Photo by: Bloomberg
PERTH (miningweekly.com) – Diversified miner BHP on Monday told investors in Sydney that its petroleum portfolio would deliver "strong returns and contribute significant value" to the company, over the next several decades.
BHP’s president for operations: petroleum, Geraldine Slattery, said that sanctioned and well-advanced projects, which are expected to start production in the 2021 financial year, would replace field decline from legacy assets in Australia.
“We have a pipeline of competitive growth opportunities, with average rates of return of around 25%.
“With our existing assets, these position us to deliver an average return on capital employment (ROCE) of greater than 15% through the next decade,” Slattery said.
“Over the past five years, petroleum has had the highest margins in the group, at over 65%, and an average ROCE of approximately 15%.
“We take great pride in this performance, but also recognise the need to focus on the longer term outlook as production from our legacy assets declines over the coming decade.
“Maintaining our performance relies on us delivering on our current growth projects, and in advancing further growth opportunities from recent exploration success,” she said.
Included among BHP’s production pipeline is the Scarborough project, in Australia, in which the miner holds a 26.5% interest. A final investment decision on Scarborough is expected next year, with potential first production planned for 2024.
First oil from the Atlantis Phase 3 project, in the Gulf of Mexico, is also expected in the 2020 calendar year, with development planning already under way for a number of further growth projects in the region, including subsea pumping and further infill wells.
A final investment decision on the Wildling Phase 1 project, also in the Gulf of Mexico, is expected in early 2021, with first potential oil slated for early 2022.
Furthermore, BHP is also busy developing Mexico’s first deep-water development at Trion, with project sanction possible from the 2022 financial year, and earliest oil expected from 2025.
Slattery said petroleum could potentially generate robust earnings before interest, taxes, depreciation and amortization margins of more than 60% and an average ROCE of more than 15% over the next decade, while delivering average internal rates of return of around 25% for major projects, which are resilient through cycles.
Furthermore, the commodity could also support an average annual volume growth of up to 3% between the 2020 and 2030 financial years.
“Our portfolio of quality assets and pipeline of competitive growth options are expected to generate strong free cash flow and returns through the 2020s and beyond,” Slattery said.
BHP’s petroleum division’s growth options currently include Scarborough, Wildling Phase I, Trion and Trinidad & Tobago North. Slattery said that while these remain subject to BHP’s strict capital allocation framework, they were well placed to compete with other options in the group’s portfolio.
“Our capabilities in safety, exploration and deep-water operations, coupled with a high-performance culture give us confidence that we can deliver on our plans into the future,” she said.
BHP currently holds some 3.2-billion barrels oil equivalent in resources, with the miner continuously adding through exploration or acquisition.
Slattery said that the petroleum portfolio would require an average capital expenditure of about $4-billion a year between 2023 and 2025, inclusive of exploration expenditure.