Andrew Mackenzie keen for quick BHP shale exit

BHP chief Andrew Mackenzie says he is keen to get out of the company’s US shale business ‘relatively quickly’.

BHP Billiton chief Andrew Mackenzie says he is keen to get out of the company’s maligned US shale business “relatively quickly”, preferably through multiple trade sales, now that the $US14 billion ($17.7bn) of assets it carries on its books have officially been declared not a core asset.

Yesterday’s announcement that BHP had finally made a decision to get out of the business, after logging about $US20bn of impairments on it so far, came after four months of sustained pressure from US activist Elliott to restructure the company.

The campaign tapped into widespread investor discontent around the shale business, and the continued spend on it, and had the effect of increasing pressure on BHP to show it was doing something about the capital-sapping business.

“Our preference would be, I think, to sell the business through a relatively small number of trade sales, but there is an execution risk around that,” Mr Mackenzie said yesterday.

“So, in the interests of making sure we can do things relatively quickly, I don’t want to eliminate other ways in which we could exit these businesses — including things like demergers, IPOs, or vending into special vehicles and so on.”

He declined to give any specific timeframe for the sale.

BT Investment Management analyst Brenton Saunders said he was pleased to see plans to exit the business but was concerned about whether trade sales would yield the best value at current oil prices.

“What worries us is what they end up selling it for. They are still carrying this business at $US11bn on their balance sheet which might be hard to realised at current oil prices,” he said.

The individual shale assets are valued at a combined $US11bn in BHP’s accounts and BHP still carries an extra $US3bn of goodwill on its books for the assets, bringing the total book value to $US14bn

BHP acquired the US shale ­assets, which stretch across Texas, Louisiana and Arkansas, in 2011 for a total of $US20bn in two separate transactions.

The company has since spent about $US18bn developing the fields and is budgeting for another $US1.2bn of capital spending this year.

“One of the features of shale, which we’ve grown to like a bit less with time and see it (as) a bit more of a curse, is that the investments that are demanded there are quite pro-cyclical,” Mr Mackenzie said when asked if the assets could be run for cash.

But he said the continued spend would increase the value of the assets.

Mr Mackenzie said the decision to sell US shale had been evolving longer than the Elliott campaign.

“Of course we listen to shareholders, and their inputs — all shareholders’ inputs are counted very high in the decisions that we make in how to run this business, but this has been a long time in its creation,” he said.

BHP has previously conceded it paid too much for the shale ­assets and then spent too much developing them.

In May, after Elliott publicly called for a spin-off of the company’s US oil portfolio, Mr Mackenzie told a Barcelona mining conference he would be willing to talk to anyone who saw more value in the assets than BHP did.

“We certainly have plenty of people interested in taking a look,” Mr Mackenzie said yesterday.