BHP wants to get rid of its controversial US oil and gas shale assets and will do so in the coming year – mind you the pressure from US vulture fund, Elliott Management had little to do with the decision, did it?
Confirmation of this move came when the company released its fiscal 2016-17 results yesterday revealing a tripling in dividends on a sharp improvement in earnings, with more to come this year if the company’s confident outlook is delivered. BHP shares edged up 0.7% to $25.98.
"We have determined that our onshore US assets are non-core and we are actively pursuing options to exit these assets for value," the company said.
“In the meantime, we will complete well trials, acreage swaps and assess mid-stream solutions to increase the value, profitability and marketability of our acreage.”
BHP CEO, Andrew Mackenzie said the preferred method to dispose of the “non-core” US shale investment was via a small number of trade sales, although other options were on the table.
"We’ll look at everything in order to decide what is the right way through this," he said.
BHP acquired the US oil and gas business at the height of the boom when oil prices were above $US100 a barrel and US gas prices looked like they would rise above $US5 a million British Thermal Units stay there (instead oil price shave plunged to less than half that level and gas prices have remain stock $US2 or more under that $US5 level).
BHP paid about $US20.6 billion on two major US onshore acquisitions about six years ago and has spent billions developing the assets in the years since. In its fiscal 2016 results, it wrote down the value of the assets by $US4.9 billion ($A7 billion approx.) after tax, or $US7.2 billion or $A10.3 billion on a pre-tax basis.
In 2012 BHP took a $US2.84 billion impairment charge against the value of its Fayetteville gas assets in the US, which it acquired for $US4.75 billion in mid 2011.
The sale news means the board has buckled under pressure from investors, including billionaire Paul Singer’s Elliott Advisors, to at least get rid of the gas assets and reconsider the oil and gas business.
Judging by what was not said yesterday the rest of the oil and gas business, especially in the US will be retained.
The company will pay a final dividend of 43 US cents, for a full year dividend of 83 US cents. The final divided has more than tripled from 14 US cents last year.
BHP’s full year results showed an underlying profit of $US5.89 billion. This was a major turnaround on results for the previous year, when its underlying profit was $US1.22 billion. Last year the company recorded a statutory loss of $US6.38 billion (largely because of two significant exceptional items) and slashed its dividend.
Higher prices for commodities such as iron ore and coal, both for coking coal and energy coal, helped contributed to the improved performance.
BHP is going to slash its debt even further by selectively buying back some of its bonds (as Rio Tinto and Fortescue Metals have been doing).
BHP announced a global bond repurchase plan of up to $US2.5 billion to be paid for out of the company’s $14.2bn cash position.
The plan will comprise one transaction targeting bonds from its US debt capital markets programme and another targeting bonds issued under its Euro Medium-Term Notes programme.
