BHP Billiton makes $4.75 bln move into shale gas

SYDNEY/MELBOURNE (Reuters) - BHP Billiton has agreed to buy shale gas interests from Chesapeake Energy Corp for $4.75 billion in its first move into shale gas, as the global mining giant looks to beef up its oil and gas business.

In BHP's first big purchase since failing on three mega-deals in the last three years, the global miner said it was buying Chesapeake's holdings in Arkansas' Fayetteville shale natural gas field, getting a huge foot in the door of the world's largest gas market.

"BHP have had (three) multi-billion deals which have tipped over so the market should be pleased that this is one that is going to go through and it is a change of direction in terms of looking at their petroleum division," said Ric Ronge, portfolio manager at Pengana Capital.

The deal pits BHP head-to-head against China in a race for global energy assets, following state-owned PetroChina's <0857.HK> C$5.4 billion ($5.5 billion) agreement to buy shale gas stakes from Canada's largest gas producer, Encana Corp .

BHP shares jumped more than 3 percent in early Sydney trade on news of the deal, which the company will fund from its substantial cash reserves. Australia's broader market was down 0.4 percent .

Chesapeake announced it was putting the Fayetteville assets up for sale two weeks ago, looking to raise $5 billion to help trim a heavy debt load.

That sparked talk that it was responding to pressure from billionaire Carl Icahn, a 6 percent stakeholder.

Energy firms have invested billions of dollars to develop shale gas in the United States in recent years, flooding the U.S. natural gas market with gas supplies and weighing down prices despite a bounce in other commodity prices in the past year.

BHP's acquisitions strategy has shifted focus to its petroleum division after regulatory and political obstacles dashed its $39 billion takeover bid for fertilizer maker Potash Corp , a full takeover of Rio Tinto and an iron ore joint venture with Rio Tinto.

"It is probably the only division BHP has where they are not going to run into regulatory or anti-trust issues with an acquisition of size," said Ronge, whose resources fund owns BHP shares.

Chesapeake's Fayetteville shale assets include about 487,000 acres of leasehold and producing natural gas properties in Arkansas in the U.S., one of the world's 30 largest gas fields.

"We're delighted to inform you today of a very, very substantive piece of business that we feel is a huge and very, very positive addition to our petroleum company within BHP Billiton Corporation," BHP Petroleum chief Michael Yeager told reporters, adding the deal would be cash and earnings accretive from day one.

Yeager was bullish that U.S. gas prices would eventually improve as demand for cleaner energy grows, and said even at current levels, the company would make health earnings margins on shale gas.

Chesapeake said the deal with BHP Billiton Petroleum included existing net production of about 415 million cubic feet of natural gas equivalent per day and about 420 miles of pipeline.

BHP aims to triple daily production from the new asset as the field is developed, and plans to spend $800 million to $1 billion a year over 10 years to develop the field, Yeager said.

He was confident that BHP would not run into any competition or environmental issues with the purchase, noting that it was in a rural area in a state that is very pro-business.

Critics say the technology enabling shale gas development, known as hydraulic fracturing or "fracking," contaminates ground and surface water with chemicals that can cause cancer, birth defects and other illnesses.

Chesapeake was advised by Jefferies & Company on the deal, which is expected to close in the first half of 2011. ($1 = 0.983 Canadian Dollars)

(Additional reporting by Rebekah Kebede in PERTH; Editing by Balazs Koranyi and Dhara Ranasinghe)