BHP offloads Texas shale sites

Despite stating that it is “pleased with our overall evaluation program of the Permian Basin”, mining heavyweight BHP Billiton (ASX: BHP) is shedding its shale acreage holdings in the area, located in Texas.

The move has raised speculation that the miner’s ambitions at the Permian Basin may no longer be as high as they were. The company had initially suggested the site could be capable of producing 100,000 barrels of oil per day.

However, the company quashed these claims, stating that “The drilling program has now defined our primary area of focus in the basin and, while this program is at a relatively early stage, we see the potential to build a sizeable business”, as quoted by The Australian.

Over the last quarter, BHP’s active drilling rigs fell from 40 to 27. This means that capital expenditure will fall in the area too, as the miner averts its focus towards the acreage holding the most immediate interest. This is consistent with the strategy of other miners including Rio Tinto (ASX: RIO) and Fortescue (ASX: FMG), which are also divesting from non-core assets and reducing capital spending.

Foolish Takeaway

Although the miners are strengthening their balance sheets and heavily reducing costs and capital expenditure, the headwinds and risks facing the sector still outweigh the potential benefits to be realised. As such, it would be wise to wait for a more attractive entry point before buying shares.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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