BHP is confident the company’s petroleum business will deliver significant value for the resources giant through the 2020s and beyond, thanks to its producing assets and growth options.
Huw McKay, vice president, market analysis and economics at BHP, said the company’s attraction to oil was the gap between supply and demand that it saw extending across decades.
The company’s internal analysis estimated this gap to be around four percentage points a year, with 1 per cent growth in demand against -3 per cent decline in the 2020s.
By late 2020s, McKay expected today’s lower cost sources of oil supply would need replacing.
“We just don’t know exactly where a material fraction of supply will come from through the 2030s and 2040s,” McKay said.
“The inherently optimistic industry term for this growing future wedge is ‘yet-to-find’. … Simply put, oil is not easy to find, and when you do find it, it is often complex, costly and risky to produce.”
These difficulties, however, attract BHP to oil, according to McKay. While acknowledging that complexity may not attract everybody, McKay said to BHP this promised rewards due to its experience and capability in resource discovery and conversion.
“There are no sustainable shortcuts for attaining this blend of capabilities,” he said. “We have won ours by operating in this commodity since the 1960s. Oil suits us.”
Meanwhile, BHP projected the liquefied natural gas (LNG) segment to grow faster than the total global gas demand, potentially almost doubling to around one-fifth by 2050.
This trend will not be void of pricing lulls, with only advantaged assets being resilient amid underwhelming conditions, according to BHP.
In light of this projection, BHP’s portfolio of assets and growth options are expected to generate strong free cash flow and returns through the 2020s and beyond, according to company president of petroleum operations, Geraldine Slattery.
In one scenario laid out by Slattery, BHP Petroleum could support an average annual volume growth of up to 3 per cent between the 2020 and 2030 financial years, while generating earnings margins of more than 60 per cent over the next decade.
BHP Petroleum’s growth options include Scarborough (offshore Western Australia), Wildling phase one, Trion (both located in the Gulf of Mexico) and Trinidad and Tobago North.
“Our capabilities in safety, exploration and deepwater operations, coupled with a high-performance culture give us confidence that we can deliver on our plans into the future,” Slattery said.
“In a decarbonising world, deepwater oil and advantaged gas close to established infrastructure can offer competitive returns for decades to come.”