Yahoo Finance BHP Billiton looks at shale field sales in wake of Elliott agitation
BHP Billiton could sell off a pair of shale gas fields in the US as it continues to battle an activist investor that wants it to back out of the petroleum business altogether.
The FTSE 100 giant has been in open warfare with New York hedge fund Elliott for weeks after the latter called on BHP to split off its large oil and gas arm, arguing its value was not being recognised by the market and had little crossover with its mining business. Elliott, which has taken 4pc stake in the miner's London stock, has also called for BHP to ditch its dual-listing in the UK and Australia in order to return more cash to shareholders.
Presenting a production report for the nine months to March 31, BHP revealed its Fayetteville shale gas field in Arkansas was “under review”. “We are considering all options including divestment,” the company said. Meanwhile it is pressing on with the sale of part of the Hawkville shale field in Texas.
BHP is the biggest foreign investor in US shale, having bought Chesapeake Energy for $4.75bn in 2011, following that up with the $12bn acquisition of Petrohawk Energy the same year. However it took a writedown of $7.2bn on its US assets in early 2016 as oil prices crashed.
Nonetheless chief executive Andrew Mackenzie has reaffirmed the miner’s commitment to oil, with BHP recently committing $2.2bn (£1.7bn) to an offshore well in the Gulf of Mexico being developed by BP.
Analysts at Investec suggested that a review of the US shale assets was probably under way before Elliott’s intervention, as BHP had already expressed a preference for liquid oil rather than gas. “BHP may… be able to crystallise value for these assets that are not currently being recognised – not exactly what Elliott is seeking but to the same end,” they said.
Paul Gait, an analyst at Bernstein, added: “Amid the debate with activist Elliott, BHP seems to be becoming increasingly selective with its petroleum portfolio.” However he backed Elliott’s call to split off the oil business. “[We] would rather see the company take the bold decision than suffer death by a thousand cuts.”
The start of 2017 has been bumpy for BHP, which saw operations at Escondida, the world’s largest copper mine, in Chile, suspended for 44 days because of a strike. Coal production was also disrupted by Cyclone Debbie in Australia. As a result it has trimmed its guidance for how much copper and coal it expects to produce this year.
In comments clearly directed at Elliott, Mr Mackenzie said: "Everything we do at BHP Billiton is designed to create value for all of our shareholders, today and for the long term.” But he added: “We have more to do and we are not standing still.”
BHP, which is facing a change in chairman later this year when Jac Nasser stands down, has firmly rejected Elliott’s demands, arguing that it has already looked at the options for unwinding its dual listing but could find no cost effective way of doing it.
Earlier this week Goldman Sachs downgraded BHP from ‘neutral’ to ‘sell’, noting a recent drop in the price of iron ore, which is by far the miner’s biggest product. The bank warned that BHP’s free cashflow - which is vital for funding dividends - could drop. “While our commodities team remains positive on the oil price, we believe that BHP’s oil business is barely generating free cash flow,” it added.
