BHP positive on petroleum outlook

PERTH (miningweekly.com) – Mining major BHP Billiton has extolled the value of its petroleum assets, with group president for petroleum operations Steve Pastor saying that the underlying fundamentals suggest that oil and gas markets are improving more quickly than the company’s mineral commodities.

“Over the next decade, demand growth, natural field decline and the effects of industry-wide investment deferrals are expected to create a significant opportunity to invest and maximise value in oil.

“By 2025, the world is expected to consume more than 100-million barrels of liquids per day – a third of which will come from new sources,” Pastor said in a statement following an investor briefing in London.

“Having both minerals and petroleum in our portfolio allows us to maximise the value of our petroleum assets at the right point in the cycle.”

Pastor noted that BHP was well placed to capitalise on the expected growth opportunity, as the company had a large, high-quality resource base.

“Our focus on productivity has significantly reduced both operating and capital costs, supporting a range of shale and conventional investment opportunities that will generate compelling returns at today’s prices. As a result, petroleum is well placed to maintain its position as BHP Billiton’s highest margin business and to grow its free cash flow contribution.”

He said that BHP runs its onshore US assets to maximise value rather than volumes and would continue to adjust its investment plans to reflect market conditions.

“Our onshore US business gives us valuable flexibility. Our shale assets generate cash at current prices, with significant upside should oil and gas prices recover as we expect,” Pastor said.

He pointed out that not only did BHP operate in some of the best shale plays in the world, but by further reducing costs and improving capital efficiency to levels among the best in the industry, the company had increased its investable well inventory.

As a result, BHP now has up to 1 200 undrilled net oil wells, contingent upon trials in the Eagle Ford, and 220 undrilled net gas wells that generate a minimum 15% internal rate of return at $50/lb of oil and $3 per million British thermal units.

“In the Permian, we have access to over one-billion barrels of oil equivalent meaning this field has the potential to become the largest production and free cash contributor in our petroleum portfolio within five years.”

In conventional, BHP is expecting unit operating costs to remain at approximately $10 per billion barrels of oil equivalent over the 2017 and 2018 financial years as it pursues a number of options to extend high margin production from its existing facilities.

“We have a rich portfolio of brownfield project options, with total capital expenditure of $2.5-billion and an average internal rate of return of 45% that will help offset field decline. With significant improvements in capital efficiency, major capital projects like Mad Dog 2 are now economically attractive, even below $50/bl of oil,” Pastor said.

BHP on Wednesday announced positive drilling results at the Caicos exploration well in the Gulf of Mexico, located some 100 miles south of the Louisiana coast in the deep-water Gulf of Mexico. Caicos was drilled to a total depth of 30 803' and encountered oil in multiple horizons.

“We are encouraged by the Caicos results and are moving to further appraise the area. The next step will be drilling the Wilding well in November. With success at Caicos and Shenzi North, we continue to be optimistic around the opportunity for a commercial development in the area,” Pastor said.