Tuesday, February 22, 2011

BHP Billiton Ltd Buys Chesapeake Energy Corporation Assets

BHP Billiton Ltd., the world’s biggest mining company, agreed to buy Chesapeake Energy Corp.’s Arkansas shale gas assets for $4.75 billion in cash.  BHP will add more than 10 trillion cubic feet of gas resources through the purchase. The Fayetteville deal marks BHP’s first foray into U.S. shale gas.

Chesapeake agreed to sell all of its interests in about 487,000 net acres of properties in central Arkansas.  Fayetteville holds about 2.4 trillion cubic feet of gas, equivalent to 456 million barrels of oil, compared with BHP’s total proved U.S. reserves of 288 million barrels in its 2010 annual petroleum review.

Shale formations consist of dense rock that can be broken apart to release oil and gas. The transaction is expected to close in the first half of this year, Chesapeake said.

Chesapeake, based in Oklahoma City, planned to raise $5 billion this year by selling its Fayetteville shale holdings and its stakes in two companies to reduce debt.  Chesapeake said Jan. 6 it wanted to cut its debt 25 percent in two years by selling assets, while increasing production by 25 percent. The BHP announcement is a sign that Chesapeake is following through.

BHP will take over the running of the asset through the purchase, which also includes pipelines, and plans to spend as much as $1 billion a year developing shale resources, Yeager said on the call.

BHP, Australia’s largest oil and gas company, paid about $1.98 for each thousand cubic feet of estimated proven reserves. In December, Exxon Mobil Corp. paid $1.92 per MCF of reserves when it acquired property in the Fayetteville Shale from Petrohawk Energy Corp. (Bloomberg Business Week, 2/22/2011)

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