BHP Billiton plans to spend £2bn on shale gas

BHP Billiton spent nearly $17bn buying shale gas producer Petrohawk Energy and shale gas assets from Chesapeake Energy earlier this year.

“In a single year, BHP Billiton Petroleum’s resource base has grown by more than 300 per cent to 11 billion barrels of oil equivalent,” BHP petroleum chief executive Michael Yeager said in slides prepared for an investor presentation to allay concerns about the company’s push into shale gas.

BHP’s move this year into the relatively new and contentious energy source has worried some investors, particularly with US gas prices depressed by the growing supply of gas from shale. CEO Marius Kloppers, however, has played down the concern, saying the group takes a “multi-decade view on price”.

Evy Hambro, investment chief for natural resources at BlackRock, BHP’s top shareholder, recently told Reuters he was “reserving judgement” on the Petrohawk deal ahead of today’s briefing, but expressed general concern over the cheap price of US gas and the potential for environmental issues.

Landowners in Arkansas and other shale gas producing areas have raised concern about the technique used to drill for shale gas, hydraulic fracturing or “fracking,” but BHP has said the technology is safe.

BHP said it plans to spend $5-$6bn a year by 2015 and $6-$7bn a year in 2020 on US shale, about $1bn a year more than the company’s previous estimates.

Yeager highlighted the low costs, long life, and advantages of US shale over conventional gas resources. US gas prices are expected to rise to over $6 per million British thermal units (mmBtu) by 2020, up from around $4 per mmBtu currently, he said.

The company also said it is targeting US shale production of 545 billion cubic feet equivalent (90 million barrels of oil equivalent) in financial year 2012.

The shale gas projects are part of BHP’s plans to spend $80bn over five years on expanding production across its iron ore, coal, copper, uranium and petroleum businesses.