Giant’s corporate restructure ramps up shale focus

giantPROMPTED by its productivity agenda, BHP Billiton is moving to separate its US shale business from its conventional oil and gas interests.

The reorganisation was announced by BHP president of petroleum and potash Tim Cutt in an interview with Oil & Gas Financial Journal – his first since taking on the role in July.

According to Mr Cutt, the company’s new chief executive Andrew Mackenzie had moved to simplify its corporate structure into five key businesses.

“We have followed suit by reorganising [the] Petroleum [department] into two divisions – conventional and shale,” Mr Cutt said.

“The shale business is similar to optimising a manufacturing process.

However, you need to understand the geology first, the phase of the hydrocarbons, and how the shale will react to hydraulic fracturing. There’s a lot of technology that goes into it. It’s not just picking up the acreage and beginning extraction. I don’t think the exploration/appraisal risk has been eliminated in shale.

“You clearly need to understand the depositional environment before development commences, and I think the manufacturing approach will boost drilling performance, reduce costs, and accelerate the time from when we spud the wells to the time we sell the products.

“When we think about developing shale, it’s really much more like a manufacturing process than typical oil and gas development. So we’re putting a consolidated business around our shale assets. As we restructure the business,

we’re absolutely confident we will be a top-tier shale development company globally.”

Mr Cutt said that Mr Mackenzie’s focus was on value and cash generation, rather than on increasing production volumes.

“Our shale business holds up well under his productivity agenda that is expected to extract billions in value from the existing portfolio. Our shale business will be a key focus area for this initiative.” BHP spent US$20 billion in recent years to acquire a number of shale assets and will continue to spend more than US$4 billion each year to grow its production capacity in the industry.

This has raised questions in the media about the company’s ability to meet the high exploration and capital expenditure demands of its conventional oil and gas business, particularly with commentators predicting a gas shortage in WA by 2020.

However, Mr Cutt said BHP was still very interested in conventional offshore oil and gas. “In the offshore realm, the upfront costs are much higher, so the initial exposure is greater and the technical challenges can be significant. Having said that, if you discover the right resource in the right part of the world, the returns can be very significant as well, so we’re still very interested in offshore,” he said.

Mr Cutt said that even though shale would be the Petroleum department’s “growth engine” for the near future, it would still maintain an equal focus on conventional oil and gas.

“We have tremendous deepwater experience in the organisation around the world…and we do plan to leverage that expertise moving forward, so we’re not just shifting to shale. We’re separating the two businesses, and we’re making sure we’re focussed on both,” he said.

“We’ll keep our technical expertise in the deepwater as strong as it has been in the past.

“Shale is critical to [the] Petroleum [department’s] success, but is also very important to the entire BHP Billiton group.”