Shareholders pile on the pressure
BHP Billiton, the world’s biggest mining group based on market capitalisation, is under pressure from shareholders to divest its US petroleum business.
Hedge funds Elliott Advisors and Tribeca Natural Resources have called on BHP to revisit its US petroleum assets, with Tribeca calling on the miner to sell its onshore oil and gas assets (BHP also owns offshore fields in the Gulf of Mexico). According to Tribeca’s estimates, the sale of the onshore US shale assets could raise about $10bn.
“We do not support the continued investment in the US onshore assets as these assets are unlikely to deliver appropriate free cash flow and we fail to identify where BHP has any particular skill that differentiates it from industry peers. It remains to us a tier two asset that sits in an irrational market,” Tribeca said in a letter, titled “Making BHP Great Again”, that was sent to the board, ft.com reported.
BHP paid nearly $17bn in 2011 to buy shale gas assets in the US, followed by billions in further investment. However, due to the downturn in prices, it has racked up impairments of $12bn on its US shale business, which was valued at just $12.6bn at the end of 2016, ft.com reported.
Tribeca also asked for an overhaul of the board, which it said had overseen the destruction of over $30bn in shareholder capital, ft.com reported. “As is well known, the chairman [Jac Nasser] is soon to retire. This provides a critical opportunity to rest the culture to one that covets capital efficiency and earnings per share growth, and we hold high hopes that this opportunity will not be wasted,” it wrote. How to trade it: According to the charts, BHP could give up more of its gains and possibly hold at 16 500c/share – where buyers could return. Failing which, next support would be at 13 630c/share. Go short on continued downside below 19 280c/share. Revise positions at 16 500c/share and increase positions on continued selling below that level. Alternatively, if the 19 280c/share level provides strong support, prepare to go long above 20 090c/share, as BHP could attempt to close its previous gap and retest the 22 350c/share mark. Stay long above that level, as resistance would then be encountered at 23 900c/share.
BHP paid nearly $17bn in 2011 to buy shale gas assets in the US, followed by billions in further investment.