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BHPBill-quarterly exploration & development report
This report covers the group's exploration and development activities for the December 2012 quarter. Unless otherwise stated, BHPBill'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 unchanged strategy, which is to invest in large, long life, low cost, expandable, upstream assets, diversified by commodity, geography and market, ensures the group is well placed to deliver high margin growth in the major businesses. The group has 20 low risk, largely brownfield projects in various stages of development and these projects, all of which remain on schedule, are expected to generate strong financial returns for our shareholders.
The Western Australia Iron Ore (WAIO) Port Hedland Inner Harbour Expansion project achieved first production during the December 2012 quarter as ore was received by the recently installed fifth car dumper at Finucane Island. Debottlenecking and optimisation projects across the WAIO supply chain are currently being evaluated and have the potential to underpin significant growth well beyond recently expanded port capacity of 220 million tonnes per annum (100 per cent basis). WAIO Orebody 24 also delivered first production.
During the December 2012 quarter, BHPBill announced approval for a USD520 million (BHPBill share) investment in the Longford Gas Conditioning Plant (LGCP) project as part of the Gippsland Basin Joint Venture (Australia). The LGCP will add carbon dioxide (CO2) removal capacity which is necessary to condition production from the Bass Strait Turrum project currently in development.
In addition, BHPBill signed a definitive agreement with PetroChina International Investment (Australia) Pty Ltd during the period to sell its 8.33 per cent interest in the East Browse Joint Venture and 20 per cent interest in the West Browse Joint Venture, located offshore Western Australia, for a cash consideration of USD1.63 billion. The transaction is subject to regulatory approval and other customary conditions. Completion is expected in the first half of calendar year 2013.
BHPBill's Onshore US drilling and development expenditure for the December 2012 half year was USD2.1 billion and guidance for the 2013 financial year remains unchanged at USD4.0 billion. Over 80 per cent of this expenditure will be focused on the liquids rich areas of the Eagle Ford and Permian.
Minerals exploration
Greenfield minerals exploration is focused on advancing copper targets within Chile and Peru. Minerals exploration expenditure for the December 2012 half year was USD363 million, of which USD272 million was expensed.
Petroleum exploration
Exploration and appraisal wells drilled during the quarter or in the process of drilling as at 31 December 2012. Petroleum exploration expenditure for the December 2012 half year was USD308 million, of which USD276 million was expensed. Petroleum exploration expenditure of approximately USD775 million is anticipated in the 2013 financial year with the majority of drilling activity scheduled to occur in the Gulf of Mexico.
- Initial production through the Turrum facilities, scheduled for the 2013 calendar year, will be low CO2 gas. Additional high CO2 production from the Turrum reservoir will come online with completion of the Longford Gas Conditioning Plant in the 2016 calendar year.
- BHPBill has agreed to sell its diamonds business, comprising its interests in the EKATI Diamond Mine and Diamonds Marketing operations, to Harry Winston Diamond Mines Ltd for an aggregate cash consideration of USD500 million. The transactions are subject to regulatory approval and other customary conditions. Completion is expected in the first half of calendar year 2013.
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BHPBill -- 2012 half-year production report
Highlights:
- The release of latent capacity at a number of the highest margin businesses and strong growth across the broader portfolio is expected to deliver a compound annual growth rate of 10% in copper equivalent terms over the two years to the end of the 2014 financial year.
- Western Australia Iron Ore (WAIO) delivered a twelfth consecutive December half year production and sales record. First ore was received by the fifth car dumper, which is the last major piece of infrastructure required to increase WAIO port capacity to 220 million tonnes per annum (100% basis). WAIO production guidance remains unchanged with a 5% increase anticipated in the 2013 financial year.
- Petroleum production of 121 million barrels of oil equivalent during the December 2012 half year underpins full year guidance, which remains unchanged at 240 million barrels of oil equivalent.
- Copper in concentrate production at Escondida increased by 70% in the December 2012 half year when compared with the prior corresponding period. Total Escondida copper production is on track to increase by 20% in the 2013 financial year.
- At the end of the December 2012 quarter, Queensland Coal production was approaching full supply chain capacity. The associated increase in productivity, broader economies of scale and the closure of high cost capacity is expected to deliver a substantial reduction in unit costs in the second half of the 2013 financial year.
Petroleum
Total petroleum production: Petroleum production of 121 million barrels of oil equivalent during the December 2012 half year underpins full year guidance, which remains unchanged at 240 million barrels of oil equivalent.
Crude oil, condensate and natural gas liquids: Liquids volumes increased by four per cent from the September 2012 quarter and reflected continued growth in Onshore US liquids production, development drilling at Shenzi (US) and a full quarter contribution from the Atlantis and Mad Dog facilities (both US). These strong results were partially offset by a seasonal reduction in Bass Strait (Australia) production and natural field decline at Pyrenees (Australia).
Record Onshore US liquids production of 48 thousand barrels per day during the December 2012 quarter represented a 13 per cent increase from the prior period. A focused drilling program in the liquids-rich areas of the Eagle Ford and Permian is expected to drive strong growth in Onshore US liquids production over the remainder of the 2013 financial year.
Natural gas: Lower gas production in the December 2012 quarter reflected the seasonal reduction in demand for Bass Strait natural gas that followed a particularly strong September 2012 quarter.
Aluminium and Nickel
Alumina: Strong performance at Worsley (Australia) contributed to record alumina production in the December 2012 quarter and half year. Worsley operated at 95 per cent of design capacity during the December 2012 quarter following the successful ramp up of the Efficiency and Growth project.
Aluminium: Metal production increased by 10 per cent from the September 2012 quarter as Hillside (South Africa) production returned to full technical capacity, ahead of schedule.
Nickel: Nickel production declined by six per cent from the September 2012 quarter as strong operating performance at Cerro Matoso (Colombia) was more than offset by planned maintenance at the Nickel West Kalgoorlie smelter and Kwinana refinery (both Australia), which was completed during the period.
From a broader perspective, the strong Australian dollar and weak pricing environment continued to place pressure on the group's Australian alumina and nickel operations.
Base Metals
Copper: Copper in concentrate production at Escondida (Chile) increased by 70 per cent in the December 2012 half year when compared with the prior corresponding period. Production benefited from the transition to higher grade ore feed and the successful completion of large scale maintenance programs that have increased concentrator throughput. The average copper grade mined during the December 2012 quarter increased to 1.39 per cent. Total Escondida copper production is on track to increase by 20 per cent in the 2013 financial year.
Record production at Antamina (Peru) over the six month period also contributed to the 14 per cent increase in total copper production for the December 2012 half year, while a 26 per cent reduction in copper production at Olympic Dam (Australia) reflected the impact of a planned smelter outage in the period. The Olympic Dam smelter is expected to return to full capacity during the March 2013 quarter.
At 31 December 2012, the group had 311 847 tonnes of outstanding copper sales that were revalued at a weighted average price of USD3.59 per pound. The final price of these sales will be determined over the remainder of the 2013 financial year. In addition, 278 547 tonnes of copper sales from the 2012 financial year were subject to a finalisation adjustment in the current period. The finalisation adjustment and provisional pricing impact as at 31 December 2012 will increase earnings before interest and tax by USD48 million for the period.
Lead/silver: Lead and silver production was lower than all comparable periods and reflected lower head grades at Cannington (Australia).
Zinc: Production was broadly in line with all comparable periods.
Uranium: Higher recoveries associated with improved plant availability at Olympic Dam led to an eight per cent increase in production in the December 2012 half year when compared with the prior corresponding period.
Diamonds and Specialty Products
Diamonds: EKATI (Canada) production was lower than all comparable periods.
BHP Billiton has agreed to sell its diamonds business, comprising its interests in the EKATI Diamond Mine and Diamonds Marketing operations, to Harry Winston Diamond Mines Ltd for an aggregate cash consideration of USD500 million. The transactions are subject to regulatory approval and other customary conditions. Completion is expected in the first half of calendar year 2013.
Iron Ore
Iron ore: Western Australia Iron Ore (WAIO) delivered a twelfth consecutive December half year production and sales record as the business continued to benefit from the company's decade long investment in supply chain capacity. Our Pilbara operations achieved another significant milestone during the December 2012 quarter with first ore received by the recently installed fifth car dumper at Finucane Island. This car dumper is the last major piece of infrastructure required to increase WAIO port capacity from the December 2012 quarter run-rate of 188 million tonnes per annum to 220 million tonnes per annum (100 per cent basis).
The Jimblebar Mine Expansion, which is on schedule for first production in the March 2014 quarter, will broadly match mine and port capacity at this expanded rate, while the progressive debottlenecking of the supply chain is expected to underpin substantial low cost, longer term growth in our WAIO business.
The strong outlook for our WAIO business is underpinned by an anticipated five per cent increase in production in the 2013 financial year, for unchanged guidance of 183 million tonnes (100 per cent basis). Samarco's (Brazil) three pellet plants continued to operate at capacity during the period.
Manganese
Manganese ore: Record ore production in the December 2012 half year reflected a substantial improvement in plant availability at GEMCO (Australia).
Manganese alloy: Alloy volumes increased by 18 per cent from the September 2012 quarter as TEMCO (Australia) production returned to full capacity following the temporary suspension of operations that occurred during the 2012 financial year.
The decline in alloy production in the December 2012 half year when compared with the prior corresponding period reflected the permanent closure of energy intensive silicomanganese production at Metalloys (South Africa) in January 2012.
Metallurgical Coal
Metallurgical coal: Queensland Coal (Australia) sales increased by 30 per cent from the September 2012 quarter. However, the strong recovery in production that followed the conclusion of the BMA Enterprise Agreement was largely offset by planned wash plant outages at South Walker Creek and Goonyella, and the closure of high cost capacity at Gregory. The Gregory open-cut mine ceased production on 10 October 2012.
At the end of the December 2012 quarter, Queensland Coal production was approaching full supply chain capacity. The associated increase in productivity, broader economies of scale and the closure of high cost capacity is expected to deliver a substantial reduction in unit costs in the second half of the 2013 financial year.
At Illawarra Coal (Australia), a longwall move at the Dendrobium mine commenced at the end of the December 2012 quarter. Illawarra Coal achieved record sales during the December 2012 half year.
Energy Coal
Energy coal: A seven per cent increase in production in the December 2012 half year when compared with the prior corresponding period was underpinned by record production at New South Wales Energy Coal (Australia), which continued to benefit from the ramp up of the RX1 project. However, dragline outages at Navajo Coal and an unplanned shutdown at San Juan Coal (both US) contributed to a seven per cent decline in volumes from the September 2012 quarter.
The New South Wales Energy Coal and BECSA (South Africa) product mix continued to evolve with an increase in the overall proportion of high ash coal sold to key growth markets during the December 2012 half year.
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