The Shenzi petroleum development in the deepwater Gulf of Mexico. Image: BHP Billiton.
By Cameron Drummond
BHP Billiton is cautiously optimistic that the oil and gas markets are showing signs of rebalancing.
In the company’s third quarter operational review, BHP chief executive Andrew Mackenzie said that fundamental indicators suggested both oil and gas markets would improve over the next 12 to 18 months, alongside a strong resurgence for iron ore and coal.
BHP also outlined plans to expand its petroleum business, as reduced operating costs and higher projected oil and gas prices make investment opportunities more attractive.
In a 5 October announcement BHP said that demand growth, a decline in existing field output, and a lack of new major projects on the horizon were expected to create significant investment opportunities in the next decade.
BHP petroleum operations president Steve Pastor said the company was well placed to capitalise on the opportunity.
“Our focus on productivity has significantly reduced both operating and capital costs, supporting a range of shale and conventional investment opportunities that would generate compelling returns at today’s prices,” Mr Pastor said.
“As a result, petroleum is well placed to maintain its position as BHP Billiton’s highest margin business and to grow its free cash flow contribution.”
BHP said it expected to make a decision on the second phase of its Mad Dog conventional oil project in the Gulf of Mexico in the next six months.
“With significant improvements in capital efficiency, major capital projects like Mad Dog 2 are now economically attractive, even below US$50 per barrel of oil,” Mr Pastor said.
The company also announced positive drilling results at the Caicos exploration well located in Green Canyon 564, 100 miles south of Louisiana in the Gulf of Mexico.
“We are encouraged by the Caicos results and are moving to further appraise the area. The next step will be drilling the Wildling well in November,” Mr Pastor said.
“With success at Caicos and [nearby] Shenzi North, we continue to be optimistic around the opportunity for a commercial development in the area.”