BHP Group Regulatory News (BHP)

BHP BILLITON OPERATIONAL REVIEW

FOR THE NINE MONTHS ENDED 31 MARCH 2016

· On track to deliver an average unit cost improvement of 14% across our major assets(1) as productivity gains continue to be realised.

· Full year production guidance maintained for Petroleum, Copper and Coal.

· Guidance at Western Australia Iron Ore (WAIO) reduced by 10 Mt to approximately 260 Mt (100% basis) as a result of adverse weather and the initiation of an accelerated rail network maintenance program.

· In Petroleum, a US$640 million exploration program is now planned for the 2016 financial year to fund additional access and testing of our future growth opportunities.

· Four major projects under development are tracking to plan. The Escondida Bioleach Pad Extension project was completed as planned during the March 2016 quarter.

BHP Billiton Chief Executive Officer, Andrew Mackenzie, said: "The productivity of our Company continues to improve notwithstanding the disruption largely caused by adverse weather this quarter. Over the last 12 months, we have taken a number of steps to strengthen BHP Billiton, including asset sales and the deferral of investment for long-term value. While these measures will reduce our output this year, they have increased our focus on our highest-quality operations and will support stronger margins and returns.

"We have the potential to significantly grow the value of our Company. Our simpler organisational structure will promote greater efficiency, rapid sharing of best practice and adoption of new technology to deliver the next level of safe productivity. Debottlenecking our assets at very low cost will generate high returns and substantial value. We have a pipeline of projects in copper and oil that allow us to bring high-margin volumes to market when the time is right. And as others cut back on exploration, our investment will go further and help create new options for the future."

Summary

Operational performance

Production for the nine months and quarter ended March 2016 and guidance for the 2016 financial year are summarised in the table below.

(i) Other copper comprises Pampa Norte, Olympic Dam and Antamina.

Major development projects

At the end of the March 2016 quarter, BHP Billiton had four major projects under development in Petroleum, Copper and Potash, with a combined budget of US$6.9 billion over the life of the projects.

Corporate update

On 2 March 2016, Samarco Mineração S.A and its two shareholders, Vale S.A and BHP Billiton Brasil LTDA, entered into an agreement with the Federal Attorney General of Brazil, the States of Espírito Santo and Minas Gerais and certain other public authorities for the restoration of the environment and communities affected by the Samarco dam failure on 5 November 2015. The Agreement provides a long-term remedial and compensation framework for responding to the impact of the Samarco tragedy.

Petroleum

Production

Total petroleum production - Total petroleum production for the nine months ended March 2016 decreased by four per cent to 184.1 MMboe. Guidance for the 2016 financial year remains unchanged at 237 MMboe as the strong performance by our Conventional business offset the reduction in Onshore US activity and the divestment of our gas business in Pakistan.

Crude oil, condensate and natural gas liquids - Crude oil, condensate and natural gas liquids production for the nine months ended March 2016 decreased by four per cent to 89.7 MMboe.

Onshore US liquids volumes declined by four per cent to 38.7 MMboe as unchanged total liquids production from the Black Hawk and Permian was offset by the suspension of drilling activity in the Hawkville. Liquids production at Onshore US for the 2016 financial year is expected to decline 12 per cent as a result of reduced development activity in the Black Hawk and Hawkville.

In our Conventional business, a four per cent reduction in liquids production reflects natural field decline across the portfolio and industrial action at Bass Strait, which more than offset volumes from new production wells at Atlantis, Mad Dog and Pyrenees.

Natural gas - Natural gas production for the nine months ended March 2016 declined by five per cent to 567 bcf.

The decline primarily reflects lower Onshore US gas volumes as a result of the decision to defer development activity for longer-term value and the successful divestment of our gas business in Pakistan. This was partially offset by higher seasonal demand at Bass Strait and Macedon.

Projects

Petroleum capital expenditure of approximately US$2.7 billion is planned for the 2016 financial year. This includes Conventional capital expenditure of US$1.4 billion, which remains focused on high-return infill drilling opportunities in the Gulf of Mexico and life extension projects at Bass Strait and North West Shelf, and Onshore US capital expenditure of US$1.3 billion, of which approximately US$300 million relates to a reduction in capital creditors.

Onshore US development activity

Onshore US drilling and development expenditure for the nine months ended March 2016 was approximately US$1.1 billion, a 63 per cent decline relative to the nine months ended March 2015. Our operated rig count declined from seven to five in the March 2016 quarter as planned. In addition, completions activity in the Black Hawk has been temporarily halted as we continue to defer development activity to preserve value. The resulting inventory of drilled but uncompleted wells will effectively position us to quickly respond to improved market conditions.

We have continued confidence in the quality of our Onshore US acreage, and our track record in operating performance and capital productivity is among the best in the industry. While we are focused on value and cash flow preservation as we manage through this period of lower prices, we retain the option to develop our resources as prices recover to maximise the value of these quality assets.

(i) Includes land acquisition, site preparation, drilling, completions, well site facilities, mid-stream infrastructure and pipelines.

(ii) Can vary between periods based on changes in rig activity and the inventory of wells drilled but not yet completed at period end.

Petroleum exploration

Exploration and appraisal wells drilled during the March 2016 quarter are summarised below.

Our Petroleum exploration program is focused in the deepwater Gulf of Mexico, the Caribbean and the Beagle sub-basin off the coast of Western Australia where we are pursuing Tier 1 oil plays. In March 2016, BHP Billiton was the apparent high bidder on four blocks in the Central Gulf of Mexico Lease Sale 241. The award of the blocks remain subject to regulatory approval.

Petroleum exploration expenditure for the nine months ended March 2016 was US$390 million, of which US$177 million was expensed. A US$640 million exploration program is now planned for the 2016 financial year to fund additional access and testing of our future growth opportunities. 

Copper

Production

Copper - Total copper production for the nine months ended March 2016 decreased by eight per cent to 1.2 Mt as continued strong operating performance across the business was offset by grade decline at Escondida, as anticipated. Guidance for the 2016 financial year remains unchanged at 1.5 Mt.

Escondida copper production for the nine months ended March 2016 decreased by 20 per cent to 711 kt, despite an 18 per cent increase during the March 2016 quarter. Strong operating performance, including improvements in truck availability, utilisation and maintenance, and record material mined, was more than offset by a 28 per cent decline in grade. Production increased by 18 per cent from the December 2015 quarter as higher concentrator throughput was achieved as a result of improved water availability. The Escondida Bioleach Pad Extension project, which includes the expansion of the leach pad to four layers, was completed as planned during the March 2016 quarter.

Production guidance for Escondida remains unchanged at approximately 940 kt for the 2016 financial year as the ramp up of Organic Growth Project 1 progresses ahead of plan and is expected to reach full capacity in the June 2016 quarter. The Los Colorados concentrator was placed on care and maintenance in the March 2016 quarter. In the medium term, completion of the Escondida Water Supply project and the potential life extension of Los Colorados will enable the utilisation of three concentrators(2).

Pampa Norte copper production for the nine months ended March 2016 decreased by three per cent to 186 kt as record ore milled at Spence and Cerro Colorado, and higher grades at Spence, were offset by the impact of planned maintenance at Spence and industrial action at Cerro Colorado in the March 2016 quarter. Production at Pampa Norte for the 2016 financial year is expected to be ahead of the prior year. In the short to medium term, the Spence Recovery Optimisation project will enable the full utilisation of approximately 200 ktpa of tankhouse capacity. The Spence Growth Option remains in feasibility with the potential to extend mining operations by more than 50 years and increase copper capacity by approximately 200 ktpa.

Olympic Dam copper production for the nine months ended March 2016 increased by 46 per cent to a record 162 kt and reflects improved smelter and mill utilisation, and the Svedala mill outage in the prior period. Copper production decreased by 13 per cent from the December 2015 quarter following planned mill maintenance. Olympic Dam copper production remains on track to exceed 200 kt for the 2016 financial year with planned smelter maintenance scheduled for the June 2016 quarter.

Antamina copper production for the nine months ended March 2016 increased by 35 per cent to 108 kt as higher grades and recoveries, supported by record material mined and milled, more than offset the impact of planned maintenance in the March 2016 quarter. Antamina copper production of 136 kt is forecast for the 2016 financial year.

Project

Iron Ore

Production

Iron ore - Total iron ore production for the nine months ended March 2016 was broadly unchanged at 171 Mt. Production for the 2016 financial year is now expected to be approximately 229 Mt, three per cent below prior guidance, and reflects a reduction in guidance at WAIO.

WAIO production for the nine months ended March 2016 increased by two per cent to a record 193 Mt (100 per cent basis) and reflected the Jimblebar mining hub operating at full capacity and improved ore handling plant utilisation at Newman. This was partially offset by one-off operational issues in the December 2015 quarter, along with the impact of adverse weather conditions and the initiation of an accelerated rail network maintenance program in the March 2016 quarter. WAIO production of approximately 260 Mt is now anticipated for the 2016 financial year, four per cent below prior guidance, however unit cost guidance remains unchanged at US$15 per tonne(3).

Our WAIO business remains focused on productivity in our integrated supply chain and this is further supported by the 24 month rail renewal and maintenance program that has been initiated. These improvements in our supply chain along with the ramp-up of additional capacity at the Jimblebar mining hub, will deliver an increase in system capacity to 290 Mtpa over time.

Samarco production for the nine months ended March 2016 was 11 Mt (100 per cent basis). Mining and processing operations at Samarco remain suspended following the failure of the Fundão tailings dam and Santarém water dam on 5 November 2015. Sales from the final shipment of pellets from stockpiles will be settled in the June 2016 quarter.

Coal

Production

Metallurgical coal - Metallurgical coal production for the nine months ended March 2016 remained broadly in line at 31 Mt. Guidance for the 2016 financial year remains unchanged at 40 Mt.

Queensland Coal production was flat as record production at six mines, underpinned by increased plant and equipment utilisation, offset the completion of longwall mining at Crinum which is now under care and maintenance, a convergence event at the Broadmeadow mine and unfavourable weather conditions.

First shipment from the Haju mine in Indonesia was achieved during the March 2016 quarter. BHP Billiton is conducting a strategic review of the long-term future options for its Indonesian coal interests, IndoMet Coal, which comprises seven coal contracts of work within the provinces of Central and East Kalimantan.

Energy coal - Energy coal production for the nine months ended March 2016 decreased by 10 per cent to 27 Mt. Guidance for the 2016 financial year remains unchanged at 37 Mt.

New South Wales Energy Coal production for the nine months ended March 2016 declined by 10 per cent due to the impact of heavy rainfall, blasting constraints and the progression of the mine plan through a higher strip ratio zone. Cerrejón volumes declined by seven per cent as drought conditions continued to constrain production.

Navajo Coal production for the nine months ended March 2016 was broadly unchanged, despite a 51 per cent decline during the March 2016 quarter reflecting lower customer demand. The transfer of management and operatorship for Navajo Coal to Navajo Transitional Energy Company remains on track for 31 December 2016. The sale of the San Juan Mine to Westmoreland Coal Company was completed on 31 January 2016.

Other

Nickel production

Nickel - Nickel West production for the nine months ended March 2016 decreased by 19 per cent to 57 kt and reflected planned major maintenance outages at the Kalgoorlie smelter and Kwinana refinery during the December 2015 quarter, and a reduction in third party ore delivered to the Kambalda concentrator. Higher nickel metal production during the March 2016 quarter was underpinned by throughput improvements at the Kwinana refinery.

Potash project

Minerals exploration

Minerals exploration expenditure for the nine months ended March 2016 was US$126 million, of which US$109 million was expensed. Greenfield minerals exploration is predominantly focused on advancing copper targets within Chile, Peru and the South-West United States.

Variance analysis relates to the relative performance of BHP Billiton and/or its operations during the nine months ended March 2016 compared with the nine months ended March 2015, unless otherwise noted. Production volumes, sales volumes and capital and exploration expenditure from subsidiaries are reported on a 100 per cent basis; production and sales volumes from equity accounted investments and other operations are reported on a proportionate consolidation basis.

The following footnotes apply to this Operational Review:

(1) Represents the average reduction in 2016 financial year guidance for Escondida grade-adjusted, Western Australia Iron Ore and Queensland Coal unit costs relative to the 2015 financial year.

(2) Subject to Escondida Owners Council approval.

(3) WAIO unit cash cost excludes freight and royalties. 2016 financial year guidance is based on an exchange rate of AUD/USD 0.72.

The following abbreviations may have been used throughout this report: barrels (bbl); billion cubic feet (bcf); cost and freight (CFR); cost, insurance and freight (CIF); dry metric tonne unit (dmtu); free on board (FOB); grams per tonne (g/t); kilograms per tonne (kg/t); kilometre (km); metre (m); million barrels of oil equivalent (MMboe); million cubic feet per day (MMcf/d); million tonnes (Mt); million tonnes per annum (Mtpa); ounces (oz); pounds (lb); thousand barrels of oil equivalent (Mboe); thousand ounces (koz); thousand standard cubic feet (Mscf); thousand tonnes (kt); thousand tonnes per annum (ktpa); thousand tonnes per day (ktpd); tonnes (t); and wet metric tonnes (wmt).

Further information on BHP Billiton can be found at: bhpbilliton.com

(1) LPG and ethane are reported as natural gas liquids (NGL). Product-specific conversions are made and NGL is reported in barrels of oil equivalent (boe). Total boe conversions are based on 6 bcf of natural gas equals 1 MMboe.

(2) Metal production is reported on the basis of payable metal.

(3) Shown on a 100% basis. BHP Billiton interest in saleable production is 57.5%.

(4) Includes Cerro Colorado and Spence.

(5) Iron ore production is reported on a wet tonnes basis.

(6) Shown on a 100% basis. BHP Billiton interest in saleable production is 85%.

(7) Metallurgical coal production is reported on the basis of saleable product. Production figures include some thermal coal.

(8) Shown on 100% basis. BHP Billiton interest in saleable production is 80%.

(9) Shown on 100% basis. BHP Billiton interest in saleable production is 75%.

(1) Total boe conversions are based on 6 bcf of natural gas equals 1 MMboe. Negative production figures represent finalisation adjustments.

(2) Stybarrow ceased production on 26 June 2015.

(3) Other Australia includes Minerva and Macedon.

(4) Gulf of Mexico volumes are net of royalties.

(5) Onshore US volumes are net of mineral holder royalties.

(6) Haynesville includes North Louisiana Conventional.

(7) Other Americas includes Neptune, Genesis and Overriding Royalty Interest.

(8) BHP Billiton completed the sale of the Pakistan gas business on 16 February 2015.