Investor pushes BHP Billiton to spin off U.S. oil business

Activist investor group Elliott Associates is pushing Australian mining conglomerate BHP Billiton to splinter off its U.S. oil business and list it on the New York Stock Exchange.

In a letter released Monday, the hedge fund said BHP Billiton’s Houston-based U.S. oil business could be worth $22 billion, but the company’s other segments in mining are drawing away too much capital.

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“BHP’s management simply cannot justify allocating the capital which the U.S. onshore assets would need for the U.S. petroleum business to realize its growth potential,” Elliott said.

A spinoff of BHP’s assets in the Gulf of Mexico and U.S. shale, it argued, would change that, and give investors clarity on their exposure to the oil and gas business. BHP has some 850,000 net acres in the Eagle Ford Shale and the Permian Basin in Texas, much of which it acquired when it paid $12 billion for independent oil company Petrohawk Energy Corp. in 2011.

Elliott owns 4.1 percent of BHP Billiton’s shares.

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For years, BHP has used its shale oil business as a lever for quicker returns than it gets in other segments. The short time it takes to drill multiple wells on dry land gives the conglomerate a bit of financial flexibility, it has argued in the past.

On Monday, the company said the costs of Elliott’s proposals, which included unifying its tax structure in Australia and repurchasing shares, outweigh the benefits. It argued there’s not much difference in its stock-market value compared with that of its rivals in mining and oil and gas.