Activist investor Elliott Management renewed calls a shake up at BHP (BHP) Tuesday, claiming broad investor support for its plan to sell some or all of the mining giant's US oil assets.
Elliott has been lobbying for a change in BHP strategy since April 10, and this weeks sharpened its, claiming the oil business held the key to boosting shareholder returns while abandoning earlier demands that the company consider dropping its Australian listing.
The Melbourne, Australia-headquartered mining company has already rejected calls from Elliott to spin off and list its US oil business, claiming that it has conducted reviews of the unit on two occasions and found that a sale would undermine BHP's diversification and that the oil operations were fairly valued within the group.
BHP shares were marked 0.15% lower in the opening hour of trading in London and changing hands at 1,188 pence each, extending their year-to-date decline to just over 9%.
Elliott, which owns 4.1% of BHP's UK-listed business, remains unconvinced and called on BHP's CEO Andrew Mackenzie to launch an independent review of the business. Elliott's push appears timed to coincide with a presentation by Mackenzie at a Bank of America Merrill Lynch mining conference that begins Wednesday.
"There is extremely broad and deep-rooted support for proactive steps to be taken by management to achieve an optimal value outcome for BHP's petroleum business following a formal open review," Elliott wrote in a letter to BHP's management.
Elliott, led by Paul Singer, claimed that carving out and listing BHP's shale and deepwater oil operations, would create a business worth as much $22 billion, or about $15 billion more than Elliott believes it is worth within BHP. Those demands won qualified support from Australian boutique investment fund Tribeca Investment Partners, which said earlier this month that BHP should abandon its US shale assets, but retain its US deepwater operations located in the Gulf of Mexico.
"We and other shareholders are concerned that despite the clear signs that the market is receptive to a new strategy for BHP, current management seems intent on quieting the enthusiasm for BHP to dig deeper in tackling the obvious shareholder value enhancement opportunities which exist," wrote Elliott.
BHP could return billions to shareholders by selling the oil assets, though the payments would be a one off benefit and would do little to add to the group's long-term growth prospects, Citi analyst noted last week. "The current period of shareholder activism could result in a break-up and/or a significant alteration of the company's structure," wrote Citi analysts.
BHP spent about $20 billion buying U.S. shale assets in 2011, including $12 billion for Petrohawk Energy, which owned the Hawkville site, and $4.75 billion for Fayetteville Shale properties from Chesapeake Energy. The investment proved a poor one for the mining company, which spent a further $17 billion to rapidly develop the operations while also notching $13 billion in write downs on the assets after the price of oil collapsed over 2014 and 2015.
BHP produced 60.5 million barrels of oil equivalent from its U.S. onshore unit over the nine-months to the end of March and expects to produce between 77 million and 83 million barrels by the end of its 2017 financial year. The group's offshore oil assets that will produce as much as 127MMboe by the end of the financial year.