Throughout 2010, Petrohawk Energy
One question you might ask is: Why the Fayetteville? Isn't that where Southwestern Energy
Indeed it is. But the Fayetteville was never going to be a home run for Petrohawk, mainly because the company paid too much for entry. Between its two disclosed purchases in the late 2007-early 2008 time frame, including 24,000 net acres picked up from Contango Oil & Gas
Another even more fundamental question to ask is: Why is Petrohawk selling so much stuff? Part of the answer seems to be that it's focusing on its highest-rate-of-return opportunities to maximize value. I love to see management teams ditching non-core businesses to focus capital and attention on the best opportunities. But that's not the entire story here. Petrohawk also has a habit of spending way beyond its cash flow.
Through the first nine months of this year, Petrohawk's operating cash flow (i.e. before changes in working capital) was $535 million. Oil and natural-gas capital expenditures were $1.7 billion. Tack on other operating property and equipment capital expenditures, and you're over $1.9 billion. Petrohawk's revenue was only $1.2 billion.
Following last year's dramatic dilution at Petrohawk, I don't think investors would have been receptive to yet another equity offering -- especially at this year's depressed prices. That left asset sales as the go-to source of cash to cover the budget shortfall.
Now that the cupboard's become pretty bare, Petrohawk really needs its core assets to shine. If they don't, the company won't have much choice but to finally dial back on its multiyear spending spree.
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