BHP Billiton Marketing Fayetteville Shale Assets (UPDATED)
by October 27, 2014 5:32 pm 190 views
BHP Billiton, the second largest stakeholder in the Fayetteville Shale play, said it is marketing its Arkansas assets as it tries to simplify its production portfolio to maximize shareholder value.
The Australian-based energy giant acquired major positions in Arkansas when it bought assets owned by Chesapeake Energy and Petrohawk Energy in 2011. The move made BHP the state’s second largest leaseholder in the unconventional natural gas play behind No. 1 Southwestern Energy.
“We have initiated the marketing of our Fayetteville acreage. However, we will only divest the field if it maximizes value for shareholders,” said BHP Billiton CEO Andrew Mackenzie in an investor presentation on Monday (Oct. 27).
BHP bought Chesapeake Energy Corp.’s Fayetteville Shale assets in 2011 for $4.75 billion. The company also acquired Petrohawk Energy Corp., which had investments in Arkansas.
Mackenzie outlined a number of potential activities designed to reduce operating costs and improve capital efficiency.
“We are confident that our productivity drive will be accelerated by the demerger proposal we announced in August. A simpler portfolio, focused on our 19 core assets, will retain an optimal level of diversification while generating even stronger growth and margins,” he said.
UPDATE: In a presentation to investors, Mackenzie said the Australian industrial conglomerate will cut its exploration and production capital budget in the U.S. by 32% to $15.8 billion in fiscal 2014. In 2015, McKenzie said the company plans to further cut its capital and exploration budget in the U.S. by another $15.2 billion.
However, Mackenzie said BHP will maximize its high-return U.S. investment in the company’s petroleum liquids operations in the Eagle Ford and Permian shale developments, where it plans to invest $4 billion annually.
“We intend to improve our productivity in our core portfolio even in the face of high oil prices,” McKenzie said.
Still, it may be difficult for BHP to sell its Fayetteville Shale operations at an attractive price or profit, given that Southwestern Energy has many of the play’s prime drilling sites. The other factor is that many U.S.-based oil and gas drillers are targeting their capital spend to wet gas and petroleum-rich liquids shale plays, rather than dry gas developments like the Arkansas shale play.
In fact, Southwestern is expected to shift a large share of its capital spending to the wet gas Marcellus Shale in Pennsylvania, where the Houston-based natural gas driller announced earlier this month plans to purchase 413,000 net acres and 1,500 wells from former Fayetteville Shale rival Chesapeake Energy for $5.4 billion.
In addition, the current market price for natural gas may also play a role in how many suitors are interested in the Arkansas shale play. Without hedging, Southwestern’s average realized gas price in third quarter was $3.43 per million cubic feet (Mcf) verus $3.61 per Mcf a year ago.
On Friday, NYMEX natural gas prices for delivery in November fell to a 11-month low of $3.56 per million British thermal units (BTUs). Many investors are betting on even lower prices in the short-term as demand for the winter heating season is expected to be below expectations.