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SYDNEY/PERTH (Reuters) - Top global miner BHP Billiton will buy U.S. Petrohawk Energy Corp for $12.1 billion in cash, ramping up its bets on the booming but environmentally controversial shale gas industry.
At $38.75 a share, BHP is offering a 65 percent premium to Petrohawk's closing stock price on Thursday. The deal follows BHP's $4.75 billion purchase of Chesapeake Energy's interest in an Arkansas shale gas field in February.
"Their view on their first shale buy was they were buying at bottom-of-the-cycle prices," said Constellation Capital Management portfolio manager Peter Chilton. "I guess they see value here."
Shares of BHP were down 1.5 percent at $90.88 in morning New York Stock Exchange trading, while Petrohawk jumped 63 percent to $38.32.
BHP will use its abundant cash reserves and a new $7.5 billion loan to fund the deal.
The company and others are targeting shale gas as a major source of cleaner-burning fuel in a world looking for alternatives to coal-fired energy.
However, shale gas has triggered environmental concerns about its extraction, and some developers in the United States have been sued.
BHP said the deal could more than double its energy division's existing resource base, a significant strategic shift as it seeks fresh avenues of growth.
Known as "The Big Australian," BHP has run into repeated regulatory hurdles with deals to expand its iron ore operations. Regulators also stymied its attempt last year to diversify into agricultural minerals with a $39 billion hostile bid for Canada's Potash Corp.
Unlike iron ore and potash, the shale gas industry does not have a tight concentration of producers, and BHP Chief Executive Officer Marius Kloppers said he saw no significant regulatory barriers to the deal.
"This transaction will have extremely strong returns and development potential for a very, very long time," BHP petroleum chief J. Michael Yeager told a briefing. "If the whole continent of Australia used electricity sourced from natural gas ... this thing we purchased would supply that need for 18 years."
But some analysts worried that BHP was being too optimistic, relying on future global demand and a economic rebound in the United States, where gas prices are about $4.40 per million British thermal units -- half or less than in Europe and Asia.
"At the current gas price, it doesn't make sense," said Glyn Lawcock, head of Australian Resources at UBS in Sydney. "If the current (U.S.) gas price of low $4 per mmBtu were to hold, then they've paid a big price for something that's not going to generate the returns that they are thinking.
"You've really got to believe that the U.S. gas price will (climb) back up to a minimum of $6 per mmBtu."
Petrohawk, like several other North American stand-alone gas producers, has accumulated huge tracts of properties, but lacks the money to tap into resources that lie beneath the surface.
Petrohawk's shale assets cover about 1 million acres in Texas and Louisiana, with estimated 2011 net production of around 950 million cubic feet equivalent, or 158,000 barrels of oil equivalent, per day.
The International Energy Agency has said about 40 percent of the increase in global gas production between now and 2035 will come from unconventional gas exploration, such as shale gas or coalbed methane gas, also known as coal seam gas.
BHP estimated shale gas would account for half of the U.S. gas market by 2030 and also noted shale gas could provide returns in months, compared with the five years or more of development required to bring offshore oil and gas on stream.
Since March 2010, however, the U.S. Environmental Protection Agency and other federal agencies have been reviewing the environmental and health impact of shale gas drilling, which could mean new regulations on the sector.
In April, a blowout of a natural gas well in Pennsylvania spewed thousands of gallons of drilling fluid that contaminated local waterways and intensified debate over a shale drilling method called hydraulic fracturing, or "fracking."
The Petrohawk deal comes as companies are looking to snap up raw materials to meet strong demand from emerging markets.
This week alone, some $27 billion worth of Asia resource-related deals have been announced, according to Thomson Reuters data.
BHP said it would spend more than $40 billion over the next decade to develop Petrohawk's three major fields, all in the "sweet spot" for shale gas in the southern United States.
The acquisition gives BHP a risked resource base of 35 trillion cubic feet equivalent of gas, the company said, adding there was a fee of $395 million to be paid if the deal was not completed.
Some analysts are now questioning BHP's ability to continue fund more multibillion-dollar share repurchases.
Kloppers would not be drawn on this issue. "I don't want to rule in or rule out additional buybacks," he told the briefing.
In targeting shale gas, BHP is biting off smaller deals than those it has tried and failed to make over the past three years.
Early in his tenure as CEO, Kloppers made an audacious but ultimately mistimed play for rival Rio Tinto just before the global credit crisis in 2008. He later attempted a $116 billion merger of BHP and Rio Tinto's iron ore businesses, but that too failed.
If completed, the Petrohawk deal will be the company's largest since BHP Ltd bought Billiton Plc for $15.6 billion, including net debt, in 2001.
Barclays Capital and Scotia Waterous is advising BHP, and Goldman Sachs is advising Petrohawk.
The deal will boost BarCap to No. 5 from No. 12 on the Asia-Pacific M&A league table rankings, according to Thomson Reuters data.
Additional reporting and writing by Mark Bendeich in Sydney, Victoria Thieberger in Melbourne, and Matt Daily and Ernest Scheyder in New York; Editing by Lisa Von Ahn, Ed Davies and Lincoln Feast