BHP Billiton to Ramp Up U.S. Shale Activity -- Update
July 18 2017 - 10:16PM
Dow Jones News
By Robb M. Stewart
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
(END) Dow Jones Newswires
July 18, 2017 22:01 ET (02:01 GMT)
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