BHP Considers U.S. Shale Asset Sale After Activist Call

Updated on
  • Will consider divestment of Fayetteville shale in Arkansas
  • Possible bidder materializes in Tom Ward’s TV comments

Mach CEO Expresses Interest in BHP Fayetteville Assets

BHP Billiton Ltd. said it may resurrect the sale of its under-performing Fayetteville shale gas assets in Arkansas a little more than two weeks after billionaire Paul Singer proposed spinning off the mining company’s U.S. petroleum division.

"The Fayetteville field is currently under review and we are considering all options including divestment," BHP said Wednesday in its quarterly production report. Separately, the miner said bids are already being evaluated for the sale of as much as 50,000 acres in the southern part of its Hawkville gas field in Texas.

The world’s biggest mining company had put the Fayetteville assets up for sale in October 2014 before abandoning the attempt after a slump in oil prices dented the value of bids. BHP bought the assets from Chesapeake Energy Corp. in 2011 for $4.75 billion but was later forced to cut their value by nearly $3 billion due to falling prices.

One potential bidder may have already materialized. Mach Resources Chief Executive Officer Tom Ward, founder of Tapstone Energy LLC and co-founder of Chesapeake Energy Corp., said in a Bloomberg Television interview Wednesday that Fayetteville shale in Arkansas and Oklahoma is a “wonderful place to look for gas.”

Asked whether Mach Resources would be interested in the Fayetteville shale gas assets BHP may sell, Ward responded, “I like Fayetteville, so yes.”

Singer’s Elliott Management Corp. has called for the miner to exit its U.S. petroleum operations as part of a companywide overhaul. In response BHP CEO Andrew Mackenzie has said he’s reviewed the unit’s status three times and is confident it remains a good fit with the company’s current strategy.

The potential divestment of Fayetteville should be part of a broader sell-down of BHP’s U.S. onshore unit, said Craig Evans, a Sydney-based portfolio manager at Tribeca Investment Partners Pty, which manages about A$2.5 billion ($1.7 billion), including BHP shares. "We believe that BHP should be looking to divest the entirety of their U.S. onshore assets and begin a formal process for this."

Others are calling for an even bigger change. BHP’s entire oil portfolio is non-core for a mining company and should be offloaded, Sanford C. Bernstein Ltd. analyst Paul Gait said in an emailed note on Wednesday. The company should “take the bold decision rather than suffer death by a thousand cuts,” he said.

The Fayetteville purchase marked BHP’s first foray into shale gas as it sought to add to its stakes in U.S. Gulf of Mexico oil projects and natural gas assets in Western Australia. Five months later the Melbourne-based producer splashed a further $15.1 billion to buy shale gas company Petrohawk Energy Corp. making it the biggest overseas investor in U.S. shale.

BHP could reap $10 billion for its entire U.S. onshore asset base, according to Tribeca, but Fayetteville alone may hold limited appeal for buyers. "A broader package and strategic thought is required," said Evans. "The market would not value Fayetteville assets highly. Nor have there been many recent transactions in the region, making pricing difficult".

BHP shares rose 0.6 percent to A$24.08 in Sydney on Wednesday. The benchmark S&P/ASX 200 Index rose 0.7 percent.

— With assistance by Alix Steel

(Updates with comments by potential bidder in the fourth and fifth paragraphs.)
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