BHP sees onshore US shale profitability improving

Market: Crude oil, Natural gas
03/09/14

UK-Australian resources firm BHP Billiton expects profitability from its onshore US oil and gas operations to improve in the current 2014-15 fiscal year ending 30 June as production increases and capital expenditure remains steady.

The company plans to invest about $4bn/yr in its onshore US business, said BHP petroleum and potash president Tim Cutt, with earnings before interest and tax (ebit) becoming more positive in 2014-15.

Free cash flow is expected to be positive by 2015-16 and approach $3bn/yr by the end of the decade, Cutt said. BHP reported revenues of $4.26bn in 2013-14, with earnings before interest, tax, depreciation (ebitda) of $2.27bn in the same period. Ebitda is seen as a close proxy for cash flow. BHP made a $156mn loss for its 2013-14 ebit.

BHP's US onshore petroleum interests include shale fields in the Permian basin in western Texas, the Eagle Ford in southern Texas, the Haynesville shale field that straggles Texas and Louisiana and the Fayetteville field in Arkansas.

The company is focusing on the Black Hawk field in the Eagle Ford basin, as this is expected to be the single largest producer in the company's petroleum portfolio in 2014-15 as it targets around 200,000 b/d of oil equivalent (boe/d).

BHP plans to spend about $98mn on infill drilling in the Shenzi oil field in the Gulf of Mexico, a further A$592mn on infill wells for the Atlantis oil field in the Gulf of Mexico and $187mn on fields associated with the 16.3mn t/yr North West Shelf LNG project offshore Western Australia.

"Our exploration programme will continue to focus on large tier-one conventional oil opportunities," Cutt said.

Its longer term projects include an expansion of the Mad Dog oil field in the Gulf of Mexico and the Scarborough gas resource in the Carnarvon basin, offshore Western Australia.

BHP forecasts its total production will increase by 5pc to 699,000 boe/d in 2014-15, supported by a 44,000 b/d increase in liquids output from growth at its onshore US fields.

The company last month unveiled plans to split into two companies. The main BHP Billiton will retain its key iron ore, coal, petroleum and copper assets, as well as its potash developments. The firm's other, smaller assets will be divested into NewCo, which will be listed on the Australian Stock Exchange and headquartered in Perth.

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