By Robb M. Stewart
MELBOURNE, Australia--BHP Group has flagged a number of projects that could boost its oil production and help the global miner meet a supply gap that it anticipates even after demand for crude eventually peaks.
In a presentation to be given to investors and shareholders in Sydney on Monday, BHP Petroleum President Geraldine Slattery said the company had a portfolio of assets and competitive growth options that are expected to generate strong cash flow and returns through the 2020s and beyond.
BHP's oil and gas operations generate strong earnings margins, but it has faced criticism from some shareholders who don't see a fit between petroleum and minerals, including activist investor Elliott Management Corp. which has pushed for BHP to spin off its petroleum arm. The company last year exited its ill-fated onshore U.S. shale operations.
Ms. Slattery said that if each of the oil and gas projects that BHP is involved in were to get investment approval, then the company's petroleum division could generate earnings before interest, tax, depreciation and amortization margins of more than 60% and an average return on capital employed above 15% over the next decade. That, she added, would support average annual volume growth of up to 3% between the 2020 and 2030 financial years.
The growth options include a stake in the Woodside Petroleum controlled Scarborough natural-gas field off Western Australia, Wildling in the U.S. Gulf of Mexico, Mexico's first deepwater oil development Trion and a deepwater gas discovery in Trinidad and Tobago.
"In a decarbonising world, deepwater oil and advantaged gas close to established infrastructure can offer competitive returns for decades to come," Ms. Slattery said in her presentation.
Over the last five years, BHP's petroleum portfolio has generated the highest Ebitda margin within the company at more than 65%. It has forecast a steady production decline from its aging base operations will be arrested for several years through the mid-2020s thanks to already approved projects like the expansion of the Mad Dog and Atlantis oil projects in the Gulf of Mexico, and output could grow from next decade if its other projects push ahead.
As it now stands, BHP has forecast overall petroleum production from its operations of between 110 million and 116 million barrels of oil equivalent this financial year, a drop of as much as 9% on the year through mid-2019, and flagged output averaging about 110 million barrels over the medium term.
In her presentation, Ms. Slattery said the company anticipates oil demand will be tempered in the years ahead by the electrification of transport and fuel-efficiency improvements, offset by rising living standards. Still, a supply gap of more than 50 million barrels a day could emerge by 2035 as global supply declines after several years of industry under-investment in both exploration and deepwater developments. Natural gas demand is at the same time diversifying and gaining a larger share of primary energy demand globally, with liquefied natural gas the fastest-growing fossil fuel.
Woodside, which last week sharply lifted the resource estimate for the Scarborough gas field, expects a final investment decision on developing the field in the first half of next year. According to BHP, the first phase of Wildling could begin within two years and first oil could be produced from the 2023 financial year. The Trion project in Mexico could be producing from fiscal 2025 and the assets in Trinidad and Tobago continue to be assessed, but could begin production from fiscal 2027.
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