BHP said to be mulling over oil exit in retreat from fossil fuels

LONDON • BHP Group is considering getting out of oil and gas in a multibillion-dollar exit that would accelerate its retreat from fossil fuels, according to people familiar with the matter.

The world's biggest miner is reviewing its petroleum business and considering options, including a trade sale, said the sources.

The business, which is forecast to earn more than US$2 billion (S$2.7 billion) this year, could be worth US$15 billion or more, one source said.

BHP's energy assets make it an outlier among the world's big miners - Anglo American has already exited thermal coal under investor pressure and BHP is trying to follow suit. The firm has long said oil was one of its strategic pillars and argued that it will make money for at least another decade.

But as the world tries to shift away from fossil fuels, BHP wants to avoid getting stuck with assets that become more difficult to sell, the sources said.

The deliberations are still at an early stage and no final decision has been made, the sources added.

A spokesman for BHP declined to comment.

The move comes as oil supermajors grapple with how to respond to investor pressure over climate change, in some cases by shrinking their core production and adding renewable energy assets.

BHP wants to exit while it can still get a good price for the assets, aiming to repeat a 2018 sale of its shale business to BP for US$10.4 billion, the sources said.

And unlike big-oil rivals, BHP does not depend on profits from the energy business, which are dwarfed by its giant iron ore and copper units.

The timing could be good for an oil exit. The economic recovery from Covid-19 has transformed the fortunes of oil producers, with Brent oil futures having rallied about 60 per cent in the past year.

By contrast, BHP's efforts to get out of thermal coal so far have been disappointing, after early bids for mines in Australia came in lower than the company's own valuations last year.

Getting out of both thermal coal and petroleum would help BHP make its case to investors as a company geared towards commodities of the future. The miner is also expected to sanction a giant potash mine in Canada next month that could make it a key supplier of the crop nutrient once production begins.

BHP has been in oil and gas since the 1960s, and has assets in the Gulf of Mexico and off the coast of Australia. It produced 102.8 million barrels of oil equivalent in the year ending June 30.

RBC Capital Markets analyst Tyler Broda noted: "With rising ESG (environmental, social and governance) pressures... we can see why management might be contemplating an exit."

While divesting fossil fuel assets would help to strengthen BHP's ESG metrics, it may have to sell them at a discount, noted Mr Saul Kavonic, an analyst at Credit Suisse Group. Exiting the oil and gas business could also leave it short of medium-term growth catalysts, with the Jansen potash project in Canada "a late-decade story", he added.

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A version of this article appeared in the print edition of The Straits Times on July 22, 2021, with the headline 'BHP said to be mulling over oil exit in retreat from fossil fuels'. Subscribe