BHP sees crude shortage next year and need for new sources
Speaking to investors Wednesday, BHP’s petroleum president Steve Pastor said a crude shortage is likely to emerge next year, adding that company’s substantial oil business, which includes shale deposits in the US, was well placed to supply the world’s ongoing demand for related products.
Press release and 3 key presentation slides are below,
Date 5 October 2016
Location London, United Kingdom
RICH SET OF OPPORTUNITIES TO DRIVE VALUABLE GROWTH
BHP Billiton today outlined the broad range of opportunities within its Petroleum
business to grow value, returns and cash flow as markets improve.
Speaking at an investor briefing in London, BHP Billiton President Operations
Petroleum, Steve Pastor said “Having both minerals and petroleum in our portfolio
allows us to maximise the value of our petroleum assets at the right point in the
“While currently well supplied, underlying fundamentals suggest both oil and gas
markets are improving more quickly than our minerals commodities.”
“Over the next decade, demand growth, natural field decline and the effects of
industry wide investment deferrals are expected to create a significant opportunity to
invest and maximize value in oil. By 2025 the world is expected to consume more
than 100 million barrels of liquids per day – a third of which would come from new
“We are well placed to capitalise on this opportunity. We have a large, high quality
resource base. Our focus on productivity has significantly reduced both operating and
capital costs, supporting a range of shale and conventional investment opportunities
that would generate compelling returns at today’s prices. As a result, Petroleum is
well placed to maintain its position as BHP Billiton’s highest margin business and to
grow its free cash flow contribution.”
BHP Billiton runs its Onshore US assets to maximise value rather than volumes and
will continue to adjust its investment plans to reflect market conditions.
“Our Onshore US business gives us valuable flexibility. Our shale assets generate
cash at current prices, with significant upside should oil and gas prices recover as we
expect,” Mr Pastor said.
“We operate in the heart of some of the best shale plays and by further reducing
costs and improving capital efficiency to levels among the best in the industry, we
have increased our investible well inventory. As a result, we now have up to 1,200
undrilled net oil wells, contingent upon trials in the Eagle Ford, and 220 undrilled net
gas wells that generate a minimum 15 per cent internal rate of return (IRR) at US$50
per barrel of oil and US$3 per MMbtu.
“In the Permian, we have access to over one billion barrels of oil equivalent (boe)
meaning this field has the potential to become the largest production and free cash
contributor in our Petroleum portfolio within five years.”
In Conventional, BHP Billiton is expecting unit operating costs to remain at
approximately US$10 per boe over the 2017 and 2018 financial years as it pursues a
number of options to extend high margin production from its existing facilities.
“We have a rich portfolio of brownfield project options, with total capital expenditure
of US$2.5 billion and an average IRR of 45 per cent that will help offset field decline.
With significant improvements in capital efficiency, major capital projects like Mad
Dog 2 are now economically attractive, even below US$50 per barrel of oil,” Mr
BHP Billiton today also announced positive drilling results at the Caicos exploration
well in the Gulf of Mexico. Located in Green Canyon 564, this well is approximately
100 miles south of the Louisiana coast in the deep water Gulf of Mexico. Caicos was
drilled to a total depth of 30,803 feet and encountered oil in multiple horizons.
“We are encouraged by the Caicos results and are moving to further appraise the
area. The next step will be drilling the Wildling well in November. With success at
Caicos and Shenzi North, we continue to be optimistic around the opportunity for a
commercial development in the area.”