S&PBulletin: BHP Billiton rtgs unaffected by shale purchase

Mon Feb 21, 2011 8:33pm EST

(The following was released by the rating agency)

Feb. 22, 2011--Standard & Poor's Ratings Services today said that its ratings on BHP Billiton (incorporating BHP Billiton Ltd. and BHP Billiton PLC; both A+/Stable/A-1) are not immediately affected by the group's agreement to acquire all of Chesapeake Energy Corp.'s (BB/Watch Pos/--) interests in the Fayetteville Shale, USA for US$4.75 billion, and A$5 billion off-market share buyback. In our view, BHP Billiton's credit profile can accommodate the proposed acquisition and buyback, given the group's strong cash flow generation and conservative financial profile.

We believe the shale acquisition, which is subject to regulatory approvals, is consistent with BHP Billiton's growth strategy and will improve the group's asset diversity and market position in the U.S. shale gas sector. The acquisition will increase BHP Billiton's net reserve and resource base by 45%. These Fayetteville shale assets currently produce over 400 million cubic feet of gas per day and include development options that will support higher production over a 40-year operating life.

If this acquisition proceeds, we expect BHP Billiton's key credit metrics, including funds from operations (FFO) to adjusted debt, to remain above the levels we expect for the 'A+' ratings. To maintain the 'A+' long-term ratings, we expect: free operating cash flow (FOC) to remain positive year-on-year, and FFO to adjusted debt to remain above 45% at all times, and then return to a level of 60% or more over time. The group's FFO to adjusted debt was above 100% for the rolling 12 months to Dec. 31, 2010.