World's Biggest Mining Firm Prepares to Exit Shale Market

BHP, the world’s largest miner, has asked four investment banks to help prepare for either a sale or spinoff of its underperforming US shale oil and gas unit, with a view to taking a decision in early 2018, sources said.

The miner said in August it aimed to sell its unconventional onshore shale assets in the Eagle Ford, Permian, Haynesville and Fayetteville basins, which it acquired at the height of the oil boom and could be valued at more than $10 billion, Reuters reported.

It has hired Barclays and Bank of America-Merrill Lynch to assess options for the sale of assets, including whether they would be sold together or separately, as they may appeal to different potential buyers, the sources said. It has also asked Citi and Goldman Sachs to research the potential spinoff of the unit into a new company, the sources added.

Although global oil prices have steadied after sinking to multi-year lows of $27 a barrel in 2016, they remain some 40% lower than the $112 highs hit in 2014.

The company is now pursuing two potential exits: a sale of the assets or separation into a standalone company, which is usually a tax-free solution for the parent company.

BHP will keep its conventional assets in the US Gulf of Mexico, Australia and Trinidad and Tobago.

The miner’s entire petroleum division, valued at more than $20 billion, was its second-biggest earner behind iron ore until 2014.

But bad bets on US shale and collapsing oil and gas prices turned it into a big drag from 2015. As a result, US activist investor Elliott Advisors, which has built up a 5% stake in BHP’s London-listed arm, urged the sale of the whole US petroleum business to help boost shareholder value.

Hurt by the oil pain plus the woes from a dam disaster in Brazil in late 2015 at a mine it half owns, the miner’s share performance this year so far was the weakest compared to major peers Rio Tinto, Glencore and Anglo American. BHP is the biggest by market capitalization of them all.

The company could consider selling some or all of the shares of the newly formed company to the market via a public listing, with the proceeds of such an offering going to BHP shareholders.

This would be the second demerger in three years for the company.

source: Financial Tribune