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BHP Preparing Data Room to Divest Lower 48 Portfolio

Energy conglomerate BHP Billiton Ltd., no longer keen on the plethora of prospects it holds in the Lower 48 states, is preparing data rooms to give potential buyers a better view of its long-held projects in the Permian Basin and three big shale plays, the Eagle Ford, Haynesville and Fayetteville.

Slammed by continued reductions in the value of its U.S. onshore assets and egged on by activist investors, the Australian mining behemoth began actively marketing the entire U.S. onshore portfolio last year.

BHP has been an enthusiastic investor in the shale and tight gas prospects since 2011, one of the first foreign producers to take a chance on the newfangled drilling methods to pull commercial resources from unconventional targets.

However, investments haven’t proved their worth. While Gulf of Mexico (GOM) deepwater prospects in both U.S. and Mexico waters remain a key component of the portfolio, BHP is progressing “a number of alternatives to divest our onshore U.S. assets for value,” CEO Andrew Mackenzie said Thursday.

“We are preparing all appropriate documentation ahead of data rooms being opened to potential trade sale buyers by the end of March...in parallel, we continue to explore a potential exit via demerger or initial public offering.”

BHP’s operated Lower 48 rig count stood at nine to start 2018, but it is “expected to fall as we tailor plans to maximize value in the exit process…”  BHP has four rigs running in the Haynesville, three in the Eagle Ford and two in the Permian.

No rigs are working in the Fayetteville, but the Arkansas gas play still holds the bulk of BHP’s onshore wells at 1,043. Overall, BHP has 2,515 net wells in the Lower 48, with 931 in the Eagle Ford, 405 in the Haynesville and 136 in the Permian.

Cue the curtain, Mackenzie said. “We have adjusted our onshore U.S. capital plans to optimize value for our planned exit.” However, don’t expect it to be an identical drawdown in the four major plays. BHP remains optimistic about prospects in each.

In the Permian, for example, sub-surface trials “have confirmed first-year production improvements associated with larger completions.” The rig count for now is “focused on meeting hold-by-production (HBP) obligations and progressing sub-surface trials.”

For the Eagle Ford, tests are underway on the emerging Austin Chalk horizon in the upper portion of the play and piloting larger completions in the Hawkville formation. Larger completions are the focus in the Haynesville, with bigger chokes on new wells to improve results.

The revamped Haynesville designs would be used on “future wells, but expect to lower our rig count during the second half of the 2018 financial year as rig contracts expire and we optimize future investments ahead of our planned exit,” management said.

Plans for the Fayetteville are static, as BHP assesses the Moorefield horizon “based on data from the new nonoperated wells.”

During the final quarter, U.S. natural gas output totaled 157 Bcf, down 5% year/year and off 7% sequentially. Conventional U.S. output, including the GOM, stood at 31 million boe, off 3% year/year and 6% from the third quarter.

The production losses were blamed in part on major hurricanes that struck the GOM last summer -- Harvey and Nate.

U.S. production guidance for 2018 is unchanged from an earlier forecast at 180-190 million boe, including conventional volumes of 119-123 million boe and Lower 48 volumes of 61-67 million boe.

Capital expenditures (capex) for 2018 are set at around $1.9 billion, down from previous guidance of $2 billion. U.S. onshore capex is set lower at $1.1 billion, “reflecting development activity tailored to support value in the exit process and meet HBP obligations.”

Conventional capex remains at $800 million, with most of the funds directed to infill drilling opportunities in the GOM. Funding also would be directed to a life extension project at North West Shelf in Australia and toward the BP plc-operated Mad Dog Phase 2 project in the deepwater GOM. 

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