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BHP examining sale of O&G assets and shift to a low-carbon industry


Today, FT reported that BHP is allegedly examining options for its oil and gas assets, including a sale. Thus, the decision comes as the miner looks to focus on commodities needed in the shift to a low-carbon economy.  

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About the decision

In fact, this decision also comes as big miners face pressure to reduce their exposure to fossil fuels and align their businesses with the goals of the Paris climate agreement. Therefore, BHP’s petroleum unit sets the company apart from its pure mining peers.

However, the UK’s biggest listed company, BHP, does have options to increase its oil output at the Scarborough gas field off Australia, and the Gulf of Mexico, and Trinidad and Tobago. Nevertheless, that would require major investments in upgrading its facilities and several environmental reclamations.

In this sense, FT noted that Mike Henry, BHP chief executive since 2000, has positively expressed oil and gas’ recent outlook. Accordingly, he has argued that the medium-term outlook for prices is attractive because of a lack of investment across the industry.

Analysts’ Outlook

However, the mining industry, as well as all other sectors, have investors increasingly focused on environmental, social, and governance issues. Thus, Tyler Broda, an analyst at RBC Capital Markets, said he could see why BHP might be contemplating an exit.

Accordingly, he said that BHP could be contemplating “a potential sale;” which indeed is consistent with Mike Henry’s previous commentary about expectations for an oil price recovery to open up options for the group’s petroleum business.”  

Similarly, Dominic O’Kane, an analyst at JP Morgan, said a petroleum exit could be a “powerful corporate catalyst.” Particularly since it would provide clarity to this long-running strategic question. And also, it could “enhance” BHP’s ESG credentials.

Thus, “we believe an exit would likely ring-fence BHP’s exceptional cash flows for non-fossil fuel organic growth, mergers and acquisitions, and generous shareholder distributions,” added O’Kane. Particularly, “since BHP could avoid a major new capital investment phase this decade in petroleum.”  

BHP on similar decisions – transitioning into a low-carbon economy

Worth noting, in 2020’s second semester, the petroleum business generated revenue of almost $1.6bn. Accordingly, analysts at Bernstein Research said the unit could be worth as much as $13bn.

In fact, since Henry took the helm in January 2000, he spoke of increasing the company’s options in “future-facing” commodities, including copper and nickel.

However, large, high-grade deposits that are easy to mine are becoming more challenging to find. Most of the world’s big miners are also looking for opportunities in those commodities. Thus, in August 2020, BHP announced plans to exit thermal coal. Besides, it said it would also dispose of its 80% share in a joint venture with Mitsui; which indeed owns two lower-quality coking coal mines in Queensland.

Accordingly, the company recently offloaded its 33.3% stake in Cerrejón, a Colombian coal mine, to Glencore for almost $300m in cash. Similarly, BHP recently put its Mount Arthur mine in New South Wales, Australia, up for sale. Hence, getting out of oil and gas would shift BHP towards being a company focused on greener raw materials.

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