BHP: Bids received on Fayetteville Shale, U.S. onshore auction

BHP Billiton’s high-stakes auction to sell off its Fayetteville Shale interest in Arkansas and exit the U.S. onshore oil and gas business by year-end is progressing as planned, the Australian mining conglomerate said in its year-end operational review after market close on Tuesday (July 17).

In April, 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 U.S. exit strategy, BHP has halted most drilling and capital investment in the Fayetteville Shale play, 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.

“The exit process for our Onshore US assets is progressing to plan. Bids have been received and we aim to announce one or more transactions within the coming months, targeting completion of any transactions by the end of the 2018 calendar year,” BHP CEO Andrew Mackenzie said in a news release reviewing the company’s 2018 operations.

In recent weeks, Wall Street analysts have upgraded their prospects for a competitive auction, noting interest in the U.S. shale assets are peaking due to rising oil and natural gas prices and a more attractive corporate tax structure for energy assets following the passage of U.S. tax reform legislation in late 2017. Media reports have indicated that BHP has received bids as high as $10 billion from private equity consortiums led by British multinationals BP plc and Royal Dutch Shell for all or parts of the Australian mining giant’s 800,000-plus oil and gas acreage in the U.S.

BHP was one of the first oil and gas companies to pull out of the Fayetteville Shale after a decade-long natural gas boom, halting its drilling operations in the Arkansas play in late 2016 and cutting its capital budget to less than $10 million in the past year.

The company put its U.S. energy assets on the block in early 2017 after Wall Street activist hedge fund Elliott Management 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 has since reverted back to its profitable core copper, iron ore and coal mining operations and deepwater exploration in the Gulf of Mexico, recently projecting earnings per share growth of 192% for the full year ending on June 30.

Despite strong energy prices and more U.S. drilling rigs now coming back online, BHP is not alone in its desire to remove the Arkansas shale play from its oil and gas portfolio. Fayetteville Shale leader Southwestern Energy also revealed plans in the first quarter to put its upstream and midstream natural gas drilling assets in Arkansas up for sale, transferring most of its capital investment for 2018 to the company’s “liquids rich” operations in the Appalachian region of the U.S.

Although Southwestern executives briefly discussed the Fayetteville Shale sale on the company’s first quarter conference call in April, the Houston-based oil and gas driller has since remained quiet on any details of plans to auction off its 919,000-acre leasehold position in the unconventional dry natural gas development.

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. The Arkansas play is also still a key source of cash flow for the Texas driller, bringing in natural gas sales of nearly $830 million in the first quarter on operating costs of only $60 million.