BHP Billiton reviewed the status of its $29 billion oil unit at least twice since 2013, the No. 1 miner revealed in making a detailed rejection of billionaire Paul Singer’s Elliott Management Corporation’s call for a spinoff of the US petroleum operations as part of a company-wide overhaul.
Chief executive officer Andrew Mackenzie ordered assessments on the oil division’s future following his appointment to the role in 2013 and when the Melbourne-based company completed the 2015 spinoff of unwanted metals and coal assets into South32, he told analysts Wednesday on a conference call.
“I’ve asked the question about the fit of petroleum in our business at every major milestone in my time at the company,” said Mackenzie. “I continue to conclude petroleum is a good fit with our current strategy.”
The oil unit, with assets in areas including the US, Australia and the Caribbean, offers BHP a “unique form of diversification and this makes us unusual — but unusually advantaged,” Mackenzie said. The unit’s average underlying earnings before interest, tax, depreciation and amortisation margin of 66% over the past five years means the oil division is BHP’s top performer, he said. It’s worth about $29 billion, according to Morgan Stanley.
Elliott has urged BHP to spin off US oil and gas assets it estimates to be worth $22 billion, and has argued for higher returns for investors and changes to the mining firm’s corporate structure that would create a primary listing in London. The costs and risks associated with the proposals outweigh the benefits, Mackenzie said on the call.
BHP’s Sydney-listed shares have pared gains after jumping 4.6% on Monday when Elliott disclosed details of its proposals and talks with management. The producer has been in talks with Elliott for eight months over its proposals and remains open to further discussions with the fund or other holders, Mackenzie said.
While BHP will continue to review its dual-listed structure, the company’s focus is on its balance sheet and it doesn’t see the time as right for a $6 billion buy-back as proposed by the hedge fund, chief financial officer Peter Beaven said on the call.
BHP has been working with advisers from Goldman Sachs Group for several months in response to the plans put forward by Elliott, people with knowledge of the matter said Tuesday.
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