BHP Billiton under pressure to sell shale, even as oil prices fall

By Sonali Paul

MELBOURNE (Reuters) - BHP Billiton is facing pressure from two activist shareholders over its $20 billion splurge on U.S. shale oil and gas fields, but may resist calls to dump the business just as oil prices are sliding.

Investors grumble that while BHP Billiton is a good operator in deepwater oil and gas, its shale business, first acquired in 2011, has been a capital drain and shareholders would be better off with a sale. But now may not be the right time.

BHP says it sees petroleum as a core business, including most of the shale operations.

"The risk is doing it for the wrong reasons - because people are telling you do it - and getting out quickly. We're at $40 oil. It's not necessarily the greatest time to be contemplating that," said Brenton Saunders, an analyst at BT Investment Management, which owns BHP shares.

Australian boutique manager Tribeca Partners estimated BHP could fetch $10 billion for its shale assets, based on recent deals done in the Permian and Eagle Ford shale regions that implied prices of $30,000 to $40,000 per net acre.

However BHP has said it wants to hold on to its Permian acreage, where it has been consolidating its position by picking up high grade acreage and is looking to trade acreage or work with companies with adjoining acreage to boost production.

It has also highlighted its success in slashing costs by 64 percent in the Black Hawk region over the past four years.

"On many measures we're one of, if not the, lowest-cost operator," BHP CEO Andrew Mackenzie told investors in April, defending its rejection of a proposal by fund manager Elliott Management for the company to spin off its U.S. oil and gas assets.

BHP can take comfort in kudos from energy consultants Wood Mackenzie, which said the company has among the lowest breakeven costs among shale operators in one of the richest parts of the Permian Basin, $30.20 a barrel.

"BHP is active in the swap market, and we expect its operational success to open doors with swap and strategic partners," Wood Mackenzie said in a report, referring to the market for trading acreage with other operators.

Its less attractive Fayetteville acreage, valued at $919 million on its books at the end of 2016, is back up for sale.

BT's Saunders said one way BHP could divest shale while retaining exposure to a potential recovery in oil prices would be to vend the shale assets to a well-regarded shale operator in return for an equity stake in that company, which it could sell down the track.

Other operators active in areas where BHP holds acreage include ConocoPhillips, EOG Resources Inc, Anadarko Petroleum, and Marathon Oil Corp.

(Reporting by Sonali Paul; Editing by Richard Pullin)