BHP says buying out Bass Strait partner Exxon ‘complex’
Petroleum boss Geraldine Slattery says buying Exxon’s half-stake in Bass Strait could be too difficult.
BHP petroleum boss Geraldine Slattery says buying Exxon’s half-stake in Bass Strait oil and gas wells and moving to full ownership of the project could be too complex for the resources giant.
Speaking at an investor briefing on Monday, Ms Slattery outlined the case for BHP retaining its interest in global oil and gas assets, saying the business would remain attractive for decades to come despite global moves away from fossil fuels.
Even the expected explosion in electric vehicles will do little to dent demand for petroleum, according Ms Slattery, with demand for oil not expected to peak until at least 2040.
Ms Slattery told analysts and investors that BHP sees the electrification of the global transport sector as a key theme for its petroleum business, but does not expect the growing use of electric vehicles to impact on supply and demand balance for the commodity for several decades.
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She said that even the progressive decarbonisation of the global economy should not affect BHP’s view of its own business, flagging earnings margins of more than 60 per cent for its suite of oil and gas projects.
“In a decarbonising world, deepwater oil and advantaged gas close to established infrastructure can offer competitive returns for decades to come,” she said in a statement to the ASX.
BHP’s analysis suggests global use of petroleum products in cars and other light vehicles will halve by 2050, with electric and natural gas-powered buses to make up about 70 per cent of the global fleet by that time.
But the company sees no real replacement for diesel or other petroleum products in medium and heavy trucks, flagging about 30 per cent penetration of that market by electric and natural gas powered engines by 2050.
Ms Slattery pointed to BHP’s suite of growth projects — including BHP’s share in the Woodside Petroleum-operated Scarborough natural gas project off WA, Wildling in the Gulf of Mexico, the Trion deepwater oil development off Mexico and a deepwater gas discovery in Trinidad and Tobago — as a sign the company can replace production and revenue from its ageing assets in Australia.
But she downplayed the prospects of BHP moving on Exxon’s operating stake in Bass Strait, tipped to fetch as much as $US2.5bn ($3.6bn), saying it was a “complex asset”, and a sale may not be finalised for years.
“It’s operational and Bass Strait has a big importance to eastern Australia’s gas market. So that does give us pause for thought,” she said.
“We’re considering all of our options within that. In my view it’s a complex transaction, it’s not something that will play out very quickly, I’d anticipate that it will take a couple of years, so we’re considering our options and what that might mean to us.”
Ms Slattery would not be drawn on whether BHP would move to exercise its right to take an additional 10 per cent stake in the Scarborough project before a December 31 deadline, saying that while the project remained attractive, that decision would need to compete for capital with other potential uses.
“It is a high quality resource, that’s why we remain so interested in it, both in terms of its scale but also in terms of its access to regional infrastructure and its proximity to growing Asian markets,” she said.
“I think that Scarborough does offer a very good value proposition.”
While analysts have expressed concerns about whether BHP can maintain its margins from some of its ageing assets — most notably its Bass Strait and North West Shelf projects in Australia — Ms Slattery said BHP’s project pipeline could deliver annual average volume growth of up to 3 per cent between the 2020 and 2030 financial years.
They would need to compete for capital with other potential projects in the rest of BHP’s commodity suite, including the Jansen potash project and copper and iron ore growth projects, as well as maintaining BHP’s returns to shareholders.
But Ms Slattery said petroleum’s strong recent history of exploration success, combined with attractive margins from the growth suite, positioned the division well for growth from the mid-2020s.
The company has been under pressure to shed its oil and gas division from activist shareholders, including Elliott Management, who believe BHP shareholders would benefit from a spin-out or sale of the division.
But Ms Slattery confirmed that BHP’s leadership team still see the unit as an important diversification play.
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