Shares in Anglo-Australian mining giant BHP (BHP) were weaker in line with other commodity stocks following weaker than expected Chinese data, despite the surprise news that it is considering several options for its petroleum operations. By midday the stock was 1.8% lower at £22.81.
Responding to press speculation over the future of the business and pressure from investors to dispose of its energy assets, the firm was remarkably candid in its reply.
According to the press release, ‘A number of options are being evaluated. One option is a potential merger of the Petroleum business with Woodside Petroleum Ltd and a distribution of Woodside shares to BHP shareholders. While discussions between the parties are currently progressing, no agreement has been reached on any such transaction.’
MAJOR SHIFT
In the year to June, BHP produced 102 million barrels of oil equivalent (boe), a 6% reduction compared with the year to June 2020 as global energy demand dipped during the pandemic.
It had forecast a similar level of production for the current year, give or take a couple of million units, and earlier this month it gave the green light on an $800 million project in the Gulf of Mexico, therefore exiting the oil business would be a major strategic shift.
However, considering the latest report from the Intergovernmental Panel on Climate Change - which blamed fossil fuels for pushing CO2 levels to the highest level in two million years, increasing the incidence of extreme weather events - pressure is growing on the firm to wind down or sell off its energy assets.
EXPLORING ITS OPTIONS
BHP has acknowledged investor concerns and has agreed to a motion by activist firm Market Forces to detail its capital allocation plans for its fossil fuel assets at the next shareholder meeting, together with guidance on how much it would cost to decommission and rehabilitate the production sites.
Analysts estimate the value of the petroleum assets to be somewhere between $10 billion and $17 billion. Selling or disposing of the Australian assets, which are mainly late-life and low-return, would make sense now with oil and gas prices at attractive levels.
Similarly, Australian firm Woodside would be a logical owner commercially and strategically as it is well placed to make the necessary investment in the Australian assets.
However, the most valuable assets are the firm’s stakes in fields in the Gulf of Mexico, which make up about a quarter of production and are reckoned by some analysts to be worth up to $10 billion.
