2011-02-23 10:51

MELBOURNE, Australia - BHP Billiton is buying shale gas reserves from Chesapeake Energy Corp for $4.75 billion, pitting itself for the first time against oil giants and China in the battle for the fast-growing energy source in North America.

The deal marks the top global miner's first attempt at picking up assets since failing on three mega-deals over the past three years and sets it further apart from its mining peers with a big bet on the world's biggest gas market.

"BHP have had (three) multibillion deals which have tipped over, so the market should be pleased that this is one that is going to go through, and it is a change of direction in terms of looking at their petroleum division," said Ric Ronge, portfolio manager at Pengana Capital.

BHP said it was buying Chesapeake's 75 percent stake in Arkansas' Fayetteville shale natural gas field, put up for sale by the No 2 US gas producer just two weeks ago to help trim a $15 billion long-term debt load.

At the time, Chesapeake's move sparked talk that it was bowing to pressure from billionaire Carl Icahn, who doubled his stake in the company to 6 percent in December, saying it was undervalued.

Following a shale-gas-asset buying spree and in the face of persistently low natural gas prices, the company has said it wants to back away from gas and look for oil instead.

Energy companies have invested billions of dollars to develop shale gas in the United States in recent years, flooding the US natural gas market with gas supplies and weighing down prices despite a bounce in other commodity prices in the past year.

Shale gas is gas extracted from shale rock, using a technology called hydraulic fracturing, or "fracking." Critics say the process contaminates ground and surface water with chemicals that can cause cancer, birth defects and other illnesses.

The deal places BHP head-to-head against China in a race for global energy assets, following State-owned PetroChina's C$5.4 billion ($5.5 billion) agreement to buy shale gas stakes from Canada's largest gas producer, Encana Corp, earlier this month.

Previously, China National Offshore Oil Corporation bought about $2.4 billion worth of shale stakes from Chesapeake, and Indian energy companies including Reliance Industries have also been snapping up assets.

"While people are moving into shale, it's an early-stage technology. The asset grab might happen at some stage, but the price BHP is paying shows the market's not yet hot," said Hayden Bairstow, resources analyst at CLSA.

"You need to be able to weather low prices for a few years. Obviously someone the size of BHP can do that."

Reuters