Coronavirus oil crash to rebound as travel returns, says BHP’s Mike Henry
BHP boss backs oil and says price will rebound when coronavirus restrictions on movement end.
BHP boss Mike Henry says the mining giant is in a strong position to maintain its dividend flows, despite commodity price falls across part of its portfolio and uncertainty around the impact of the coronavirus crisis.
Speaking on an online retail investor briefing on Thursday, Mr Henry conceded the virus crisis, which has hit base metals price hard and sent oil tumbling to multi-decade lows, had impacted BHP’s business, but he played down the possibility it may join other corporate giants in deferring or cancelling dividend payments to preserve cash, saying its payout policy was designed to reflect commodity cycles.
“The policy says we will pay out a minimum of 50 per cent our earnings in any given period. That’s a policy that has stood us in good stead, it’s allowed us to maintain a strong balance sheet and continue to pay a dividend through the cycle,” he said.
While some parts of BHP’s business have been hit by falling prices, the iron ore price has remained high for its flagship Pilbara operations, and Mr Henry said BHP’s diversification was serving the company well.
“In spite of the challenging markets we find ourselves in the business is performing pretty well. And that will support overall financial performance.”
And Mr Henry said he was confident oil prices would recover when the immediate impacts of the coronavirus recede, saying the fundamentals underlying BHP’s interest in the sector remained.
Mr Henry said he believed demand for oil, and its price, would bounce back when coronavirus restrictions on movement end.
“We’re confident that as the world comes out of COVID-19 demand will recover again,” he said. “The fundamentals of global population growth, the billions of people around the world who are seeking to lift their living standards, further industrialisation, further motor vehicles being purchased around the world … All of these things are going to lead to ongoing demand for oil and steel, and a recovery in demand for oil and steel.”
Oil prices have crashed since coronavirus restrictions cut demand for oil and petroleum used in transport, exacerbating the impact of a production glut caused by the breakdown of relations between Russia and OPEC producers.
Prices for Brent crude oil were above $US60 a barrel in early 2020 and now sit near $US20 a barrel.
But Mr Henry said BHP still believed demand would rise and, despite confirming BHP had adjusted production levels at some of its assets, and deferred capital expenditure on oil and gas projects, said the medium and long-term outlook still looked good.
“We continue to believe in the fundamentals. In the case of oil, natural field decline — the rate at which current production declines because oil reservoirs get depleted — the conservative estimate of that is about 3 per cent per annum.
“So even in a world where demand slackens, or declines a little bit so it’s less than what we expect, there will need to be new investment in new production capacity just to meet that natural field decline and that will give rise to attractive long-term fundamentals for oil.”
“Of course in the face of near-term pressure the teams have been taking action to protect the businesses.”
BHP shares gained $1.23, or 3.9 per cent, to close at $32.35 on Thursday.
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