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BHP’s Texas shale could be worth more than first thought

The quality of BHP Billiton’s (ASX: BHP) Eagle Ford acreage could be much greater than previously anticipated, after GeoSouthern Energy sold its 50% stake in the project to US player Devon Energy for US$6 billion ($6.5 billion).

Devon Energy’s chief executive John Richels described GeoSouthern’s asset as a “premier acreage position in the very best part of the play, truly the best of the best”, adding that it was a “high-margin, high-growth” area.

Devon also believes that BHP will be producing up to 140,000 barrels of oil equivalent per day by 2017 from the Blackhawk shale oil field, located in southern Texas, and could generate US$800 million in free cash in 2015.

Deutsche Bank energy analyst Paul Young outlined that the deal between GeoSouthern and Devon, and implied that BHP’s Blackhawk acreage is worth US$4.3 billion. As highlighted by The Australian Financial Review, BHP holds 23.47 net hectares in the Blackhawk field out of its total 134.3 hectares in the Eagle Ford.

Foolish takeaway

Confidence has largely returned to the mining sector with shares heading skyward in recent months. For instance, BHP’s shares have climbed 22.7% since the beginning of July, whilst Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) have risen 27.3% and an incredible 95.9% in the same time, respectively.

However, investors should think twice before investing in the industry. Whilst there certainly could be significant gains to be realised, there are still strong headwinds facing the sector and investors need to determine whether the risks are worth the potential gains.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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