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July 14th, 2018 by admin

BHP upbeat about oil, gas rebound as market rebalances

The completion of a new processing plant may lift earnings from BHP’s Bass Strait assets. Photo: Rob HomerHard on the heels of OPEC’s move to limit oil production, BHP Billiton has underscored its upbeat view on the outlook for oil and gas, as it argues the market is set to move back into balance in 2017, with demand set to exceed global supply.
Nanjing Night Net

At the same time, the US is facing steep declines in oil output which has fallen by 1 million barrels a day from its April 2015 peak. It needs output to return to around 9 million barrels a day by the end of 2017 to balance the market, it said.

“While currently well supplied, underlying fundamentals suggest both oil and gas markets are improving more quickly than our minerals commodities,” Senior BHP Billiton Petroleum division manager Steve Pastor told analysts.

Globally, BHP sees around 30 million barrels of oil a day of new supply as being needed by 2025 due to declining output from existing fields, with the new supply equal to around a third of present demand, with US shale oil to play a key role in helping to fill the gap.

BHP made the disclosures in briefing materials given to investors about the group’s petroleum interests, which are predominantly oil and gas assets in the US and Australia. Oil price rebounding

The briefing comes as the oil price has surged over the past week in the wake of a vague agreement by OPEC member countries, and Russia, to reduce output, with Brent trading overnight Tuesday as high as $US51.37, its highest since early June, with sentiment also buoyed by reports the US has again drawn down its inventory, has set the scene for an improved profit outlook for BHP’s oil division.

Even though BHP’s petroleum division has contributed as much as a third of annual earnings over the past decade or so together with boasting its highest margins of more than 60 per cent, the recent oil price weakness has taken the gloss off the division’s performance, with enduring doubts about the benefit of the group’s costly push into shale oil in the US, which has generated heavy pretax losses of $US1.4 billion in fiscal 2015, rising to $US1.8 billion in fiscal 2016.

Ahead of the briefing, analysts were focused on detail to be given of cost reductions, particularly in the well drilling costs of its shale assets, coupled with prospects for its Gulf of Mexico assets. Productivity goal

BHP says one of its prime areas of focus is to lift productivity, with petroleum unit cash costs seen falling to around $US11 a barrel over the next two years, down from around $US15 a barrel in fiscal 2014. In fiscal 2016, for example, cash costs declined by $US677 million with working capital management cutting inventory by a quarter. It is also shifting work to Trinidad and Malaysia to help reduce costs.

Despite the woes which have plagued the economics of its push into shale oil production in the US, BHP said it is moving to hedge gas output from its Haynesville acreage in the US, which had been mooted earlier in the year, with gas demand expanding at 3 per cent a year.

“The hedging of gas price and input costs secures attractive returns at low risk,” BHP said, pointing out that this will help to accelerate the development of the core Haynesville asset.

With its onshore US drilling costs, which has been a key area of analyst focus, BHP said it has achieved around a 40 per cent decline.

Offshore, it continued to highlight high return brownfield projects such as Angostura Phase 3 which has just begun production, the Longford gas conditioning plant with first production due this quarter, and the like.

Investor focus is on progress with Mad Dog 2 in the Gulf of Mexico where the go ahead is expected from BP which is the operator, by year end, and also work underway in Trinidad and Tobago, where an active drilling program is planned.

This story Administrator ready to work first appeared on Nanjing Night Net.