BHP to take bids on Fayetteville Shale play, other U.S. energy assets in June

BHP Billiton has begun the “exit process” for its U.S. onshore operations and expects to receive one or several bids later this summer for the Australian mining conglomerate’s money-losing shale plays in Arkansas, Louisiana, New Mexico and west Texas.

Earlier this year, BHP 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.

Under the company’s new U.S. exit strategy, BHP also plans to halt drilling 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 in Arkansas, BHP cut its Fayetteville Shale capital budget to a to a paltry $9 million. The Australian industrial multinational, which has pivoted back to its core copper, iron ore and coal mining operations, was still 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.

BHP has also 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.”

In BHP’s nine-month operational review for the period ended March 31, the global mining giant has spent $648 million through the end of March with no capital expenditures budgeted for the Arkansas play. For the fiscal year ending June 30, BHP said it has budgeted $1.1 billion for drilling and completion activities “tailored to support value in the exit process and meet “‘hold by’ production obligations.”

“The exit process for our Onshore US assets is progressing to plan and the data rooms for all fields and mid-stream assets are now open. We expect to receive bids by June 2018 and proceed with negotiations to potentially announce one or several transactions in the first half of the 2019 financial year,” BHP CEO Andrew Mackenzie said in a statement. “In parallel, we continue to explore potential asset swap opportunities and exit via demerger or Initial Public Offering.”

BHP’s exit process is ahead of a similar strategic plan by Fayetteville Shale leader Southwestern Energy Inc. to sell its almost 1 million acres of leasehold position in the Arkansas natural gas play. In February, Southwestern announced a 2018 capital budget of up to $1.25 billion and first revealed plans to put its Fayetteville Shale upstream and midstream natural gas drilling assets up for sale as the company pivots to “liquids rich” shale plays in the Appalachian Region of the U.S.

Although Southwestern has not revealed how it plans to auction off its 919,000-acre leasehold position in the Fayetteville Shale Play, Wall Street analysts have said the former Arkansas oil and gas company could receive bids as high as $2 billion if the company’s Arkansas shale is sold to one suitor.

“Our focus in 2018 will be on exploring strategic alternatives for Fayetteville Shale assets, accelerating development in Appalachia and reducing structural costs as we reposition the company to compete and win in any commodity price environment for years to come,” Southwestern President and CEO Bill Way said in the company’s first quarter conference call.

Despite seeking a possible buyer for the Fayetteville Shale, the Texas driller said the Arkansas natural gas basin represented 35% of total 2017 net production and 25% of total reserves at the end of 2017, according to the company’s annual 10K filing with the federal Securities and Exchange Commission.

Altogether, Southwestern held leases for nearly 917,842 net acres in the Fayetteville Shale and had 4,698 wells on production, 4,033 which were company-operated and 665 managed by other partners. Southwestern also noted in its annual SEC filing that the company halt production in its Ozark Highlands unit, which accounts for 158,231 acres and lies within the Ozark National Forest. Due to lawsuits alleging environmental deficiencies, the federal Bureau of Land Management has discontinued issuing drilling permits, officials said.

“At year-end 2017, after excluding our acreage in the conventional Arkoma Basin and the federal acreage we hold in the Ozark Highlands Unit, approximately 99% of our 533,299 total net leasehold acres remaining in the Fayetteville Shale was held by production,” the company said.