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* Says onshore U.S. production to be self-funding in 2016
* Seeks to extend liquids production profile
* To focus spending on Australia, US, Trinidad and Tobago
* Sees good interest in U.S. Permian shale assets up forsale
By Clara Ferreira-Marques
LONDON, Dec 10 (Reuters) - BHP Billiton, the world'slargest miner and a top investor in U.S. onshore oil and gas,said on Tuesday its U.S. shale business should generate cashfrom 2016, contributing almost $3 billion a year to the group bythe end of the decade.
BHP, one of the largest producers outside the majorintegrated oil companies, plans to spend around $4 billion ayear to expand its U.S. onshore oil and gas production.
The company is dedicating a growing slice of its spending topetroleum, one of the key pillars of its broader business, alongwith iron ore in Western Australia, copper and coal.
Some analysts have raised questions over declining returnsin a petroleum business, which they say turned cash negativethis year for the first time in over a decade, reflecting heavyinvestments.
They have also queried the length of time before BHPinvestors will see a payback.
But BHP - whose boss Andrew Mackenzie is a former BP executive - said in presentations in Houston on Tuesday that theU.S. shale business was set to become a major cash-flowgenerator from 2020.
The company aims to boost productivity there and trim downthe remainder of its petroleum unit to focus on core assets inboth conventional oil and gas and shale, largely in the UnitedStates and Australia.
"We will continue to simplify the portfolio with a firmfocus on value," said Tim Cutt, a former Mobil and ExxonMobilexecutive who took the helm of BHP's petroleum and potashdivision in July.
BHP is on track to hit its 2014 petroleum production targetdespite a drop in output in the December quarter. It toldinvestors its spending programme would help it hit a goal ofincreasing liquids production from its shale business to 200,000barrels per day in 2017.
RISING PRICE
The company sees total onshore U.S. production of 500,000barrels of oil equivalent per day by the same date, roughly thetotal output of a large U.S. independent producer.
Predicated on what BHP forecasts will be a rising U.S. gasprice, this would allow the U.S. onshore business to fund itselffrom the 2016 financial year.
Cutt was confident on gas prices improving based onincreasing demand for gas in power stations, trucks and petrochemical plants and, from 2016 onward, in liquefied naturalgas (LNG) plants in the United States.
BHP, already a significant oil and gas player, moved heavilyinto U.S. shale in 2011, acquiring the Fayetteville assets fromU.S. energy group Chesapeake and months later PetrohawkEnergy.
It spent $20 billion including debt just before a majordownturn in U.S. natural gas prices in deals that made it one ofthe largest foreign investors in U.S. shale since 2008, and hassince written down nearly $3 billion on those assets.
But it has also trimmed back in petroleum as it has acrossall its divisions, to focus on higher-margin assets. Itappointed advisers in October to sell roughly half its oil andgas acreage in the Permian basin in Texas to focus on morelucrative assets there.
"We're confident we will move those assets at the righttime, but only if we get the right kind of offer," Cutt toldreporters on a teleconference from Houston, adding that thecompany had received good interest from shale players.
BHP flagged on Tuesday it would take a depreciation chargeof about $600 million in the Permian this year reflecting therapid depletion at some of the wells it has drilled.
The group said on Tuesday it would focus on investment onAustralia, the United States and, potentially, Trinidad andTobago, where exploration has focused on promising deepwateracreage following an improvement in Trinidad's fiscal terms onleases.
"We are very excited about Trinidad," Cutt said. "It's avery oily, gassy part of the world. It's a known trend thatwe're looking at. But we're very early days on this."
BHP also has assets in Pakistan and Algeria, but said thoseassets had limited room for future growth. Cutt declined tocomment on when the company may divest those assets.
It sold its stake in Liverpool Bay, a major integrateddevelopment of five producing oil and gas fields off the Britishcoast, in October 2013.
BHP has said it plans to spend the bulk of its U.S. onshoredevelopment budget this year on both the Permian basin and EagleFord, another major basin, directing its investment toliquids-rich acreage at a time of low natural gas prices.
Petroleum accounts for roughly a fifth of total BHPproduction, and around a quarter of BHP's operating profit.
