BHP plans big US spend

Miner says it will outlay $4bn annually on onshore oil & gas in US.

Australian mining giant BHP Billiton (BHP) has said it plans to spend $4 billion annually to grow its United States onshore oil and gas production to 500,000 barrels of oil equivalent a day by the financial year 2017.

This includes growing its US shale gas business to 200,000 barrels of liquids a day during the same period ending June 30, 2017. Based on this scenario the US onshore business is expected to be self-funding in the 2016 financial year before generating almost $3 billion of free cash flow in the 2020 financial year. 

The news comes after BHP chief executive officer Andrew Mackenzie yesterday reaffirmed production guidance and told shareholders the miner is set to build on the reduction in cash costs it delivered in fiscal 2013, as well as reducing capex.

"Onshore US is well positioned to become another major cash-flow generator for BHP Billiton," Tim Cutt, the CEO of BHP's Petroleum business, said overnight, Australian time, in a presentation to analysts in Houston.

"This is a business that looks a lot like a manufacturing operation where repetition, efficiency and advancements in technology characterise best practice." 

Mr Cutt confirmed BHP remains on track to produce 250 million barrels of oil equivalent in the financial year ending June 2014 based on BHP Billiton's interest in existing oil and gas fields. 

Mr Cutt said BHP plans to maintain steady production in its conventional oil and gas portfolio over the medium term by focusing on low risk, high return investments close to existing infrastructure. This will include infill drilling at Shenzi, Pyrenees, Atlantis and Mad Dog where individual wells can deliver investment returns of over 90 per cent, said Mr Cutt. 

The company is also planning to strengthen its US onshore exploration acreage as it seeks to extend its liquids production volume. 

"Our evaluation program in the Permian has successfully identified a focus area where we are actively pursuing a 100,000 barrel of oil equivalent per day development. The investment associated with our overall evaluation of the Permian Basin (located in the US), which has identified this focus area, will lead to a depreciation charge of approximately $600 million in the Permian in the 2014 financial year, which reflects the early stage of development," he added. 

Mr Cutt also said he will continue to simplify the Petroleum portfolio with a view to boosting shareholder value: "Future investment will be increasingly focused on those same core areas of Australia, the United States and potentially, Trinidad and Tobago."

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