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BHPBill -- exploration and development report
This report covers the group's exploration and development activities for the March 2012 quarter. Unless otherwise stated, BHP Billiton's interest in the projects referred to in this report is 100 per cent and references to project schedules are based on calendar years.
Development
BHPBill's commitment to developing its portfolio of high return growth projects, diversified by commodity, geography and market was further reinforced by the approval of additional investment in its world class Base Metals, Iron Ore and Petroleum businesses. During the March 2012 quarter, BHP Billiton announced approval of the USD2.2 billion (BHP Billiton share) Escondida Organic Growth Project 1 (OGP1) which involves the replacement of an existing concentrator and allows access to valuable, higher grade ore. BHP Billiton also approved the USD414 million (BHP Billiton share) Escondida Oxide Leach Area Project (OLAP). In addition, pre-commitment expenditure of USD779 million (BHP Billiton share) for the proposed Western Australia Iron Ore (WAIO) Outer Harbour development was approved. This funding will enable feasibility studies to progress, the procurement of long lead time items and for dredging to begin, subject to the necessary regulatory approvals. On 11 April 2012, BHP Billiton also approved pre-commitment funding of USD708 million (BHP Billiton share) for the Mad Dog Phase 2 project in the deepwater Gulf of Mexico which will facilitate detailed engineering and the procurement of long lead time items related to the hull, topsides and subsea equipment. The Worsley Efficiency & Growth project will no longer be reported in future Exploration and Development Reports as it achieved first production in the March 2012 quarter and is 98 per cent complete. BHP Billiton's Onshore US drilling and development expenditure totalled USD2.2 billion for the nine months ended March 2012.
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BHPBill -- production report
Highlights
- Western Australia Iron Ore achieved record production for the nine months ended March 2012, a 22% increase on the prior corresponding period.
- The Onshore US petroleum business delivered a 35% increase in liquids production compared to the December 2011 quarter.
- Escondida (Chile) production increased by 9% from the December 2011 quarter, benefiting from higher ore grades.
- Production records for the nine months and quarter ended March 2012 were achieved at two of BHP Billiton's high value, export orientated energy coal operations, New South Wales Energy Coal (Australia) and Cerrejon Coal (Colombia).
- Queensland Coal (Australia) production remained constrained as a result of industrial action and heavy rainfall.
Total petroleum production
Total production increased for the nine months ended March 2012 as our recently acquired Onshore US business reported strong growth. Guidance for the 2012 financial year of 225 million barrels of oil equivalent (MMboe) remains unchanged. Crude oil, condensate and natural gas liquids - Lower production for the nine months ended March 2012 reflected expiration of the Ohanet (Algeria) Risk Sharing Contract, maintenance and drilling delays at non-operated facilities, weather related downtime in Western Australia and natural field decline, especially at Pyrenees (Australia). Mad Dog (USA) was offline for the entire quarter and is forecast by the operator to recommence production during the June 2012 quarter. Atlantis (USA) was shut-in during April 2012 for an extended period of scheduled maintenance and will be offline until the September 2012 quarter. Notably, the Onshore US business delivered a 35 per cent increase in liquids production compared to the December 2011 quarter. These liquids contributed 3.5 MMboe of Onshore US production in the March 2012 quarter consistent with our shift in focus towards the high return Eagle Ford shale. We continue to adjust our Onshore US development plans in response to lower US gas prices and expect activity in the liquids rich Eagle Ford shale and Permian Basin to represent the significant majority of Onshore US operating activity by the end of the 2012 calendar year.
Natural gas
Strong performance from the Onshore US and Angostura (Trinidad and Tobago) businesses contributed to higher natural gas production for the nine months ended March 2012.
Alumina
Production in the March 2012 quarter was higher than all comparable periods as the Alumar refinery (Brazil) continued to deliver into expanded capacity and output at Worsley (Australia) recovered following a planned calciner outage in the December 2011 quarter.
Aluminium
Production decreased during the March 2012 quarter as a major unplanned outage at Hillside (South Africa) led to the temporary curtailment of potline capacity. Operations are expected to progressively return to full technical capacity over the next year.
Copper
Consistent with the mine plan, Escondida production increased by nine per cent from the December 2011 quarter, benefiting from higher ore grades. This was offset by unfavourable weather conditions and lower recoveries at Pampa Norte (Chile) and planned maintenance at Olympic Dam (Australia). Recent investment in the mining fleets at Antamina (Peru) and Pampa Norte contributed to material mined records for both assets for the nine months ended March 2012. In addition, Antamina achieved a milling record for the same period following successful commissioning of the expansion project. Escondida production guidance remains unchanged for the 2012 financial year. Production is expected to improve as mining activities progress towards higher grade ore with completion of the Escondida Ore Access project in the main pit. Lead/silver - Production at Cannington (Australia) decreased in the March 2012 quarter reflecting lower average ore grades and mill throughput.
Zinc
An improvement in Antamina ore grades and the successful commissioning of the expansion project led to a five per cent increase in total zinc production in the March 2012 quarter.
Diamonds
As anticipated, production was lower than all comparable periods. EKATI (Canada) production is expected to remain constrained in the medium term as the operations extract lower grade material, consistent with the mine plan. BHP Billiton announced a review of its diamonds business during the December 2011 quarter and this process is ongoing. During the March 2012 quarter, BHP Billiton announced that it had exercised an option to sell its 37 per cent non- operated interest in Richards Bay Minerals (South Africa) to Rio Tinto.
Nickel
Production was higher than all comparable periods reflecting improved smelter and refinery performance at Nickel West (Australia) and strong operating performance at Cerro Matoso (Colombia) following the successful replacement of the Line 1 furnace in September 2011. During the March 2012 quarter the Nickel West Kwinana hydrogen plant was successfully commissioned and will enable the refinery to operate at full capacity in future periods. In response to persistent weakness in nickel prices and the continued strength of the Australian dollar, BHP Billiton announced a reduction in functional support staff and a temporary reduction in mining activity at Nickel West Mt Keith during the March 2012 quarter. Production of nickel concentrate at Mt Keith will be maintained in the short term as commissioning of the Talc Redesign Project has enabled stockpiled talc-bearing ore to be processed.
Iron ore
Western Australia Iron Ore (WAIO) achieved record production for the nine months ended March 2012 despite a decline in volumes in the March 2012 quarter as a result of cyclone activity. Consistently strong operating performance, combined with the continued ramp up of Ore Handling Plant 3 at Yandi, dual tracking of the company's rail infrastructure and additional ship loading capacity at Port Hedland, contributed to the record result. Full year WAIO production guidance remains unchanged as scheduled maintenance and tie-in activities are expected to constrain performance in the June 2012 quarter.
Manganese ore
Production and sales in the March 2012 quarter were higher following the recovery from weather related downtime at GEMCO (Australia) and planned maintenance at Hotazel (South Africa). Record production and sales for the nine months ended March 2012 were achieved at both GEMCO and Hotazel. Manganese alloy - In response to challenging conditions in the downstream manganese alloy industry, BHP Billiton announced the temporary suspension of production at TEMCO (Australia) and the cessation of production of energy intensive silica manganese at the Metalloys plant (South Africa) during the March 2012 quarter.
Metallurgical coal
Queensland Coal production remained constrained in the March 2012 quarter as a result of industrial action and heavy rainfall. The extent to which industrial action will continue to affect production, sales and unit costs is difficult to predict, however with inventories now severely depleted, the impact on future quarters may be significant. Force majeure was declared across all BMA sites in April 2012 and remains in place. A planned longwall move and plant shutdown at Dendrobium led to lower production at Illawarra Coal (Australia) in the March 2012 quarter. A longwall move at Appin is scheduled for the June 2012 quarter.
Energy coal
Production records for the nine months and quarter ended March 2012 were achieved at two of BHP Billiton's high value, export orientated energy coal operations, New South Wales Energy Coal and Cerrejon Coal. Export volumes for New South Wales Energy Coal were adversely affected by vessel delays at the Port of Newcastle in the March 2012 quarter. Preparation for the resumption of mining activity at San Juan Coal (USA) has commenced, with a full restart expected in the June 2012 quarter. Throughout this report, unless otherwise stated, production volumes refer to BHP Billiton's share and exclude suspended and sold operations. This report, together with the Exploration and Development Report, represents the Interim Management Statement for the purposes of the UK Listing Authority’s Disclosure and Transparency Rules. There have been no significant changes in the financial position of the Group in the quarter ended 31 March 2012.
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BHPBill -- funding approved for Mad Dog Phase 2
BHPBill announced approval for USD708 million (BHPBill share) in pre-commitment funding for the Mad Dog Phase 2 project in the deepwater Gulf of Mexico. The funding will facilitate detailed engineering and the procurement of long lead time items related to the hull, topsides and subsea equipment.
The Mad Dog Phase 2 project is based on successful appraisal drilling which confirmed significant hydrocarbons in the southern portion of the Mad Dog field. The proposed project includes the development of a second spar facility with all subsea production and injection wells. The new facility is estimated to have a design capacity of approximately 130 000 barrels of oil per day that will be exported via the Mardi Gras Pipelines under existing agreements. A final investment decision is anticipated in calendar year 2013 with first production scheduled for calendar year 2018. Mad Dog is a partnership between BP (operator, 60.5 percent share), BHPBill (23.9 percent) and Chevron (15.6 percent).
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