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

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Part 2
BHP Billiton: Should We Expect More Value after Fiscal 2017 Results? PART 2 OF 10

BHP Billiton Is Looking to Sell Its US Shale Business

Exiting its US shale business

In its fiscal 2017 earnings call, BHP Billiton (BHP) classified its onshore US shale assets as non-core and mentioned that it’s actively looking to exit this business for value. That’s widely seen as a result of activist investors, especially Elliott Management, pressuring the company to exit this business.

BHP Billiton Is Looking to Sell Its US Shale Business

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It’s worth noting that Elliott has also suggested the following two changes:

  • collapse the company’s dual-listing structure
  • return more capital to BHP shareholders

Missteps relating to shale assets

BHP’s outgoing chair, Jacques Nasser, has conceded that, in hindsight, a $20.0 billion investment in shale assets made at the peak of the cycle was a mistake. These assets have been written down many times since then to reflect weaker energy prices (USO). Energy peers (XLE) ConocoPhillips (COP), ExxonMobil (XOM), Chevron (CVX), and Pioneer Natural Resources (PXD) have also been negatively impacted by weaker energy prices.

BHP’s CEO (chief executive officer) Andrew Mackenzie mentioned during the fiscal 2017 earnings call that the company had acquired these assets with an intent to become an industry leader in shale and replicate this success around the world. However, he said that two years ago, it became clear that such opportunities to replicate do not exist. This, along with a regular portfolio review, resulted in the conclusion that these shale assets are non-core.

Exit options

The company is now pursuing options to exit this business. The four options highlighted by BHP are as follows:

  • trade sale
  • asset swap
  • demerger
  • initial public offering

However, BHP maintained that the company will be disciplined and try to maximize the acreage value through larger completions, acreage consolidation, and midstream solutions in the Permian Basin.

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