Is Yeager BHP's next boss?

BHP's petroleum boss is a potential successor to Marius Kloppers, but his chances largely hinge on a jump in US gas prices, which would reverse perceptions of the company's mistimed shale acquisitions.

The longer BHP Billiton takes to choose the successor to chief executive Marius Kloppers, the better the chances should be for petroleum boss J Michael Yeager to take the role.

Both men are bound by the poor timing of the mining giant’s $US20 billion ticket to the US shale gas revolution. The pair paid for it with their short-term bonuses, which they volunteered and the board accepted.

Now comfortably in the chair, Jacques Nasser has quietly tapped Heidrick & Struggles to look at internal and external candidates. The transition is reportedly set to take between 12 and 24 months.

Yeager, whose first initial stands for James, his father’s name, is up against aluminium and nickel boss Alberto Calderon, non-ferrous leader Andrew Mackenzie and ferrous and coal chief Marcus Randolph. At the moment, none of the four are truly head and shoulders above the rest, but Yeager has already been described more than once as "an outside chance".

External candidates are always more difficult to pick, especially when the hiring company isn’t in trouble. The standout would be former chief financial officer Alex Vanselow, because of his obvious knowledge of the business. However, he’s also in line for other big gigs that will likely be decided before BHP makes the switch.

What is easier to measure is the time frame. When former chairman Don Argus chose Kloppers over main rival Chris Lynch, both had been on the board for over a year. Granted, Nasser isn’t Argus. But that’s a useful guide nonetheless.

When asked about the succession speculation at BHP’s Houston base last week (the base used to be in London before Yeager came along), the 25-year ExxonMobil veteran wouldn’t be drawn at all on a story that isn’t helpful to the authority of his boss.

"You know guys, there’s a couple of things we just don’t comment on,” said Yeager.

He added at another time with a genuine chuckle, "My wife and children told me to tell some of you hello, because they read the articles you write about us.”

Yeager, who wears a wedding band on his left hand and a college ring on his right, is also the oldest of the internal candidates at the age of 59. It’s been suggested elsewhere that this places him at a disadvantage to the other BHP executives.

To that suggestion, it might be worth remembering the retort to ageism offered by a hero of the American south, Ronald Reagan. "I am not going to exploit, for political purposes, my opponent’s youth and inexperience,” Reagan said during a televised debate for the 1984 presidential election. He went on to smash Walter Mondale.

Yeager, a Texas-based former marine, has obviously been instrumental for BHP’s entrance into the American shale industry. Hence the broad perception about the wisdom of that decision greatly influences the chances of Yeager succeeding Kloppers.

Yeager has become used to receiving pointed questions from journalists over the last few months. US gas prices halved after Kloppers and Yeager pulled the trigger on the acquisitions of Petrohawk and the Chesapeake assets.

"The gas price last winter hit us on the nose and you guys [the media] roughed us up a little bit for it,” said Yeager in a Houston building that once housed dozens of businesses. Now it’s just BHP.

"It is unfortunate we have to have those accounting snapshots, but it's really about the 30-year outlook… the reserves haven't changed.”

Indeed the $US2.8 billion Fayetteville writedown that hurt the reputations of Kloppers and Yeager, along with their bank balances, could be in a broad sense reversed. The long-time oil executive hinted pretty strongly that the company is very encouraged by the Eagle Ford and Permian basins, although this cannot influence the accounting associated with Fayetteville.

There’s no question that US gas prices will climb a lot higher, it’s only a matter of when. It’ll be interesting to see if the timing of BHP’s shale entry is seen as such a negative for Kloppers and Yeager when the next set of accounts come out, let alone when the next boss is named. Particularly when you consider that BHP’s iron ore heavy rival Rio Tinto is looking a little more one dimensional, with prices well down off their highs.

The early days of BHP's new business, which will be around for decades, has been seen by many to reflect poorly on management for two reasons.

Firstly, there’s the reality that many investors, particularly big institutions, would prefer BHP never makes any acquisitions. During a long period of intermittent volatility on global markets – not just in commodities – some investors would just prefer dividends.

Secondly, there appears to be a simplistic reading of the circumstances of Kloppers' previous ‘failed’ attempts to buy something big. This makes the timing of the shale play that is similarly misunderstood look worse.

Kloppers first tried to buy Rio Tinto. Indeed, it was suggested at the time that he was appointed specifically for that task.

BHP ultimately walked away from the deal because Rio’s Alcan acquisition (now there’s a poorly timed deal) would have given the combined company $US80 billion worth of debt.

The miner would then have been forced to sell aluminium assets in a crumbling market. Many of those assets are sitting in Rio’s Pacific Aluminium unit – it still hasn’t been able to sell them.

After some clever manoeuvring by Rio boss Tom Albanese to use Chinalco as temporary cover during the worst days of the GFC, the company was miraculously revived and a merger of the two miner’s iron ore businesses was proposed.

This was seen as a much better proposal for Kloppers because BHP would be buying into Rio’s superior iron ore business. Global regulators made sure the BHP boss couldn’t act on that logic because iron ore prices were simply too high for that kind of consolidation (didn’t that reasoning stand the test of time).

Finally, there's the reading that Kloppers 'failed' to take Canada’s Potash Corporation of Saskatchewan. This view overlooks the fact that the Canadian government was the recipient of international ridicule for opposing the deal on national interest grounds when BHP was bending over backwards to secure their approval.

Now he’s picked up a gas business at the wrong time, copping a writedown that’s truly minuscule for a company the size of BHP and could be largely erased with another set of accounts.

In a sense, it’s understandable that shareholders are frustrated that the world’s largest miner isn’t in better shape, given Kloppers has spent five years with it. But how quickly we forget just how scary the GFC was and how terrified global regulators have been of BHP.

The miner’s new business, along with the record of Yeager, needs to be seen in its proper context.

This might be hard with gas prices still at unimpressive levels. But take a glance at the Henry Hub spot price if BHP names an executive or two to the board in the next six months.

Alexander Liddington-Cox is Business Spectator’s North America Correspondent.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles