Wednesday, June 4, 2014

Good Piece on BHP/Petrohawk Three Years Later

Forbes has a good article on the improvement of BHP Billiton's fortunes in shale gas since its acquisition of Petrohawk three years ago.  BHP had pretty disastrous timing in its acquisition of HK and Chesapeake's Fayetteville Shale assets in 2011, shelling out more than $20 billion and then watching  natural gas prices drop by more than 50%.

Only now are prices back in the $4.00 to $4.50/MMBtu range when those deals were struck, but, my oh my, the landscape has certainly changed.  Along with the good points made in the article:
  1. The economy is on a steady path to recovery and fundamental gas use (not just cold winter/hot summer) has increased.
  2. Natural gas in storage, which has been at record highs for the past several years, is now far below recent averages, and it will take full production to get storage back up to a reasonable level by winter.
  3. LNG export is for real and the first shipments will be departing our shores in a couple of years.
  4. A number of massive multi-billion dollar natural gas-fueled chemical and manufacturing plants are in various stages of completion.
  5. Additional regulations on air pollution (not just CO2) have all but ended coal's run as the primary source of U.S. electrical power over the next decade.  
All of these factors point to a brighter future for dry gas fields, although the Fayetteville might not be as promising as the Haynesville.  BHP claims to have taken a long-term view of shale gas in its purchase, comparing it to an investment in a coal field.  I guess the company's only regret (other than buying the Fayetteville acreage) is not waiting another six to nine months before making the Petrohawk deal to get a better price.

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