BHP CEO Tells Investors Options for U.S. Shale Under Review (1)

(Bloomberg) -- BHP Billiton Ltd. is assuring shareholders that it’s exploring numerous options for its contentious U.S. shale unit amid pressure from activist investor Elliott Management Corp. to carry out a wider review of petroleum operations.

In a series of meetings in Australia last week, Chief Executive Officer Andrew Mackenzie stressed to shareholders that the biggest mining company is open to selling parts of the onshore portfolio. Billionaire Paul Singer’s Elliott wants an independent review of BHP’s oil unit and claims the miner has destroyed about $31 billion in value through its foray into U.S. shale and failed petroleum exploration.

Mackenzie’s message to investors on shale is “they want to try and extract maximum value out of the business and there’s a lot of different options,” said Andy Forster, a Sydney-based senior investment officer at Argo Investments Ltd., which owns BHP shares, and who attended a meeting. “They still seem pretty wedded to the rest of the petroleum business.”

BHP declined to comment on details of talks between Mackenzie and shareholders. The producer said in an emailed statement this month the executive was scheduled to hold investor talks to outline the Melbourne-based company’s growth plans.

“They want to be seen as being pro-active” on addressing the future of the shale unit, “but don’t want to be seen as being reactionary to Elliott,” Argo’s Forster said by phone.

BHP fell 0.7 percent to close at A$23.84 in Sydney, the lowest level in two weeks, as its biggest revenue generator iron ore declined. The stock has lost 4.9 percent this year.

Corporate Overhaul

Elliott, which has made two sets of proposals for a corporate overhaul of BHP since April, claims to have found a “groundswell of dissatisfaction” in talks over recent weeks with investors holding tens of billions of dollars of the company’s shares. The fund and its associates hold an interest in about 4.1 percent of BHP’s London-listed shares, Elliott said in an April 10 statement.

Any piecemeal sales of shale operations in Texas, Arkansas and Louisiana risk being the “commercial equivalent of death by a thousand cuts,” Elliott, which favors a spin off of all U.S. oil assets, warned in a May 16 presentation. The shale unit is worth about $6.3 billion, according to Deutsche Bank AG.

Pressure from Elliott may have provided an impetus to BHP to publicly address the future shale operations, says Aberdeen Asset Management Plc, the second-largest holder of BHP’s London-listed shares, according to data compiled by Bloomberg.

“It sounds like they’re getting on with reviewing shale gas,” Robert Penaloza, Aberdeen’s head of Australian equities, said by phone from Sydney. “For all the issues that Elliott’s brought up, maybe it’s just made it more urgent for BHP to get on with these things.”

Since acquiring the U.S. onshore assets in about $20 billion of deals earlier this decade, BHP has written off more than half their value and acknowledged this month the deals were poorly timed and too expensive. BHP said in April it is seeking to sell parts of a Texas gas field and considering an exit from the Fayetteville shale gas assets in Arkansas.

Mackenzie raised the prospect of further sales of shale assets in a May 16 speech in Barcelona, flagging the company’s transition to focus more closely on conventional petroleum.

(Updates to add shares in sixth paragraph.)

--With assistance from Jasmine Ng

To contact the reporter on this story: David Stringer in Melbourne at dstringer3@bloomberg.net.

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net, Keith Gosman

©2017 Bloomberg L.P.