Is the BHP Billiton-Rio Tinto marriage destined for consummation?
Something must be on given the strongest trading in the shares in both resources giants for sometime yesterday.
BHP jumped 5% or $1.95 to $40.55 while Rio surged 4.6% or $6.06 to $136.91. The market overall was up less than 1%, so it was a big climb back into the sector by investors.
The value of the BHP 3.4 share for every Rio share offer was $137.87 yesterday, a sign the market remains a bit uncertain of just what the outcome will be.
Since mid March Rio shares have soared around $20 to yesterday’s close, while BHP shares are up $6 or so to yesterday’s close. Both a strong sign of the market shaking off the credit crunch blues and getting back to the buy resources angle.
The hit to the banks yesterday from the ANZ’s confession of higher than expected bad debt provisions also helped the resources story among some investors.
But a senior BHP executive has some upbeat news so far as investors were concerned and the Rio bid.
The head of the company’s petroleum division gave an upbeat outlook to the Australian Petroleum Exploration Association annual conference in Perth and there seems to have been a step up in BHP’s pressure on Rio (See below).
Firstly, Mike Yeager, the head of the company’s petroleum business said that the company is in the first year of what it expect to be four to five years of double-digit growth in output, thanks to a group of new projects coming onstream.
He said the growth will build on the past two years when oil and gas output volumes have averaged about 320,000 barrels a day.
Mr Yeager said BHP has boosted its 2008 financial year spending on oil and gas by 20%, with spending on exploration doubling to around $700 million or so in the year to June 30.
Production this year could rise by 10% because of the start-up of the Stybarrow project off the Western Australian northwest coast and ventures in the Gulf of Mexico.
BHP has started production at the Atlantis South and Genghis Khan fields in the US in the December half and at the Stybarrow field off Western Australia.
The North west Shelf’s LNG output kicks in later this year with the start up of Angel gas and condensates project.
Bloomberg said Yeager said after his speech that the start of the $US1.1 billion Neptune oil project in the Gulf of Mexico has been delayed after the company found "structural anomalies” in the hull of the platform last month. The project may now begin production in the second quarter. (That has an impact on Woodside, a shareholder).
But a second Gulf of Mexico project, Shenzi, may start earlier than its scheduled mid-2009 date. The Pyrenees oil project in WA is due to start production in the first six months of 2010.
Meanwhile Bloomberg and other agencies reported that Yeager also said BHP plans briefings with its investors and those of Rio on May 7.
He said the briefings would take several hours and be simulcast live in London, Melbourne and Sydney. It’s the first indication for some weeks that BHP is looking to inject some forward momentum back into its offer, which was launched at a ratio of three shares to one) last November.
Mr Yeager reportedly said that BHP would not consider dumping its petroleum division if it proved to be a deal-breaker in its takeover bid for Rio.
"Petroleum has been in our company for 40 years and … we are the safest part of BHP," he said.
"We account for 20-25 per cent of BHP’s earnings at this time, and with the proposal that we have made to Rio Tinto, that has the opportunity to change."
