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Petrohawk Buyout to Feather Kinder Morgan Nest, CEO Says

Kinder Morgan Energy Partners LP (KMP) midstream assets in the Eagle Ford and Haynesville shales are positioned to see an uplift in throughput thanks to the pending acquisition of Petrohawk Energy Corp. by BHP Billiton Ltd. and the expectation that the latter will be spending a lot more in the plays, CEO Rich Kinder told financial analysts Wednesday.

When Australia's BHP Billiton announced its $12.1 billion offer for the shale patch pioneer, which has assets in the Haynesville and Eagle Ford, the company said its deep pockets would support faster development of the plays. According to BHP Billiton, Petrohawk assets cover about one million net acres in Texas and Louisiana, with estimated 2011 net production of 950 MMcfe/d, or 158,000 boe/d (see Shale Daily, July 18).

KMP recently bought the half of Haynesville joint venture (JV) KinderHawk Field Services LLC it didn't already own from Petrohawk (see Shale Daily, May 6). "We have used very conservative assumptions in terms of throughput on the Haynesville," Kinder said at the time. And in the Eagle Ford, KMP and Petrohawk have a gathering JV called EagleHawk Field Services LLC serving Petrohawk's Hawkville and Black Hawk fields. KMP has 25% with the rest held by Petrohawk.

During the conference call with analysts Kinder said of KinderHawk, "We think this is just a tremendous long-term asset. We believe its value has been enhanced by the pending purchase of Petrohawk by BHP. And if you looked at BHP's [deal] presentation, you saw some pretty significant ramp-up in dollars they expect to spend on their drilling program, and that drilling program embraces Haynesville and Eagle Ford together with a smaller position in the Permian [Basin]."

According to the presentation, Petrohawk had planned to spend $2.85 billion this year, and BHP Billiton plans a "significant increase in capital spend," to as much as about $5 billion in fiscal year (FY) 2015 and possibly more than $6 billion in FY 2020. The anticipated spending will allow for the simultaneous development of the Eagle Ford and the Haynesville and possibly the Permian, BHP Billiton said. Production will be accelerated as the company spends for long-term investment, it said.

Kinder was asked if BHP Billiton's acquisition of Petrohawk makes it more likely that KMP would buy out the rest of the EagleHawk JV.

"We really don't know that," Kinder said. "We will just have to see what BHP's attitude is on that." He said he would like to do a buyout of the JV similar to what was done with KinderHawk. "But that would be a decision BHP will have to make, and we look forward to working with them any way we can because they will be our biggest customer on KinderHawk up in the Haynesville, and we'll have this joint venture with them down in the Eagle Ford."

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