Elliott steps up pressure on BHP to ditch petroleum

Posted May 18, 2017

BHP (BHP +1.2%) CEO Andrew Mackenzie says the company is considering further sales of its US shale gas assets, as BHP copes with renewed attacks from activist hedge fund Elliott Management over the future of its energy business.

Elliott's revised proposal still takes aim at unlocking value and halting underperformance in the stock, but doesn't mention a potential delisting from the Australia Stock Exchange.

The funds manager has called for an open and independent review of BHP's petroleum business.

In regards to capital returns, Elliott says that there is strong shareholder support for BHP to return excess capital to shareholders.

Elliott, run by billionaire Paul Singer, has accused BHP of adopting a "do nothing" approach to its three-pronged proposal.

BHP spent ~$20B buying USA shale assets earlier in the decade and has since written off more than half the value of the acquisitions, and Mackenzie admits "the acquisitions that took us into this business were poorly timed, that we paid too high a price".

The logical next step would be an in-depth, open and timely independent strategic review of the business, Elliott said.

"At this conference one year ago, I outlined ambitious plans to improve returns and grow the value of BHP".

The meeting was a chance for Mr Mackenzie to catch up on the changes Elliott made to its proposals this week, and then a chance for Mr Mackenzie to explain his plan for the company.

The hedge fund yesterday revealed a new plan whereby BHP would remain incorporated, headquartered and tax resident in Australia, with its shares listed in both Australia and London.

After the meeting, an Elliott spokesman said the meeting was private but constructive.

Andrew Mackenzie, CEO of BHP Billiton, has issued a fresh update on the company's progress to grow long-term shareholder value.

"We are confident that continued delivery of these plans, from our stronger base today, could grow the value of our company by up to 50 per cent and nearly double the return on capital", he said.

Mackenzie, who in the past worked for oil giant BP, has repeatedly said he doesn't think it's the right time to sell the U.S. petroleum assets, given oil prices are still relatively low. "Our path is deliberate, with value and returns at the centre of everything we do".

"We also believe that BHP did not address DLC unification adequately in its first response to Elliott, and that it needs to do so this time", Investec said. It said there are a number of options that would unlock value-including selling or spinning off the USA business, and a sale or Sydney listing of the Australian and other oil and gas assets.

It said BHP has underperformed Rio Tinto PLC, its nearest peer, as well as the S&P/ASX 200 and the FTSE 100 indexes, over the past two to eight years.