Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Drumbeat grows louder for BHP to exit petroleum

Published 16/08/2021, 00:03
Updated 16/08/2021, 00:05
© Reuters. FILE PHOTO: The North West Shelf Gas Project is seen in Burrup at the Pilbarra region in Western Australia April 18, 2011. REUTERS/Daniel Munoz/File Photo/File Photo

© Reuters. FILE PHOTO: The North West Shelf Gas Project is seen in Burrup at the Pilbarra region in Western Australia April 18, 2011. REUTERS/Daniel Munoz/File Photo/File Photo

By Sonali Paul and Melanie Burton

MELBOURNE (Reuters) -Expectations are growing that BHP Group Ltd will deliver a verdict on the future of its petroleum business at its results next week, as it comes under increasing pressure to cut its fossil fuel footprint.

The world's biggest miner has been facing calls to detail how and when it will exit fossil fuels, with activist investor Market Forces filing a resolution on the topic this week for annual meetings in October and November.

BHP's decision this month to approve $802 million in development spending on oil projects in the U.S. Gulf of Mexico - just days before a new report that issued dire warnings about human contribution to climate change - has only ratcheted up pressure from some investors.

"It's clear something is brewing," said Simon Mawhinney, Chief Investment Officer at Allan Gray Australia.

BHP declined to comment on market speculation.

Analysts value BHP's petroleum business, made up of assets in Australia, the Gulf of Mexico, Trinidad and Tobago and Algeria, at $10 billion to $17 billion. The division contributed 5% of BHP's underlying earnings of $14.7 billion in the first half to end-December, compared with 70% for iron ore.

Investors are split on their fit within BHP's portfolio, especially as the company focuses on new economy materials such as copper, nickel and potash.

An exit from petroleum would constitute "a major shift" in BHP's environmental, social and governance (ESG) credentials and overall strategy towards fossil fuels, Morgan Stanley (NYSE:MS) analyst Rahul Anand said in a recent note.

AUSTRALIA AND THE REST

BHP's late-life, mainly low-return energy assets in Australia are seen as particularly ripe for a sale amid high oil and gas prices.

"For BHP, if you look at its Australian (energy) assets, if they could exit those in a meaningful way for something approximating value, that would be a good outcome," said Brenton Saunders, a portfolio manager with shareholder Pendal Group.

Credit Suisse (SIX:CSGN) and Citi value the Australian energy assets - including the Bass Strait, Northwest Shelf LNG and the Scarborough gas field - at $3 billion to $5 billion.

Woodside Petroleum Ltd is seen as the most logical buyer as they would boost its free cash flow and increase its stakes in key projects, although not all investors favour such a tie-up given the asset mix and likely need for an equity raising.

Woodside declined to comment.

BHP would also have to take a discount on any sale given some heavy decommissioning liabilities, said Credit Suisse analyst Saul Kavonic, although a sale could boost its ESG rating and attract new shareholders.

"BHP could sell these for discounts but still increase share value though a re-rating on the rest of their business," he said.

Elsewhere, investors say BHP's petroleum assets are more attractive.

The most valuable are its stakes in oil fields in the Gulf of Mexico, valued at $10.4 billion by Wood Mackenzie, which made up about 25% of the company's 103 million barrels of oil equivalent output the year to June 2021.

© Reuters. FILE PHOTO: The North West Shelf Gas Project is seen in Burrup at the Pilbarra region in Western Australia April 18, 2011. REUTERS/Daniel Munoz/File Photo/File Photo

"The rest of the portfolio, there are parts that are high growth, high returning. They've done a lot of work on them and shareholders have had to wear some of the bad times. They are good assets," said Pendal Group's Saunders.

BHP is due to deliver its annual results on Tuesday at 0700 GMT.

Latest comments

oil is going to be needed for at least the next ten years. Without
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.