Woodside a logical BHP oil asset buyer: Credit Suisse

Woodside is a logical owner of BHP Billiton’s $US10 billion Australian oil and gas business, Credit Suisse says.

BHP chief executive Andrew Mackenzie. Picture: Claudia Baxter

Woodside Petroleum is a logical owner of BHP Billiton’s $US10 billion Australian oil and gas business if the miner pushes ahead with hedge fund Elliott’s suggestion to sell petroleum assets, Credit Suisse says.

As part of an aggressive ramp-up of its campaign to restructure BHP, Elliott on Monday called for a review of BHP’s petroleum unit and said it would be open to separately selling or listing the Australian assets.

“From our perspective, given BHP doesn’t operate either Bass Strait or North West Shelf, the incorporation, or at least a review, of the entire petroleum portfolio is logical,” Credit Suisse analyst Sam Webb said.

“If everything outside the US was incorporated, the value could be around $US10bn.” The non-operated stakes in the Woodside-operated North West Shelf LNG project at Karratha and ExxonMobil’s oil and gas fields in Bass Strait make up most of the value in BHP’s Australian petroleum assets.

“Woodside stands out as a logical owner of BHP’s Australian portfolio,” Mr Webb said.

“An increased stake in the North West Shelf may aid future discussions around processing Browse gas through the infrastructure by removing a partner (BHP) that is not aligned with Browse,” he said, referring to Woodside’s $US25bn plan to process gas from the offshore Browse field through the North West Shelf plant when reserves run out next decade.

The Australian market would also welcome another big oil and gas company to invest in if the assets were spun out, Mr Webb said.

If Woodside was interested, it would flip on its head the situation of six years ago, when an acquisitive BHP was testing the waters on a Woodside takeover offer, which never eventuated.

At the 2011 Australian Petroleum Production and Exploration Conference, then WA premier Colin Barnett said that BHP was interested and that it should keep its “hands off” Perth-based Woodside.

Elliott stepped up its attack on BHP this week in the hours before BHP chief Andrew Mackenzie gave a presentation at a mining conference in Barcelona. Mr Mackenzie and Elliott’s James Smith were due to meet privately yesterday.

In the presentation, in which Elliott was not mentioned, BHP expanded on a previous target of $US25bn of value in its growth projects and flagged a ramp-up of US shale activities by boosting rig numbers from four to 10.

Mr Webb said this could mean up to $US2bn of spending a year on US shale.

BHP said it had a series of “latent capacity” options in iron ore, Queensland coking coal, NSW thermal coal and at the Olympic Dam copper and uranium mine in South Australia that could boost group production by 20 per cent.

The projects would have a combined development cost of $US5bn and average returns of 75 per cent.

They include increasing WA annual iron ore capacity by 10 million tonnes to 290 million tonnes during 2018-19, boosting Olympic Dam production to 280,000 tonnes a year in 2021-22 with potential growth to 330,000 tonnes with more investment, and 10 million tonnes of annual coking coal capacity expansion.

At the company’s Jansen Potash project in Saskatchewan, a $US4.7bn investment could see a first-stage project that produced 4 million tonnes a year from 2022-23.

“BHP’s strategy update demonstrated management’s conviction in its strong organic growth profile,” Macquarie said.

Yesterday, BHP shares rose 0.2 per cent, Rio rose 2.2 per cent, and Woodside fell 0.2 per cent.