Since Elliot lobbed its grenade publicly on Monday BHP's board has been swift to say all the ideas had been considered and found wanting, and it compounded an earlier rejected with a more thorough rejection yesterday.

 

Strachan said Elliot was being opportunistic now that the oil price had recovered, but that it had nothing concrete to offer.

 

"The truth is, if this BHP onshore stuff had been an independent company over the past five years it would have gone belly up," he said.

 

BHP spent nearly $4.8 billion buying its initial gas assets from Chesapeake Energy in 2010 and the following year sunk nearby $15 billion into the Eagle Ford, Haynesville and Permian Basin areas in Texas and Louisiana with the takeover of Petrohawk Energy.

 

It has now pumped around $25 billion in developing the assets, but they are now worth less than $10 billion, Strachan said.

 

"At one stage they were spending $4 billion a year and getting $2 billion back. Alone they could not have survived, and these assets would have fallen in a heap," Strachan explained.

 

"The fact is it is incorrect to say these are undervalued by the market."

 

Elliot says the assets are being priced at around $6 billion within BHP, but as standalone company they would garner valuations at twice that level.

 

Yett Strachan says the reality is that they are high-cost assets.

 

"Elliot has just seen the oil price has risen, and they think there are returns, but they are just not there," he said.

 

"They are high cost, and if they'd been standalone they'd have gone the same way as Chesapeake, Sundance [Energy Australia] and Antares Energy."

 

For all his criticism of the US unconventional business over the years, which Strachan warned was a house of cards built on debt - which has largely proved to be true - Strachan said there was nothing fundamentally wrong with BHP's overall diversified strategy, because it sets it apart from arch rivals such as Rio Tinto and Glencore.

 

"I know BHP has looked at spinning off BHP Petroleum before, but their strength is in diversity," he said.

 

"If coal and iron ore are up they can pick up when gold is down, and if energy prices rise they have oil and gas.

 

"If the Elliot people think they have a better plan they should buy their own gold, or coal, or oil assets and put together their own perfect BHP."

 

This week Elliot went public with a proposal to scrap the dual listed company it adopted with the merger with Billiton in 2001 in favour of becoming an Australian resident, London-listed company.

 

Elliot also wants BHP's board to spin-out the US oil and gas business as a South32-style separate company and launching staged share buybacks to the tune of $33 billion over time.

 

BHP's board yesterday again refused to entertain the proposal, saying that it had been engaged with Elliot for several months, and it had reviewed a number of the proposals, including regularly examining its structure and buyback options, and it saw no benefit in the Elliot agenda. 

 

BHP CEO Andrew Mackenzie said the company had already simplified its structure in recent years and was stronger, simpler and well-positioned growth.

 

"The board and management have concluded that the costs and associated disadvantages of each element of Elliott's proposal would significantly outweigh the potential benefits," he said.

 

He warned BHP would be left with the non-US petroleum assets in Australia that would be a "sub-scale residual petroleum business" that would lose significant diversification benefits. 

 

BHP said Elliot overstated the benefits of its plan. For example, scrapping the dual-listed structure could destroy at least $US1.3 billion in value to save less than $2.5 million a year - for no identifiable material or strategic benefit.

 

Shareholders would lose out, particularly Australian shareholders as there would be a transfer of value towards shareholders in BHP Billiton and the franking credits would be wasted as they could only be used by Australian residents. 

 

South African shareholders, who comprise 17% of the BHP Billiton Plc register would face particular risk as they would not obtain capital gains tax roll-over relief and might need to pay tax under Elliott's proposal, it warned. 

 

It would also gut one of BHP's five core businesses, petroleum, and scrap something that has the potential to create significant long term value at high returns.

 

"With our strong business plan, our view is that the petroleum business as a part of the BHP Billiton portfolio currently offers more value to shareholders than if it were a separate entity," Mackenzie said.

 

His company said that over the past five years the petroleum business has accounted for more than 20% of group production and more than 30% of underlying earnings.

 

"BHP Billiton's scale, balance sheet strength and diversification are a competitive advantage in oil and gas. As part of a larger group, the petroleum business can secure major opportunities that would be unavailable to a smaller independent company," Mackenzie said. 

 

"As part of a diverse portfolio, BHP Billiton's US petroleum business faces less pressure on reserve replenishment and sustaining volumes than a pure play oil and gas company, allowing it to focus on value creation. BHP Billiton can apply mining expertise in the Petroleum business and oil and gas expertise in its minerals business, raising the operational performance of both."

 

BHP shares have dropped to $24.33 this morning, below the level they were trading at Monday before Elliot's announcement.