BHP has made strategic shale acquisitions in the US. It's also been absolutely caned on those acquisitions, writing off $2.84 billion from its Fayetteville Shale assets late last year. This cost Marius Kloppers his bonus for 2012, and arguably his job for good.
It goes to show you that in a land rush, it's better to be early to make the most money. The less you know about the geology, the more likely you are to overpay for an asset. This is what makes Australian shale so interesting right now, by the way. The stocks with the biggest potential are also the stocks with the biggest questions marks about the asset. The less you know, the more it could be worth!
But in BHP's case, less was definitely not more. It must be hoping it does not make the same mistake here in Australia. And it IS getting involved here in Australia. 'We're clearly going to be very studious in Australia and we're going to be very studious in Europe,' says BHP Billiton Petroleum CEO Mike Yeager.
'You'll see us start to take land positions and you'll start to see us possibly do some things,' he enigmatically added at a conference in Houston this week. BHP has 45 drill rigs working onshore in the US already. It was hurt by the timing of its acquisition in the US because the natural gas price halved.
BHP is already late to the shale game in Australia. Your editor came back from a conference in Houston in 2011 in which the excitement was about natural gas and promptly recommended two more shale gas explorers on top of the one we'd already tipped. THAT was the time to take an extremely speculative position that land would be grabbed up in the most promising regions of Australia.
A lot of the land grabbing has already happened, at least in the Cooper Basin. That's where three of our recommendations operate. A fourth - admittedly a very risky speculation - has its assets located in the Canning Basin. The Canning Basin is out Pilbara way. And that could make things interesting for BHP.
Keep in mind that BHP has shelved the $30 billion expansion of the copper and uranium project at Olympic Dam in South Australia. It also cancelled the $20 billion 'outer harbour' project at Port Hedland, an iron-ore related project. For a miner that prides itself on the diversity of its asset portfolio, you'd think onshore shale gas from Australia would be a nice fit.
In any event, BHPs interest in the industry isn't necessary for there to be a boom. Chevron signed up with a $349 million deal last week. The game is afoot. You can read about it here.
But in your hunt for the next great investment, it pays to look at what's NOT making news and new highs. We're talking about gold, of course. The flip side of the Dow rally - and the rally in stocks in general - is that investors are selling their positions in gold exchange traded funds (ETFs). ETFs dumped 106 tonnes of gold in February alone, according to the Financial Times.
Where do you think that physical gold is going? What's that...did you say China and India? You're probably right. And it shows you why gold still hasn't entered into the bubble phase so many asinine commentators alleged when it rose above $1,900 per ounce in 2011.
The punters never bought gold. They bought paper gold in the form of ETFs. And now they're selling it in order to buy stocks as they make their Fed-inflated high. The only thing that could possibly make this trade any worse is to sell physical gold in order to buy stocks. We're hoping for even lower gold prices on the ETF sell-off, at which point we'll be happy to buy some more physical too.
for The Daily Reckoning Australia