By Sonali Paul
MELBOURNE (Reuters) - BHP Billiton
The deal marks the top global miner's first attempt at picking up assets since failing on three mega-deals over the past three years and sets it further apart from its mining peers with a big bet on the world's biggest 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.
BHP said it was buying Chesapeake's 75 percent stake in Arkansas' Fayetteville shale natural gas field, put up for sale by the No.2 U.S. gas producer just two weeks ago to help trim a $15 billion long-term debt load.
Chesapeake's move at the time sparked talk it was bowing to pressure from billionaire Carl Icahn, who doubled his stake in the company to 6 percent in December, saying it was undervalued.
Following a shale gas asset buying spree and in the face of persistently low natural gas prices, the company has said it wants to back away from gas and look for oil instead.
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.
Shale gas is gas extracted from shale rock, using a technology called hydraulic fracturing or "fracking." Critics say the process contaminates ground and surface water with chemicals that can cause cancer, birth defects and other illnesses.
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
China's CNOOC <0883.HK> earlier bought about $2.4 billion worth of shale stakes from Chesapeake, while Indian energy companies including Reliance Industries
"While people are moving into shale, it's an early stage technology. The asset grab might happen at some stage, but the price BHP is paying shows the market's not yet hot," said Hayden Bairstow, resources analyst at CLSA.
"You need to be able to weather low prices for a few years. Obviously someone the size of BHP can do that."
BHP Petroleum chief Michael Yeager was bullish that U.S. gas prices would improve as demand for cleaner energy grows, and said even at current levels, the company would make healthy earnings margins on shale gas.
BHP shares jumped more than 3 percent in Sydney trade on news of the deal, which the company will fund from its $16.1 billion cash pile. Its shares later eased to trade up 1.9 percent at A$46.72 in a broader market that was down 0.9 percent <.AXJO>.
BHP said it was paying $1.77 per thousand cubic feet of gas (Mcf) of proved reserves. ExxonMobil
At $4.75 billion for the gas assets, operatorship and pipeline, BHP is paying much less than the $1.9 billion BP
"It's opportunistic, there's no doubt about that," CLSA's Bairstow said.
BHP, Australia's largest oil and gas producer, will see its reserves rise by nearly half to 1.7 billion barrels of oil equivalent from the deal.
NO REGULATORY HURDLE
BHP's acquisition strategy has shifted focus to its petroleum division after regulatory and political obstacles dashed its $39 billion takeover bid for fertilizer maker Potash Corp
"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.
Last week, BHP played down the prospect of large-scale acquisitions and said it planned to spend around $80 billion into expansions over the next five years to cash in on booming commodity prices. Analysts said this deal would not impinge on those plans at all.
"It is a very comfortable, digestible acquisition and certainly provides scale in a new industry for BHP," said Ben Lyons, an analyst at ATI Asset Management, which owns BHP shares.
Chesapeake's Fayetteville shale assets include about 487,000 acres of leasehold and producing natural gas properties in Arkansas in the United States, one of the world's 30 largest gas fields.
Chesapeake said the sale includes 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.
That would help it meet a target to increase its daily production by about 40 percent to 600,000 barrels of oil equivalent by 2016, including its liquefied natural gas projects in Western Australia and oil and gas in the Gulf of Mexico.
Yeager was confident BHP would not run into any competition or environmental issues with the purchase, noting it was in a rural area in a state that is very pro-business.
Chesapeake was advised by Jefferies & Company on the deal, which is expected to close in the first half of 2011.
(Additional reporting by Rebekah Kebede in Perth and Michael Smith in Sydney; Editing by Balazs Koranyi and Lincoln Feast)
