Under pressure from activist investors, BHP Billiton Chair Jac Nasser admitted last week that his company’s $20-billion investment in U.S. shale oil and gas was a mistake.
“If you had to turn the clock back, and if we knew what we knew today, we wouldn’t do it, of course we wouldn’t do it, but go back and put yourself in our position at that time,” Nasser told a business seminar. “We bought exactly what we thought we were buying, but the timing was way off.”
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BHP entered the industry at the height of the fracking boom in 2011, invested billions in development, then took $13 billion in pre-tax write-downs as a result of the oil price crash, the Globe and Mail reports. In response, New York-based hedge fund Elliott Management, which holds 4.1% of BHP shares, “has directed a barrage of criticism at the global miner since releasing a list of changes in April it wants the company to implement.” Those demands include “an exit from shale, removal of BHP’s dual London and Australian stock listings, and greater emphasis on shareholder returns.”
In May, BHP CEO Andrew Mackenzie said it would consider dumping some of its shale assets, though it considers them “well-placed for the future.” But last month, the Houston Chronicle reported that “the party’s over” for shale investors, with Wall Street losing interest in the industry in the wake of falling oil prices and fossil stocks.
“It’s like you’re having a party, and it’s awesome, and then the parents come home, and the party’s done,” said David Pursell, head of macro research at Tudor Pickering. “There’s no appetite to fund further growth. Oil prices went from the mid-$50s to the low $40s. It’s a big change and it happened quickly.”
As a result, “oil companies have only raised $3 million this month through selling new shares to investors, a dramatic drop in the public equity offerings that have helped fuel the return of drilling rigs across the nation this year,” the Chronicle noted. “It’s a stark shift in investor sentiment after last month, when producers like Kosmos Energy and RSP Permian collected a combined $1 billion from stock market investors. That was before U.S. oil prices took a month-long tumble of around 20%, to $43.15 a barrel on Friday.”