After facing pressure from a number of shareholders, the major miner said it will exit the business in the next couple of years.
Major miner BHP Billiton (NYSE:BHP,LSE:BHP,ASX:BHP) said on Tuesday (August 22) that it will exit its US shale oil and gas business in the next couple of years.
The company bought the operations six years ago for more than $20 billion, but analysts say they are worth around half that today.
BHP has been facing pressure from shareholders, led by US hedge fund Elliot Management, to leave the underperforming assets, which it acquired when oil prices were higher.
“We have determined that our onshore US assets are non-core and we are actively pursuing options to exit these assets for value,” the company said when reporting its annual results. During the period its underlying profits rose fourfold to reach $6.7 billion.
BHP’s preference is to dispose of the assets via a small number of trade sales, but other options could include a demerger or asset swaps, CEO Andrew Mackenzie said.
“We certainly have plenty of people interested in taking a look,” he added. “Our determination to exit means that we have other ways to exit that do not necessarily depend on … a competitive set of willing buyers.”
BHP holds more than 838,000 acres in the shale-rich Eagle Ford, Permian, Haynesville and Fayetteville regions of the US.
Fund manager Tribeca, which has also pressured the miner to leave its US shale operations, welcomed BHP’s comments.
“That was our approach. We didn’t see [US shale operations] fitting strategically in BHP. We think they can realise value ahead of market expectations for the US onshore business,” said James Eginton, an analyst at the firm.
Most analysts agreed that the decision to leave the underperforming business will be beneficial for BHP investors.
An exit from shale “is likely to appease domestic investors, although at this point the financial outcome remains uncertain,” Melbourne-based RBC Capital Markets analyst Paul Hissey said in a note.
Meanwhile, UBS (NYSE:UBS) analyst Glyn Lawcock said the mining group should push ahead with a sale sooner rather than later. “BHP have said they want to exit for value, but BHP needs to be realistic as shareholders unlikely to want this exit to drag on,” he commented.
BHP’s share price rose 1.56 percent after the announcement to reach $41.57 in New York. The company’s share price is up 16.15 percent since the beginning of the year.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.