Drumbeat gets stronger for BHP to quit oil

MELBOURNE, Aug. 13 (Reuters) – BHP Group Ltd (BHP.AX) (BHPB.L) is increasingly expected to deliver a verdict on the future of its oil business in its results next week , as it comes under increasing pressure to reduce its fossil fuel footprint.

The world’s largest miner has faced calls to detail how and when it will phase out fossil fuels, with activist investor Market Forces tabling a resolution on the matter this week for annual meetings in October and November. Read more

BHP’s decision this month to approve $ 802 million in development spending for oil projects in the Gulf of Mexico in the United States – just days before a new report that issued dire warnings about the contribution human rights to climate change – has only increased pressure from some investors.

“It is clear that something is brewing,” said Simon Mawhinney, chief investment officer at Allan Gray Australia.

BHP declined to comment on market speculation.

Analysts put BHP’s oil business, made up of assets in Australia, the Gulf of Mexico, Trinidad and Tobago and Algeria, at between $ 10 billion and $ 17 billion. The division contributed 5% of BHP’s operating profit of $ 14.7 billion in the first half to end-December, compared to 70% for iron ore.

Investors are divided on their suitability for BHP’s portfolio, especially as the company focuses on new economy materials such as copper, nickel and potash.

An exit from oil would constitute “a major shift” in BHP’s environmental, social and governance (ESG) credentials and in its overall strategy towards fossil fuels, Morgan Stanley analyst Rahul Anand said in a recent memo.

AUSTRALIA AND THE REST

BHP’s end-of-life energy assets, predominantly low yielding in Australia, are considered particularly ripe for sale amid high oil and gas prices.

“For BHP, if you look at its Australian (energy) assets, if they could significantly exit them for something approximate in value, that would be a good result,” said Brenton Saunders, portfolio manager at the shareholder Pendal Group.

Credit Suisse and Citi value Australian energy assets – including the Bass Strait, Northwest Shelf LNG and the Scarborough gas field – between $ 3 billion and $ 5 billion.

Woodside Petroleum Ltd (WPL.AX) is considered the most logical buyer as it would increase its free cash flow and increase its stakes in key projects, although not all investors are in favor of such a combination given the the composition of the assets and the probable need for capital raising.

Woodside declined to comment.

BHP is also expected to accept a discount on any sale due to heavy scrapping obligations, Credit Suisse analyst Saul Kavonic said, although a sale could improve its ESG rating and attract new shareholders.

“BHP could sell them at a discount but increase the value of the stock while reassessing the rest of its business,” he said.

Elsewhere, investors say BHP’s oil assets are more attractive.

Most valuable are its holdings in the Gulf of Mexico oil fields, valued at $ 10.4 billion by Wood Mackenzie, which represented about 25% of the 103 million barrels of oil equivalent produced by the company until June 2021. .

“The rest of the portfolio, there are parts that are high growth, high yield. They’ve done a lot of work on it and the shareholders have had to endure some of the bad times. These are good assets,” Saunders said of Pendal Group. .

BHP is due to release its annual results Tuesday at 07:00 GMT.

Reporting by Melanie Burton and Sonali Paul; edited by Richard Pullin

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