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    Petrohawk deal to triple BHP's oil output Barry Fitzgerald
    July 18, 2011
    BHP Billiton's petroleum division is hoping that Petrohawk Energy's drilling rigs, such as this one in Texas, will help it produce one million barrels a day within five years. Photo: Reuters
    BHP Billiton's agreed deal to acquire US shale gas company Petrohawk Energy for $US15.1 billion in cash and debt means that its moustached petroleum division chief executive Mike Yeager has fixed what was a growing concern for the division.

    That concern was where the division's growth was going to come from after 2015, given its fast-maturing development profile and the difficulty in finding well-priced acquisition opportunities because of the high oil price environment.

    Shale gas is not the high-margin business that crude oil production can be.

    Advertisement: Story continues below But with Petrohawk's Texas and Louisiana interests, the petroleum division's production growth profile is nevertheless transformed.

    BHP currently produces the equivalent of 500,000 barrels of oil a day, up from 300,000 barrels of oil equivalent (boe) a day four years ago.

    ''We're (now) looking at a strong possibility of being a one-million barrel a day oil and gas company within five years,'' Mr Yeager told an analysts briefing on the Petrohawk Energy deal.

    And beyond that, Mr Yeager reckons a daily target of 1.5 million boe is a ''chance'' by 2020 when the division's Gulf of Mexico oil and gas interests and its Australian gas development opportunities are taken in to account.

    Petrohawk's current resource base of 35 trillion cubic feet of gas underpins that charge.

    In an effort to explain the significance of 35 tcf of gas, Mr Yeager told analysts it was enough to generate all of Australia's electricity needs for no less than 18 years.

    But developing the shale gas requires big annual licks of development capital, estimated by BHP at more than $US5 billion annually with its Petrohawk acquisition.

    That is in a currently subdued market for gas, with US natural gas prices about half the level that most analysts believe is necessary to justify the upfront cost, and ongoing capital expenditure requirement. The weak gas price reflects the massive additions to estimated gas reserves in the US thanks to the rise of the shale gas business that is being built on accessing gas trapped in deeply buried shale formations, but which can be liberated by hydraulic fracturing and horizontal drilling techniques. The sluggish US economy has not helped the gas price either.

    BHP has not provided its internal assessment of where the US gas price is headed.

    But Mr Yeager's reference to Australia and its currently coal-dominated electricity power generation requirements was a big clue.

    Gas emissions from new gas plants are about 60 per cent lower than coal-fired generators. And without a carbon tax such as that proposed for Australia, gas-fired power generation in the US has grown by 38 per cent in the past 10 years.

    BHP chief executive Marius Kloppers told analysts that the world's energy mix and its associated fuel choices have changed over time and that they would continue to evolve.

    ''Against a backdrop of heightened awareness on climate change, and with a discovery of new energy sources like shale gas, the world will continue to adjust and adapt its energy mix,'' he said.

    Read more: http://www.smh.com.au/business/petrohawk-deal-to-triple-bhps-oil-output-20110717-1hk54.html#ixzz1SOxUCJnL
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