BHP On Track For Shale Sale
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BHP reckons its still on track to get rid of its unwanted oil and gas onshore shale assets in the US by the end of 2018.
In a speech to a US conference overnight Tuesday, the company’s CEO, Andrew McKenzie said the outlook for successful sale had been improved by the rise in oil prices, the US tax cuts and solid production data.
Speaking at the Bank of America Merrill Lynch Global Metals, Mining and Steel conference in Florida, Mr Mackenzie said BHP had made good progress with its plan to exit the US onshore business this year.
“The sale process is on track. All data rooms are open, bids are due in the coming weeks and we hope to announce the sales by the end of this calendar year,” he said.
“We are open to a trade sale demerger or IPO, but our preference is a sale in one or multiple packages for cash or strategic assets within our existing footprint,” he said.
Parting with the US onshore shale oil and gas assets had the potential to lift BHP’s return on capital employed by three per cent, Mr Mackenzie told the conference “with minimal impact to free cash flow”.
Some analysts reckon the company could get $US10 billion for the assets, which would open the possibility for a buyback in the first half of next year.
Mr Mackenzie’s speech follows comments in March by BHP’s worldwide petroleum head, Steve Pastor, that scores of parties were interested in BHP’s onshore shale oil and gas assets in the US.
He said more than two dozen companies had indicated some level of interest in the BHP assets.
"We don't know the exact number at this point but I would expect more than double that, will execute CAs (confidentiality agreements) and be in the data rooms for the rest of the assets. So these assets are recognised as being some of the highest quality, and having the lowest break-even cost, of any unconventional assets in North America. So we think we're hitting this at the right time," Mr Pastor said in March.
BHP’s share price has ridden the rise in oil prices and up to Monday had risen by around 40%. But the BHP shares were down 24 cents on Tuesday, but reversed that fall and more with a 46 cents rise to $34.01.
A year ago it was trading below $24. It’s the first time the shares have been above $34 since early 2014.
US crude prices are up 40% in the past year as well and a meeting next month could see a further kick higher if OPEC and Russia decide to extendc their production cap into 2019.
Mr Mackenzie told the conference that BHP was “set-up for future success” and had a simple and unique portfolio of assets.
"Our relentless pursuit of productivity, aided by our agile and connected culture, will make sure we realise the full potential of these assets and capitalise on strong prices. On top of this we have built an extremely attractive suite of opportunities to drive further improvement," he said.
Over the past two years he said BHP had sanctioned two major projects in copper and oil, cut unit costs by more than 15%, accelerated the company’s technology and innovation program, progressed five high-return latent capacity projects, made discoveries at four petroleum exploration prospects and improved the performance of the US onshore business.
Looking ahead, Mr Mackenzie said BHP would aim for a further $US2 billion in productivity gains by the end of 2018-19, continue to enhance its pipeline of future options, and push ahead with its exploration program with a focus on copper and petroleum due to the positive outlook for these commodities.
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.