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Australian mining and energy company BHP Billiton reported a half-year after tax profit of US$7.8 billion yesterday. For the six months ended December 31, 2013, the company’s financial results show that “underlying earnings before income tax (EBIT) increased by 15 per cent to US$12.4 billion, and underlying attributable profit (after tax) increased by 31 per cent to US$7.8 billion”.
BHPs Operational Review—released before the financial results—showed increased natural gas production, and decreased petroleum production out of T&T. From its Angostura field in Block 2c, off the east coast of Trinidad, BHP Billiton reported December year-to-date petroleum production of 634,000 barrels last year, down from 738,000 barrels in 2012. For the half year ended December 31, BHP Billiton’s natural gas production out of Angostura climbed to 19.56 billion cubic feet (bcf) of gas, from 18.36 bcf in 2012.
For at the quarter ending December 31, 2013, compared to the same period in the previous year, the company’s local petroleum production decreased to 314,000 barrels from 362,000 barrels. For the previous quarter ending September 30, 2013, oil production fell from 320,000 to 314,000 barrels.
As for natural gas out of T&T, in the quarter ending December 31, 2013, compared to the quarter ending December 31, 2012, the company’s production rose to 9.66 bcf from 9.15 bcf. Results for the previous quarter ending September 30, 2013, show that natural gas production fell from 9.90 bcf to 9.66 bcf. Globally, the company’s half-year profit beat analysts’ expectations, and the stock rose on the London, New York and Australian stock exchanges where it is multi-listed.
While the numbers were helped by tax effects that boosted profitability, BHP Billiton also showed significant cash flow creation, and stated that iron ore production was at record high levels. BHP Billiton Chief Executive Officer Andrew Mackenzie said the strong performance was driven by a substantial improvement in productivity and additional volume from the company’s low-risk, largely brownfield (already going on) investment programme.
“The commitment we made 18 months ago to deliver more tonnes and more barrels from our existing infrastructure at a lower unit cost is delivering tangible results,” he said.
“Annualised productivity led volume and cost efficiencies totalling US$4.9 billion are now embedded and this is expected to increase to US$5.5 billion by the end of the 2014 financial year. This sustainable increase in productivity supported a nine per cent increase in the group’s underlying EBIT margin to 38 per cent and a strong improvement in the group’s underlying return on capital to 22 per cent.”
A 65 per cent increase in net operating cash flow and a 25 per cent reduction in cash outflows from investing activities drove a US$7.8 billion increase in free cash flow during the period, the company said in a statement. Mackenzie said the group’s opportunity-rich portfolio remains a key point of differentiation. “By maintaining strict financial discipline and increasing internal competition for capital we intend to further differentiate ourselves by creating a more capital-efficient organisation,” he said.
“On this basis, we believe an average rate of return of greater than 20 per cent is achievable for our portfolio of major development options.” The group’s interim dividend of 59 US cents per share was unchanged from last year’s final dividend, consistent with recent practice. The resultant 3.5 per cent increase in the interim distribution highlights the power of the company’s progressive dividend policy, the statement said.
With strong free cash flow (FCF) projected, net debt of US$27.1 billion is expected to approach US$25 billion by the end of the 2014 financial year, the company said. “With strong free cash flow, selective investment and continued simplification, we are well placed to extend our strong track record of capital management,” Mackenzie said.
“I want to acknowledge the hard work of BHP Billiton employees and their contribution to these strong results. Together we are improving the productivity and competitiveness of the company and the countries in which we operate. I also want to thank our people for their unwavering commitment to health and safety.”