BHP to exit US shale as profits surge

Iron ore being trucked out of a mine at Mount Newman in Western Australia. Miner BHP Billiton reported a surge in profits yesterday on the back of stronger commodity prices.
Iron ore being trucked out of a mine at Mount Newman in Western Australia. Miner BHP Billiton reported a surge in profits yesterday on the back of stronger commodity prices.PHOTO: AGENCE FRANCE-PRESSE

SYDNEY • BHP Billiton, the world's largest miner, yesterday reported a surge in underlying full-year profits and said it would exit its underperforming United States shale oil and gas business, pleasing shareholders who had called for a sale.

The Anglo-Australian mining giant, which is under pressure from US hedge fund Elliott Management to rethink its investment in oil and boost shareholder returns, was buoyed by a recovery in industrial commodity markets.

It generated more cash than even in some years of the mining boom, slashed net debt by nearly US$10 billion (S$13.6 billion) to US$16.3 billion and tripled its final dividend to 43 US cents a share.

Underlying profit of US$6.7 billion was below expectations for US$7.4 billion, according to Thomson Reuters I/B/E/S, but the market focused on the lower debt and the company's determination to exit US shale, pushing its shares up 1.2 per cent.

"Net debt looks very impressive... so the cash looks like it was applied to deleveraging versus extra dividends," Shaw and Partners analyst Peter O'Connor said.

BHP joined other miners which have boosted payouts in the current earnings season to reward shareholders amid a resurgence in commodity prices.

Rio Tinto and iron ore miner Fortescue Metals both paid record dividends, while Anglo American reinstated its dividend.

Facing calls from some shareholders to dispose of the shale business it acquired at the height of the oil boom, the miner said it was "actively pursuing options to exit".

Chief executive Andrew Mackenzie said the preference would be a small number of trade sales, but refused to give a timetable for quitting the business.

"Our determination to exit means that we have other ways to exit that do not necessarily depend on... a competitive set of willing buyers," Mr Mackenzie said on a media call.

Fund managers, including Elliott and Tribeca, have been agitating for shale's divestment, along with higher shareholder returns and the elimination of dual-structured Australia and London stock listings.

BHP chairman Jac Nasser, who retires this year, has conceded the US$20 billion investment in shale six years ago was a mistake. Analysts have suggested the business could sell for about half that today.

"The shale acquisitions were poorly timed. We paid too much," Mr Mackenzie said, adding that the company would be careful not to repeat the mistake by buying other assets at the top of commodities' cycles.

"We have fundamentally changed the way we think about capital allocation, and the process that supports this, to make sure this discipline remains entrenched throughout the cycle," he said.

BHP's underlying profit surged from $1.2 billion a year ago as it benefited from a 32 per cent rise in iron ore pricing in fiscal year 2017, owing to greater demand from Chinese steel-makers, which buy the bulk of its ore.

Prices for copper, oil, coal, nickel and other commodities were also up, with only liquefied natural gas weaker.


A version of this article appeared in the print edition of The Straits Times on August 23, 2017, with the headline 'BHP to exit US shale as profits surge'. Print Edition | Subscribe