BHP hits six-month high after bowing to activist pressure

Having spent big money in the hope of riding the expected boom in shale, BHP Billiton bowed to pressure from shareholders Tuesday and pledged to exit its now underperforming US shale oil and gas business.

The Anglo-Australian miner is "actively pursuing options" to exit its non-core onshore US assets, which were largely assembled at a time when oil prices were closer to $100 a barrel than the $50 a barrel seen today.

There are reports that the assets could fetch as much as $11 billion (£8.5 billion), although this is likely to be a far cry from the outlay when the company struck various deals to become a major North American shale oil and gas producer.

As well as the disposal plan, which follows pressure from activist investor Elliott Associates, there were other reasons for shareholders to cheer today's full-year results.

Higher oil prices, lower costs and $12 billion of productivity gains meant BHP generated free cash flow of $12.6 billion in the year, which is the second highest figure on record.

This has covered a final dividend of 43 cents per share, with total dividends of $4.4 billion including $1.1 billion in additional amounts over and above the 50% minimum payout policy.

The company also used cash generation to reduce debt by nearly $10 billion to $16.3 billion by the end of the financial period.

Chief executive Andrew Mackenzie is confident that BHP is on track to significantly increase its return on capital by the 2022 financial year.

He said of today's results: "This strong momentum will be carried into the 2018 financial year, with volume growth of 7% and further productivity gains expected."

Liberum analyst Richard Knights has a sell rating and target price of 800p. However, he said these were a good set of numbers from BHP and praised the company for showing that it is prepared to listen to shareholders.

BHP Billiton also expects capital and exploration expenditure to increase to $6.9 billion in the 2018 financial year.

This comes as it reshapes its portfolio to focus on large, long-life and low-cost assets "that will support shareholder returns for decades to come".

Earlier this year, it approved investment for its share of the development of the Mad Dog Phase 2 oil project in the Gulf of Mexico.

And last week, BHP unveiled an investment of $2.5 billion for the development of the Spence open cut copper mine in Northern Chile, extending the mine life by more than 50 years.

However, the company has said plans to develop a giant potash mine in Canada will not be developed immediately as it looks at multiple options for maximising the value of the project, including through bringing in a partner. The Jansen scheme has also been the subject of criticism from Elliott.

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