* Says onshore U.S. production to be self-funding in 2016
* Seeks to extend liquids production profile
* To focus spending on Australia, US, Trinidad and Tobago
* Sees good interest in U.S. Permian shale assets up for
By Clara Ferreira-Marques
LONDON, Dec 10 BHP Billiton, the world's
largest miner and a top investor in U.S. onshore oil and gas,
said on Tuesday its U.S. shale business should generate cash
from 2016, contributing almost $3 billion a year to the group by
the end of the decade.
BHP, one of the largest producers outside the major
integrated oil companies, plans to spend around $4 billion a
year to expand its U.S. onshore oil and gas production.
The company is dedicating a growing slice of its spending to
petroleum, one of the key pillars of its broader business, along
with iron ore in Western Australia, copper and coal.
Some analysts have raised questions over declining returns
in a petroleum business, which they say turned cash negative
this year for the first time in over a decade, reflecting heavy
They have also queried the length of time before BHP
investors will see a payback.
But BHP - whose boss Andrew Mackenzie is a former BP
executive - said in presentations in Houston on Tuesday that the
U.S. shale business was set to become a major cash-flow
generator from 2020.
The company aims to boost productivity there and trim down
the remainder of its petroleum unit to focus on core assets in
both conventional oil and gas and shale, largely in the United
States and Australia.
"We will continue to simplify the portfolio with a firm
focus on value," said Tim Cutt, a former Mobil and ExxonMobil
executive who took the helm of BHP's petroleum and potash
division in July.
BHP is on track to hit its 2014 petroleum production target
despite a drop in output in the December quarter. It told
investors its spending programme would help it hit a goal of
increasing liquids production from its shale business to 200,000
barrels per day in 2017.
The company sees total onshore U.S. production of 500,000
barrels of oil equivalent per day by the same date, roughly the
total output of a large U.S. independent producer.
Predicated on what BHP forecasts will be a rising U.S. gas
price, this would allow the U.S. onshore business to fund itself
from the 2016 financial year.
Cutt was confident on gas prices improving based on
increasing demand for gas in power stations, trucks and
petrochemical plants and, from 2016 onward, in liquefied natural
gas (LNG) plants in the United States.
BHP, already a significant oil and gas player, moved heavily
into U.S. shale in 2011, acquiring the Fayetteville assets from
U.S. energy group Chesapeake and months later Petrohawk
It spent $20 billion including debt just before a major
downturn in U.S. natural gas prices in deals that made it one of
the largest foreign investors in U.S. shale since 2008, and has
since written down nearly $3 billion on those assets.
But it has also trimmed back in petroleum as it has across
all its divisions, to focus on higher-margin assets. It
appointed advisers in October to sell roughly half its oil and
gas acreage in the Permian basin in Texas to focus on more
lucrative assets there.
"We're confident we will move those assets at the right
time, but only if we get the right kind of offer," Cutt told
reporters on a teleconference from Houston, adding that the
company had received good interest from shale players.
BHP flagged on Tuesday it would take a depreciation charge
of about $600 million in the Permian this year reflecting the
rapid depletion at some of the wells it has drilled.
The group said on Tuesday it would focus on investment on
Australia, the United States and, potentially, Trinidad and
Tobago, where exploration has focused on promising deepwater
acreage following an improvement in Trinidad's fiscal terms on
"We are very excited about Trinidad," Cutt said. "It's a
very oily, gassy part of the world. It's a known trend that
we're looking at. But we're very early days on this."
BHP also has assets in Pakistan and Algeria, but said those
assets had limited room for future growth. Cutt declined to
comment on when the company may divest those assets.
It sold its stake in Liverpool Bay, a major integrated
development of five producing oil and gas fields off the British
coast, in October 2013.
BHP has said it plans to spend the bulk of its U.S. onshore
development budget this year on both the Permian basin and Eagle
Ford, another major basin, directing its investment to
liquids-rich acreage at a time of low natural gas prices.
Petroleum accounts for roughly a fifth of total BHP
production, and around a quarter of BHP's operating profit.