BHP To Sell Its US Shale -- Focused In The Eagle Ford, Permian -- August 22, 2017

Updates

February 20, 2018: from Bloomberg -- 

• accelerating plans to exit its $10 billion US shale unit; deals could be announced before the end of the year
• Fayetteville field; and others to be announced
• as many as seven packages, including three in the Permian
• might consider a swap of onshore US acreage for offshore wells in the Gulf of Mexico
• working on Plan B if this doesn't pan out

Original Post

Bubble: it's been a recurrent theme on the blog -- $60,000/acre in the Permian might have been a tad expensive. Today we learn that Australia mining giant BHP Billiton's full-year profit soared 450% but still missed estimates. It will triple its "final" dividend (43 cents at the end of the year, vs 14 cents one year ago). But here's the biggest news: BHP will sell its US shale assets. The company is being pressured to spin off its US oil and gas operations. BHP spent $20 billion in 2011 on US shale oil and gas assets ... and we know how that worked out. I see the headline -- "maybe BHP Billiton's $20 billion fracking bet wasn't a blunder after all" -- Forbes, June 3, 2014 -- let's see who wrote that and why: Christopher Helman --

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

Break, break. $4 million / well? Here's the rest of the story:

[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). 

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