BHP calls Fayetteville Shale play spending ‘nominal,’ down to fewer than 100 employees

A spokeswoman for BHP Billiton told Talk Business & Politics Wednesday (Jan. 25) that the Australian mining and energy conglomerate’s current budget in the Fayetteville Shale is “nominal,” and that the company now has less than 100 employees supporting the company’s operations in the Arkansas natural gas play.

BHP spokeswoman Kara McCulloch provided those comments following BHP’s release of its operation review for the half-year ended Dec. 31, which highlighted the company’s ongoing efforts to cut costs, sell bad assets, and slash worldwide investments in the face of declining global commodity prices.

In the 19-page financial report, crude oil, condensate and natural gas liquids production for the December 2016 half year decreased by 20% to 48.2 million barrels of oil equivalent (MMboe). Natural gas activity for the same period declined by 10% to 347 billion cubic feet of production.

In the company’s onshore U.S. operations, BHP said spending for the half year was only $273 million and there was no drilling activity in the Fayetteville Shale for nearly two straight years.

“We haven’t split the number out for the half year operational review, but I can say that the spend was nominal,” McCulloch said.

BHP’s financial position comes nearly six months after the Fayetteville Shale operator reported the biggest loss in the company’s history as weak iron ore, copper, coal, oil and gas prices across the globe decimated the Australian mining and energy giant’s balance sheet.

BHP BOOSTS SPENDING TO $820 MILLION IN GULF, FORECASTS PROFIT
For the fiscal year ended June 30, BHP reported a loss of $6.2 billion, compared to earnings of nearly $8.7 billion a year ago. Companywide, capital and exploration expenditures declined by 42% to $6.4 billion and is expected to decrease further to $5 billion in the 2017 financial year.

But since then, rising spot prices for petroleum, copper, iron ore and coal have led to strong worldwide production, leading the company to forecast profits in the range of $150 million to $200 million for the first half of its fiscal year. In addition, the company said it plans to spend $820 million to develop its newly-acquired acreage in the Gulf of Mexico.

In November, Talk Business & Politics reported that El Dorado-based Murphy Oil Corp. and BHP submitted winning bids in Mexico’s first-ever deepwater oil and gas auction. BHP won the rights to acquire a 60% stake and operatorship of blocks AE-0092 and AE-0093 in the Trion discovery located in the offshore Mexico play,

BHP said it will share in its Gulf of Mexico project with Pemex Exploration & Production Mexico, the state-owned oil company of Mexico. Pemex will retain a 40% stake in the two Trion blocks, which Mexican officials estimate has recoverable oil and gas assets of 485 MMboe.

BHP Billiton’s bid for Trion includes an upfront cash payment of $62.4 million and a minimum work commitment up to $320 million. Should BHP Billiton and Pemex agree to progress the project beyond the testing phase, BHP Billiton would be required to invest a remaining $1.2 billion to bring the development to market. BHP Billiton’s bid also includes a commitment to an additional royalty of 4%.

In today’s financial update, BHP Billiton CEO Andrew Mackenzie noted the company’s plans to shift its focus to the Gulf of Mexico and the company’s expanding lease position in the Haynesville Shale play.

“In Petroleum, we will accelerate our counter-cyclical oil exploration efforts this year. Our successful Trion bid leaves us in a leading position to develop the newly opened Mexican acreage in the Gulf of Mexico, where we can leverage our core expertise. We are encouraged by recent positive drilling results at the LeClerc well in Trinidad and Tobago and the Caicos well in the Gulf of Mexico,” Mackenzie said.

According to the financial update, BHP’s rig count increased from 2 to 3 in the fourth quarter with deployment of a rig in the Haynesville Play in October 2016, following the successful execution of a hedging pilot. Additional hedge activity during the quarter led to approval of a second rig in the Haynesville with operations expected to commence in March 2017.

“After the first successful rig, our Onshore US gas hedging program will also be expanded to secure attractive returns,” said the BHP chief executive.

FAYETTEVILLE SHALE IS ‘CASH FLOW’ POSITIVE AS PRODUCTION CONTINUES
Today, BHP U.S. onshore operations includes more than 700 undeveloped wells in the Fayetteville and Haynesville shale plays. BHP said it plans to maximize value rather than volumes and will continue to adjust its investment plans to reflect market conditions.

Despite no drilling activity in the Arkansas play for two years going, McCulloch noted that 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.

“We have a team of about 95 employees supporting our operations in Arkansas (and) Fayetteville is currently cash-flow-positive and carries minimal holding costs for BHP Billiton,” she said. “The vast majority of our acreage is held by production already.”

Accordingly, BHP said it still has been able to increase production from fewer wells. The company’s inventory in Arkansas includes 1,042 productive wells as of the period ended Dec. 31, down slightly from 1,085 in the same period a year ago.

BHP paid $4.75 billion in cash in early 2011 to purchase nearly 487,000 net acres of leasehold and producing natural gas properties from Chesapeake Energy Corp. At the time, BHP said its U.S. capital spending program would jump from $4.5 billion to $6.5 billion annually by 2020, with the lion’s share targeted toward its Arkansas natural gas development.

By the end of 2012, however, BHP had already announced a $2.84 billion write-down of its Fayetteville Shale assets, saying a short-term oversupply of natural gas resulted in a before-tax impairment charge against the carrying value of the Arkansas play.