BHP Billiton is planning to sell its Fayetteville shale gas assets in the United States, the mining and energy group said on Monday, in the latest effort to trim its portfolio in the region and focus on more profitable petroleum liquids. The petroleum division of BHP, the world's largest miner, is one of the largest foreign investors in the U.S. onshore oil and gas sector. The unit has grown in importance within BHP in the least few years, thanks to a market outlook that has been brighter for energy than for other commodities.
Within the petroleum business, however, BHP has made it clear it intends to focus on liquid products in the United States, a more lucrative business than dry gas. Chief Executive Andrew Mackenzie, a former BP executive, told investors that the company had begun "marketing" the Fayetteville acreage, which it bought in 2011 but wrote down by $2.8 billion a year later after gas prices fell.
"The chances for us to develop it in the near term are very low to non-existent, and therefore it should be worth a lot more to someone... who is more obviously a natural owner," he said. The sale will only go ahead if BHP gets offers above an undisclosed floor price, the company added during its presentation to investors in London. BHP will, however, develop the Haynesville shale in Louisiana, which it says is a higher-return project.
IN AND OUT
BHP moved heavily into U.S. shale in 2011, acquiring the Fayetteville assets from U.S. energy group Chesapeake for $4.75 billion and Petrohawk Energy a few months later for about $12 billion plus $3 billion in debt, just before a major downturn in U.S. natural gas prices.
In 2012, the company was forced to take a hit on the value of Fayetteville which cost then chief executive Marius Kloppers his bonus. Chairman Jac Nasser defended the investment, but described the hit at the time as "very disappointing". "They are not going to sell it for a bargain price. Given the way the petroleum market has performed, it would have been easier to do this 12 months ago than today," said Investec analyst Hunter Hillcoat. "But I think it's a good quality assets so presumably they'll find a buyer."
BHP had said last year it wanted to sell roughly half its oil an gas acreage in the Permian Basin in Texas and New Mexico. It did not comment on that sale in Monday's presentations. BHP announced in August plans to spin off operations worth roughly $16 billion - to focus on its most profitable activities in petroleum, iron ore, copper and coal.
The company is now focusing on cutting costs and boosting production from its core assets by 23 percent in the two years to the end of the 2015 financial year.
It said it was on track to hit an output target for liquids from its shale business of 200,000 barrels per day in 2017.
"BHP is maintaining its message on petroleum. They have been quite clear they are going to invest $4 billion a year in onshore petroleum growth which is a big chunk of their committed growth," Liberum analyst Richard Knights said.