Drumbeat grows louder for BHP to exit petroleum

Expectations are rising that BHP Group Ltd will deliver a verdict on the future of its petroleum business next week, as it comes under increasing pressure from cuts. Its fossil fuel footprint.

The world's largest miner is facing calls to divulge details of how and when it will run out of fossil fuels, with the active investor Market Force this week holding a meeting on the topic for annual meetings in October and November. Proposal filed.

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BHP's decision this month to approve $802 million in development spending on oil projects in the US Gulf of Mexico – days before a new report that issued a dire warning about human contributions to climate change – has attracted only a few investors. pressure has increased.

"It's clear something is brewing," said Simon Mavini, chief investment officer at Alan Gray Australia. BHP declined to comment on market speculation.

Analysts value BHP's petroleum business at $10 billion to $17 billion, made up of assets in Australia, the Gulf of Mexico, Trinidad and Tobago and Algeria. The division contributed 5 per cent of BHP's $14.7 billion of underlying earnings in the first half to the end of December, compared to 70 per cent for iron ore.

Investors are divided on its fit to BHP's portfolio, especially as the company focuses on new economy materials like copper, nickel and potash. Morgan Stanley analyst Rahul Anand said in a recent note that the exit from petroleum would result in "a major shift" in BHP's environmental, social and governance (ESG) credentials and overall strategy for fossil fuels.

BHP's late-life, low-return energy assets in Australia are considered particularly ripe for sale amid high oil and gas prices.

Brenton Saunders, a portfolio manager at Pendle Group, said, "For BHP, if you look at its Australian (energy) assets, if they can exit in a meaningful way for some predictable value, that would be a good result. "

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

Woodside Petroleum Limited is seen as the most logical buyer as they will boost its free cash flow and increase its stake in major projects, although not all investors support such an alliance, as Asset mix and potentially require one. Equity raising.

Woodside declined to comment.

Credit Suisse analyst Saul Kavonic said BHP would have to discount any sales given some of the heavy decommissioning liabilities, although a sale could boost its ESG rating and attract new shareholders.

"BHP can sell these for a discount but still increase the share price even though the rest of their business is re-rated," he said.

Elsewhere, investors say BHP's petroleum assets are more attractive.

The most valuable are its stakes in oil fields in the Gulf of Mexico, valued at $10.4 billion by Wood Mackenzie, which made up about 25 per cent of the company's 103 million barrels of oil equivalent output as of June 2021.

"The rest of the portfolio, there are parts that are high-growth, high-returning. They've done a lot of work on them and shareholders have gone through some bad times. They're good assets," said Saunders of Pendle Group.

BHP is due to announce its annual results on Tuesday at 0700 GMT.