Shale business brings ‘growth engine’ to BHP Billiton, exec says

HOUSTON — BHP Billiton plans to spend two-thirds of its petroleum budget on U.S. shale in coming years, but the Australian natural resources giant knows that the biggest returns come from replicating low-cost production over and over.

Though it has the financial muscle of a behemoth company, BHP Billiton wants to compete with smaller, more nimble companies to squeeze as much money as possible out of its U.S. shale assets, said Tim Cutt, BHP Billiton’s president for petroleum and potash, during an interview with FuelFix. To do that, the company is focused on driving costs down – and keeping them down – with technology-driven efforts to improve the efficiency of well drilling and completion.

“I’d say our focus over the next few years will be less about mergers and acquisitions and a whole lot more about productivity and improving the margins on every single well we’re drilling,” Cutt said.

BHP Billiton, which entered the U.S. shale game in 2011, saw its oil and gas production from shale grow 15 percent last year. Its liquids production grew 75 percent and is expected to keep growing.

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And while it does “bring a growth engine to the business in general,” Cutt said shale production gives the company something else it needs: flexibility. It’s a lot easier to “turn it on and off” than other multidecade projects.

“I think it’s a really good throttle for the company to have as far as capital spending,” he said. “You can really hone in on the returns you’re looking for and move your capital spending accordingly.”

That’s part of the reason the company in July split its petroleum business into two divisions, shale and conventional production. Cutt explained that conventional production typically involves building big projects and putting “all the capital up front.”

“In the shale, it’s a continual investment, and those who win have the best manufacturing process and they have the best recovery per well,” he said.

Cutt noted that the company’s new chief executive, Andrew Mackenzie, who took the role in May, is putting more of an emphasis on value creation than on increases in oil and gas production.

He said the company is looking to invest more heavily in oil and gas liquids production. Currently, the vast majority of BHP Billiton’s shale rigs are running in the Eagle Ford in South Texas. BHP Billiton also has a team looking at shale plays around the world, and is getting bullish on its assessment of the Permian Basin, Cutt said.

“We see that as another liquids-rich play that we can grow into,” he said.

Check back on Sunday to read more from the FuelFix interview with Cutt.