In 2011, the Australian mining giant BHP Billiton made a surprise entry to the North American shale game by spending $20 billion to snap up some 1.5 million acres.
It bought Petrohawk Energy for $15 billion (including assumed debt) to get at its primo positions in the Eagle Ford, Permian basin and Haynesville shale. And it shelled out $4.75 billion to Chesapeake Energy for its interest in the Fayetteville shale.
The move was met with surprise by BHP investors, who had only just gotten accustomed to their company's forays into deepwater drilling in the Gulf of Mexico. The company had never "fracked" a single well.
"Our skill set was clearly offshore deepwater," says Rod Skaufel, president of shale operations for BHP Billiton Petroleum. "The first year was tough."
Costs were too high, because BHP didn't yet know what it was doing. Then natural gas prices plunged to lows not seen in a decade. Suddenly this big acquisition began to look like a big folly.$20 billion / 1.5 million acres = $13,000 / acre.
Where were the rigs?
- focus of their efforts was clearly the Eagle Ford
- of 25 US rigs, 17 of them were in the Eagle Ford
- next most exciting: the Permian; BHP has 450,000 acres in the Permian
- then "gassy" Haynesville (Louisiana) -- but even in 2014, the Hyanesville remains a dud
- had partnered with Helmerich & Payne and Schlumberger
- BHP said it was drilling Eagle Ford wells for $4 million / well -- 2014
[The CEO] says BHP is now drilling its Eagle Ford wells for $4 million a piece.
Often when you hear oil companies talk about the costs of drilling wells, they lump together the drilling and the completion parts into one big number. BHP doesn't see it that way. He prefers to separate the raw drilling of the well from the process of completing (i.e. fracking) the well. It's the quality of the completions that makes all the difference.And so we move on. If you want to buy some mineral acres in the Eagle Ford, opportunity may soon knock on your door.
From the blog, July 15, 2011:
- July 20, 2011: What it means to Bakken investors that BHP bought Petrohawk (Part I of an article at SeekingAlpha.com).
- July 19, 2011: More on what it means to Bakken investors that BHP bought Petrohawk (Part II of an article at SeekingAlpha.com).
Back To The Bakken
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