BHP Billiton Having a Shale of a Time

BHP is now the seventh-largest independent upstream oil and gas company globally, up from 21st

Mark Taylor 13 December, 2011 | 5:59PM
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There was a time when an update on BHP Billiton's (BLT) petroleum division would have generated a degree of interest, though not out of keeping with its 10%-15% contribution to equity value. Times have changed and with rampaging energy prices and recent major energy acquisitions, the petroleum division is no longer an also-ran concern. A November shale gas briefing from BHP Petroleum CEO Mike Yeager was keenly anticipated.

BHP's petroleum division accounts for just more than a third of our group valuation. That's the largest contribution from any segment unless you lump coking coal in with iron ore and manganese as carbon steel materials, generating more than 40% of group value. Petroleum's contribution to group EBIT was just 15% in fiscal 2011 but by mid-decade that share is likely to more than double, despite strong competing growth from iron ore and coking coal. Most of the proposed expansion comes via recent U.S. shale gas acquisitions and their ongoing development.

Not much has hit the score sheet to date with just 40 days' contribution from Petrohawk's onshore U.S. properties registering in BHP's first quarter 2012 operational report. BHP paid $15.1 billion for Petrohawk Energy in August this year, that on the heels of the smaller $4.75 billion acquisition of Chesapeake Energy's Fayetteville shale assets in February. Chesapeake brought 487,000 acres of shale gas real estate, increasing BHP's net reserve and resource base alone by 45% to 5.4 billion barrels of oil equivalent (boe). The larger Petrohawk deal brings 1 million net acres and 5.8 billion boe total risked resource base, doubling already enlarged net group resources to 11.3 billion boe--triple BHP's June 2010 status. Based on resources acquired, BHP is now the seventh-largest independent upstream oil and gas company globally, up from 21st.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BHP Group PLC1,875.60 GBX0.42Rating

About Author

Mark Taylor  is an equity analyst at Morningstar.

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