BHP oil buy risks climate backlash
BHP boss Mike Henry has underlined the company’s commitment to its petroleum division, with the company snapping up an extra 28 per cent of the Shenzi oil and gas project.
BHP boss Mike Henry has underlined the company’s commitment to its petroleum division, with the company snapping up an extra 28 per cent of the Shenzi oil and gas project it operates in the Gulf of Mexico.
The move risks exacerbating criticism from climate-focused investor groups ahead of its upcoming annual shareholder meeting.
BHP will pay $US505m ($703m) for Hess Corporation’s 28 per cent stake in Shenzi, taking its ownership to 72 per cent and adding an additional 11,000 barrels a day of oil equivalent to its production profile.
While BHP has said it will seek to sell ageing oil and gas assets, including its stake in the Bass Strait fields off the cost of Victoria, it has resisted suggestions it should divest from its petroleum business entirely, arguing the commodity has strong underlying fundamentals as the world transitions to lower-carbon fuel sources despite this year’s coronavirus price crash.
The latest acquisition is in line with Mr Henry’s strategy of growing BHP’s exposure to oil production in the near term to help arrest falling production from declining fields elsewhere in its portfolio, and adds to BHP’s commitment to deepwater operations in the Gulf of Mexico where BHP is already spending $US2.7bn on expansion work at its existing projects.
BHP’s existing 44 per cent stake in Shenzi delivered the company underlying earnings before interest, tax, depreciation and amortisation of $US174m last financial year, with the fields producing about 6.74 million barrels of oil equivalent in total through the financial year. Shenzi is expected to continue operating for at least another decade.
BHP petroleum president Geraldine Slattery said the company had paid an “attractive price” for Hess Corporation’s stake.
“It’s a tier one asset with optionality, and key to BHP’s Gulf of Mexico heartland. As the operator, we have more opportunity to grow Shenzi high-margin barrels and value with an increased working interest,” she said.
But while the financial case for the acquisition looks solid for BHP, the expansion of its petroleum portfolio risks antagonising climate activists at its October 14 Australian shareholder meeting, where the company may have to defend its commitment to reducing its carbon footprint.
BHP released its updated climate change strategy on September 10, committing to reduce its operations emissions by 30 per cent over the next decade from its 2020 baseline.
And although the company made some commitments to help its customers reduce emissions created through the use of the commodities BHP produces, those commitments were limited to the steel industry and the vessels BHP charters to move its products around the world, not those from its own fossil fuel production.
Speaking after the release of the new climate change policy, Mr Henry told analysts and investors BHP remained committed to its petroleum business, saying the global economy would still need petroleum products for the foreseeable future.
BHP shares closed up 3c at $36.17.