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BHP Readies Shale Exit

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BHP's looming sale of its unwanted US shale oil and gas assets will be made into a market place in 2018 that looks tougher than this year, although prices for oil and gas in America could see small gains.

BHP has reportedly asked four major investment banks to help it prepare for either a sale or spin-off of its underperforming US shale oil and gas unit, with a view to taking a decision in early 2018.

The move comes after BHP said in August that it would be looking to sell its unconventional onshore shale assets in the Eagle Ford, Permian, Haynesville and Fayetteville basins, of the US which it acquired at the height of the oil boom and could be valued at more than $US10 billion ($13.2 billion).

It has reportedly hired Barclays and Bank of America-Merrill Lynch to assess options for the sale of assets, including whether they would be sold together or separately, as they may appeal to different potential buyers, the sources said.

It has also asked Citi and Goldman Sachs to research the potential spin-off of the unit into a new company, the media reports added.

One of the key variables for any sale will be estimates of US oil and gas production next year - they are not really positive, but not as discouraging as they might have been without the OPEC/Russian production cap that is expected to be in place for much if not all of 2018.

But BHP and its advisers will be trying to sell these assets into a still increasing output of US oil and gas, even if prices will be a little firmer.

In a monthly report issued on Tuesday, America’s Energy Information Administration raised lifted its 2018 annual average US crude oil output forecast to 10 million barrels a day, the highest on record.

That compares with the estimated 9.7 million barrels a day average for November, which was up 360,000 barrels a day from October (which was impacted by the lingering effects of the spate of hurricanes.

“Higher production in November reflected oil production platforms returning to operation after being shut in response to Hurricane Nate,” the EIA said.

The agency now sees 2017 US crude production averaging 9.2 million barrels a day and 10.02 million for 2018 (the previous 2017 forecast was 9.95 million barrels a day).

The EIA alsoraised its price forecasts on West Texas Intermediate and Brent crude oil for this year and next. In its monthly energy outlook report, the government agency forecast WTI prices at $US50.56 a barrel for this year, up from $US49.70 in the October forecast. For 2018, it forecast $US52.77—up from $US51.04 in the previous outlook.

The EIA also boosted its 2017 forecast on Brent crude to $US53.88 from $5US3.01 and its 2018 outlook to $US57.26 from $US55.61.

And there is now joy for gas from the latest EIA forecast. It says it now expects US dry natural gas production is forecast to average 73.5 billion cubic feet per day (Bcf/d) ithis year, a 0.7 Bcf/d increase from the 2016 level. The EIA also forecast that natural gas production in 2018 will be 6.1 Bcf/d higher than the 2017 level, meaning more supplies.

But the EIA sees a small rise in gas prices next year.The agency said that in November, the benchmark natural gas spot price averaged $US3.01 per million British thermal units (MMBtu), up nearly 14 cents/MMBtu from October.

“Expected growth in natural gas exports and domestic natural gas consumption in 2018 contribute to an increase in EIA’s forecast natural gas spot price from an annual average of $3.01/MMBtu in 2017 to $3.12/MMBtu in 2018,” the EIA said. That’s a rise of 3.6%.

BHP is now pursuing two potential exits: a sale of the assets or separation into a standalone company, which is usually a tax-free solution for the parent company.

BHP will keep its conventional assets in the US Gulf of Mexico, Australia and Trinidad and Tobago. BHP shares rose 0.1% to $27.61.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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