Home' Trinidad and Tobago Guardian : August 21st 2014 Contents AUGUST 2014 • WEEK THREE www.guardian.co.tt BUSINESS GUARDIAN
ENERGY | BG9
Diversified mining company BHP Billiton
declared its preference for a demerger
of its aluminum, manganese and nickel
assets on Friday, setting the stage for
the formation of a separate business
that could be worth at least US$12 billion. BHP said
its board was considering a spin-off at meetings
ahead of its annual results announcement next week.
An Australian newspaper said those plans were well
advanced and would include the Nickel West business
that the world's biggest miner has been trying to sell.
"A demerger of a selection of assets is our preferred
option," the company, which has a market capital-
ization of US$185 billion, said in a statement to the
Australian stock exchange.
BHP has long aimed to sell or spin off its man-
ganese, aluminum and nickel assets, which contribute
little to its earnings. Simplifying the company would
"generate stronger growth in cash flow and a superior
return on investment", it said on August 15.
Some of the largest shareholders in BHP welcomed
"It's good to see BHP taking the lead in the sector
on this. It reassures you as a BHP shareholder. It
makes me more willing to have it as a significant bet
within my fund," said Christopher Moore, portfolio
manager of Fidelity Global Industrials Fund.
"Really we should see more of this in the mining
sector. I would expect others to take BHP's lead. Rio
Tinto, Anglo American could also follow suit in doing
BHP's rivals Anglo American and Rio Tinto have
both said they would focus on the parts of their port-
folio that can deliver higher return.
BHP is likely to offload between US$1.0-2.5 billion
of its debt to the new vehicle, according to analysts.
Any more than that could be challenging to handle
for a company that relies on assets whose profitability
can be volatile.
Iron ore drives BHP profits
BHP is relying on iron ore for the lion's share of
fiscal 2014 earnings after beating its own guidance
for full-year output.
"Spin-offs have the potential to crystallize value
that the market may not have been able to see," said
Neil Boyd-Clark, a portfolio manager at Arnhem
Investment Management, which owns shares in BHP.
The Australian Financial Review (AFR) newspaper
said the separate company would comprise BHP's
aluminum, manganese, nickel, Cannington silver
mine and South African energy coal assets and would
be worth US$14 billion.
Analysts were divided over the precise value of
those assets, with estimates ranging from US$12
billion to US$23 billion.
BHP was also debating whether to spin off its coal
assets in New South Wales, the AFR said, without
citing any source. The new company would be based
in Perth and led by BHP's chief financial officer Gra-
ham Kerr, it said.
It would have a primary listing on the Australian
stock exchange and was likely to take a secondary
listing in South Africa, the AFR added.
BHP declined to comment on the AFR report.
"Whether to list in Australia and South Africa will
be a marketing decision. It's a question of matching
the investor base," said a banker familiar with BHP's
thinking. "Looking at the base metals space you don't
have many listed names in Australia. And in South
Africa, you can tap some money from pension funds
who can only invest in rand."
In its statement to the market, BHP said it expected
to consider a demerger when the board meets next
week and would announce any material decisions
BHP is scheduled to announce full-year earnings
on August 19.
UBS analyst Glyn Lawcock said last month he
expected BHP to go through a three-step process,
selling its Nickel West business, then spinning off
its manganese, aluminum and South African energy
coal businesses as a separate company to all share-
holders, before unwinding its dual-listing in Lon-
Most of the assets that analysts expect it to shed
came into the company through London-listed Billiton
when it merged with BHP in 2001.
At the time, those assets were touted for the diver-
sity they brought, creating a mining giant with roughly
equal earnings from aluminum, base metals, coal and
But they barely contribute to the company's profits
now, overshadowed by a decade of soaring growth
in its iron ore, copper and coal businesses driven by
China's rapid economic expansion.
At the same time, BHP has expanded in oil and
gas through shale acquisitions in the United States.
"By increasing our focus on these four pillars, with
potash as a potential fifth, we will be able to more
quickly improve the productivity and performance
of our largest businesses," the company said in its
BHP Billiton set to spin
off unwanted assets Shell sells shale gas
rights for US$2.1bn
Royal Dutch Shell has agreed to
sell drilling rights in shale formations
in Louisiana and Wyoming for US$2.1
billion in two transactions.
In one of the deals, announced
Thursday, Shell will also receive
drilling rights to land in Ohio and
Shell is working to focus its onshore
US drilling programme on a few of
the more prolific formations in an
effort to boost profitability. The com-
pany wrote down the value of its shale
acreage in the US by US$2.1 billion
last year amid lower natural gas prices.
Shell will sell its Pinedale acreage
in Wyoming to Ultra Petroleum for
US$925 million and 155,000 acres in
the Utica and Marcellus shale for-
mations in Ohio and Pennsylvania.
It will sell its Haynesville acreage
in Louisiana to Vine Oil & Gas and
the investment firm Blackstone for
Shell and other major oil and gas
explorers regularly sell rights to fields
where production is flat or declining.
They then use that cash to fund
exploration programs designed to dis-
cover new or more prolific fields that
oil giants need to fuel growth. The
Pinedale and Haynesville formations
produce dry gas, which is less prof-
itable than oil or so-called natural
gas liquids, at relatively moderate
The Marcellus shale in Pennsylvania
has proven to be an extraordinarily
prolific dry gas producer, and prof-
itable for drillers because it produces
gas at high rates per well. The Energy
Department says the formation will
produce an average of 15.9 billion
cubic feet of gas per day in September,
nearly a quarter of total US produc-
Ohio's Utica shale is also proving
to be prolific, and it includes a higher
proportion of more profitable liquid
hydrocarbons. Utica gas production
is expected to rise to 1.3 billion cubic
feet per day in September, up nearly
eightfold from 155 million cubic feet
per day at the start of 2012, according
to the Energy Department.
"We continue to restructure and
focus our North America shale oil
and gas portfolio," said Marvin Odum,
president of Royal Dutch Shell's US
division, Shell Oil Company, in a
statement. "We are adding highly
attractive exploration acreage, where
we have impressive well results in the
Utica, and divesting our more mature,
Pinedale and Haynesville dry gas posi-
The Mexican government has
granted national oil firm Petroleos
Mexicanos (Pemex) the rights to 83
per cent of the country's proven
and probable oil reserves, as part
of a broad overhaul.
But Pemex will only get 21 per
cent of possible reserves, less than
it had asked for.
Those are the areas where oil has
not yet been discovered and which
will require a greater degree of
investment and exploration to fully
Mexico enacted new rules this
week to open up the country's ener-
Private oil companies are now
allowed to operate in the country
for the first time in 76 years.
The next round of bidding will
see private oil firms vie for the
remaining 79 per cent of possible
The BBC's Will Grant in Mexico
City says the announcement is good
news for the likes of Exxon Mobil
from the United States, the Anglo-
Dutch multinational Royal Dutch
Shell and the Russian firm Lukoil,
which are all said to be interested
in the auction of Mexican oil con-
tracts due to be completed by June
In the end, it seems that both
sides can be reasonably happy with
the outcome, our correspondent
The director of Pemex, Emilio
Lozoya, said the company intended
to set up ten different joint ventures
with the private firms, among them
plans for deep-water drilling.
President Enrique Pena Nieto has
made energy reform a key goal of
his administration. (BBC)
Mexico awards 83% of oil
reserves to state firm Pemex
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