Macquarie: BHP's sale of its shale oil assets 'overshadowed' yesterday's profit result

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BHP reported an underlying profit yesterday of $US6.7 billion yesterday, but the main focus for analysts was the company’s announcement that its US onshore shale assets will be put up for sale.

The underlying profit figure fell 7% short of Macquarie Bank’s forecast (which was in line with the market consensus).

The result still signaled a return to form, as BHP bounced back from a $US6.38 billion loss in the 2016 financial year.

That FY16 loss was caused by lower commodity prices and one-off asset write-downs. The largest of those write-downs was a $US4.9 billion impairment charge on the same shale oil assets that the company is now looking to sell.

The book value of BHP’s shale oil assets has subsequently declined by more than 40% over the last two years:

“The US Onshore assets remain a key source of negative sentiment for BHP,” Macquarie said.

“We believe the upcoming introduction of new Chairman Ken MacKenzie offers a plausible catalyst for a change in strategy, with a key emphasis of the results presentation being a focus on capital efficiency.”

The analysts said that four options were under consideration for BHP to exit its shale oil exposure: a trade sale, asset swap, demerger or initial public offering (IPO).

Macquarie expects BHP to undertake a multi-stage trade sale of the assets, which could raise $8-10 billion in cash.

BHP has maintained its forward guidance of $US1.2 billion in capital expenditure on in the shale assets in the 2018 financial year, in order to boost production and maintain their value.

Overall, Macquarie described the sale of BHP’s US shale assets as “a key positive” and said the cash raised would free the company up to raise dividends and buy back stock in FY18.

The bank has a 12-month forward price target of $30 for BHP shares. A short time ago BHP was trading at $26.14.

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