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BHP exits oil exploration in the Philippines

With the goal of “simplification and a sharper strategic focus” under new management, mining heavyweight BHP Billiton (ASX: BHP) has ditched plans to drill for oil and gas in the Philippines. The news comes just weeks after the miner exited most of its Indian petroleum assets.

Like others in the industry, including BHP’s primary competitor Rio Tinto (ASX: RIO), BHP has been focused on scrapping non-core assets in an effort to reduce costs and increase shareholder returns. For instance, the company currently has what is estimated to be $5 billion worth of non-core petroleum assets up for sale.

After having determined that the exploration program in the Philippines was “not a strategic fit”, Deutsche Bank resources analyst Paul Young believes that BHP will focus on larger prospects in the Gulf of Mexico and off northern Brazil that could potentially “move the needle” for the company. He said, “It’s more about focusing on the higher probability prospects or most prospective targets.”

Whilst BHP was set to partner Otto Energy (ASX: OEL) to drill a deep-water well in the Palawan Basin, the junior explorer’s shares plunged 29% yesterday following the news.

Foolish takeaway

The outlook for the miners is certainly more appealing now than it was a few months ago with demand for commodities in China remaining strong, however, there are still enormous risks and volatility facing the sector. As such, for investors looking for a safer company to add to their portfolio, the miners might not be the way to go.

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

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