BHP Billiton has joined the great American unconventional gas rush, after basically missing the boat in Australia in so far as coal seam methane and other new gas sources are concerned.
As a result the shares went close to topping the 30 month high hit a week ago of $47.63, helped also by clarification of the first stage of the share buyback announced last week.
In fact some analysts reckoned the buyback details (with a heavy weighting of franking credits) was the driver.
The shares ended up 1.6%, or 73c, at $46.58, after hitting $47.42.
The late weakening in the share price came as more than 33 million shares, worth well over $1.5 billion, were traded as investors of all sizes piled into the stock.
Analysts say the rise in the price of BHP shares added around $6 billion to the market value of BHP at one stage. At the end around $3 billion was added.
BHP Billiton will pay $US4.75 billion for the shale gas field in the US, its biggest acquisition in six years.
The shale assets form all of Chesapeake Energy Corp’s interest in the Fayetteville Shale field in Arkansas, including the field’s mid-stream pipeline system.
BHP said in its statement yesterday that "the acquisition is consistent with BHP Billiton’s strategy of investing in large, long-life, low cost assets with significant volume growth from future development. It also supports our goal of diversification by geography, customer and product".
"BHP Billiton will become the operator of Chesapeake’s operated interests in the field.
"Chesapeake’s Fayetteville shale assets include approximately 487,000 acres of leasehold and producing natural gas properties located in Arkansas, USA.
"This is the second largest position in one of the largest gas fields in the world.
"This acquisition will increase BHP Billiton’s net reserve and resource base by 45 per cent.
"These assets currently produce over 400 million cubic feet of gas per day and include development options that will support substantially higher production over a 40 year operating life.
"BHP Billiton and Chesapeake have also agreed a 12 month services agreement to ensure the safe transfer of operations to BHP Billiton."
The news of the deal came as world oil prices rose well above $US105 a barrel because of the growing unrest in Libya and other Middle East countries.
BHP said in a statement that it would fund the acquisition from cash resources (more than $US16 billion in cash at the end of December), and would aim to triple daily production as the field is developed.
“This transaction marks BHP Billiton’s entry into the US shale business,” said Michael Yeager, chief executive officer of BHP’s petroleum division in a separate statement released by Melbourne-based BHP today.
“The operated position we are obtaining will immediately make BHP Billiton a major North American shale gas producer.”
Chesapeake said earlier this month it planned to raise $US5 billion this year by selling its Fayetteville shale holdings and its stakes in two companies. It will use the money to cut debt.
BHP also said yesterday that it would begin immediately a $US5 billion off-market buyback of its shares, part of the $US10 billion capital management program which it flagged in its half-year results last week.
Chesapeake’s Fayetteville shale assets produce more than 400 million cubic feet of natural gas per day.
They were ‘‘the second largest position in one of the largest gas fields in the world’’, BHP Billiton said.
‘‘This acquisition will increase BHP Billiton’s net reserve and resource base by 45 per cent.’’
The assets included development options that would support substantially higher production over a 40-year operating life, BHP said.
"The assets acquired generate strong margins and returns on capital at today’s prices,’’ BHP Billiton said.
BHP’s purchase follows other deals: BP paid $US1.9 billion for a 25% stake in Chesapeake’s Fayetteville Shale operations in 2008, a month after buying all of the company’s operations in the Woodford Shale of Oklahoma’s Arkoma Basin for $US1.75 billion.
Chevron agreed to buy Atlas Energy to add acreage in the gas-rich Marcellus Shale in the US East. Exxon Mobil Corp. acquired XTO Energy, a shale-gas producer, for $US34.8 billion in stock and debt in June.
Cnooc, China’s largest offshore energy producer, in January agreed to pay $US570 million in cash for a one-third stake in Chesapeake’s Niobrara shale project in Colorado and Wyoming
