valuations should justify move to usa assets

This article highlights the value of MPO focusing on its assets in the USA. A concern for us may well be that BHP has its eyes set on us!

From this morning's "The Age"

Looming revaluations to cast BHP shale investments in better light

November 13, 2012
Peter Ker

BHP Billiton is buying more shale acreage in the US, and believes its recent $US2.84 billion impairment charge will be more than offset by looming valuation boosts on three fronts.

While formal accounting is yet to be finalised, BHP's petroleum chief, Mike Yeager, confirmed that valuation improvements were likely on two of BHP's onshore US shale assets: Eagle Ford and the Permian Basin.

These two escaped the impairment that struck BHP's Fayetteville gas asset in August, because they hold oil liquids as well as gas in their underground shales, meaning they were less affected by a sharp slump in the gas price. It was that slump that prompted BHP to shift its focus from its US gas assets and to producing oil from Eagle Ford and the Permian Basin in Texas.

The Permian Basin in particular is set to bring a lot of upside when BHP's next accounting snapshot is taken, given the company has accelerated work on the asset.

Mr Yeager said the improvement in the accounting value of the Permian Basin was likely to be of similar scale to the $US2.84 billion written off on the value of the Fayetteville shale just months ago.

''The Permian we paid almost nothing for because on paper all it was was acreage, and right now we are not ready to tell you what that will be. But with everything that is going on there we are in a position where that will be worth an enormous amount more,'' he said.

A comparable stake in the Permian sold to Chevron and Shell for $US3.3 billion a month ago.

BHP has nine rigs doing early appraisal work in the Permian and the company is in negotiations to acquire more land there, sometimes in blocks as big as 10,000 hectares.
Mr Yeager has said he expects the field to produce 100,000 barrels of oil a day, but was not able to say when that would be achievable.

He also expects a valuation improvement by ''an order of magnitude'' in the Eagle Ford field, where BHP has more than doubled the number of oil-producing rigs over the past year.

Even the Fayetteville gas shale is looking rosier than it did a few months ago when it was hit with the $US2.84 billion write-down.

The impairment was made after gas prices in the US slumped from above $US4 a unit when BHP bought the asset, to below $US2 a unit. Gas prices have since rebounded to above $US3.30 this week, and Mr Yeager said that price was good enough for BHP to operate some gas wells profitably in Fayetteville.

However, the company was not yet willing to return rigs to the gas assets, preferring to focus on oil at Eagle Ford and the Permian.

''We can drill 20 per cent rate-of-return wells in [Fayetteville] today, but rather than steal from the 60 per cent return of Eagle Ford or slow down this big Permian opportunity, we would have to add rigs, and we can't do that,'' he said.
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