In a hindsight 20:20-style reflection, BHP Billiton Chairman Jacques Nasser said his company's $20 billion investment in shale oil and gas in 2011 was a mistake.
BHP's massive investment tied its financials to operational developments in the shale sector just three years before the oil price drop in 2014. Since the crash, pre-tax writedowns have cost the investment firm $13 billion.
"If you had to turn the clock back, and if we knew what we knew today, we wouldn't do it, of course we wouldn't do it, but go back and put yourself in our position at that time," Nasser said at a business seminar this week, reflecting on the shale purchase. "We bought exactly what we thought we were buying, but the timing was way off."
Hedge fund manager Elliott Advisors, which holds around 4.1 percent of BHP Billiton Plc, proposed a plan in April to increase capital returns to shareholders, which includes demerging the mining and commodity giant's U.S. petroleum assets and listing them separately on the NYSE.
Back then, Elliott sent a letter to the top management of BHP Billiton, in which it outlined the so-called BHP Shareholder Value Unlock Plan that, according to the hedge fund manager, could enable BHP's management to give shareholders an increase in value attributable to their shareholdings of up to around 48.6 percent for Sydney-listed BHP Billiton Limited shareholders, and around 51 percent for London-listed BHP Billiton Plc shareholders. Related: UAE: OPEC Is Not Discussing Deeper Cuts
Elliott has identified three key steps to unlocking more shareholder value: unifying BHP's dual-listed company structure into a single Australian-headquartered and Australian tax resident listed company, demerging and separately listing the group's U.S. petroleum assets on the NYSE, and a consistent and value-optimized capital return policy.
According to Elliott, BHP's U.S. oil business is worth around $22 billion, based on commonly utilized valuation metrics for comparable businesses. The indicated value is "well in excess of the current analyst consensus valuation for that business", the fund manager noted.
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on… More