BHP Says Petroleum an ‘Extremely Attractive’ Business

By Angela Macdonald-Smith

Feb. 4 (Bloomberg) -- BHP Billiton Ltd., Australia’s biggest oil and gas producer, said petroleum is an “extremely attractive” business that it expects to continue to invest in even after the drop in oil prices.

“We’re obviously very, very pleased with the petroleum division’s ability to continue to grow,” Chief Executive Officer Marius Kloppers said today on a conference call. First- half earnings for the unit jumped 36 percent, mostly on higher output, Melbourne-based BHP said today in a statement.

BHP, also the world’s largest mining company, has approved more than $1 billion of investment in three oil and gas projects in the past six months as it seeks to meet a target of expanding output by at least 10 percent for the next four to five years. Crude oil traded in New York has plunged more than 70 percent since reaching a record $147.27 a barrel in July.

“Their margins in petroleum are still quite strong; it was one of the bright spots” in the half, said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management in Sydney. “I don’t think their view on petroleum would be altered to any degree by circumstances in the market. If you look forward, oil is one commodity where there’s probably more prospect than any other of some sort of price improvement in the near term.”

BHP gained as much as 67 cents, or 2.3 percent, to A$30.45 on the Australian stock exchange and was at $30.25, up 1.6 percent, at 1:03 p.m. Sydney time. The gain compared with a slide of 0.6 percent in the exchange’s benchmark index.

Budget Cut

Crude for March delivery was at $41.04 a barrel on the New York Mercantile Exchange at 1:23 p.m. Sydney time. Prices may rise to average $70 a barrel in the fourth quarter, according to the median of 33 analyst estimates compiled by Bloomberg.

BHP still expects to reduce spending on petroleum exploration this business year by as much as 14 percent. The budget has been cut to between $600 million and $700 million in the year ending June 30, from $700 million, Chief Financial Officer Alex Vanselow said.

Total costs for BHP’s production are expected to be less than $20 a barrel, Kloppers said.

“If you take that total figure and you take even today’s petroleum price you can see that it’s an extremely attractive business with high margins, given the portfolio that we’ve got,” Kloppers said.

BHP and Exxon Mobil Corp. are “aggressively pursuing” options for the development of their Scarborough gas field off northwest Australia to supply liquefied natural gas, said J. Michael Yeager, chief executive of the petroleum unit. The field is the largest single discovery in BHP’s portfolio.

‘Very Optimistic’

The resources producer is “very optimistic about bringing that forward and actively working it,” Yeager said.

Investments approved in the past six months include $625 million for the Turrum gas project off Australia’s southeast coast, $245 million for an upgrade of the North West Shelf venture’s Cossack oil project and $180 million for an expansion of the Angostura gas project in Trinidad. BHP is also developing the Shenzi and Atlantic North projects in the Gulf of Mexico, and the Pyrenees and Kipper ventures in Australia.

Almost all of BHP’s projects under development “would have been sanctioned with industry long-run prices probably at the level of the spot price today,” Kloppers said.

First-half earnings before interest and tax in petroleum rose to $2.7 billion, partly due to gains in average received prices. Average liquefied natural gas prices jumped 65 percent to $12.82 per thousand cubic feet, while gas prices rose 16 percent to $3.97 and crude oil prices advanced 5 percent to $85.22 a barrel. Output advanced 12 percent to 68 million barrels of oil equivalent.

“One of the big, powerful drivers of BHP from time to time, and we think it will be in future, is its oil division,” said Peter Arden, senior research analyst at Ord Minnett Ltd. in Melbourne.

Total petroleum production costs comprise cash costs plus depletion, depreciation and amortization charges, Kloppers said.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net