No Word On BHP Billiton Fayetteville Shale Auction As Natural Gas Prices Slide Below $3

Nearly three months after being put up for auction, there is still no word on the sale of BHP Billiton’s Fayetteville Shale assets as natural gas prices continue their downward push due to this season’s mild winter.

Jennifer White, spokeswoman for the BHP’s North American operations, told Talk Business & Politics there is no immediate news on the Australian industrial conglomerate’s sale of its Arkansas and U.S. shale operations.

“We have not provided any further update since October when we said we had initiated marketing of our Fayetteville acreage,” White said, reiterating a previous statement by the industrial giant’s CEO that the Sydney-based industrial giant would only divest the field “if it maximizes value for shareholders.”

In late October, BHP Billiton CEO Andrew Mackenzie first revealed in an investor presentation that the Sydney-based conglomerate would divest the Arkansas shale play only at the right price. However, Mackenzie did not elaborate on what price shareholders expect from the mature dry gas development in central Arkansas.

In his presentation, 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.

BHP Billiton Petroleum, a wholly owned subsidiary of BHP Billiton Limited, has only operated in the Arkansas shale play for less than five years. In early 2011, the world’s largest mining company paid $4.75 billion in cash to purchase nearly 487,000 net acres of leasehold and producing natural gas properties from Chesapeake Energy Corp.

Wall Street oil and gas analyst Fadel Gheit of Oppenheimer & Co. in New York City said he believes there are a few buyers interested in the Arkansas shale play, especially with sliding natural gas prices.

“Given the low current and future gas prices, it would be a buyer’s market,” Gheit said after the BHP’s Oct. 27 announcement. “The Fayetteville (Shale) is a low cost dry gas, which has low risk, low cost and low price. It can still be profitable, but at low margin and return.”

NATURAL GAS FUTURES DOWN NEARLY 34% SINCE NOVEMBER
Since BHP’s announcement just before Halloween, sliding crude oil and natural gas prices have caused U.S. shale producers to consider cutting production until energy commodity prices stabilize. Since Nov. 4, benchmark natural gas prices for delivery at Henry Hub, La., have declined nearly 33.6% from 4.41 per million British thermal units (MMBtu).

In trading Monday on the New York Mercantile Exchange (NYMEX), natural gas futures closed at $2.93 per MMBtu, down $1.30 from a year ago.

Today, Houston-based Ultra Petroleum Corp. announced that it has placed fixed price natural gas swaps for 2015 of 123.3 billion cubic feet (Bcf) at a weighted average price of $4.00 per million cubic feet (Mcf). A large majority of the swaps are in the second and third quarters of the year where it is estimated that approximately 70 percent of the company’s natural gas production is hedged.

“The company opportunistically hedges a portion of its forecasted production to lessen the volatility associated with swings in commodity prices and improve the certainty of cash flows in support of its capital investment program,” Ultra said in a news release.

Two weeks ago, Fayetteville Shale leader Southwestern Energy announced that its capital spending program in 2015 will jump slightly to $2.6 billion, compared to $2.4 billion in 2014. As expected, the Houston-based low-cost natural gas driller has shifted the lion’s share of its capital program to the company’s oil and gas liquids plan in the Marcellus and Utica share plays.

Southwestern completed a $5 billion deal just ahead of Christmas to acquire certain Chesapeake Energy oil and gas assets in West Virginia and southwest Pennsylvania. Of its $2.6 billion capital budget, Southwestern plans to spend only $755 million in the Fayetteville Shale, down $145 million from a year ago. The Houston driller’s capital budget for the Marcellus and Utica shale plays will nearly double to $1.4 billion.

Meanwhile, lower crude oil prices are expected to help reduce household heating oil expenditures by 27% ($632) compared with last winter, with U.S. heating oil prices averaging 20% lower at $3.09 per gallon, according to the U.S. Energy Information Administration.

Propane prices are expected to be 13% lower in the Northeast and 26% lower in the Midwest, resulting in households spending 20% and 34% less on propane in those regions, respectively, the EIA said.