BHP Group Regulatory News (BHP)

BHP OPERATIONAL REVIEWFOR THE QUARTER ENDED 30 SEPTEMBER 2018

· Group copper equivalent production increased by 2% in the September 2018 quarter despite maintenance across a number of operations. Volumes for the 2019 financial year are expected to be broadly in line with last year(1).

· Full year production guidance remains unchanged for petroleum, iron ore, metallurgical coal and energy coal. Total copper production guidance reduced by approximately 3% to between 1,620 and 1,705 kt reflecting lower volumes now expected at Spence (electro-winning plant outage) and Olympic Dam (acid plant outage).

· Unit cost guidance(2) maintained for all major assets for the 2019 financial year.

· All major projects under development are tracking to plan.

· In Petroleum, the Victoria-1 and Bongos-2 exploration wells in Trinidad and Tobago, and theSamurai-2 well in the US Gulf of Mexico, encountered hydrocarbons. A sidetrack of the Samurai-2 well is currently being drilling to further appraise the discovery.

· Onshore US sale process is on track to be completed by the end of October 2018, with the Fayetteville transaction completed on 29 September 2018. The net proceeds from the sale of our Onshore US assets are expected to be returned to shareholders.

BHP Chief Executive Officer, Andrew Mackenzie, said: "We delivered a two per cent increase in copper equivalent production despite maintenance at a number of our operations. We are on track to meet guidance for the 2019 financial year across our commodities, except copper where we have reduced production guidance slightly following outages at Olympic Dam in Australia and Spence in Chile. In petroleum, we have extended our exploration success and encountered hydrocarbons in three wells. The Onshore US sale process is progressing to plan and is expected to be completed by the end of October 2018."

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Summary

Production for the September 2018 quarter and guidance for the 2019 financial year are summarised in the table below.

(i) Other copper comprises Pampa Norte (including Cerro Colorado production for the first half of the 2019 financial year), Olympic Dam and Antamina.

(ii) Given our announcement to exit Onshore US, no annual guidance for the 2019 financial year for these assets will be provided; however, until sale completion, we expect a production run rate broadly consistent with the second half of the 2018 financial year.

At the end of the September 2018 quarter, BHP had five major projects under development in petroleum, copper, iron ore and potash, with a combined budget of US$10.6 billion over the life of the projects.

On 18 September 2018, BHP released its Economic Contribution Report which shows the Group's direct economic contribution globally in the 2018 financial year was US$33.9 billion. This includes US$7.8 billion in taxes, royalties and other payments to governments. BHP's adjusted effective tax rate in the 2018 financial year was 31.4 per cent. When royalties are included, the rate was 39.9 per cent.

Petroleum

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Petroleum - Total Conventional petroleum production was broadly flat at 33 MMboe. Guidance for the 2019 financial year remains unchanged at between 113 and 118 MMboe.

Crude oil, condensate and natural gas liquids production declined by seven per cent to 14 MMboe due to natural field decline across the portfolio and a 70 day planned dry dock maintenance at Pyrenees, which was completed on schedule and budget in September 2018. This decline was partially offset by higher uptimes at our Gulf of Mexico assets.

Natural gas production increased by five per cent to 112 bcf, reflecting increased tax barrels at Trinidad and Tobago in accordance with the terms of our Production Sharing Contract. This was partially offset by natural field decline across the portfolio.

Study work continues on the Atlantis Phase 3, Ruby and West Barracouta projects and they remain on track.

Exploration and appraisal wells drilled during the September 2018 quarter are summarised below.

In the US Gulf of Mexico, the Samurai-2 exploration well encountered hydrocarbons in multiple horizons not previously observed by the Wildling-2 exploration well and was plugged and abandoned on 23 August 2018. A sidetrack of the Samurai-2 well commenced on 25 August 2018 to further appraise the discovery and is currently drilling ahead. In the Western US Gulf of Mexico, we commenced the acquisition of an Ocean Bottom Node seismic survey.

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In Trinidad and Tobago, we continued with Phase 2 of our deepwater exploration drilling campaign. The Victoria-1 exploration well, which further assessed the commercial potential of the Magellan play in our Southern licence area in Trinidad and Tobago, encountered gas and was plugged and abandoned on 18 July 2018. Following the Victoria-1 well, the Bongos-1 exploration well was spud on 20 July 2018 and experienced mechanical difficulty shortly after spud. The Bongos-2 exploration well was spud on 22 July 2018 and encountered hydrocarbons. The Bongos-2 and Bongos-1 wells were plugged and abandoned on 23 September 2018 and 26 September 2018 respectively. Following the Bongos-2 well, the Concepcion-1 well was spud on 30 September 2018 to further test the Magellan play and is currently drilling ahead.

In Mexico, we expect to begin drilling the first appraisal well at Trion in the December 2018 quarter. In Australia, the final processed data of the Exmouth sub-basin 3D seismic data has been received.

A US$750 million exploration and appraisal program is being executed for the 2019 financial year. Petroleum exploration expenditure for the September 2018 quarter was US$133 million, of which US$55 million was expensed.

Onshore US - Discontinued operations

Following BHP's sale of the Onshore US assets, as announced on 27 July 2018, these assets have been presented as discontinued operations. The effective date at which the right to economic profits transfers to the purchasers is 1 July 2018.

Onshore US production for the September 2018 quarter increased by 16 per cent to 20 MMboe as a result of additional wells put online in Haynesville, Permian and Eagle Ford. Drilling and development expenditure for the September 2018 quarter was US$299 million. Our operated rig count remained unchanged at five, with two rigs at Eagle Ford, two rigs at Permian and one at Haynesville. No annual guidance for the 2019 financial year for these assets will be provided; however until sale completion, we expect a production run rate broadly consistent with the second half of the 2018 financial year.

On 29 September 2018, BHP announced the completion of the sale of its Fayetteville Onshore US gas assets to a wholly owned subsidiary of Merit Energy Company. Completion of the sale of BHP's interests in the Eagle Ford, Haynesville and Permian Onshore US oil and gas assets to BP America Production Company, a subsidiary of BP Plc, is expected to occur by the end of October 2018.

Copper

Copper - Total copper production for the September 2018 quarter was broadly flat at 409 kt. Guidance for the 2019 financial year has been reduced to between 1,620 and 1,705 kt and reflects lower volumes at Spence and Olympic Dam.

Escondida copper production increased by 10 per cent to 295 kt driven by higher copper concentrate output. This is a result of the diversion of ore feed from sulphide leach to the three concentrators to maximise their utilisation, which offset the impact of expected lower copper grades and adverse weather conditions in the quarter. Guidance remains unchanged at between 1,120 and 1,180 kt in the 2019 financial year. During the period, we successfully completed negotiations with Escondida Union N°1 and signed a new collective agreement, effective for 36 months from 1 August 2018.

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Pampa Norte copper production decreased by 25 per cent to 43 kt as a result of lower volumes from Spence. The decrease reflected a lower stacking rate in May and June 2018 as a result of planned maintenance, and a production outage following a fire at the electro-winning plant in September 2018. Production guidance for Spence has been reduced from between 185 and 200 kt to between 160 and 175 kt, with volumes weighted to the second half as a return to full capacity is expected during the December 2018 quarter. Since the fire, mining and stacking operations at Spence have continued, accumulating copper in the system, which will be recovered over the coming years as tankhouse capacity becomes available. On 19 June 2018, BHP entered into an agreement to sell Cerro Colorado to EMR Capital(3). The transaction is expected to close during the December 2018 quarter, subject to financing and customary closing conditions. During the period, we successfully completed the advanced negotiation with Cerro Colorado Union N°1 (operators and maintenance), with the new agreement effective for 36 months from 1 September 2018.

Olympic Dam copper production decreased by 21 per cent to 33 kt as a result of an unplanned acid plant outage in August 2018. Surface operations remain suspended as remediation works continue on the gas converter, sulphur burner and waste heat boiler in the acid plant. Surface operations are expected to recommence at the end of October 2018 and ramp up to full capacity during November 2018. As a result, production guidance for the 2019 financial year has been reduced from between 200 and 220 kt to between 170 and 180 kt. Underground operations have been unaffected with total development of nine kilometres achieved in the September 2018 quarter and progression into the higher ore grade Southern Mine Area continuing.

Antamina copper production increased by three per cent to 37 kt due to higher head grades. Production guidance for the 2019 financial year remains unchanged at approximately 135 kt for copper and approximately 85 kt for zinc.

Iron Ore

Iron ore - Total iron ore production increased by 10 per cent to 61 Mt or 69 Mt on a 100 per cent basis. Guidance for the 2019 financial year remains unchanged at between 241 and 250 Mt, or between 273 and 283 Mt on a 100 per cent basis.

At WAIO, increased volumes were supported by record production at Jimblebar and improved reliability across our rail network and port operations. As expected, production was lower than the June 2018 quarter as we optimised maintenance schedules across the supply chain and implemented a program of work to further improve port reliability and performance.

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Mining and processing operations at Samarco remain suspended following the failure of the Fundão tailings dam and Santarém water dam on 5 November 2015.

Coal

Metallurgical coal - Metallurgical coal production was down two per cent to 10 Mt. Guidance for the 2019 financial year remains unchanged at between 43 and 46 Mt, with volumes weighted to the second half of the year.

Queensland Coal production reflected planned maintenance across both port and mine operations. This was partially offset by record stripping and truck performance at BMA, utilisation of latent dragline capacity at Caval Ridge and higher wash-plant throughput at Poitrel following the purchase of the Red Mountain processing facility. The maintenance program of work is expected to continue through the December 2018 quarter. A longwall move at Broadmeadow is scheduled for the December 2018 quarter.

The Caval Ridge Southern Circuit project is progressing according to plan with the conveying of first coal expected in October 2018.

Energy coal - Energy coal production decreased by one per cent to 7 Mt. Guidance for the 2019 financial year is unchanged at approximately 28 to 29 Mt.

New South Wales Energy Coal production decreased by six per cent as improved stripping fleet performance was offset by lower bypass coal and a higher average strip ratio, consistent with the mine plan. Cerrejón production increased by six per cent as the prior quarter was impacted by adverse weather conditions.

Other

Nickel - Nickel West production decreased by eight per cent to 21 kt. On 23 September 2018, operations at the Kalgoorlie smelter were suspended following a fire which caused damage to a localised area in the furnace building. The smelter returned to operation on 1 October 2018 and is expected to ramp up to full capacity from early November 2018. Planned maintenance at the Kwinana refinery was brought forward to align with the smelter outage and, as a result, production guidance for the 2019 financial year remains unchanged and is expected to be broadly in line with the 2018 financial year.

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Minerals exploration

Minerals exploration expenditure for the September 2018 quarter was US$40 million, of which US$30 million was expensed. Greenfield minerals exploration is predominantly focused on advancing copper targets within Chile, Ecuador, Peru, Canada, South Australia and the South-West United States. Consistent with our exploration focus on copper, in September 2018, BHP acquired an initial 6.1(4) per cent interest in SolGold Plc (SolGold), the majority owner and operator of the Cascabel porphyry copper-gold project in Ecuador. On 15 October 2018, BHP entered into an agreement to acquire an additional 100 million shares in SolGold, which would bring our total interest to approximately 11.2 per cent.

Variance analysis relates to the relative performance of BHP and/or its operations during the September 2018 quarter compared with the September 2017 quarter, 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. Copper equivalent production based on 2018 financial year average realised prices.

The following footnotes apply to this Operational Review:

(1) Excludes production from Onshore US and Cerro Colorado.

(2) 2019 financial year unit cost guidance is based on exchange rates of AUD/USD 0.75 and USD/CLP 663.

(3) On 19 June 2018, BHP announced it has entered into an agreement to sell the Cerro Colorado copper mine in Chile to EMR Capital. The total cash consideration consist of US$230 million to be paid to BHP after the closing of the transaction, plus approximately US$40 million in proceeds from the post-closing sale of certain copper inventory, and a contingent payment of up to US$50 million to be paid in the future, depending upon copper price performance.

(4) As at 4 September 2018, BHP acquired a 6.1% interest in SolGold, which has been diluted to 6.0% as at 12 October 2018 as a result of the exercise of options by third parties.

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).

In this release, the terms 'BHP', 'Group', 'BHP Group', 'we', 'us', 'our' and ourselves' are used to refer to BHP Billiton Limited, BHP Billiton Plc and, except where the context otherwise requires, their respective subsidiaries as defined in note 28 'Subsidiaries' in section 5.1 of BHP's 30 June 2017 Annual Report on Form 20-F and in note 13 'Related undertaking of the Group' in section 5.2 of BHP's 30 June 2017 Annual Report on Form 20-F. Notwithstanding that this release may include production and other data from non-operated assets, non-operated assets are not included in the BHP Group.

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Production summary

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Production summary

(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 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 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 a 100% basis. BHP interest in saleable production is 80%.

(9) Production restated to include other nickel by-products.

Throughout this report figures in italics indicate that this figure has been adjusted since it was previously reported.

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Production and sales report