UPDATE 1-BHP plans sale to trim down west Texas shale assets

Tue Oct 22, 2013 12:10pm EDT

* BHP to sell 250,000 net acres in Permian Basin

* Investment bank Scotiabank advising on the sale

* Bids due by December 2

By Clara Ferreira-Marques and Michael Erman

LONDON/NEW YORK, Oct 22 (Reuters) - BHP Billiton plans to sell roughly half its oil and gas acreage in the Permian Basin in Texas and New Mexico, an area revived by the shale boom, to focus on its most lucrative assets there.

BHP, already a significant oil and gas player, moved heavily into U.S. shale in 2011, acquiring Fayetteville assets from U.S. energy group Chesapeake and months later later Petrohawk Energy, spending almost $17 billion - $20 billion, including debt - just before a major downturn in U.S. natural gas prices.

The world's largest mining company, also faced with cooling prices for its mined commodities, has since been trimming across its divisions to focus on its more profitable core operations. It confirmed on Tuesday it was selling down in the Permian Basin to concentrate on acreage there that "holds the most interest".

"The drilling program has now defined our primary area of focus in the basin and, while this program is at a relatively early stage, we see the potential to build a sizeable business," a BHP spokeswoman said.

"As we continue with our evaluation, we will concentrate our efforts on the acreage that holds the most immediate interest for us while divesting some other parts of our holdings."

According to a request for proposals from adviser Scotia Waterous and dated Oct. 16, BHP is selling 250,000 net acres in west Texas - 165,000 net acres in the Delaware Basin and the remainder in the Midland Basin.

That compares to BHP's total of 500,000 net acres in the broader Permian Basin, according to its latest annual report.

BHP declined to comment on how much of the acreage up for sale came from the 2011 Petrohawk acquisition, which gave BHP 325,000 net acres in the Permian, described at the time as primarily oil, highly scaleable and with "significant upside potential". The remaining acres were acquired separately.

PRICE HOPES

The Permian interests, at an early stage and with complex geology, were not core to the Petrohawk deal, which was instead about securing the Eagle Ford and Haynesville shales - but any indication of positive surprises would have been a boon for BHP.

It is unclear how much it can hope to reap from the sale, as prices even within the Permian have varied widely, depending on location, infrastructure, quality and so forth.

Chesapeake's sale of Permian assets last September, for example, implied a price per acre of roughly $3,100 for one of the buyers, Shell, which bought in the Delaware basin. Though below past Permian deals, that would imply a value of almost $800 million for what BHP is selling.

Sources familiar with the industry, though, cautioned BHP could achieve a considerably different price a year later - even for nearby assets. They also warned that there were few natural buyers for the acreage, with a fractured sale to local suitors the most likely outcome.

Bids are due on December 2.

BHP had already booked an impairment charge of $167 million in the full year to the end of June 2013 for the Permian assets, stating the evaluation of some wells in the Permian basin showed they did not "support economic development".

It had taken a separate $2.8 billion writedown on the value of the Fayetteville assets in 2012.

BHP has said it plans to spend the bulk of its U.S. onshore development budget this year on both Permian and Eagle Ford, another major basin, directing its investment to liquids-rich acreage at a time of low natural gas prices.

Permian and Eagle Ford are its biggest liquids-producing holdings, but most of that investment - 75 percent according to its annual report - has been earmarked for Eagle Ford.

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