U.S. Shale Gas Set To Soar

Waghorn and Lacey: why US natural gas is set to soar

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Waghorn and Lacey: why US natural gas is set to soar

The US natural gas exploration and production sector is set to perform ‘very well’ following BHP Billiton’s acquisition of Petrohawk Energy, according to Investec Asset Management's Jonathan Waghorn and Mark Lacey.

The managers of the £928 million Global Energy fund said the move by Billiton in buying the shale natural gas firm Petrohawk shows the current valuation of E&P firms is attractive and marks the ‘strategic importance’ of US natural gas.

The transaction saw shares in Petrohawk at prices of $38.75, marking a premium of 65% to the firm’s previous close. The acquisition also represents the largest acquisition of a US E&P firm since Exxon bought US gas producer XTO Energy in 2009. Waghorn and Lacey said the transaction is significant as the price paid is ‘fair value’ and in line with their analysis of $39 a share.

‘This target is based on a detailed valuation of Petrohawk’s assets using our long term Henry Hub natural gas price of $6/mcf,' the pair said.

‘It is expected that BHP will increase the pace of development of Petrohawk’s assets to deliver increased value from the deal, whilst also using the acquired technology and experience to potentially drive other natural gas and shale acquisitions.’

The duo said BHP’s status as one of the most sophisticated firms in the sector, along with its willingness to buy high quality onshore US natural gas assets, shows the value in natural gas E&Ps.

Waghorn (pictured) and Lacey said: ‘Not only does BHP have extensive knowledge of the global commodity markets, it also has some of the most detailed insight on long-term Chinese energy and mineral demand. BHP’s decision to acquire Petrohawk will enable it to access a large amount of cheap, long lived, clean energy resource in a politically and fiscally stable country.’

They added: ‘It is likely that further M&A activity in the sector will take place as US natural gas prices and natural gas company valuations remain depressed at a time when high oil prices are helping the large integrated oil companies to generate significant cash surpluses.

‘Based on recent events and set in the context of our long term views, we believe that the outlook for US natural gas has been further strengthened, with current valuations representing a highly attractive entry point for investors.’