Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Chesapeake Helps BHP Billiton Gas Up

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

It resembles the pleasure gained from introducing two of your closest friends. In this case, however, it's simply a case of two solid companies agreeing to what appears to be a sensible deal: Australian mining giant BHP Billiton (NYSE: BHP  ) is coughing up $4.75 billion to acquire Chesapeake Energy's (NYSE: CHK  ) Fayetteville shale assets in Arkansas.

From Chesapeake's perspective, the deal will help it reduce its debt by about 25% in two years. The company will unload about 487,000 Fayetteville acres in a deal that should close during the first half of this year. Beyond that, it also will jettison its 25.8% stake in Frac Tech Holdings, a private investment holding firm, along with its 20% share of Chaparral Energy, a crude oil and natural gas producer. And finally, it will convey 420 miles of pipeline to BHP.

The sale will contribute to the Oklahoma City-based company's "25/25 Plan," which is expected to generate pre-tax proceeds approaching $5 billion. About $2.0 billion to $3.0 billion will be used to pay down senior notes and reduce its revolving bank borrowings.

For BHP, the acquisition will provide an initial toehold into U.S. shale gas assets. At this juncture about 80% of the company's revenues are generated from metals and minerals mining, with the remaining 20% coming from oil and gas assets, located primarily in Australia, the Gulf of Mexico, Algeria, and Pakistan.

In 2010, BHP attempted to spend nearly $40 billion for the acquisition of Canada's Saskatehewan-based PotashCorp (NYSE: POT  ) , the world's largest provider of an important ingredient in the manufacture of fertilizer. The effort was scuttled, however, by Canadian regulatory opposition.

At about the same time, BHP was thwarted, also by regulators -- this time primarily in Europe -- from forming a joint venture with Rio Tinto (NYSE: RIO  ) , involving a consolidation of both companies' western Canada iron ore operations. The planned venture followed a failed effort by BHP to effect a hostile takeover of Rio.

With its Fayetteville acquisition, however, and while it obviously intends to expand its mining and metals assets further, BHP will increase its oil and gas reserves by about 45%. At the same time, as a company spokesman said, "This acquisition is consistent with BHP Billiton's strategy of investing in large, long-life, low-cost assets with significant volume growth from future development."

Chesapeake also is selling a one-third interest in the Niobrara leasehold acreage in Colorado and Wyoming to China's CNOOC (NYSE: CEO  ) for $570 million.

As I noted above, I have strong feelings about the quality of both Chesapeake and BHP Billiton. For that reason, along with our world's voracious appetite for natural resources, I urge Fools to find room for either or both companies on their watchlists.

CNOOC is a Motley Fool Global Gains pick. Chesapeake Energy is a Motley Fool Inside Value selection. Motley Fool Alpha owns shares of Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Fool contributor David Lee Smith doesn't own shares in any of the companies named above. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1446503, ~/Articles/ArticleHandler.aspx, 10/28/2016 6:23:06 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 9 hours ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 4:00 PM
BHP $34.65 Down -0.60 -1.70%
BHP Billiton CAPS Rating: ***
CEO $130.79 Up +1.04 +0.80%
CNOOC CAPS Rating: ***
CHK $6.08 Up +0.08 +1.33%
Chesapeake Energy CAPS Rating: ***
POT $16.46 Down -0.32 -1.91%
PotashCorp CAPS Rating: ****
RIO $34.24 Up +0.03 +0.09%
Rio Tinto CAPS Rating: ***