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BHP Billiton confirms plan to sell off shale assets as it swings back to profit

Jon Yeomans
BHP is looking to exit US shale - ©2011 Ken Childress Photography

Under-pressure mining giant BHP Billiton has confirmed plans to sell off its costly US shale fields, in a move widely seen as an attempt to mollify activist investor Elliott Advisers.

The FTSE 100 mining giant reaffirmed a commitment made earlier this year, saying “we are actively pursuing options to exit these assets for value”.

BHP’s foray into onshore shale earlier this decade has ended up costing it around $30bn after it bought at the top of market, shortly before oil prices collapsed.

Peter Beaven, chief financial officer, said the company had been “flagging to the market for a while it’s effectively for sale”, but had now explicitly said that the assets were “non-core”.

BHP Billiton

BHP indicated that sales of individual assets to rival operators would be more likely than a demerger - a route that had been proposed by Elliott. “We went in high, we need to make sure we don’t burn more money on the way out,” Mr Beaven said. “Having said that, we need to get on with this and we would like to have this wrapped up in the next 24 months.”

Nonetheless BHP will stick to its plans to raise expenditure on its onshore US assets to $1.2bn next year from $550m as it ramps up its production. Mr Beaven said this would be profitable for BHP and was “part of running the business sensibly while we own it”.

The update on shale came as BHP reported a pre-tax profit of $10.3bn (£8bn) in the year to June 30 from a pre-tax loss of $8bn last year. Revenue jumped from $30.9bn to $38.2bn.

Andrew Mackenzie, chief executive officer of BHP Billiton

The miner will pay a full-year dividend of 83 US cents a share, slightly below expectations, for a total payout of $4.4bn.

Andrew Mackenzie, chief executive, hailed a “very strong financial year” with free cash flow - the amount left over after expenses have been met - totalling $12.6bn, the company’s second highest on record.

BHP, which still derives a large chunk of its profits from iron ore, used to make steel, has been powered by a recovery in commodity prices over the last year. This allowed it to lop $10bn off its net debt, down to $16.3bn.

The miner has emphasised the importance of shoring up its balance sheet ahead of giving cash back to shareholders and said it was targeting net debt of between $10bn and $15bn in the medium term. It did however announce a $2.5bn scheme to buy back US dollar and euro-denominated bonds.

BHP debt

Elliott launched a campaign against BHP in April, accusing it of underperforming its rivals, and now owns a 5pc stake. It has demanded a step-up in share buybacks and an end to BHP’s dual listing, which sees its shares traded in London and Sydney. The miner has said it is too expensive to unwind the dual listing and made no mention of it in its results. A dramatic shift in its stance is thought unlikely, even after new chairman Ken MacKenzie takes up the role on September 1.

However in another apparent sop to Elliott, BHP appeared to downplay the prospect of giving the green light to a giant new potash mine in Canada, which could cost at least $12bn. Mr Beaven said the Jansen project would have to clear tough hurdles to justify investment. “If it doesn’t make it, it doesn’t make it,” he said.

Paul Gait, analyst at Bernstein, backed BHP’s move to exit its US shale assets. “[We] welcome this as a step in the right direction given our belief that oil is not a natural fit for the BHP portfolio,” he said.

BHP’s shares in London were up 3pc in afternoon trade to £14.07. 

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