BHP Group Plc touted bullish plans on Nov. 11 to expand in oil and gas after quitting a disastrous foray into U.S. shale, defying investors who want the world's biggest miner to cast off the business.
The company's petroleum head said the business is set to deliver strong returns and cash flow through the 2020s and beyond, supported by high-potential projects in the Gulf of Mexico (GoM), Western Australia and Trinidad & Tobago.
Petroleum, which accounted for about 16% of BHP's underlying earnings in 2018-19, could potentially generate margins of more than 60% over the next decade, Geraldine Slattery, president operations petroleum, told a briefing.
Excluding the shale business, the company's oil and gas arm has long had some of the strongest returns in the group's portfolio, including iron ore, copper and coal.
With projects awaiting approval, the division could support average annual volume growth of up to 3% in the decade to 2030, and deliver average internal rates of return for major projects of around 25%, she said at the company's first petroleum briefing since 2016.
"In a decarbonizing world, deepwater oil and advantaged gas close to established infrastructure can offer competitive returns for decades to come," Slattery said.
BHP said it made sense to expand in oil, even in a world with rapid uptake of electric vehicles, with demand for petroleum set to grow for trucks, petrochemicals and fertilizers well into the second half of this century.
It singled out potential growth from the Scarborough gas project operated by Woodside Petroleum, the Wildling Phase I and Trion projects in the GoM, and its Trinidad & Tobago North assets—all still unsanctioned.
"Scarborough offers material growth potential to our Australian portfolio," Slattery told analysts at a briefing.
She said BHP sees the highest returns from adding resources through exploration, but did not rule out making acquisitions.
Last year, BHP ended a massive loss-making seven-year foray into shale by selling most of its U.S. onshore shale oil and gas assets to BP Plc for $10.5 billion.
RBC Capital said in a note on Nov. 11 that while the petroleum division had suffered from the misadventure, three offshore projects under construction should substantially boost production over the next three years.
A return to growth for the petroleum division, where output is slated to fall this year, would also differentiate BHP from the wider, iron ore-heavy diversified mining sector, RBC said.
BHP's Australian-listed shares closed down 0.3%, roughly in line with the broader mining index.
Recommended Reading
Segrist: The LNG Pause and a Big, Dumb Question
2024-04-25 - In trying to understand the White House’s decision to pause LNG export permits and wondering if it’s just a red herring, one big, dumb question must be asked.
Texas LNG Export Plant Signs Additional Offtake Deal With EQT
2024-04-23 - Glenfarne Group LLC's proposed Texas LNG export plant in Brownsville has signed an additional tolling agreement with EQT Corp. to provide natural gas liquefaction services of an additional 1.5 mtpa over 20 years.
US Refiners to Face Tighter Heavy Spreads this Summer TPH
2024-04-22 - Tudor, Pickering, Holt and Co. (TPH) expects fairly tight heavy crude discounts in the U.S. this summer and beyond owing to lower imports of Canadian, Mexican and Venezuelan crudes.
What's Affecting Oil Prices This Week? (April 22, 2024)
2024-04-22 - Stratas Advisors predict that despite geopolitical tensions, the oil supply will not be disrupted, even with the U.S. House of Representatives inserting sanctions on Iran’s oil exports.
Association: Monthly Texas Upstream Jobs Show Most Growth in Decade
2024-04-22 - Since the COVID-19 pandemic, the oil and gas industry has added 39,500 upstream jobs in Texas, with take home pay averaging $124,000 in 2023.