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Seneca Resources not giving up Marcellus partnership September 8, 2011

Posted by mytruthaboutoil in Oil giants.
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Natural gas and oil company Seneca Resources Corp. said Thursday that it expects the production rate at its operations in the Marcellus Shale to reach 150 million cubic feet per day by Sept. 30, and 240 million cubic feet per day 12 months later.

Those dates coincide with the end of the National Fuel Gas unit’s fiscal 2011 and 2012.

The Marcellus Shale is rock containing a rich deposit of natural gas that extends through the Appalachian Basin.

“Our production rates will be ramping up substantially in the last quarter of this fiscal year as groups of new wells are brought on line,” said Matthew Cabell, Seneca’s president.

The production rate forecast is the same regardless of whether Seneca is working the Marcellus shale alone or takes on a partner, the company said.

Seneca has been in talks with potential partners in a joint venture to develop the Marcellus Shale, and has received several offers, the company said.

National Fuel Gas Co., an energy company based in Williamsville, N.Y., had anticipated reaching a decision on a partner by the end of last month, but it is still evaluating the offers, said David Smith, National Fuel’s chairman and CEO.

“While discussions are ongoing, as we’ve said in the past, we will only move forward with a transaction on terms that we believe add value to our shareholders over and above the value that Seneca will likely achieve through its currently planned operations,” he said.

Shares of National Fuel Gas Co. ended the regular session down $1.20 at $69.62.

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$12 billion shale gas deal for BHP Billiton August 26, 2011

Posted by mytruthaboutoil in Oil giants, Oil trading.
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BHP Billiton has made another big bet on energy in the US, announcing an agreement to buy Petrohawk, an independent oil and gas company, for $12.1bn in cash.

In its biggest acquisition to date, the Anglo-Australian mining group said on Thursday it had agreed to pay $38.75 a share for Petrohawk, which operates in three leading areas of shale gas and oil production in the US. The deal values Petrohawk at $15.1bn including net debt.

Marius Kloppers, BHP chief executive, said the acquisition would be earnings accretive in its first full year of consolidation as he defended the 65 per cent premium the miner had agreed pay for Houston-based Petrohawk shares compared to their Thursday closing level.

“Petrohawk is attractive to us because it is in the large, liquid North American market where you can sell the gas,” Mr Kloppers said. “When making an acquisition, particularly one like this, the majority of the value is paid for the resources in the ground.”

BHP boosted its energy business in February with a deal to buy Chesapeake Energy’s Arkansas-based gas business for $4.75bn – its first acquisition since last year’s failed $39bn attempt to buy PotashCorp of Canada. That deal represented the group’s first venture into US shale, giving the company 87,000 acres of leasehold gas properties.

Exxon Mobil, Chevron, BP, Total and Statoil have also bought US shale assets in recent years. The sector has boomed because the gas is considered a better alternative to coal for power generation due to its lower carbon dioxide emissions

The gas, trapped thousands of feet underground, is released by opening up the shale rock with a process known as hydraulic fracturing, or “fracking”, in which thousands of tonnes of water, sand and other additives are pumped underground under high pressure.

BHP said on Thursday that the Petrohawk deal would more than double its petroleum division’s resource base and increase proved reserves by 30 per cent.

With the acquisitions of Chesapeake and Petrohawk, the company will have more than tripled its resource base from 3.7bn barrels of oil equivalent to 11bn boe within the last year.

It forecast its energy business would expand to a 1m boe per day business within five years, compared to less than 500,000 boe per day in the 2010-11 financial year.

Petrohawk had been undervalued relative to peers, people familiar with the deal said, as the company faced capital constraints in developing its large portfolio of assets. The price on offer from BHP reflects about 7.5 times forecast earnings before interest, tax, depreciation and amortisation in 2012, in line with where other companies in the sector trade, they added.

Petrohawk, in contrast, has recently traded closer to 4.5 to 5 times forecast ebitda.

Petrohawk operates in the Eagle Ford and Haynesville shales in Texas and Louisiana as well as owning substantial acreage in the Permian Basin, an oil-rich shale in Texas.

Its assets cover about 1m acres and are expected to produce about 158,000 boe per day in 2011. At the end of last year the company, which was founded by energy entrepreneur Floyd Wilson in 2003, reported proved reserves of 3,400bn cubic feet of natural gas equivalent.

Barclays Capital and Scotia Waterous advised BHP on the deal. Goldman Sachs advised Petrohawk.

The offer will be financed from BHP’s cash balances and a new credit facility.

Just as BHP bought Athabasca Potash in Saskatchewan, Canada for under $1bn a few months before launching a $39bn bid for PotashCorp, its acquisition of the Fayetteville shale gas assets this year was a precursor to a much larger play in an alternative commodity class.

Like potash, the market for shale gas follows different economic cycles to iron ore, copper, and coal, BHP’s principal commodities. BHP’s strategy is to buffer itself against the price volatility inherent in all commodities by positioning itself in top-tier assets across the commodities spectrum.

The Petrohawk deal comes as investors scrutinise the company’s use of cash. BHP last month completed a $10bn share buy-back programme and is pumping money in to the expansion of its iron ore mining complex in Australia.

But the highly cash generative company, which analysts believe could slip into a net cash position this month, has failed to deploy capital on large-scale mergers and acquisitions in the past year.

Is Shale gas the new black… gold? February 1, 2011

Posted by mytruthaboutoil in Geostrategy, Oil prices.
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For a few months now, energy analysts and traders have observed the emergence of a true game changer. Shale gas is to become big… really big in the coming years.

Over the past decade, a wave of drilling around the world has uncovered giant supplies of natural gas in shale rock. By some estimates, there’s 1,000 trillion cubic feet recoverable in North America alone—enough to supply the nation’s natural-gas needs for the next 45 years. Europe may have nearly 200 trillion cubic feet of its own.

We’ve always known the potential of shale; we just didn’t have the technology to get to it at a low enough cost. Now new techniques have driven down the price tag—and set the stage for shale gas to become what will be the game-changing resource of the decade.

I have been studying the energy markets for 30 years, and I am convinced that shale gas will revolutionize the industry—and change the world—in the coming decades. It will prevent the rise of any new cartels. It will alter geopolitics. And it will slow the transition to renewable energy.

To understand why, you have to consider that even before the shale discoveries, natural gas was destined to play a big role in our future. As environmental concerns have grown, nations have leaned more heavily on the fuel, which gives off just half the carbon dioxide of coal. But the rise of gas power seemed likely to doom the world’s consumers to a repeat of OPEC, with gas producers like Russia, Iran and Venezuela coming together in a cartel and dictating terms to the rest of the world.

The advent of abundant, low-cost gas will throw all that out the window—so long as the recent drilling catastrophe doesn’t curtail offshore oil and gas activity and push up the price of oil and eventually other forms of energy. Not only will the shale discoveries prevent a cartel from forming, but the petro-states will lose lots of the muscle they now have in world affairs, as customers over time cut them loose and turn to cheap fuel produced closer to home.

The shale boom also is likely to upend the economics of renewable energy. It may be a lot harder to persuade people to adopt green power that needs heavy subsidies when there’s a cheap, plentiful fuel out there that’s a lot cleaner than coal, even if gas isn’t as politically popular as wind or solar.

But that’s not the end of the story: I also believe this offers a tremendous new longer-term opportunity for alternative fuels. Since there’s no longer an urgent need to make them competitive immediately through subsidies, since we can use natural gas now, we can pour that money into R&D—so renewables will be ready to compete without lots of help when shale supplies run low, decades from now.

To be sure, plenty of people (including Russian Prime Minister Vladimir Putin and many Wall Street energy analysts) aren’t convinced that shale gas has the potential to be such a game changer. Their arguments revolve around two main points: that shale-gas exploration is too expensive and that it carries environmental risks.

I’d argue they are wrong on both counts.

Take costs first. Over the past decade, new techniques have been developed that drastically cut the price tag of production. The Haynesville shale, which extends from Texas into Louisiana, is seeing costs as low as $3 per million British thermal units, down from $5 or more in the Barnett shale in the 1990s. And more cost-cutting developments are likely on the way as major oil companies get into the game. If they need to do shale for $2, I am willing to bet they can, in the next five years.

When it comes to environmental risks, critics do have a point: They say drilling for shale gas runs a risk to ground water, even though shale is generally found thousands of feet below the water table. If a well casing fails, they argue, drilling fluids can seep into aquifers.

They’re overplaying the danger of such a failure. For drilling on land, where most shale-gas deposits are, the casings have been around for decades with a good track record. But water pollution can occur if drilling fluids are disposed of improperly. So, regulations and enforcement must be tightened to ensure safety. More rules will raise costs—but, given the abundance of supply, producers can likely absorb the hit. Already, some are moving to nontoxic drilling fluids, even without imposed bans.