BHP looks to oil, gas projects to power future growth

BHP on Monday outlined a confident outlook for its petroleum business to deliver earnings margins of more than 60% and annual increased production by up to 3% through the 2020s.

The company delivered a briefing to investors claiming its major projects in the oil and gas business could deliver average rates of return of about 25% and be resilient through commodity price cycles.

BHP reiterated that conventional oil and gas production should be between 110m - 116m barrels of oil equivalent in 2019-20 and gave an outlook for "medium term" production of about 110m, compared with output of 121m boe in fiscal 2019.

“Our portfolio of quality assets and pipeline of competitive growth options are expected to generate strong free cash flow and returns through the 2020s and beyond,” Geraldine Slattery, president of petroleum operations said in a statement.

Petroleum's growth options currently included projects in the Gulf of Mexico, Western Australia and Trinidad & Tobago, which Slattery said were "well placed to compete with other options in the group's portfolio".

Despite calls from shareholders to withdraw from the sector after a disastrous investment in shale, where it ended its seven year involvement by selling most of its US onshore shale assets to BP $10.5bn, BHP said an expansion in oil made sense with demand growth coming from trucks, aviation, rail, shipping and industry and petrochemicals.

"Petrochemical demand is expected to grow at twice the rate of global GDP. This includes products like plastics, fertilizers, clothing and packaging. Demand for these products is closely linked to the key macro trends of urbanisation and industrialisation," the company said.

It added that it had expanded analysis of the vehicle electrification market and "taken a deeper dive into the medium and heavy duty vehicle sector" of trucks and buses.

"The short summary is that buses are highly amenable to electrification, however they only make up 3% of oil demand. The medium and heavy trucking fleet is more relevant, it makes up 14% of demand, and is the last frontier of electrification," the company said.

"We believe that battery technology and the weight and cost dynamics will impede accelerated adoption. In addition, the average truck’s useful life, and therefore the cycle time is quite long, around 17-18 years. Given these adoption hurdles, we do not expect the electrification of the trucking sector to occur until deep into the second half of this century."

BHP forecast an increase of trucks to 100m units in 2050 from 60m today leading to a potential growth of demand.