BHP Billiton, which is down to less than 100 workers in the Arkansas Fayetteville Shale play, on Monday rejected a proposal by a U.S. hedge fund to split the Australian conglomerate into two separate, publicly-traded entities.
BHP said it had studied key parts of a proposal sent to company investors and board directors Monday (April 10) by New York City-based Elliott Associates that outlines changes to the Australian mining giant’s dual listed company structure, asset portfolio and capital management.
“After reviewing the elements of Elliott’s proposal, we have concluded that the costs and associated risks of Elliott’s proposal would significantly outweigh any potential benefits,” BHP said in a note to shareholders.
Under its complex “dual-listing” corporate structure, BHP is now headquartered in Melbourne, Australia, but still has two separate legal stock listings on the London Stock Exchange and the Australian Securities Exchange. In addition, BHP also lists American Depositary Receipt (ADR) securities on the New York Stock Exchange under the ticker symbol “BBL,” where each receipt represents two ordinary shares of BHP stock traded in London.
In a proposal package sent to BHP shareholders, Elliott asks the Australian industrial conglomerate to unify its dual-listed structure into a single Australian headquartered and Australian tax resident listed company. At the same time, the New York hedge fund, which has a 4.1% stake in BHP worth more than $3 billion, asks the company to demerger its $22 billion in U.S. oil and gas assets and create a separate publicly traded petroleum business that trades on the New York Stock Exchange.
“Despite being a leading global resources company with a portfolio of best-in-class large-scale diversified mining assets, in recent years BHP as an investment has underperformed a portfolio of comparable mineral and petroleum companies,” Elliott writes in its “BHP Shareholder Value Unlock Plan.”
Elliott, an activist hedge fund with more than $33 billion in assets under management, said BHP’s structure was originally put in place in order to economically combine BHP and Billiton without either company actually acquiring or merging with the other in the legal sense.
BHP’s highly-valued U.S. petroleum operations had its origin in Arkansas’ Fayetteville Shale, when Chesapeake Energy Corp. announced in February 2011 it had agreed to sell its Arkansas gas interests to BHP for $4.75 billion. In the past 12 months, BHP has accelerated its investment in the Gulf of Mexico, offering winning bids in Mexico’s first-ever oil and gas auction in late 2016.
Although BHP has shuttered most of its drilling operations in the Arkansas shale play and cut spending to support fewer than 100 employees, company officials said BHP has been able to maintain operations in the region due to ongoing sales of marketed natural gas from wells already drilled and now in production.
“We have a team of about 95 employees supporting our operations in Arkansas (and) Fayetteville is currently cash-flow-positive and carries minimal holding costs for BHP Billiton,” BHP spokeswoman Kara McCulloch told Talk Business & Politics in February. “The vast majority of our acreage is held by production already.”
Behind Southwestern Energy, BHP is still the second-largest Fayetteville Shale player with stakes in more than 487,000 net acres and hundreds of undeveloped wells in the unconventional natural gas development. BHP said recently it plans to maximize value in the Fayetteville Shale rather than volumes and would adjust its investment plans to reflect market conditions, specifically noting that it would restart drilling operations in Arkansas once natural gas prices futures rose consistently above the “breakeven point” of $3 per million British Thermal units (MMBtu).
BHP, along with El Dorado-based Murphy Oil Corp. and other multinational and state oil-owned companies such as Shell Oil, BP, ExxonMobil, Statoil and the China National Offshore Oil Corp., have made huge investments in new oil and gas developments in deepwater Gulf of Mexico that Wall Street believes has huge potential and big future payoffs.
In Monday’s early trading session on the New York Stock Exchange, BHP American depository shares were up $1.15, or 3.7% at $33. At the New York Mercantile Exchange, West Texas intermediate was up 11 cents at $52.35 per barrel and natural gas futures for May delivery fell seven cents to $3.261 per MMBtu.