BHP to quit US shale business as annual profit surges

Global mining giant BHP Billiton committed to quitting its underperforming US shale oil and gas business on Tuesday, as it posted a surge in annual underlying profit to $6.7 billion.

The world's biggest mining house, which was buoyed by a recovery in industrial commodities markets, pleased shareholders by cutting net debt by nearly $10 billion to $16.3 billion and tripled its final dividend to $0.43 a share. The profit was below expectations for $7.4 billion, according to Thomson Reuters I/B/E/S and the dividend was also slightly shy of forecasts, but the market focused on the lower debt and the company's determination to exit US shale. “Net debt looks very impressive ... so the cash looks like it was applied to deleveraging versus extra dividends,” Shaw and Partners analyst Peter O'Connor said.

BHP joined other miners who have boosted payouts in the current earnings season to reward shareholders amid a resurgence in commodity prices. Rio Tinto and iron ore miner Fortescue Metals both paid record dividends, while Anglo American reinstated its dividend. The miner, under pressure from some shareholders to sell the U.S. shale oil and gas business it bought at the height of the oil boom, said it was “actively pursuing options to exit” the “non-core” business.

Chief Executive Andrew Mackenzie said the preference would be to sell the business through a small number of trade sales, but refused to give a timetable for quitting the business. “We certainly have plenty of people interested in taking a look,” Mackenzie said on a media call. “Our determination to exit means that we have other ways to exit that do not necessarily depend on ... a competitive set of willing buyers.”

Fund managers including Elliott Management and Tribeca have been agitating for a sale or other form of divestment, along with higher shareholder returns and the elimination of dual-structured Australia and London stock listings. Tribeca welcomed BHP's comments that the business was no longer core. “That was our approach. We didn't see it fitting strategically in BHP. We think they can realise value ahead of market expectations for the U.S. onshore business,” Tribeca analyst James Eginton said.

BHP Chairman Jac Nasser, who retires this year, recently conceded a $20 billion investment in shale six years ago was in hindsight a mistake. Analysts have suggested the business could sell for about half that today. “BHP noting that it will explore options for the potential sale of its U.S. onshore assets is something we believe investors will view positively,” said Jeremy Sussman, an analyst with Clarksons Platou Securities.

Commodity surge

BHP's underlying profit surged from $1.2 billion a year ago as it benefited from a 32 percent rise in iron ore pricing in fiscal 2017, owing to greater demand from Chinese steelmakers, which buy the bulk of its ore.

Prices for copper, oil, coal, nickel and other commodities were also up, with only liquefied natural gas weaker. “Strong momentum will be carried into the 2018 financial year, with volume growth of 7 per cent and further productivity gains expected,” Mackenzie said.

He reiterated BHP's commitment to its conventional petroleum business, saying the company sees opportunities to make a lot of money from conventional oil over at least the next couple of decades.

At the bottom line, BHP swung to an attributable profit of $5.89 billion from its record loss of $6.39 billion a year ago. In fiscal 2016, the bottom line was hit by $7.7 billion in write-downs, with Mackenzie vowing they would not be repeated in 2017.

BHP shares rose 1.3 per cent in early trade in a overall market up around 0.3 per cent.

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