BHP opens Fayetteville Shale auction with help from Barclays

by Wesley Brown (wesbrocomm@gmail.com) 575 views 

Rig operation in Arkansas' Fayetteville Shale Play. (Image from BHP)

BHP Billiton has officially kicked off the fire sale for the Fayetteville Shale by hiring Wall Street banking giant Barclays to set up a “virtual data room” to provide prospective bidders with key details of the unconventional Arkansas natural gas play.

Although Barclays and BHP did not respond to request for comments about the online data portal, the Australian mining giant did reveal in a financial presentation on Tuesday (Feb. 20) it is now accepting bids on its 270,000 acre leasehold position in north-central Arkansas that includes over 930 operated wells and average net production of 223,000 cubic feet per day.

In the company’s half-year financial statement before Tuesday’s opening bell, BHP CEO Andrew Mackenzie noted the Australian industrial giant’s plans to cut its yearly U.S capital expenditure by 8.3% from $1.2 billion to $1.1 billion, highlighted by the Fayetteville Shale auction and a reversal of earlier plans to boost drilling in oil rich shale plays in Texas, New Mexico and Louisiana.

“We continue to progress a number of alternatives to exit our onshore U.S. assets for value. We have commenced marketing each of the fields and the data room for the Fayetteville field has been opened,” Mackenzie said in the company’s operation review for the first half of fiscal 2018. “We continue preparing all appropriate documentation ahead of data rooms for the remaining fields being opened in March 2018.”

Under the company’s new U.S. exit strategy, BHP also plans to halt drilling programs in the Eagle Ford Shale in South Texas, the Permian Basin in West Texas and New Mexico, and the Haynesville Shale region spread across parts of East Texas, North Louisiana and South Arkansas.

In 2017, long after shutting down its drilling operations, BHP cut its Fayetteville Shale capital budget to a relatively small $9 million. The Australian industrial conglomerate, which has pivoted back to its core copper, iron ore and coal mining operations, was able to produce earnings of $85 million on revenue of $273 million that came from sales of marketed natural gas from wells already in operation.

Mackenzie said BHP has now begun to cut its rig count in the Eagle Ford, Permian and Haynesville shale plays nearly a year after BHP Chairman Jacques Nassar called the company’s $20 billion shale purchase nearly seven years ago “a big mistake.”

“We expect to lower our rig count during the second half of the 2018 financial year as rig contracts expire and we adjust our capital plans to optimize value for our planned exit,” Mackenzie said. “Onshore U.S. production volumes for the 2019 financial year are expected to remain broadly unchanged from previous guidance, as enhanced well performance offsets lower rig activity.”

In addition to Mackenzie’s note, Talk Business & Politics obtained a copy of a Barclays’ presentation providing prospective bidders on BHP’s Fayetteville Shale assets with a broad overview of the company’s Arkansas operations, which also includes 480 miles of natural gas pipeline and associated infrastructure.

Barclays’ officials at the bank’s Houston oil and gas office did not respond to questions about BHP’s virtual data room that was set up Feb. 5 to give prospective bidders and financial advisers dedicated access to confidential financial and operational data on the Arkansas shale play.

According to Barclays’ Fayetteville Shale overview, BHP will host management presentations Monday (Feb. 20) and through March 16. Based on similar presentations, Barclays and BHP officials are expected to provide financial updates and a guidance for future performance, plan site visits and gather specific details and possible deal terms from serious bidders that have expressed interest in the Arkansas play.

Wall Street analysts have forecasted that BHP will likely receive offers for its U.S. onshore operations between $6 billion and $10 billion, with the separate Fayetteville Shale auction receiving bids as high as $1 billion.

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