Cold brings comfort for BHP shale strategy
Departing BHP Billiton boss Marius Kloppers could be excused a smile of satisfaction as a cold snap continues to spread across North America.
Cold weather has helped lift US gas prices by 20 per cent in the past month, and the benchmark price reached $US3.88 ($A3.73) per million units on Monday.
Mr Kloppers and his petroleum chief, Mike Yeager, will remember these prices well: the price was $US3.89 on the day in 2011 when BHP paid $US4.75 billion to Chesapeake Energy for the Fayetteville shale.
That punt on shale was quadrupled soon after, when BHP paid $US15.1 billion for Petrohawk Energy.
Those acquisitions have since been the source of much criticism, after a slump in gas prices forced BHP to write down the Fayetteville asset by $US2.84 billion last year.
While it's too early to suggest a vindication of the controversial investments, the price rebound is making BHP's shale strategy look better today than at any stage in the past 17 months.
Pundits are predicting the gas price surge will continue in the US with contracts for April gas delivery fetching $US3.94.
Deutsche Bank predicts a long-term US gas price of $US4.75, while JPMorgan's models assume a rise to about $US5 by 2016.
A crucial milestone in the recovery of BHP's shale division will come when rigs start returning to the gas-dominated Fayetteville shale.
Just six of BHP's 45 onshore rigs are working the Fayetteville, with the remaining 39 pursuing more lucrative shale liquids in the shales bought from Petrohawk.
Mr Yeager has previously said a gas price of $US3.50 would be sufficient to return rigs to the Fayetteville shale.
That has not yet happened, but a BHP spokeswoman stressed on Monday that the company's development plans would "remain flexible and aligned with the external environment".
Some of the value lost in impairments appears to have been offset by unexpected value gains in the liquids-rich Permian Basin, where BHP has been actively working in recent months.
Deutsche analyst Paul Young said he now valued BHP's entire US onshore petroleum business at more than BHP paid in 2011.
"We value the onshore business at $US25 billion and they purchased the four fields for about $US20 billion, so based on our price assumptions it is a value-accretive acquisition," he said.
"It's going to take them six to seven years to ramp up to full capacity so I don't think you can judge the acquisition after just the first year or two," Mr Young said.