After its $US39 billion bid for Canada’s Potash Corp was blocked last year, BHP Billiton, having already seen the failure of its proposed iron ore production joint venture with Rio Tinto stymied by regulators, came to the conclusion that the only segment of the resources sector in which it could pursue a large-scale acquisition strategy without running into political roadblocks was energy.
Having run a slide rule over all the major independent oil and gas groups, including Woodside Petroleum, however, it came to a secondary conclusion. With the oil price soaring, buying a conventional oil or gas group that met its criteria of only adding large, long-life, low-cost tier one assets meant paying massive premia at the top of a price cycle.
That reasoning led it to the surprise $US4.75 billion acquisition of Chesapeake Energy’s shale gas assets in the Fayetteville region of Arkansas in the US in February, its first big sortie into unconventional energy.
Despite the escalating environmental concerns and controversies around unconventional gas – shale gas in the US and coal seam methane in Australia – BHP likes the potential of the sector to the point where on 15 July it announced the $US12.1 billion acquisition of Petrohawk Energy.