M&A Twist: BHP Snags Petrohawk for $12.1 Billion (BHP, HK, CHK, XOM, POT, FCG)

The largest mining company in the world just got a little bigger. Australia’s BHP Billiton Ltd. (NYSE: BHP) has agreed to acquire Petrohawk Energy Corp. (NYSE: HK) for $12.1 billion, a premium of more than 60% to Petrohawk’s recent share price. Earlier this year BHP paid $4.75 billion to Chesapeake Energy Corp. (NYSE: CHK) for 487,000 leased acres in Arkansas’s Fayetteville shale gas play.

Petrohawk also sold $650 million in Fayetteville assets to Exxon Mobil Corp. (NYSE: XOM) earlier this year. Petrohawk is tightly focused on the Eagle Ford shale gas play in south Texas. Its leaseholds in Texas and Louisiana total about 1 million net acres. At the end of 2010, the company held proved reserves of 3.1 trillion cubic feet of natural gas equivalent, 20 million barrels of oil, and 27 million barrels of natural gas liquids, mostly in the Eagle Ford and Haynesville plays.

Because natural gas prices are so low it’s always a bit of a surprise when a deal like this gets done. But it shouldn’t be. Those millions of barrels of oil and liquids are the real value of these deals in the short term. BHP is paying about $2.54/barrel of oil equivalent for Petrohawk, which is less than the $2.79/barrel it paid for the Chesapeake properties it acquired earlier this year.

In May we did a story on good values in energy stocks, and Petrohawk was one of the companies on that list. We noted the company’s high trailing P/E and its strong forward P/E, but we also pointed out that Petrohawk was a good candidate for a takeover — even at a market cap then of about $8 billion.

BHP’s record on acquisitions has been spotty this year. Its $39 billion offer for Potash Corp. of Saskatchewan (NYSE: POT) was eventually withdrawn just before the Canadian government would have killed the deal. Provided Petrohawk shareholders go along with the deal and it passes muster with regulators, the acquisition of Petrohawk is a good move for BHP.

Another winner from this deal might be the First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG), which includes Petrohawk as its second-largest holding at slightly more than 4% of assets.

Petrohawk’s shares are up nearly 64% in pre-market trading, to $38.49, way above the top of their 52-week range of $14.32-$27.45. BHP’s share price is down about -1.5%, at $90.90, in a 52-week range of $64.14-$104.59.

Paul Ausick