Wednesday, December 29, 2010

Petrohawk's Yard Sale Continues: Fayetteville Position Sold

Over the past year, Petrohawk Energy has been selling nearly all of its "non-core" assets and, with the sale of half its Haynesville gathering pipeline, some relatively key assets. Last week, the company disclosed that it has agreed to sell its Fayetteville Shale assets to Exxon/XTO Energy  for $650 million.

We've reported a number of similar sales over the past year.  The goal of these sales is two-fold:  one, to allow the company to focus on its key assets, the Haynesville and Eagle Ford Shales; and two, to fund capital expenditures to drill in these plays without borrowing money or diluting shareholders.  The strategy makes some sense if you can buy low/sell high, but it can be like giving money to a junkie if management has a history of overspending on projects that do not yield sufficient future cash flow.  I'm not saying that is the case, but asset sales can be dangerous for a company because it is risky to sell future cash flow that would have supported existing operations and debt.

In the case of the Fayetteville Shale, Petrohawk operated one rig in 2010 but planned to drop it in 2011.  The company was to participate in 311 non-operated wells, which were expected to consume $100 million of 2011 capex.

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