BHP upbeat on oil, LNG demand outlook

UK-Australian resources firm BHP has a positive outlook for global oil and gas export demand because of strength in developing economies and rising demand for LNG as domestic gas reserves are depleted.

"The fundamental outlook (for oil) remains positive, underpinned by rising demand from the developing world and natural field decline," BHP said.

Global oil demand is likely to rise above 100mn b/d in 2019 from 99.24mn b/d last year, according to IEA forecasts. Oil and gas account for more than 20pc of BHP's group profits.

Benchmark LNG prices have risen in Asia-Pacific, the world's largest LNG consuming region, reflecting strong demand and slower than expected ramp-ups in new LNG projects.

"A material amount of new LNG supply is expected to come on line in 2019," BHP said. "Longer term, the demand outlook for gas remains positive. Depleting domestic gas supplies in some major consuming markets will help LNG to increase at a faster rate than overall gas market demand."

BHP largest exposure to the LNG market is through its 16.6pc stake in the 16.3mn t/yr North West Shelf (NWS) LNG project offshore Western Australia.

BHP reported a small rise in production costs in its petroleum business to $11.14/bl of oil equivalent (boe) in July-December 2018 from $10.17/boe a year earlier. Its average realised price rose by 29pc to $69.41/boe over the same period, while the average natural price received was up by 12pc to $3.98/'000 ft³ and the LNG price increased by 36pc to $10.19/'000 ft³.

The rise in profits per barrel produced helped send BHP's underlying profit before interest and tax higher to $1.44bn in the six-month period, the first half of the company's 2018-19 financial year, from $617mn a year earlier. Sales rose to $3.2bn from $2.58bn over the same period.

BHP maintained its production guidance for the July 2018 to June 2019 fiscal year at 309,600-323,300 boe/d. Output for the first half of the period eased by 1pc to 342,400 boe/d.

BHP said it is looking to expand its oil operations, despite having sold upstream assets such as its US onshore shale operations and the Bruce and Keith fields in the North Sea last year.

The company plans to spend $1.5bn on its petroleum business in 2018-19, rising to $1.8bn in 2019-20. Current investments are in oil projects based on an oil price averaging below $50/bl, it said. BHP last week approved funding of $696mn for its share of the phase three development at the Atlantis oil and gas field in the US Gulf of Mexico.

BHP plans to sanction development of the Ruby oil and gas project offshore Trinidad later this year at an estimated cost of $330mn, with first production seen in 2021-22. Ruby is expected to produce an average of 16,000 b/d of oil and 80mn ft³/d (824mn m³/yr) of gas.