BHP reviewing Fayetteville Shale sale, hopes White County property brings premium

BHP Billiton CEO Andrew Mackenzie said Wednesday (April 26) the Australian mining giant has initiated the sale of its “non-core” U.S. operations and is reviewing the possible auction of its Fayetteville Shale assets that are spread across several counties in north-central Arkansas.

In the company’s operation review for the first nine months of fiscal 2017, BHP’s Mackenzie said the company has to do more to increase investor returns following the recent sale of more than $7 billion in global assets and the restructuring of company executive ranks that removed several layers of management.

For the first nine months of its fiscal year, BHP’s onshore U.S. drilling and development expenditure was approximately $440 million. In the most recent quarter ended March 31, the company has no rigs operating in the Fayetteville Shale and only had a total of 10 wells drilled and completed for the year. That nearly vacant activity has led to speculation over the past several months on whether the Australia mining giant was planning to mothball its Arkansas operations, where the employee count is now below 100 and capital spending is “nominal,” company spokeswoman Kara McCulloch told Talk Business & Politics in January.

ALL OPTIONS ON THE TABLE
“We have initiated the divestment of non-core acreage for value,” Mackenzie said Wednesday. “Our Fayetteville acreage is currently under review and we are considering all options including divestment.”

BHP’s operational review comes more than two weeks after the company rejected a proposal by a U.S. hedge fund to split the Australian conglomerate into two separate, publicly-traded entities. Under its complex “dual-listing” corporate structure, BHP is now headquartered in Melbourne, Australia, but still has two separate legal stock listings on the London Stock Exchange and the Australian Securities Exchange.

In a proposal package sent to BHP shareholders, New York City-based Elliott Associates asked the company to unify its dual-listed structure into a single Australian headquartered and Australian tax resident listed company. At the same time, the New York hedge fund, which has a 4.1% stake in BHP worth more than $3 billion, asked the company to demerger its $22 billion in U.S. oil and gas assets and create a separate publicly traded petroleum business that trades on the New York Stock Exchange.

BHP’s highly-valued U.S. petroleum operations had its origin in Arkansas’ Fayetteville Shale, when Chesapeake Energy Corp. announced in February 2011 it had agreed to sell its Arkansas gas interests to BHP for $4.75 billion. In the past 12 months, BHP has accelerated its investment in Mexico-controlled regions of the Gulf of Mexico, offering winning bids in Mexico’s first-ever oil and gas auction in late 2016.

Although BHP has shuttered most of its drilling operations in the Arkansas shale play, company officials said BHP has been able to maintain operations in the region due to ongoing sales of marketed natural gas from wells already drilled and now in production.

BHP is still the third-largest Fayetteville Shale player with stakes in more than 487,000 net acres and hundreds of undeveloped wells in the unconventional natural gas development. ExxonMobil’s XTO Energy is the second-largest leaseholder in the Arkansas play, working across 738,000 acres with 190 employees helping to produce 370 million cubic feet of natural gas per day, company officials said. Southwestern Energy is the largest operator in the play.

WHITE COUNTY VALUE
One area of the Fayetteville Shale BHP is hoping to get a premium offer is the emerging Moorefield area in the Arkoma Basin in White County. Over the past year or so, Southwestern Energy has been drilling test wells to assess the potential of the deeper shale play that sits beneath the larger Fayetteville Shale.

In the company’s fourth quarter conference call on Feb. 26 with Wall Street analysts, Southwestern CEO Bill Way mentioned the Moorefield play as an area with great future potential.

“In the Fayetteville, we are focused on several emerging opportunities within our acreage, and our activity in 2017 will advance our learnings on a number of fronts, including additional benches in the play,” Way said. “Part of this plan will be to further our understanding of the high potential Moorefield and its ability to drive margin expansion in our asset.”

Way also said the company’s 2017 capital program, which was recent boosted 66% to $1.3 billion, would include one rig running throughout the year in the Fayetteville Shale. In that guidance, Southwestern will earmark capital spending of $105 to $120 in the Arkansas play, up 44% from a year ago but well off annual capex spending of more than $1 billion only five years ago.

“We also are testing additional promising Fayetteville intervals. Success here and any other improvements in economics would only add to the economic and strategic benefit that the Fayetteville provides to the Company today, with its cash flow generation capability and the optionality the core asset provides within the portfolio to allocate capital based on market dynamics,” said the Southwestern chief executive.