BHP Billiton will buy US Petrohawk Energy Corp (HK) for $12.1 billion in cash, valuing its shares at $38.75.
Petrohawk is an oil and natural gas company engaged in the exploration, development and production of natural gas properties located in the United States. The business consists of an oil and natural gas production segment and a midstream operations segment. There are two principal regions: the mid-continent, which includes Louisiana and East Texas properties; and the Western, which includes the company’s South Texas properties. The midstream segment consists of wholly owned gathering and treating subsidiary, Hawk Field Services. Hawk Field Services currently serves the Haynesville Shale and Lower Bossier Shale in North Louisiana through its investment in KinderHawk and the Eagle Ford Shale in South Texas.
Proved reserves
For the oil/gas asset, HK got approximately 3,392 billion cubic feet of natural gas equivalent (Bcfe), including 3,110 billion cubic feet (Bcf) of natural gas, 20 million barrels (MMBbls) of oil, and 27 MMBbls of natural gas liquids. Approximately 35% of total proved reserves were classified as proved developed. With the average natural gas price of US$4 per MMBtu, the total value of HK’s oil/gas asset is worth more than US$15.26 billion.
Production
For the natural gas production over the last three years:
The production level has been increasing over time, at a very rapid rate during the past three years. Assuming that the production for the natural gas equivalent stays at 250,000 Mmcfe/year, the length of time for the asset to be depleted is 13.5 years.
The total average cost per Mcfe is around US$1 to US$1.33. However, it doesn’t take into account some other cost items such as general and admin, stock-based compensation and depletions. With those costs involved, the company reported in fiscal year 2010 the average cost per mcfe rising to $3.1 – 3.2.
Like other oil/gas corporations, the free cash flow is nearly always negative, due to the large capital expenditures the company has to spend every single year on drilling, development and land acquisitions to find and add more proved reserves in the company’s asset base.
I think the valuation of BHP buying Petrohawk is based on the asset base, the proven reserves that Petrohawk is holding, and that they bought it when the US natural gas price was at a low.
Petrohawk is an oil and natural gas company engaged in the exploration, development and production of natural gas properties located in the United States. The business consists of an oil and natural gas production segment and a midstream operations segment. There are two principal regions: the mid-continent, which includes Louisiana and East Texas properties; and the Western, which includes the company’s South Texas properties. The midstream segment consists of wholly owned gathering and treating subsidiary, Hawk Field Services. Hawk Field Services currently serves the Haynesville Shale and Lower Bossier Shale in North Louisiana through its investment in KinderHawk and the Eagle Ford Shale in South Texas.
Proved reserves
For the oil/gas asset, HK got approximately 3,392 billion cubic feet of natural gas equivalent (Bcfe), including 3,110 billion cubic feet (Bcf) of natural gas, 20 million barrels (MMBbls) of oil, and 27 MMBbls of natural gas liquids. Approximately 35% of total proved reserves were classified as proved developed. With the average natural gas price of US$4 per MMBtu, the total value of HK’s oil/gas asset is worth more than US$15.26 billion.
Production
For the natural gas production over the last three years:
| Production: | 2010 | 2009 | 2008 |
| Natural gas equivalent—Mmcfe | 246,232 | 183,156 | 111,597 |
| Average daily production—Mmcfe | 675 | 502 | 305 |
The production level has been increasing over time, at a very rapid rate during the past three years. Assuming that the production for the natural gas equivalent stays at 250,000 Mmcfe/year, the length of time for the asset to be depleted is 13.5 years.
| Average cost per Mcfe: | 2010 | 2009 | 2008 | |
| Production: | ||||
| Lease operating | 0.26 | 0.43 | 0.47 | |
| Work over and other | 0.07 | 0.02 | 0.05 | |
| Taxes other than income | 0.04 | 0.31 | 0.42 | |
| Gathering, transportation and other: | ||||
| Oil and natural gas | 0.61 | 0.38 | 0.39 | |
| Midstream | 0.05 | 0.06 | ||
| Total | 1.03 | 1.2 | 1.33 |
The total average cost per Mcfe is around US$1 to US$1.33. However, it doesn’t take into account some other cost items such as general and admin, stock-based compensation and depletions. With those costs involved, the company reported in fiscal year 2010 the average cost per mcfe rising to $3.1 – 3.2.
Like other oil/gas corporations, the free cash flow is nearly always negative, due to the large capital expenditures the company has to spend every single year on drilling, development and land acquisitions to find and add more proved reserves in the company’s asset base.
I think the valuation of BHP buying Petrohawk is based on the asset base, the proven reserves that Petrohawk is holding, and that they bought it when the US natural gas price was at a low.
