BHP bets big on the U.S.

Speaking at the company’s second day of its petroleum division briefing to investors in Houston, Tim Cutt, head of BHP Billiton’s (ASX: BHP) petroleum division, announced that the miner plans to continue to invest heavily in the division in order to expand its oil and gas production over the next four years.

Whilst the amount is subject to market conditions and capital allocation priorities within the group, BHP currently plans to invest around $5.5 billion per year, stating that, “Onshore US (unconventional gas and liquids) is well positioned to become another major cash flow generator for BHP Billiton.” Given that the offshore component has been the “foundation of (the company’s) petroleum business for decades”, this should come as good news to investors.

There was also a surprising amount of optimism emerging from the briefing regarding the miner’s future prospects on the tiny Caribbean island of Trinidad. The miner declared that the region holds “significant potential” to stand as another ‘core region’ for the company. Whilst there are hopes that drilling could begin by 2016, a seismic survey is planned to be conducted over 17,000 square kilometres over the coming year to establish its potential.

The company confirmed that it is expecting to produce 250 million barrels of oil equivalent for the year ending June 2014, whilst that figure will grow to 310 million barrels by the end of fiscal 2017. Mr Cutt stated that the company’s onshore US business was forecast to become self-funding in fiscal 2016 and should be generating $3 billion of free cash flow in 2020.

Meanwhile, the miner recognises that there was plenty of room for productivity improvement in the shale business, and an increase in productivity and a reduction in costs would likely spur profitability higher.

In early trading on Wednesday, BHP’s shares have fallen nearly 2% whilst fellow miners Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) have dropped 1.4% and 1.8%, respectively.


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

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