BHP Looks at Expansion in Trinidad, Tobago Amid Asset Sales

BHP Billiton Ltd. (BHP), Australia’s largest oil and gas producer, is studying expansion in Trinidad and Tobago, nominating the Caribbean nation as a potential third main production region along with the U.S. and Australia.

“We’re very excited about Trinidad,” Tim Cutt, president of BHP’s petroleum and potash unit, told reporters today on a call. “It’s a deep-water play we’ve been watching for some time, but the fiscal terms weren’t very consistent with our ability to make money. The terms now are satisfactory.”

BHP’s oil and gas unit, which generated about a third of its earnings last fiscal year, is planning to drill its first well in Trinidad and Tobago in 2016, Cutt said. While focusing investment on the U.S. and Australia, the Melbourne-based company flagged further sales of assets, including shale fields in Texas, to simplify its energy portfolio.

BHP, the world’s largest mining company, fell 1.7 percent to A$36.18, while Australia’s benchmark S&P/ASX 200 Index dropped 0.8 percent.

Cutt in July succeeded J. Michael Yeager, who oversaw BHP’s $20 billion move into the U.S. shale oil and gas industry two years ago.

BHP plans to spend $4 billion annually on its U.S. shale business to boost liquids production to 200,000 barrels a day in fiscal 2017, the company said yesterday in a presentation. Total onshore U.S. production is forecast to rise to 500,000 barrels of oil equivalent a day in the same period, BHP said.

Rising Prices

U.S. liquefied natural gas exports that will be starting to build in about 2016 should “underpin a solidification” of gas prices in North America, Cutt said. BHP doesn’t expect to form any LNG terminal partnerships, he said.

The U.S. shale business is expected to fund itself in the 2016 fiscal year before generating $3 billion of cash at the end of the decade, the company said. BHP shifted to higher-priced liquids after a slump in gas prices last year.

“Our optimism is high that we’ll see an increasing gas price,” Cutt said. “Right now our focus is on the liquids. The returns on those liquids plays are up in the 70 percent type return levels. Our portfolio is set up well to watch the gas price increase to shift back to some of those gas fields.”

BHP said it’s focusing on an area of the Permian Basin in the U.S., targeting a 100,000-barrel of oil equivalent a day development. The investment to evaluate the Permian will lead to a depreciation charge of about $600 million in 2014, it said.

The company also plans to sell some parts of its Permian Basin acreage while it concentrates on areas in which it’s most interested, BHP said in October.

Floating LNG

“We do have good interest in the assets,” Cutt said today. “We’re confident we will move those assets at the right time, but only if we get the right kind of offer.”

BHP reached an agreement a year ago to sell its stake in Woodside Petroleum Ltd. (WPL)’s Browse LNG venture in Western Australia to PetroChina Co. The company reiterated it plans to divest the Liverpool Bay asset in the U.K., and Cutt said Pakistan and Algeria have “limited running room.”

“Our disciplined divestment process, which led to the $1.7 billion sale of our interests in Browse, will continue to create substantial value for shareholders,” Cutt said yesterday in the statement.

Mining companies began driving down costs last year after the decade-long China-led commodity price boom peaked. BHP’s reduced spending on new projects and expansions of $15 billion for the next fiscal year, compared with $22 billion in the previous year, is sufficient to keep growing the company, Chief Executive Officer Andrew Mackenzie said this week.

BHP today reiterated its production forecast of 250 million barrels of oil equivalent for 2014. That compares with output of 236 million barrels in 2013.

While floating LNG is the “leading development concept” for the Scarborough gas project off northwest Australia with Exxon Mobil Corp., BHP also wants to look at taking advantage of existing infrastructure to develop the resource, Cutt said.

To contact the reporters on this story: James Paton in Sydney at jpaton4@bloomberg.net; Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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