Shale assets

BHP Billiton (BHP) stock has gained 4.5% YTD (year-to-date) through August 31. The SPDR S&P Metals and Mining ETF (XME) has lost 7.0% YTD. Although BHP’s stock performance over the first three months of the year was negative due to weak iron ore prices, it picked up in April. Along with higher commodity prices, company-specific factors boosted its stock.

Analysts: BHP’s Earnings Estimates Could Fall in 2018 and Beyond

On July 26, BHP announced that it entered into two separate transactions to exit its US onshore oil and gas assets presence. Its US (SPY) assets include the Eagle Ford Shale, Haynesville, the Permian Basin, and Fayetteville. 

In the first transaction, BP plc (BP) is expected to acquire the Eagle Ford Shale, Haynesville, and Permian Basin assets for a total consideration of $10.5 billion, which is payable in cash. BP beat its rivals Royal Dutch Shell (RDS.A) and Chevron (CVX), which were also eyeing these assets. Analysts were happy with BHP’s exit as well as the price received for its assets.

Revenue estimates

Analysts expect BHP to generate revenues of $42.3 billion in fiscal 2019,[1. fiscal 2019 ended June 30] implying a decline of 3.2% YoY (year-over-year). In comparison, BHP’s revenues rose 14.0% YoY in fiscal 2018. Some of the lower revenues going forward can be attributed to BHP’s sale of its offshore oil and gas assets.

EBITDA estimates

In line with the fall in BHP’s revenues, its EBITDA expectations are also declining. Analysts expect BHP to generate $22.3 billion in EBITDA in fiscal 2019, implying a margin of 52.8%. Its actual margin for fiscal 2018 was 53.1%.

This value also reflects a decline of 3.7% YoY. In its fiscal 2018 results, BHP highlighted its expectations of rising costs in its oil, copper, and coal units. This could also lead to lower EBITDA going forward.

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