With growing pressure to cut its fossil fuel footprint, BHP Group Ltd is increasingly expected to give a final decision on the future of its petroleum business when it announces its results next week.
There has been increasing pressure on the biggest miner of the world about when and how it would exit fossil fuels. A resolution on this topic has been filed this week for the annual general meetings in October and November by activist investor Market Forces.
Other investors of the company are also protesting the approval this month by BHP for an investment of $802 million in development expenses for oil project in the U.S. Gulf of Mexico which a followed by a new report that issues stark warnings about human contribution to climate change.
“It’s clear something is brewing,” said Simon Mawhinney, Chief Investment Officer at Allan Gray Australia.
No comments were available from BHP.
An estimate of the value of BHP’s petroleum business, that comprises of its assets in Australia, the Gulf of Mexico, Trinidad and Tobago and Algeria, as pegged at between $10 billion to $17 billion, according to analysts. About 5 per cent of the underlying earning of the company, at $14.7 billion, was accounted for by the business division in the first half to end-December whereas about 70 per cent of the earning was from iron ore.
There is however also a division among investors about the place of petroleum business in BHP’s portfolio, particularly since the company is no focused on new economy materials such as copper, nickel and potash.
Morgan Stanley analyst Rahul Anand said in a recent note, any exit of BHP from its petroleum business would constitute “a major shift” in the company’s environmental, social and governance (ESG) credentials as well as major shift in overall strategy of the firm towards fossil fuels.
With high oil and gas prices, the energy assets of the company in Australia, which are in a late life stage and mainly offer low returns are just right for a sell off.
“For BHP, if you look at its Australian (energy) assets, if they could exit those in a meaningful way for something approximating value, that would be a good outcome,” said Brenton Saunders, a portfolio manager with shareholder Pendal Group.
The value of the energy asset of BHP in Australia, including the Bass Strait, Northwest Shelf LNG and the Scarborough gas field, is between $3 billion and $5 billion, according to Credit Suisse and Citi.
Analysts say that the most logical buyer will be Woodside Petroleum Ltd as they would boost its free cash flow and increase its stakes in key projects. However there are some investors who are opposed to such a tie-up considering the asset mix and the potential need for an equity raising.
Woodside declined to comment.
Credit Suisse analyst Saul Kavonic said that since the company faces some heavy decommissioning liabilities, it would be imperative that BHP would have to give a discount on any sale of its petroleum assets in Australia
“BHP could sell these for discounts but still increase share value though a re-rating on the rest of their business,” he said.
(Adapted from EnergyWorld.com)