By Dow Jones Business News,
December 10, 2013, 02:27:00 PM EDT
(this provides additional background and comments from BHP's Petroleum CEO)
By Alex MacDonald
LONDON--BHP Billiton Ltd. ( BHP ) plans to invest about $5.5 billion annually to maintain and expand its oil and gas
production over the next four years, making the petroleum division a cash cow for the group, said the division's chief
"The conventional [oil and gas] business and particularly the offshore component has been the foundation of our
petroleum business for decades," Tim Cutt, head of BHP's petroleum division told analysts at a presentation in Houston,
Texas on Tuesday. "Onshore U.S. [unconventional gas and liquids] is well positioned to become another major cash flow
generator for BHP Billiton," he added.
BHP's Petroleum division, which accounted for nearly a quarter of the company's underlying profit last financial year,
is the group's second most profitable division after iron ore. In 2011 the company spent about $17 billion to acquire
U.S. shale-gas assets that would give it a toehold in the fast-growing shale gas market.
The company confirmed that it's on track to produce 250 million barrels of oil equivalent in the current financial
year ending June 2014. This will grow to around 310 million barrels of oil equivalent by the end of fiscal 2017, buoyed
by strong growth in onshore U.S. unconventional oil and gas production, based on a BHP petroleum presentation on its
While the company plans to spend about $1.5 billion annually to maintain its conventional oil and gas production at
around 140 million boe by the financial year 2017, it plans to invest about $4 billion annually to grow its U.S. on
shore oil and gas production to more than 170 million boe over the same period based on its current scenario planning
highlighted in the presentation. This may change, subject to market conditions and capital allocation priorities within
the group, the company noted.
Mr. Cutt said BHP will maintain its conventional oil and gas production steady by investing in low-risk brownfield
projects in the U.S. and Australia, where its assets are predominantly concentrated. BHP has identified individual oil
and gas wells for investment that can deliver returns of over 90%, he added.
Meanwhile, in its onshore U.S. business, the company will continue to prioritize investment in liquids because of the
favorable economics over dry gas production at the moment, said Mr. Cutt. He noted that the U.S. onshore business is
forecast to become self-funding in fiscal 2016 before generating almost $3 billion of free cash flow in 2020.
Mr. Cutt said the company intends to focus on value and has identified several areas to cut costs and drive
productivity in its business, particularly shale gas.
"It is quite possible that across the entire group the largest productivity opportunities can be found right here in
the shale business," said Mr. Cutt. "This is a business that looks a lot like a manufacturing operation where
repetition, efficiency and advancements in technology characterise best practice."
Looking ahead, the company will continue to simplify its portfolio by focusing future investments in the company's
current areas of Australia, US, and potentially Trinidad and Tobago, Mr. Cutt said.
Write to Alex MacDonald at firstname.lastname@example.org
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