BHP buy Petrohawk

Next we have BHP Billiton making a $12.1bn cash bid for Petrohawk, an independent oil and gas company engaged in the exploration, development and production of natural gas properties in the United States. Another natural gas investment from the mining giant who bought Shale assets from Chesapeake in February for $4.75bil. It is no secret that this resource is the craze. Take note Karoo folk. The Petrohawk Board has already advised shareholders to accept the offer. I don't blame them, the offer came in at a 65% premium to the closing price of $23.49, $38.75 per share is what they are offering.

Let's take a closer look at BHP's reasoning for the transaction. The acquisition would provide BHP with operated positions in three world class resource plays according to the release. Petrohawk's assets cover approximately 1 million net acres of Texas and Louisiana, places where fracking has been taking places for decades. The company has gross assets of $8.2bn with profits of $390million for 2010. I don't think earnings are the best way to value this company however. BHP are buying them for the assets under the ground, the capital required to extract the stuff is well within their artillery.

This is what Marius Kloppers (he really does not get enough airtime as an extraordinary South African) had to say about the acquisition.
"The proposed acquisition of Petrohawk is consistent with our well defined, upstream, Tier 1 strategy and provides us with even greater exposure to the world`s largest energy market, while also broadening our geographic and customer spread. Importantly, our offer and the associated substantial premium represent a unique opportunity for Petrohawk shareholders and recognise the growth opportunities embedded in its portfolio immediately."

The BHP Petroleum CEO Michael Yeager added to this by saying that this acquisition will keep them on track to deliver a compound annual growth rate of more than 10% for the next decade in the petroleum division.

Ambitious goals, great business, fantastic margins with increasing demand. I'm certainly in favour of such a transaction. Imagine being able to buy a business to the value of $12.1bn cash. Remember they just did a $10bn share buyback. They certainly are making use of their cash, showing huge confidence in the global economy.