BHP Billiton to step up U.S. shale production

Published: July 18, 2017 11:21 p.m. ET

MELBOURNE, Australia–BHP Billiton Ltd. (BHP.AU) said Wednesday it plans to step up activity in the U.S. oil-and-gas shale fields that activist shareholders are agitating for the resources company to offload.

The move is expected to revive flagging onshore production volumes even as BHP continues to invest in conventional energy operations and exploration in the Gulf of Mexico and other basins while seeking to sell some unwanted U.S. shale acreage.

BHP has been forced to defend its strategy after New York hedge fund Elliott Management Corp. led a series of attacks in recent months, calling for a sweeping overhaul of the world’s largest-listed mining company and criticizing the billions of dollars spent on acquisitions and mistimed share buybacks. The push by Elliott and other shareholders has drawn BHP’s petroleum division into the spotlight and revived questions about the billions of dollars spent picking on onshore U.S. assets at the height of the natural-gas boom.

BHP on Wednesday forecast a rise in overall production across its operations over the 2018 financial year, as steady growth in iron-ore output and a rebound in commodities including copper offset a further drop in petroleum volumes in the 12 months through June.

The company expects to have up 10 rigs operating in its U.S. shale fields in the coming year, double the number currently drilling for oil and gas after it added two more in the recent quarter, Chief Executive Andrew Mackenzie said.

That will see it spending about US$1.2 billion onshore U.S., the bulk of its US$2 billion petroleum expenditure budget for fiscal 2018, which is expected to deliver a 35% increase in shale production the following year after an expected decline in the current period, the company said.

After months of discussions with BHP and its directors, Elliott in April went public with its calls for the company to spin off its U.S. petroleum business and to rid itself of its dual-listed structure in favor of a main listing in London. In May, it refined its attack, urging BHP to launch an independent review of all its oil-and-gas assets globally and to collapse its listed structure around the Australian shares to unlock shareholder value and halt an underperformance in the shares.

A spokesman for Elliott declined to comment Wednesday on BHP’s quarterly production update or plans.

Other investors have entered the fray, including Australian fund manager Tribeca Investment Partners, which has called for BHP to divest its U.S. onshore oil-and-gas assets. AMP Capital, one of BHP’s largest shareholders, has said BHP now needs to prove the worth of its U.S. onshore business and why it is compatible with the broader portfolio.

BHP has rejected the criticism, arguing that ending its U.K.-Australia structure would be too costly and that there was a beneficial fit between its mining and petroleum operations, although Mr. Mackenzie earlier this year conceded BHP had mistimed the shale acquisitions and had more recently pivoted its focus toward conventional assets.

In the production report, Mr. Mackenzie said the company was pushing ahead with an exit from noncore U.S. acreage, and a sale of the southern Hawkville assets in Texas was expected by September. It also doesn’t plan further development of its operations in the gas-rich Fayetteville in Arkansas and is considering sale of these assets.

Elsewhere in the portfolio, Mr. Mackenzie said drilling of the Wildling-2 appraisal well in the Gulf of Mexico will continue and results were expected this quarter, while the recently approved second phase of the Mad Dog project in the deepwater Gulf of Mexico would expand oil volumes as supply tightens.

In the last financial year, BHP’s petroleum production fell 13% to 208 million barrels of oil equivalent due to the deferral of activity onshore U.S. and natural field decline in the conventional assets. It forecast output would fall 9%-13% in the year ahead.

Production of iron ore, the biggest driver of BHP’s earnings in the previous fiscal year rose 4% to 231 million metric tons in the just-ended fiscal year as prices rebounded, with record volumes at BHP’s mines in Western Australia. BHP said it expected output to grow by between 3% and 5% this year.

Production of coking coal, used alongside iron ore to producer steel, fell 6% to 40 million tons in fiscal 2017, in line with a target that was cut in April due to damage to the rail network caused by a cyclone in Australia’s east coast. BHP said production was expected to climb 10%-15% this year.

Thermal coal, which is used by power stations, was 7% higher at 29 million tons and is forecast to be steady to 3% higher this year. And copper production is expected to jump by 25%-35% this year after falling 16% in fiscal 2017 to 1.33 million tons–the lower end of revised guidance after output was held back by a 44-day strike at the Escondida mine in Chile as well as disruptions at its Olympic Dam mine in South Australia due to maintenance and after a state-wide power outage.

Write to Robb M. Stewart at robb.stewart@wsj.com

 

 

http://www.marketwatch.com/story/bhp-billiton-to-step-up-us-shale-production-2017-07-18