BHP Billiton has reduced oil and gas spending in order to protect its balance sheet and shareholder dividends in the face of plunging commodity prices. The move had been expected after fellow US shale companies BP and Schlumberger laid off thousands of workers.
The latest in a growing list of setbacks for BHP were the reduction of rigs in US onshore business by 40 per cent and petroleum exploration spending by 20 per cent. However, analysts did not view it as a sign of its shale foray failing.
Since 2011 BHP has spent more than $US30 billion ($A32.46 billion) buying and developing shale — or unconventional oil and gas — assets, but has since worn price falls, write-downs and put its US Fayetteville asset up for sale.
BHP spent $US1.9 billion ($A2.06 billion) on US shale in the first half out of a planned $US4 billion ($A4.33 billion) for the full year and will reveal the extent of the cuts when it reports earnings results in February.
Expected exploration spending is down 20 per cent to $US600 million ($A649.18 million).
Chief executive Andrew Mackenzie suggested, if oil and gas prices did not recover, there could be more cuts in shale.
“We will keep this activity under review and make further changes if we believe deferring development will create more value than near-term production,” he said.
Current low prices are testing the financial viability of producers, even though the recent boom in the US shale production has spurred an energy revolution in the American economy.
Fat Prophets resource analyst David Lennox praised BHP’s strategy with shale.
He said they had done what they said they would: working the assets hard but now winding back because of the price falls.
“That’s the joy you have with holding assets that are going to be producing ... that internal option,” he told AAP.
Petroleum — oil and gas — was one of five commodities that BHP announced record half year production numbers for on Wednesday.
Production rose nine per cent to 131 million barrels of oil equivalent, backed by a 71 per cent increase in the US shale liquids volumes to 24.4mmboe.
In the December quarter iron ore production surprisingly declined but increased 15 per cent for the half to a record 124 million tonnes.
There were double-digit percentage price falls for oil, gas, copper, iron ore, coking and thermal coal, meaning a likely fall in first half profit and dividend pressure.
Mr Mackenzie said that was being countered by reducing costs and improving productivity.
“These improvements will help mitigate some of the impact of lower commodity prices and we remain alert to opportunities to further increase free cash flow,” he said.
Analysts told AAP BHP’s balance sheet was strong enough to maintain dividends, but if commodity prices stayed weak it would increase pressure.
RBC analyst Chris Drew said he saw copper and oil prices improving medium term while Mr Lennox was more optimistic, forecasting decent price rises in iron ore by the end of the year.
