is expected to add nearly $1 billion to that $80 billion figure.
BHP said it doesn't expect any insurmountable regulatory problems with Chesapeake Energy. Its petroleum chief, Michael Yeager, said the company has the backing of the Arkansas governor and has met with the environmental Protection Agency and other regulators. He also said that he didn't believe there were any antitrust issues.
"We are confident we don't reach any sort of critical market share here," Mr. Yeager said.
BHP Chief Executive Marius Kloppers had hinted earlier this month that the company might be looking to expand its energy portfolio before further expanding in mining and metals. During an earnings
conference call, he noted that commodity prices for mining metals and minerals were relatively high and that U.S. natural gas prices were relatively low.
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.
"These assets at today's gas prices will generate healthy returns," said BHP spokesman Ruban
Yogarajah.
Shale gas assets have been popular acquisition targets for oil and other companies betting on growing demand and the long-term prospects for the U.S. to reduce its dependence on foreign natural resource imports.
Last year, Royal Dutch Shell PLC said it was paying $4.7 billion to acquire most of the shale gas assets of East Resources. In 2009, Exxon Mobil Corp. paid $31 billion for XTO Energy, the largest natural gas producer in the U.S.
In January, China National Offshore Oil Corp. said it was acquiring a 33.3% interest in a Chesapeake shale and oil and gas drilling project in Colorado and Wyoming for $570 million.
BHP said that it would work with Chesapeake Energy over the next 12 months to ensure a smooth transition.
It also said that it had been looking at shale gas assets for nearly a year and had decided that buying them would allow it to enter the shale gas market in a "low risk way."
The natural-gas assets are a relatively big resource whose operating life is expected to last 40 years. BHP also plans additional investment to expand them further.
Barclays Capital and Scotia Waterous advised BHP. Jefferies advised Chesapeake.