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BHP Billiton: Should We Expect More Value after Fiscal 2017 Results?

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Part 7
BHP Billiton: Should We Expect More Value after Fiscal 2017 Results? PART 7 OF 10

Why BHP Billiton Expects Higher Petroleum Costs in Fiscal 2018

Petroleum division

To understand the profitability for BHP Billiton’s (BHP) (BBL) petroleum division, it’s important to look at the unit costs for petroleum. It’s also vital to look at the company’s outlook for its costs going forward. In this part of the series, we’ll see how BHP is progressing on the cost front in its petroleum division.

Why BHP Billiton Expects Higher Petroleum Costs in Fiscal 2018

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Deferral leading to lower production

Production for BHP’s petroleum segment fell 13.0% year-over-year to 208.0 MMboe (million barrels of oil equivalent) in fiscal 2017. The fall was mainly due to the deferral of development activities in US Onshore and the natural field decline in conventional oil. BHP expects its petroleum production to fall between 180.0 MMboe and 190.0 MMboe further in fiscal 2018. That’s 119.0 MMboe to 123.0 MMboe conventional volumes and 61.0 MMboe to 67.0 MMboe Onshore US volumes. However, the company expects the expanded rig program to deliver Onshore US production volume growth of 35.0% in fiscal 2019.

Costs to increase

BHP’s conventional unit costs rose 2.0% to $8.82 per barrel due to lower volumes. The unit costs for fiscal 2018 are expected to be even higher at $10 per barrel due to the impact of lower volumes, which will be partially offset by productivity improvements.

While commenting on crude oil prices (USO), BHP mentioned that the prices trended higher in fiscal 2017. However, rising inventories, increasing production from OPEC (Organization of the Petroleum Exporting Countries), and rising US output has recently started weighing negatively on prices. BHP is expecting a balanced market in the near term. The company is positive about the long-term outlook for prices, driven by a rising demand from developing countries and a natural field decline.

For now, however, firmer prices seem positive for BHP’s petroleum division. The prices are also positively affecting other oil companies (XLE), including ExxonMobil (XOM), Chevron (CVX), and ConocoPhillips (COP).

In the next part, we’ll take a look at BHP’s balance sheet.

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