BHP paid $US20 billion ($A26 billion) for its assets in the emerging US shale space in 2011, its biggest transaction with the Billiton merger in 2001, but over the last year it has increasingly focused on its conventional assets. Now that the company is bedding down to spin-off most of the old Billiton assets as South 32, it is reconsidering its commitments to the US shale space.
Soon after snapping up its assets from Petrohawk Energy in 2011, BHP was hit by a plunging gas price caused by oversupply. It dramatically reduced its exposure to drilling costs in the Fayetteville and Haynesville shales in favour of targeting oilier plays, such as the Eagle Ford Shale, where it could get returns of better than 20% on drilling.
But over time it reduced its shale-seeking budget from around $4 billion per annum expected late last year.
Mackenzie told his audience in London that the long-term future for shale oil and shale gas was probably financially less attractive than was thought at the time former CEO Marius Kloppers concluded the Petrohawk deal.
"We are pushing harder on the conventional side for petroleum now, which is where most of our exploration is," he said.
That said, Mackenzie said BHP was happy with its positions in the Black Hawk Eagle Ford project and its Permian Basin assets, and he indicated BHP was open to securing additional high quality areas that suited its liquids focus.
However, he said the US' new role as the world's swing oil producer was likely to be short-lived, as less oil than originally predicted was likely to be extracted.
The company believes that shale production has almost peaked, and will add just 2-3% more of production growth before it will start to fall off, given the decline curve of unconventional wells tends to be steeper than expected overall, and the costs of workovers to boost production can add up in fields where there are hundreds of wells.
BHP expects to reduce its rig count onshore in the US by 40% by the end of June, from 26 to 16, and it has sold out of the Permian Pecos field to focus on the Eagle Ford where it gets better returns.
Work in the Hawkville and Permian assets has been reduced to the retention of core acreage, with just one rig drilling for dry gas in the Haynesville Shale.
Despite the reduction in drilling activity BHP will still spend $3.4 billion over 2014-15, and $2.2 billion in 2015-16.
It expects oil production to rise by 50%, but with the dip in all prices it is also considering leaving some of its Blackhawk oil behind pipe, drilling wells purely to secure its acreage which it can drill out within 3-10 years, depending on how aggressive it is.
It has decided to keep hold of its Fayetteville assets after a marketing campaign failed to find a buyer willing to pay a suitable price.
Given Fayetteville is now held by production, the company says it will sit on the asset in the hope of improved prices.
The gas price was around $6 per gigajoule when it closed the Petrohawk deal, but is now around half that.
It will spend $600 million on exploration in 2015-16, down 20% from its original guidance, with the focus on the Gulf of Mexico, Western Australia and Trinidad and Tobago.
