Despite fears about peak oil and peak demand for oil, as well as the continuing pressure cut the use of fossil fuels, BHP remains a believer in oil and gas.
In a briefing yesterday the company made it clear it saw a continuing future for the business in its corporate structure, again rejecting pressure from some shareholders (such as US activist fund manager, Elliott management which campaigned two years ago to get BHP out of the business).
BHP said its petroleum business will deliver the company strong returns and cash flow through the 2020s and beyond, as it sees growth at its oil assets.
The business might generate gross profit margins of more than 60% over the next decade, with an average annual volume growth of up to 3 percent, Geraldine Slattery, president operations petroleum, said at a briefing in Sydney.
She said the business could “Generate robust EBITDA (earnings before interest, tax, depreciation and amortisation) margins of more than 60 percent and an average Return on Capital Employed of more than 15 percent over the next decade;Deliver average Internal Rates of Return of around 25 per cent for major projects, which are resilient through cycles.”
BHP sees its conventional petroleum production of 110 million to 116 million barrels of oil equivalent (mmboe) in 2019-20, with unit costs of $US10.50 to $US11.50 per barrel, reaffirming its earlier guidance.
Petroleum’s growth options currently include the Scarborough project which is operated by Woodside Petroleum, Trion in the Gulf of Mexico, and Trinidad and Tobago North assets, among others.
BHP said it may pursue acquisitions to help grow its petroleum business but sees exploration as the highest returning way to add resources.
“We continue to see that as a mechanism that we could use to grow value in the portfolio,” Ms. Slattery said.
“Our portfolio of quality assets and pipeline of competitive growth options are expected to generate strong free cash flow and returns through the 2020s and beyond”, Ms. Slattery said.
“Our capabilities in safety, exploration and deepwater operations, coupled with a high-performance culture give us confidence that we can deliver on our plans into the future,” Ms. Slattery said.
Despite that enthusiasm, BHP shares slipped 0.3% to $37.18 in a market up around 0.7%.