April 17, 2013 / 1:35 AM / 5 years ago

UPDATE 1-BHP spends on U.S. shale, iron ore production up

* BHP zeroes in on Eagle Ford, Permian oil for growth

* U.S. shale oil to help in diversification from metals

* Iron ore still No. 1 for world’s biggest miner, output nears 200m/t a year

By James Regan

SYDNEY, April 17 (Reuters) - BHP Billiton’s focus on U.S. onshore oil drilling is starting to pay off with a 15 percent rise in liquids production in the latest quarter, as the miner drills new wells in its giant shale holdings in Texas.

Faced with a fall in U.S. natural gas prices, BHP said in its quarterly production report it will spend 80 percent of its $4 billion U.S. onshore development budget on the Eagle Ford and Permian shale assets, its biggest liquids-producing holdings.

The rise in liquids output to 5 million barrels helped offset a downturn in its offshore units, keeping the petroleum division on track to meet its fiscal 2013 production forecast, as BHP seeks to reduce its reliance on mining metals.

“There’s no doubt that the onshore fields have done their production numbers no harm,” said David Lennox, a mining analyst for Fat Prophets.

The global miner stuck to its full-year production guidance for its major businesses in the March report, with top earner iron ore posting a 6 percent rise in output to 40.2 million tonnes despite the effects of bad weather.

BHP, the world’s No. 3 iron ore miner behind Vale and Rio Tinto , said production rates were nearing 200 million tonnes a year, and maintained its guidance in for fiscal 2013 output of 183 million tonnes.

Floods around Australia’s collieries took their toll on BHP’s output of coking coal and thermal coal, with the company reporting its lowest thermal coal production in five quarters.

Coal prices have dropped sharply this year and the outlook for thermal coal is souring as more power suppliers switch to gas. Rio Tinto has already trimmed its Australian thermal coal production guidance for 2013 by 500,000 tonnes.

Production of copper concentrate at the world’s biggest copper mine, the BHP majority-owned Escondida mine in Chile, rose by 61 percent in the nine months to March 31 and was on track to increase by at least 20 percent in 2012/13, BHP said.

The rise should also benefit Rio Tinto, which holds a 30 percent interest in Escondida. Rio Tinto is facing a 100,000-tonne shortfall in refined copper production this year due to a cave in at its U.S. Kennecott mine last week.


Eagle Ford and the Permian Basin in Texas have stood out among BHP’s move into onshore U.S. drilling with a $12 billion acquisition in 2011.

The two escaped the $1.48 billion impairment taken on the Fayetteville gas asset in August 2012 because they produce oil as well as gas, meaning they were less affected by last year’s slump in the gas price.

BHP, the world’s biggest diversified miner by revenue, is moving ahead with a strategy of relying more on petroleum to offset cyclical price weakness in iron ore and other metals.

Iron ore’s contribution to revenue fell to 29 percent in the half-year ended December from 31 percent in the prior six months, and analysts expect iron ore prices to fall as demand from China cools.

Petroleum accounted for 21 percent of BHP’s revenues in the latest half-year versus 18 percent in the prior period.

BHP is calling on U.S. lawmakers to relax export restrictions on oil and gas. If that occurs it may be encouraged to further accelerate U.S. output.

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