Global miner BHP is planning a major overhaul, simplifying its company structure and dumping its oil and gas assets into Woodside Petroleum, creating one of the biggest energy producers in the world.
BHP on Tuesday declared a bumper profit due to high iron ore prices, as it announced it will bring together its Australian and UK arms into one company and leave the London Stock Exchange, which could have ramifications for investors.
BHP’s profit soared 42% to reach $US11.3bn in the year to the end of June, driven by record margins of 64% on iron ore from its mines in the Pilbara.
However, the company’s Mt Arthur coalmine in New South Wales is also now a $200m liability after dramatically collapsing in value over the past year amid a gloomy outlook for fossil fuels due to increasing competition from cheap renewable energy.
Outlining its plans to tip its oil and gas assets into Perth-based Woodside as early as mid-next year, the BHP chief executive, Mike Henry, insisted it was “not at all” related to BHP’s ambitious target to reduce carbon emissions by 30%.
Shares in the newly enlarged Woodside, which BHP says will rank among the top 10 oil and gas producers in the world, will then be distributed to BHP’s shareholders.
This means shareholders will be able to sell their shares if they want to reduce their exposure to fossil fuel assets.
BHP currently operates as two separate companies, BHP Group Ltd, which is listed on the Australian Securities Exchange, and BHP Group Plc, which is listed on the London Stock Exchange.
The structure, a legacy of BHP’s 2001 takeover of UK-listed Billiton, has been criticised by some shareholders because of the extra costs it imposes and the difficulties it causes in allowing investors to benefit from franking credits on their dividends.
BHP plans to retain a listing in London but collapsing the existing structure may make it more difficult for UK-based institutional investors to justify holding BHP shares, with Henry saying current rules meant the company would be kicked out of key index the FTSE 100.
If shareholders approve, BHP expects unification to occur some time in the first six months of next year with the changes involving Woodside Petroleum to follow.
BHP is also a year into a two-year effort to sell its thermal coal assets, although it plans to retain coking coal, which is used to make steel.
It sold its Colombian coal assets to Glencore in June but has so far been unable to find a buyer for Mt Arthur, in NSW’s Hunter Valley.
The mine was worth $2bn less than two years ago but in January its value was cut by $1.5bn, to between $325m and $455m, and it was slashed again on Tuesday to become a $200m liability.
“We now actually have a negative value on the books for NSW energy coal, which is reflective of the rehab and restoration side of things that we need to reflect,” the chief financial officer, David Lamont, said.
Asked if BHP had left it too late to sell Mt Arthur and might instead have to shut it down, Henry said the company had given itself two years to offload the mine.
“We are where we are,” he said. “All options remain open for consideration.”
BHP also took an additional US$1.2bn hit over the 2015 Samarco dam disaster, which continues to plague the miner.
Michael Allen, an accountant and former mining executive who is now treasurer of advocacy group Sustainable Energy Now, said ditching oil and gas was a good move for BHP.
“The world’s biggest mining company should really get rid of oil and gas, just to make their policy on carbon reduction acceptable,” he said.
He said BHP should also get on with selling its thermal coal assets.
“The fact is coal assets, especially east coast, are worth less every day,” Allen said.
He said distributing Woodside shares to BHP investors gave them options.
“You’d expect the green shareholders to dump them and the non-green shareholders to hug them to their chests,” he said.
He said that on its own Woodside was struggling because it had no expansion plans apart from Scarborough, a gas field off the Burrup Peninsula in Western Australia that is heavily opposed by environmentalists.
“Woodside has had a strategic problem for a while, because their future’s looking grim,” he said.
But the BHP deal would give Woodside $15bn of operating assets that it could make money from in the short term.
“It’s one thing to have a project that’s in operation now, it’s another thing to go off to people who believe in ESG [environmental, social and governance] and ask them to invest in this project that’s going to destroy the world,” he said.