– Group production increased by 9% during the December 2014 half year with records achieved for eight operations and five commodities. Production guidance remains unchanged and we are on track to deliver Group production growth of 16% over the two years to the end of the 2015 financial year.
– Metallurgical coal production increased by 21% to 26 Mt in the December 2014 half year as Queensland Coal and Illawarra Coal both achieved record half year volumes.
– Western Australia Iron Ore production increased by 15% to a record of 124 Mt (100% basis) in the December 2014 half year as the ramp-up of Jimblebar continued and we improved the availability, utilisation and rate of our integrated supply chain.
– Petroleum production increased by 9% to a record 131 MMboe in the December 2014 half year supported by a 71% increase in Onshore US liquids volumes to 24.4 MMboe.
– Copper production(1) decreased by 2% to 813 kt as strong underlying operating performance across the business was offset by lower grades at Antamina.
– Record manganese ore and alumina production was underpinned by strong performances at both Hotazel and the Alumar refinery.
BHP Billiton Chief Executive Officer, Andrew Mackenzie, said: “Our operational performance over the last six months has been strong. We are reducing costs and improving both operating and capital productivity across the Group faster than originally planned. These improvements will help mitigate some of the impact of lower commodity prices and we remain alert to opportunities to further increase free cash flow.
“In Petroleum, we have moved quickly in response to lower prices and will reduce the number of rigs we operate in our Onshore US business by approximately 40 per cent by the end of this financial year. The revised drilling program will benefit from significant improvements in drilling and completions efficiency. Our ongoing shale investment program will remain focused on our liquids-rich Black Hawk acreage. However, we will keep this activity under review and make further changes if we believe deferring development will create more value than near-term production.
“We continue to believe that our planned demerger will help support further improvements in operating performance in both the core BHP Billiton and South32 assets. Within BHP Billiton, it would allow us to identify and deploy best practice across our assets more quickly and simplify our organisation to reduce overheads. We are making good progress towards securing the approvals we require to put the proposal to a shareholder vote in May and remain on track to complete the process before the end of the financial year.”
Major development projects
The Escondida Oxide Leach Area Project was successfully completed during the December 2014 quarter and the BMA Hay Point Stage Three Expansion project loaded first coal on 12 January 2015, both on revised schedule and budget. The Escondida Oxide Leach Area Project will not be reported in future Operational Reviews. At the end of the December 2014 half year, BHP Billiton had seven major projects under development with a combined budget of US$13.5 billion.
Corporate update
On 8 December 2014, BHP Billiton announced that the new company it intends to create through its proposed demerger will be called South32. A final Board decision on the proposed demerger will be made once all necessary third party approvals are secured on satisfactory terms. On this basis, BHP Billiton expects to release all shareholder documentation with full details of the proposed demerger in mid-March 2015, with a shareholder vote taking place in early May 2015. The demerger remains on track to be completed in the first half of the 2015 calendar year.
BHP Billiton expects Underlying attributable profit in the December 2014 half year to include impairment charges in the range of approximately US$200 million to US$250 million recognised as a result of the divestment of conventional petroleum assets in North Louisiana and unconventional gas assets in the Pecos field in the Permian.
The Minerals Resource Rent Tax (MRRT) in Australia has been repealed and was applicable until 30 September 2014. As a result, the MRRT deferred tax asset carried by the Group was derecognised and an income tax charge of US$809 million will be reported as an exceptional item in the December 2014 half year. The Group’s adjusted effective tax rate(4) is expected to remain in the range of 30 per cent to 34 per cent in the December 2014 half year.
On 12 November 2014, BHP Billiton announced that the review of its Nickel West business was complete and the preferred option, the sale of the business, was not achieved on an acceptable basis. As a result of operational decisions made subsequent to the conclusion of this process, an impairment charge in the range of US$200 million to US$350 million (after tax expense) will be recognised as an exceptional item in the December 2014 half year. At this time, Nickel West remains in the BHP Billiton portfolio and the Company continues to operate the business to maximise production, reduce operating costs and increase free cash flow. This guidance will be updated should material information or events arise as the Company finalises its financial statements.
Marketing update
The average realised prices achieved for our major commodities are summarized in the table below. Iron ore shipments, on average, were linked to the index price for the month of shipment, with price differentials reflecting product quality. The majority of metallurgical coal and energy coal exports were linked to the index price for the month of shipment or sold on the spot market, with price differentials reflecting product quality.
At 31 December 2014, the Group had 322 kt of outstanding copper sales that were revalued at a weighted average price of US$2.87 per pound. The final price of these sales will be determined over the remainder of the 2015 financial year. In addition, 350 kt of copper sales from the 2014 financial year were subject to a finalization adjustment in the current period. The provisional pricing and finalization adjustments will decrease earnings before interest and tax by US$210 million in the December 2014 half year (December 2013 half year: US$196 million increase).
Total petroleum production – Total petroleum production increased by nine per cent in the December 2014 half year to a record 131.0 MMboe. Guidance for the 2015 financial year remains unchanged at 255 MMboe. Crude oil, condensate and natural gas liquids – Crude oil, condensate and natural gas liquids production increased by 24 per cent in the December 2014 half year to 62.1 MMboe.
Onshore US liquids volumes rose by 71 per cent in the December 2014 half year to a record 24.4 MMboe. This strong performance was underpinned by continued momentum in the Black Hawk and Permian where liquids production increased by 81 per cent and 107 per cent, respectively.
In our Conventional business, liquids production at Pyrenees and Atlantis increased by 34 per cent and 12 per cent, respectively, supported by strong uptime performance and the completion of new production wells in the second half of the 2014 financial year.
Natural gas – Natural gas production declined by two per cent in the December 2014 half year to 413 bcf. Strong uptime performance at North West Shelf and Macedon partially offset lower seasonal demand at Bass Strait and the divestment of Liverpool Bay which was completed in the 2014 financial year.
Onshore US development activity
Onshore US drilling and development expenditure totalled US$1.9 billion in the December 2014 half year. In response to weaker prices, the Company will reduce its operated rig count from 26 at period end to 16 by the end of the 2015 financial year. An update to the drilling and development expenditure budget for the 2015 financial year will be provided with the release of our interim results in February 2015.
The majority of the revised drilling program will be focused on our liquids-rich Black Hawk acreage with activity in the Permian and Hawkville limited to the retention of core acreage. The Company’s dry gas development program will be reduced to one operated rig in the Haynesville, with a focus on continued drilling and completions optimisation ahead of full field development.
The reduction in drilling activity will not impact 2015 financial year production guidance and we remain confident
that shale liquids volumes will rise by approximately 50 per cent in the period.
Petroleum exploration expenditure for the December 2014 half year was US$268 million, of which US$244 million was expensed. Total petroleum exploration expenditure for the 2015 financial year is now forecast to be US$600 million, a 20 per cent reduction from prior guidance. The program will remain focused on the Gulf of Mexico, Western Australia and Trinidad and Tobago.
The seismic acquisition program in Trinidad and Tobago was successfully completed for the seven deep water blocks accessed between 2012 and 2014. The acquisition for the two blocks awarded in the 2014 deep water bid round is progressing on schedule.
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