Unit of Australian giant plans to grow in oil, natural gas

For such a large company, BHP Billiton Petroleum has managed to keep a fairly low profile. It wasn't until a few years ago that the U.S.-based oil and gas arm of the Australian mining giant even put a sign on its Houston headquarters.

But with a huge U.S. natural gas acquisition this year, its aggressive re-entry into the deep-water Gulf of Mexico after the BP oil spill and speculation it could buy a competitor, the company is gaining more attention ? and that appears unlikely to change anytime soon.

The company is laying plans for significant growth in oil and natural gas production, hiring and capital spending in the next few years, with the U.S. a key focus area.

J. Michael Yeager, CEO of BHP Billiton Petroleum, also does not rule out additional major acquisitions at some point, but he dismisses speculation his company is eyeing The Woodlands-based Anadarko Petroleum Corp. as a possible takeover target.

"We never comment on anything like that, but there's certainly nothing going on between our two companies right now in that regard," Yeager told the Chronicle in an interview last week in his Galleria-area office.

For the moment, BHP Billiton Petroleum is more focused on developing assets already in its portfolio, from deep-water fields in the Gulf of Mexico to new exploration projects in India, Colombia and elsewhere.

The biggest new addition to that portfolio came in February, when the company announced it would pay $4.8??billion to buy all of Chesapeake Energy Corp.'s interests in the Fayetteville Shale formation in Arkansas, one of the world's largest natural gas fields. On June 1,BHP Billiton Petroleum became the operator of the assets, though Chesapeake will remain on board for a year to help manage the pass-off.

Natural gas

In one swoop, the deal made the company a major player in the onshore U.S. natural gas business, which has been a hotbed for acquisitions in recent years by major oil companies, from Exxon Mobil Corp. to Norway's Statoil. The transaction boosted BHP Billiton Petroleum's reserve base by almost 50 percent overnight.

Bill Herbert, an industry analyst with Houston investment bank Simmons & Company International, called the deal another validation of the "multi-decade growth prospects" of U.S. unconventional oil and gas resources.

Before the Chesapeake deal, BHP Billiton Petroleum had never spent more than $2 billion in a single year for capital projects. But for the next few years, the company plans to spend up to $4 billion a year, about $1 billion of which will go to the Fayetteville, where BHP aims to triple current production to 200,000 barrels per day of oil equivalent.

As such, the fields are key to the company's goal of boosting its total annual production from about 500,000 barrels per day of oil equivalent to 700,000 barrels in the next five to eight years, Yeager said.

Those fields also will help offset expected production declines in the Gulf of Mexico, where a moratorium on most deep-water drilling after last year's Deepwater Horizon accident forced the company to postpone projects.

"Clearly, not doing that for a year has been a big hit for us," Yeager said, estimating that 20 million barrels of production will be deferred this year and next.

But since the moratorium was lifted in October, BHP Billiton Petroleum has been among the more successful companies in winning highly sought-after federal permits to resume operations in the deep-water Gulf.

This month, the company became the first in the deep-water Gulf to bring a newly drilled well into production since the ban. It was also among the first to receive approval of a plan for a new exploratory well, at its Mad Dog North prospect, that meets all the post-spill safety and environmental requirements.

Though BP is the operator of the Mad Dog field, BHP Billiton Petroleum is taking the lead in drilling. But Yeager said that is because his company had access to a drilling rig and not because it is hesitant about working with BP in the wake of the Gulf disaster.

Respect for BP

"The respect that both companies have for each other is significant, and we do everything we can to help each other," he said.

As evidence of its growing expertise as a premier global oil and gas company, BHP Billiton Petroleum touts the fact that it is lead operator of five projects it has brought on line over the past three years - the Shenzi and Neptune platforms in the Gulf of Mexico; two floating production storage and off-loading, or FPSO, facilities off Western Australia; and a natural gas development off Trinidad, which started production in May.

Last year, its Melbourne-based parent company reported an 8 percent increase in profit from operations to $19.7 billion, with the petroleum division accounting for about $4.6 billion of that.

It's a far cry from five years ago when the petroleum unit was so small its 250 employees filled just six floors of a 25-story tower on Post Oak Boulevard. Today, the its 1,300 employees occupy the entire building - and Yeager said he hopes to add 200 to 300 new positions in Houston over the next 18 months.

With one of the world's largest companies behind it, BHP Billiton Petroleum has "financial firepower that's five times larger than my equivalent oil and gas peers" and should continue to grow, he said.

Neal Dingmann, an industry analyst with SunTrust Robinson-Humphrey in Houston, said the "only knock on them is that they're sitting on too much cash."

Yeager said his company is still studying potential acquisitions. If a competitor had attractive onshore and offshore assets in the U.S., that would be a "natural thing," he said. But the prospect of buying a company that's as large or larger than his, he said, "is not where our attention is right now."

brett.clanton@chron.com

Source: http://feeds.chron.com/~r/houstonchronicle/business/~3/i_ZT46D6mB4/7616150.html

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