Sunday Times (paywall) reports that collapsing natural gas prices will probably cost mining giant BHP Billiton upwards of $5 billion in writedowns.
“On the back of six months of bad prices they are not likely to cut [the valuation] in half,” said Liberum Capital’s Richard Knight in an interview with Sunday Times.
“A 25% reduction—$5 billion—is probably towards the top end.”
BHP Billiton’s CEO, Marius Kloppers paid $17 billion last year to acquire Petrohawk Energy from Chesapeake Energy.
Since the start of the year, natural gas prices have halved, plummeting to $1.47 a gigajoule. It was only a decade ago natural gas reached $13.84 GJ.
Natural gas prices are expected to average around $2.30 and $2.75 this year and recover slowly next year.
(Hat tip, Fox News)
Image of Marius Kloppers from B4MDTV
2 Comments
Kernelpop
BHPB bought Petrohawk for their Eagle Ford assets which are rich in oil and petroleum liquids. Their Eagle Ford production is up 35%, mainly oil, since December 2011. Calling that acquisition a mistake is nonsensical.
Additionally, BHPB did not buy Petrohawk from Chesapeake. Petrohawk (NYSE: HK, formerly) was a separate company. They bought the Fayetteville asset from Chesapeake in a separate transaction. They author needs to do a little more research.
Dan Oancea
THEY (big companies) do make mistakes and usually the bill is hefty. Never assume that they have a direct line of communication with God. The last few years we saw them acquiring you name what and they lost big money. Same happened when THEY acquired some mining projects (from Africa to Arctic, examples abound).
There is another way around as well. They enter into an agreement with a junior sniff some gold,copper for a year or two then drop the option as it is ‘not good enough’ for them (size, etc). Next, a well funded company gets into the game and they keep drilling and drilling (see Sarah Palin for what’s next) and find a good size to humungous deposit (see Oyu Tolgoi for example).
Lessons learned:
– If you’re an investor beware of billions dollars acquisitions;
– If a big company drops the option it doesn’t really mean that there is no good deposit to be found on those tenements; do your own due diligence and if satisfied bet on the next company that options the prospective project;
– Big companies DO NOT find mineral deposits: prospectors and juniors DO!