While iron ore has been the key focus in each of BHP Billiton Limited's (ASX: BHP) operational reviews in recent memory, its oil division is attracting far more interest today after the miner released its first-half production numbers.
In the half, group production across BHP Billiton rose by 9%. The miner said it was on track to deliver overall production growth of 16% over the two years to the end of the 2015 financial year.
Oil
Indeed, the speed and intensity at which the oil price has fallen has taken global equity markets by surprise so BHP's decision on how to respond was always going to be the focal point. In a move that the market welcomed, sending the shares nearly 2.2% higher, BHP Billiton announced it would cut its oil production next financial year in response to the oil crisis, while it would also slash its exploration budget by 20%.
In its review, BHP Billiton's CEO Andrew Mackenzie said: "We have moved quickly in response to lower prices and will reduce the number of rigs we operate in our Onshore US business by approximately 40 per cent by the end of the 2015 financial year (FY15)." That is, it will cut its current fleet of 26 drill rigs operating in the fields to 16 by the end of 2014-15.
As it stands, those cuts are not expected to change the company's production guidance of 255 million barrels of oil equivalent (MMboe) in FY15, although no guidance was given on how it could impact next year's production. While further changes could be necessary in the foreseeable future, the miner will remain focused on its liquids-rich Black Hawk acreage (located in Texas).
Over the half, the company recorded a 9% increase in petroleum production to a record 131 MMboe, which it said was supported by a 71% increase in Onshore US liquids volumes to 24.4 MMboe.
Iron Ore
Across the second quarter, BHP Billiton produced 56.35 million tonnes of the steelmaking ingredient – a 16% increase on the previous corresponding period – taking its total for the half-year to 113.44 million tonnes. BHP Billiton's iron ore production rose 16% to 113.44 million tonnes
The miner maintained its guidance of 225 million tonnes for the financial year with iron ore prices remaining depressed at around US$68.16 per tonne, according to the Metal Bulletin Ltd.
Impairments
Due to the severity of the oil glut, many investors had expected BHP Billiton to flag significant write-downs — a situation many energy companies including Woodside Petroleum Limited (ASX: WPL) currently find themselves in. While BHP Billiton announced up to US$600 million worth of impairment charges, they did not relate to the sliding oil price.
Rather, it announced up to US$250 million of after-tax impairments as a result of the sale of US conventional and unconventional assets, while it also announced up to US$350 million of impairments as it was unable to sell its Nickel West business.
Should you buy?
Given its high level of diversity and low cost operations, BHP Billiton is perhaps the safest bet amongst Australia's mining stocks. However, even its diversity isn't helping the stock at the moment with BHP's four primary commodities (iron ore, coal, oil and copper) trading at multi-year lows.
Although BHP's shares might look tempting at their current price of $28.08, investors ought to wait for the volatility in the sector to subside. Those who remain patient could soon be presented with an even more compelling share price and indeed, an even more compelling dividend yield (currently estimated at 5.4% fully franked).
