PERTH (miningweekly.com) – Mining major BHP has heeded investors’ calls to exit its shale gas business, announcing on Tuesday that it would sell the US onshore assets that it had bought for $20-billion five years ago.

BHP, which has come under pressure from activist shareholders over its US shale investment, said it had determined that the onshore US assets were noncore to its operations and that it was “actively pursuing options” to exit these assets.

“We will be flexible in our plans and commercial in our approach. We are examining multiple alternatives, but will only divest for value,” the company told shareholders.

The execution of these options could take time, which BHP said it would use to complete well trials, acreage swaps and investigate mid-stream solutions to increase value, profitabiltiy and marketability of the onshore US acreage.

BHP made the US shale exit announcement on Tuesday, after reporting a large jump in profit for the 2017 financial year to the end of June.

Profit from operations reached $11.7-billion, compared with a loss of $6.23-billion in 2016, while attributable profit rose to $5.8-billion, compared with an attributable loss of $6.3-billion in the previous financial year. Revenue rose by 24% to $38.2-billion.

BHP stated that the increase in profit resulted from higher revenue, driven by favourable realised price movements across all key commodities, as well as lower expenses, primarily owing to impairments recognised on the onshore US assets, and the initial recognition of the Samarco dam failure provision in the 2016 financial year.

The miner said that the 2017 financial year exceptional loss of $763-million related to the Samarco dam failure in Brazil, Escondida industrial action and Chilean withholding tax paid at a concessional rate. This was partially offset by the reimbursement received on cancellation of the Caroona exploration licence.

The 2016 financial year’s exceptional loss, in contrast, related to the impairment of the company’s onshore US assets, the Samarco dam failure and global taxation matters.

Group underlying earnings before interest, taxes, deprecation and amortisation rose from the $12.3-billion reported in 2016 to $20.2-billion, with higher prices, operating cash cost improvements, as well as other net movements offsetting the impact of unfavourable exchange rate movements, inflation and one-off items.

“We had a very strong financial year. Free cash flow was $12.6-billion, our second highest on record. We used this cash to reduce net debt by nearly $10-billion and return $4.4-billion to shareholders,” said BHP CEO Andrew Mackenzie.

“Productivity gains across our simpler portfolio of tier-one assets increased our return to capital to 10%,” he added.

Productivity gains of some $1.2-billion were achieved over the 2017 financial year, with more than $12-billion accumulated over the last five years. Mackenzie noted that the company expected to deliver a further $2-billion in productivity gains by the end of the 2019 financial year, with the gains weighted to the second year.

“This strong momentum will be carried into the 2018 financial year, with volume growth of 7% and further productivity gains expected. Our relentless focus on cash flow, capital discipline and value creation should allow us to significantly increase our return on capital by the 2022 financial year,” Mackenzie said.

CAPITAL ALLOCATION
Meanwhile, outgoing chairperson Jac Nasser noted that BHP’s capital allocation framework would provide flexibility at the bottom of the cycle, and discipline at the top.

“We have shifted our focus to low-cost, high-return latent capacity projects which has allowed us to reduce capital expenditure by over 70%.”

Capital and exploration expenditure during 2017 reduced by 32%, to $5.2-billion, as the company focused on capital efficient latent capacity projects, and exercised flexibility in its onshore US plans.

For 2018, capital expenditure (capex) is set to increase to $6.9-billion, as the miner progressed its Mad Dog Phase 2 work, in the US, as well as the Spence growth option, in Chile, and ramps up drilling at its onshore US assets.

The miner expected capex to remain below $8-billion for both the 2019 and 2020 financial years.

Meanwhile, newswire Reuters reports that BHP will not be seeking approval for its Jansen potash project, in Canada in the 2018 calendar year, owing to uncertain timing on the need for the commodity.

BHP recently named Ken MacKenzie as its new chairperson. He will succeed Nasser in September.