BHP Group Regulatory News (BHP)

BHP BILLITON RESULTS FOR THE HALF YEAR Ended 31 DECEMBER 2015

§ The health and safety of our people and the communities in which we operate always come first. We are committed to addressing the consequences of the tragedy at our joint venture, Samarco.

§ Underlying EBITDA(1) of US$6.0 billion and an Underlying EBITDA margin(2) of 40% for the December 2015 half year, despite significantly weaker commodity prices which had a negative impact of US$7.8 billion.

§ Productivity continues to improve. Black Hawk well costs declined by 30%, Western Australia Iron Ore and Queensland Coal unit cash costs declined by 25% and 17%, respectively, and grade-adjusted unit cash costs at Escondida(3) were broadly unchanged.

§ Capital and exploration expenditure(4) decreased by 40% to US$3.6 billion. Reflecting the Group's rising capital productivity and lower spend in Onshore US, we now expect to invest US$7.0 billion in the 2016 financial year and US$5.0 billion in the 2017 financial year.

§ Robust operating performance, the flexibility of our investment program and a targeted reduction of working capital supported free cash flow(2) of US$1.2 billion.

§ Our strong balance sheet has been maintained, with net debt(2) of US$25.9 billion broadly unchanged from December 2014 despite weaker prices and significant dividend payments.

§ While we were prepared for lower prices across our commodities, we now believe the period of weaker prices and higher volatility will be prolonged. From a position of strength, we have adopted a dividend policy that further protects our balance sheet and ensures financial flexibility.

§ The dividend policy provides a minimum 50% payout of Underlying attributable profit at every reporting period. The Board will assess, every reporting period, the ability to pay amounts additional to the minimum payment, in accordance with the capital allocation framework.

§ The Board has determined to pay an interim dividend of 16 US cents per share which is covered by free cash flow. This comprises the minimum payout of 4 US cents per share and an additional amount of 12 US cents per share, reflecting differences between Underlying attributable profit and free cash flow during the period.

Results for the half year ended 31 December 2015

BHP Billiton Chairman, Jac Nasser, said: "Our purpose is to deliver consistent and sustainable shareholder value. Since the merger of BHP and Billiton in 2001, we have returned a total of US$77 billion in cash to shareholders, more than any other company in this sector.

"At the same time, BHP Billiton understands the fundamental importance of maintaining a strong balance sheet. The changes to the dividend policy announced today reflect the Board's assessment of the outlook for commodities and the increased financial flexibility this demands. While the continued development of emerging economies will underpin longer-term demand growth for commodities, we now believe the period of weaker prices and higher volatility will be prolonged. The adoption of a dividend payout ratio will further support BHP Billiton's financial strength, while providing flexibility at the bottom of the cycle and ensuring discipline at the top.

"We have not made these changes lightly. They are a determined response to changing markets that will also help us take advantage of the significant opportunities ahead. We remain strongly committed to returning cash to our shareholders and in every reporting period, the Board will assess the possibility of returning additional cash over that implied by the 50 per cent payout ratio, as we have done this period."

BHP Billiton Chief Executive Officer, Andrew Mackenzie, said: "Slower growth in China and the disruption of OPEC have resulted in lower prices than expected. However, our company remains resilient with assets that generate free cash flow through the cycle and a strong balance sheet.

"Our new dividend policy and transparent capital allocation framework are part of a broader strategy to help BHP Billiton manage volatility. We have already responded decisively to the changed conditions. The divestment of US$7 billion of assets and the demerger of South32 leaves us with a focused portfolio of large, low-cost, long-life assets in a set of favoured commodities. We are operating our assets more productively with US$10 billion of gains achieved since 2012. We expect to realise a further US$2.1 billion of gains in the 2016 financial year, when adjusted for the impact of lower grades at Escondida. We will also reduce capital expenditure in the 2016 and 2017- financial years by a total of US$3.5 billion, while retaining a suite of high-return, value-enhancing projects.

"With improved financial flexibility and a portfolio of high-return growth options, we are well positioned to grow shareholder value and cash returns over the long term."

In relation to Samarco, he said: "Everyone at BHP Billiton has been deeply affected by the tragedy at Samarco. Supporting the response efforts, rebuilding communities and restoring the environment impacted by the dam failure remains a priority and substantial progress has been made. Discussions on an agreement with the authorities for managing and funding long-term environmental and socio-economic rehabilitation plans are ongoing."

The health and safety of our people and the communities in which we operate always come first

In the December 2015 half year there were no fatalities at our operated sites and we reported a Total Recordable Injury Frequency of 4.4 per million hours worked. We continue to focus on managing and controlling fatal risks and eliminating serious injuries across our business.

Responding to the tragedy following the failure of the Fundão tailings dam at Samarco on 5 November 2015 is a priority for BHP Billiton. Our team in Brazil are focused on doing everything they can to support the response efforts, repair and maintain existing dams, rebuild communities and restore the environment impacted by the dam failure. Sadly, authorities have confirmed 17 fatalities, of which five were members of the community and 12 were people who were working on the dams at the time of the dam failure. In addition, two people who were working on the dams remain unaccounted for.

All of the families from Bento Rodrigues and Barra Longa affected by the dam failure have been accommodated in rental housing or relatives' homes, with the exception of those who preferred to stay in a hotel. Debit cards have been distributed to those affected in order to provide immediate financial relief. Samarco and the authorities are continuing to ensure availability of food, water and emergency supplies.

Samarco has also been active in addressing the environmental impact of the dam failure. Such actions include the construction of dikes to reduce the potential for further tailings inputs to the River Doce, revegetation measures to reduce erosion and water quality monitoring stations throughout the River Doce system. Samarco has engaged world-class consulting specialists in engineering, social and environmental sciences and environmental emergencies, to develop the environmental and social rehabilitation actions in all areas impacted along the River Doce.

BHP Billiton, Vale and Samarco have jointly commissioned an external investigation into the cause of the dam failure. BHP Billiton has committed to publicly release the findings of the investigation, and to sharing the results with other resources companies. Discussions with the national government of Brazil and the state governments of Minas Gerais and Espírito Santo, aimed at reaching agreement for managing and funding long-term environmental and socio-economic rehabilitation plans, are ongoing.

Asset quality and robust operating performance provide resilience in a challenging environment

BHP Billiton delivered Underlying EBITDA of US$6.0 billion and an Underlying EBITDA margin of 40 per cent in the December 2015 half year, despite significantly weaker prices across all our major commodities which had a negative impact of US$7.8 billion.

An unfavourable change in productivity of US$169 million(6) was recorded in the period due to the expected 25 per cent grade decline at Escondida. Excluding this impact, productivity increased by US$472 million. Further improvements continue to be realised across the portfolio and we expect to deliver approximately US$600 million of productivity gains in the 2016 financial year. Excluding the impact of grade decline at Escondida, we expect gains of approximately US$2.1 billion.

During the period, Black Hawk drilling costs per well declined by 30 per cent, and Western Australia Iron Ore (WAIO) and Queensland Coal unit cash costs declined by 25 per cent and 17 per cent, respectively. Grade-adjusted unit cash costs at Escondida remained broadly unchanged despite reduced recoveries from the processing of lower-grade inventory, the commissioning of the OGP1 concentrator and additional stacking of lower-grade material to sulphide heap leach. The inventory was drawn down to maximise cash flow and combined with other working capital initiatives, facilitated a substantial increase in cash flow. These factors offset a 12 per cent improvement in underlying net cash costs(7).

As our focus on safe productivity continues we have maintained or lowered unit cost guidance at our major assets. Historical costs and guidance for the 2016 financial year are summarised in the following table:

 (i) Current 2016 financial year guidance is based on exchange rates of AUD/USD 0.72 and USD/CLP 702. Previous guidance was based on exchange rates of AUD/USD 0.74 and USD/CLP 702.

(ii) Previous guidance presented at the Copper briefing and site tour in December 2015. Grade-adjusted unit cost guidance is presented on a grade-equivalent basis relative to the 2015 financial year. Grades are expected to decline by 27 per cent in the 2016 financial year.

The Group reported Underlying attributable profit of US$412 million, while the Attributable loss of US$5.7 billion includes US$6.1 billion of exceptional items (after tax) related to: an impairment charge of US$4.9 billion against the carrying value of the Onshore US assets; US$858 million for the financial impacts of the Samarco dam failure on the Group's income statement; and US$390 million for global taxation matters.

Capital and exploration expenditure declined to US$3.6 billion, down 40 per cent, as we continued to exercise the flexibility in our investment program in response to market conditions. Other factors include improved capital productivity and the benefits of a stronger US dollar. Combined with a robust operating performance and a targeted reduction of working capital, the Group delivered free cash flow of US$1.2 billion during the period.

Despite the significant weakening of commodity prices, we maintained our strong balance sheet, finishing the period with net debt of US$25.9 billion (30 June 2015: US$24.4 billion; 31 December 2014: US$24.9 billion) and a gearing ratio(2) of 29.7 per cent (30 June 2015: 25.7 per cent; 31 December 2014: 22.4 per cent).

Enhancing our capital allocation framework to maximise shareholder value

Since the merger of BHP and Billiton in 2001, our capital management framework has served our shareholders well. We maintained a strong balance sheet and returned US$77 billion in dividends and buy-backs to shareholders. In response to the increase in demand over the period, we invested in our tier 1 assets and infrastructure, doubling volumes and providing valuable options for future development. As a low-cost producer, this was the value-maximising strategy which underpinned superior margins and substantial cash flow generation.

Several years ago, in anticipation of slowing demand growth and the abundance of potential new low-cost supply, we shifted our focus to reducing costs and debottlenecking our operations. Since 2012, we have embedded annualised productivity gains of more than US$10 billion(6) and reduced capital and exploration expenditure by over 50 per cent. Through the divestment of US$7 billion of assets and the demerger of South32, we have focused our portfolio on a small group of large, low-cost, long-life assets.

While we were prepared for lower prices across our commodities, the reduction over the last six months has been more severe and synchronised than expected. The short to medium-term outlook for the sector remains challenging. We expect prices will take time to recover and are likely to remain volatile, however this environment should provide opportunities. We enter this downturn from a position of strength, with the simplest portfolio of high-quality assets, sector-leading operating capabilities, rising capital flexibility as current projects are completed and a strong balance sheet.

Our strong balance sheet remains a fundamental enabler of our strategy. It provides access to sufficient, low-cost funding at all points in the cycle which provides optionality and insulates our operations from rising volatility. Our strength is demonstrated by our solid cash flow to net debt metrics (reflected in our credit ratings), liquidity of US$17 billion, moderate gearing and long-dated debt maturity profile.

Today, we continue to implement measures to both preserve the Group's balance sheet strength and align our capital allocation framework with the cyclical nature of the industry. Our priorities for capital are to:

· first, maintain safe and stable operations;

· second, maintain a strong balance sheet through the cycle;

· third, pay shareholders a minimum of 50 per cent of Underlying attributable profit as dividends; and

· fourth, direct remaining cash to the value-maximising outcome, with debt reduction, investing in growth projects, buying back shares, paying additional dividends and acquiring assets, all competing for capital.

This framework provides valuable flexibility. This flexibility will support greater value creation for shareholders as it enhances our ability to maintain a strong balance sheet and invest counter cyclically at the bottom of the cycle, and embeds increased cash returns to shareholders at the top.

The adoption of a 50 per cent dividend payout ratio will re-phase distributions to shareholders and while this payout level is in line with the average cash returned to shareholders since the merger, dividends will be more closely linked to the performance of our business. We remain strongly committed to cash returns to shareholders. At every reporting period, the Board will consider cash returns in excess of the minimum implied by the payout ratio, in accordance with the framework outlined above.

Today, the Board has determined to pay an interim dividend of 16 US cents per share, a level covered by the Group's free cash flow. This comprises the minimum payout of four US cents per share and an additional amount of 12 US cents per share, reflecting differences between Underlying attributable profit and free cash flow during the period.

Strongly positioned for the future

The Group's rising capital productivity and latent capacity opportunities, cost deflation and a stronger US dollar mean that we do not require the same level of investment to grow as in the past. Reflecting this, and the flexibility of our Onshore US investment plans, we now expect our capital and exploration expenditure to be US$7.0 billion in the 2016 financial year and US$5.0 billion in the 2017 financial year. While this represents a total reduction of US$3.5 billion from previous guidance, the only reduction in activity is at Onshore US where we continue to respond to current market conditions.

Our most valuable growth will come from operating more efficiently. This will be supported in the short to medium term by the release of latent capacity across the portfolio which should deliver growth in volumes and free cash flow at low capital intensity. In the medium to long term, we have a portfolio of development options which we can execute when the timing is right and it is determined to be the value-maximising outcome.

We offer a unique proposition within the sector. We believe we have:

· the simplest portfolio of large, low-cost, long-life assets diversified across a set of favoured commodities;

· sector-leading operating capabilities;

· the sector's strongest balance sheet, supported at all points in the cycle by a more flexible dividend and investment program;

· a portfolio of value-enhancing growth options; and

· a transparent capital allocation framework to direct excess cash to the value-maximising outcome.

While the sector faces challenges in the short to medium term, we remain confident in the long-term outlook which is supported by the ongoing urbanisation and industrialisation of emerging economies coupled with growing supply-side challenges, particularly in copper and oil. With rising volatility, the strength of our unique portfolio positions us to take advantage of market conditions through the cycle.

Outlook

Economic outlook

Global growth is expected to pick up slightly in the 2016 calendar year but will remain modest and subject to ongoing financial markets volatility. Major developed economies should continue to recover mildly while emerging markets will see divergent levels of growth. Solid growth in India and parts of emerging Asia and Europe will be partially offset by ongoing weakness in Latin America and Russia.

China will experience slower overall growth, and the divergence in sectoral performance is expected to persist with relatively soft industrial activity offset by a solid contribution from the services sector. This pattern reflects what appears to be a faster than expected transition away from reliance on investment, particularly in heavy industry, which is constraining commodity demand growth in the near term. Volatility will continue in the short-term as cautious economic reform evolves, particularly in the financial sector. With Chinese authorities appearing to increase their focus on "supply-side reform", including State-Owned Enterprises, we expect some capacity reduction as industry consolidates over time. Over the longer term, economic reform and ongoing urbanisation will help to offset the impact of a declining workforce as growth converges to levels similar to developed economies.

The US economy should see a mild lift in growth driven by consumer demand, supported by low energy prices and an improving housing market. The extent of interest rate increases in the United States in the 2016 calendar year will depend on the pace of economic growth and inflation. The Eurozone will likely see modest growth continue, supported by a lower Euro and stimulatory monetary policy. In Japan, better wages growth, increased business investment and a lower Yen should support mild economic improvement, though growth remains fragile. India's economy will continue to grow solidly supported by infrastructure spend and lower commodity prices. In the longer term, growth will be sustained by rising domestic consumption and successful reform.

Commodities outlook

The crude oil price fell significantly in the first half of the 2016 financial year as supply continued to outpace demand following the disruption of OPEC and stronger than anticipated non-OPEC production. In the short term, we expect prices to remain weak as high inventory levels weigh on an oversupplied market and rising OPEC exports offset production declines in the United States. We expect the market will then rebalance as declining investment leads to a slowdown in non-OPEC supply growth while increasing demand draws down stocks. The long-term outlook remains healthy and is underpinned by rising transport sector demand in developing countries, natural field decline and deferrals of investment.

The domestic gas price in the United States declined due to the ongoing over-supply and mild early-winter weather. Despite strong demand growth from the power sector, high gas storage levels are likely to keep prices subdued in the short term. In the longer term, demand is expected to benefit from LNG exports, further growth in gas power generation and increasing industrial use. As core gas reserves are depleted, less productive and higher-cost shale areas will be required to meet growing demand, supporting prices. In LNG, weaker fundamentals and low oil prices have impacted the spot market while longer-run demand growth remains healthy.

Copper prices continued to be affected by growing supply, slightly weaker than expected demand, improved productivity at existing operations and a stronger US dollar. In the short to medium term, new and expanded production is expected to keep the market well supplied, despite cuts being announced to higher-cost production. In the long term, the copper outlook remains positive as demand is supported by China's shift towards consumption and the scope for substantial growth in emerging markets. A deficit is expected to emerge towards the end of this decade as grade decline, rising costs and limited high-quality development opportunities constrain the industry's ability to meet growing demand.

Our outlook for Chinese crude steel production remains unchanged, peaking between 935 Mt and 985 Mt in the middle of the next decade, as China continues to urbanise and mature its manufacturing capability. In the short term, Chinese steel demand is expected to remain soft, with modest potential improvement if construction and infrastructure activity ramp-up in the first half of the 2016 calendar year. The iron ore price will likely remain low, constrained by weak demand and abundant seaborne iron ore supply. Over time, additional low-cost seaborne supply will continue to displace higher-cost supply, and we expect productivity gains will continue to be an industry feature. These factors point to a prolonged period of market rebalancing.

In metallurgical coal, industry-wide supplier cost compression is expected to persist through the 2016 calendar year, with recent devaluations in China's currency highlighting a key uncertainty for seaborne demand as imports become relatively more expensive. While high-cost seaborne supply will continue to rationalise, we expect further growth in low-cost, premium hard coking coal supply to offset production cuts and constrain potential for near-term price recovery. In the long term, we expect emerging markets such as India to support seaborne demand growth, while high-quality metallurgical coals will continue to offer steel makers value-in-use benefits to their operations.

Projects

Historical capital and exploration expenditure and guidance for the 2016 and 2017 financial years are summarised in the following table:

 (i) Capitalised deferred stripping includes US$90 million attributable to non-controlling interests for 31 December 2015 (31 December 2014: US$88 million).

During the December 2015 half year, BHP Billiton approved an investment of US$314 million (BHP Billiton share) for the North West Shelf Greater Western Flank-B petroleum project. This follows the delivery of first production from the North West Shelf Greater Western Flank-A project during the period. At the end of the period, BHP Billiton had four major projects in progress with a combined budget of US$6.9 billion over the life of the projects.

 (i) Unless noted otherwise, references to capacity are on a 100 per cent basis, references to capital expenditure from subsidiaries are reported on a 100 per cent basis and references to capital expenditure from joint operations are reported on a proportionate consolidation basis.

 (ii) Excavation and lining of the Jansen project shafts is steadily progressing. Total potash expenditure of approximately US$350 million, including capital expenditure of approximately US$180 million, is expected for the 2016 financial year.

Income statement

To provide clarity into the underlying performance of our operations, Underlying attributable profit and Underlying EBIT are set out in the following tables:

Underlying EBIT

The following table and commentary describes the impact of the principal factors that affected Underlying EBIT for the December 2015 half year compared with the December 2014 half year:

The following table reconciles relevant factors with changes in the Group's productivity:

Prices and exchange rates

The average realised prices achieved for our major commodities are summarised in the following table:

(i) Prices exclude third party product and internal sales, and represent the weighted average of various sales terms (for example: FOB, CIF and CFR), unless otherwise noted.

(ii) Includes internal sales.

(iii) Includes the impact of provisional pricing and finalisation adjustments which decreased EBIT by US$336 million in the December 2015 half year.

(iv) Export sales only; excludes Cerrejón. Includes thermal coal sales from metallurgical coal mines.

The following exchange rates relative to the US dollar have been applied in the financial information:

(i) Displayed as US$ to A$1 based on common convention.

Net finance costs

Net finance costs increased by US$195 million to US$429 million. This reflected higher benchmark interest rates and the issue of multi-currency hybrid notes during the December 2015 half year, and the gain on the early redemption of the Petrohawk Energy Corporation Senior Notes in the prior period.

Taxation expense

The Group's adjusted effective tax rate(2), which excludes the influence of exchange rate movements and exceptional items, was 33.5 per cent (31 December 2014: 32.0 per cent).

Other royalty and excise arrangements which are not profit based are recognised as operating costs within (Loss)/profit before taxation. These amounted to US$755 million during the period (31 December 2014: US$962 million).

Exceptional items

The following table sets out the exceptional items in the December 2015 half year. Additional commentary is included on page 39.

(i) Comprises the following: US$(655) million for the share of loss relating to the Samarco dam failure; US$(525) million for the impairment of the carrying value of the investment in Samarco; US$(8) million for the costs incurred directly by BHP Billiton in relation to the Samarco dam failure. Refer to note 9 Significant events of the Financial Report for information regarding the financial impact of the Samarco dam failure in November 2015 on BHP Billiton's share of Samarco's operating profit.

(ii) Includes amounts attributable to non-controlling interests of US$(51) million after tax benefit.

Dividend

Our Board today determined to pay an interim dividend of 16 US cents per share. The interim dividend to be paid by BHP Billiton Limited will be fully franked for Australian taxation purposes.

(i) The ASX has confirmed it will implement a T+2 settlement cycle with a transition date of 7 March 2016. A T+2 settlement cycle will change the previously announced ASX ex-dividend date for the interim dividend from 9 March 2016 to 10 March 2016.

BHP Billiton Plc shareholders registered on the South African section of the register will not be able to dematerialise or rematerialise their shareholdings between the dates of 7 and 11 March 2016 (inclusive), nor will transfers between the UK register and the South African register be permitted between the dates of 4 and 11 March 2016 (inclusive). American Depositary Shares (ADSs) each represent two fully paid ordinary shares and receive dividends accordingly.

Details of the currency exchange rates applicable for the dividend will be announced to the relevant stock exchanges following conversion and will appear on the Group's website.

Debt management and liquidity

During the December 2015 half year, the Group issued US$3.25 billion of subordinated fixed rate reset notes in the US Dollar market across two tranches, EUR2.0 billion of subordinated fixed rate reset notes in the Euro market across two tranches and GBP600 million of subordinated fixed rate reset notes in the Sterling market.

The issuance of these hybrid notes comprised the following:

The Group has a US$6.0 billion commercial paper program backed by a US$6.0 billion revolving credit facility. The facility expires in May 2020 and has a one-year extension option. As at 31 December 2015, the Group had US$ nil outstanding in the US commercial paper market and the Group's cash and cash equivalents on hand were US$10.6 billion.

Corporate governance

On 3 February 2016, Anita Frew was appointed as a member of the Risk and Audit Committee.

The current members of the Board's Committees are:

Business summary(i)

A summary of the performance of the Businesses for the December 2015 and December 2014 half years is presented below.

(i) Group and business level information is reported on a statutory basis which, in relation to Underlying EBIT, includes net finance costs and taxation expense of US$119 million (2014: US$270 million) related to equity accounted investments. It excludes exceptional items of US$655 million (2014: US$ nil) related to equity accounted investments.

(ii) Revenue is based on Group realised prices and includes third party products. Sale of third party products by the Group contributed revenue of US$555 million and Underlying EBIT of (US$27) million (2014: US$630 million and US$1 million).

(iii) Includes US$211 million capitalised exploration (2014: US$59 million).

(iv) Includes US$ nil of exploration expenditure previously capitalised, written off as impaired (included in depreciation and amortisation) (2014: a net reversal of US$8 million exploration expenditure previously capitalised, written off as impaired).

(v) Comprises Group Functions, other unallocated operations including Potash (previously disclosed in the former Petroleum and Potash business) and Nickel West, consolidation adjustments and external sales of freight and fuel to third parties.

Petroleum

Underlying EBIT for Petroleum decreased by US$2.5 billion to US$(235) million in the December 2015 half year.

(i) Excludes closed mines.

(ii) Average realised price: crude and condensate oil US$42/bbl (2014: US$85/bbl); natural gas US$2.91/Mscf (2014: US$4.21/Mscf); LNG US$8.24/Mscf (2014: US$13.76/Mscf).

(iii) Other includes: exchange rates; inflation; asset sales; ceased and sold operations; other items. Other items includes Onshore US rig termination charges of US$65 million (2014: US$13 million).

Total petroleum production for the December 2015 half year decreased by five per cent to 124.7 MMboe.

· Liquids production decreased by three per cent to 60.5 MMboe as higher Onshore US liquids volumes were more than offset by lower Conventional liquids production due to industrial action at Bass Strait and natural field decline across the portfolio.

· Natural gas production declined by seven per cent to 386 bcf as lower Onshore US gas volumes were partially offset by higher seasonal demand at Bass Strait.

Total petroleum production guidance for the 2016 financial year remains unchanged at 237 MMboe.

· Strong performance by our Conventional business is expected to offset lower Onshore US volumes following a further reduction in development activity, a third party gas plant outage in the Permian and the successful divestment of our gas business in Pakistan.

Depreciation and impairment charges, excluding exceptional items, declined in the December 2015 half year as a result of US$328 million of impairment charges incurred in the previous period. This was partially offset by US$210 million of higher depreciation and amortisation charges in Onshore US due to a reduction in total reserves, primarily at Fayetteville and Hawkville due to acreage relinquishments and amended development plans. Depreciation and amortisation charges are expected to decline by approximately US$450 million in the second half of the 2016 financial year following an impairment charge of US$7.2 billion against the carrying value of the Onshore US assets in the December 2015 half year.

Petroleum capital expenditure declined by 44 per cent to US$1.5 billion in the December 2015 half year. This included US$851 million of Onshore US drilling and development expenditure. We realised further improvements in shale drilling and completions efficiency during the period as our drill time and completion techniques showed marked improvement in the Black Hawk and Permian. We now expect to reduce Black Hawk drilling costs further to US$2.3 million per well in the 2016 financial year.

Petroleum capital expenditure of approximately US$2.7 billion is now planned in the 2016 financial year, a seven per cent decline from prior guidance of US$2.9 billion. 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$200 million relates to a reduction in capital creditors.

Our Onshore US operated rig count has now reduced from seven to five as we defer development activity to preserve value. Completions activity will continue to be tailored to market conditions and we will exercise further flexibility should there be greater value in deferral. 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 expenditure for the December 2015 half year was US$321 million, of which US$126 million was expensed. Activity for the period was largely focused in the deepwater Gulf of Mexico, the Caribbean and the Beagle sub-basin off the coast of Western Australia. We are pursuing high-quality oil plays in these three focus areas and continue to invest opportunistically in future growth options. Since August 2015, BHP Billiton has acquired 26 blocks in the Western Gulf of Mexico Lease Sale with a 100 per cent working interest. A US$600 million exploration program remains on plan for the 2016 financial year, largely focused on acreage access, seismic data acquisition and increased activity in our exploration drilling program.

Financial information for the Petroleum business for the December 2015 and December 2014 half years is presented below.

 (i) Petroleum revenue from Group production includes: crude oil US$2,003 million (2014: US$4,001 million), natural gas US$933 million (2014: US$1,439 million), LNG US$481 million (2014: US$833 million), NGL US$206 million (2014: US$429 million) and other US$89 million (2014: US$190 million).

(ii) Includes US$195 million of capitalised exploration (2014: US$24 million).

(iii) Includes US$ nil of exploration expenditure previously capitalised, written off as impaired (included in depreciation and amortisation) (2014: US$12 million).

(iv) Australia Production Unit includes Macedon, Pyrenees, Minerva and Stybarrow. Comparative period has been restated to report Australia Production Unit and Trinidad/Tobago separately from Other.

(v) Onshore US is now reported separately between Eagle Ford, Permian, Haynesville and Fayetteville.

(vi) Predominantly divisional activities, business development, Pakistan, UK, Neptune, Genesis and ceased and sold operations. Also includes the Caesar oil pipeline and the Cleopatra gas pipeline which are equity accounted investments and are reported on a proportionate consolidation basis (with the exception of net operating assets).

(vii) Goodwill associated with Onshore US of US$3,026 million is included in Other net operating assets (2014: US$3,526 million).

(viii) Negative capital expenditure reflects movements in capital creditors.

(ix) Comprises closed mining and smelting operations in Canada and the United States.

(x) Includes statutory adjustments for the Caesar oil pipeline and the Cleopatra gas pipeline to reconcile the proportionately consolidated business total to the statutory result.

(xi) Includes US$328 million of impairments associated with the divestment of assets in North Louisiana (Haynesville) and the Pecos field (Permian).

Copper

Underlying EBIT for the December 2015 half year decreased by US$1.9 billion to US$101 million.

(i) Average realised price: copper US$2.12/lb (2014: US$2.98/lb).

(ii) Includes drawdown of higher-cost inventory built up in prior periods and write-downs, predominantly at Escondida, of US$578 million.

(iii) Other includes: fuel and energy; asset sales; other items (including profit from equity accounted investments).

Total copper production for the December 2015 half year decreased by six per cent to 762 kt.

· Escondida copper production decreased 18 per cent to 452 kt as record material mined, underpinned by improvements in truck availability and utilisation, was more than offset by a 25 per cent decline in grade.

· Pampa Norte copper production was broadly unchanged at 126 kt as record ore milled and higher grade underpinned record production at Spence and offset lower recoveries at Cerro Colorado.

· Olympic Dam copper production increased by 37 per cent to a record 112 kt and reflects record ore milled and improved smelter utilisation following planned maintenance in the prior period.

· Antamina copper production increased by 36 per cent to 72 kt as higher grades and recoveries were supported by record material mined and milled.

Total copper production guidance for the 2016 financial year remains unchanged at 1.5 Mt.

· Guidance for Escondida remains unchanged at 940 kt.

· Pampa Norte production is now expected to be ahead of the prior year.

· Olympic Dam production is now expected to exceed 200 kt.

· Guidance for Antamina remains unchanged at 136 kt.

The ramp-up of the Escondida Organic Growth Project 1 (OGP1) progresses ahead of plan and is expected to reach full capacity during the 2016 financial year. In the medium term, completion of the Escondida Water Supply project and the potential life extension of the Los Colorados concentrator will enable utilisation of three concentrators to offset grade decline and support a strong recovery in production(9). In the short to medium term, the Spence Recovery Optimisation project should enable the full utilisation of approximately 200 ktpa of tankhouse capacity.

Unit cash costs at our operated copper assets declined by eight per cent to US$1.11 per pound on an Escondida grade-adjusted basis during the December 2015 half year. This reflects the benefit of productivity-led cost improvements and a further reduction in labour and contractor costs, particularly at Olympic Dam where unit costs declined by 36 per cent.

Escondida's Underlying EBIT declined by US$1.7 billion in the December 2015 half year and reflected lower realised prices and expected grade-related volume decline. This reduction also included inventory movements and write-downs of US$448 million. The inventory movements reflect a build of lower-grade inventory in prior periods in line with the optimised mine plan, followed by a partial drawdown in the December 2015 half year. The use of lower-grade stockpiled inventory resulted in lower recoveries, which have subsequently returned to normal levels, but provided a substantial reduction of working capital and increased cash flow during the period.

Robust production performance and benefits from the Escondida 3.0 productivity program supported grade-adjusted unit costs which remained broadly unchanged at US$1.02 per pound in the December 2015 half year. Excluding the impact of inventory movements, net cash costs declined 12 per cent.

Escondida's grade-adjusted unit cost guidance remains unchanged at US$0.87 per pound(10) for the 2016 financial year. We expect a strong recovery of concentrate production in the second half of the 2016 financial year supported by higher throughput from the continued ramp-up of OGP1 and improved recoveries and water availability. We also expect a reduction in the average unit cost of cathode production due to sulphide leach productivity initiatives, which include increasing the area of stacked material under irrigation, encompassing older zones of the pad. These initiatives will result in a decline in the average cost of sulphide leach inventory in the second half of the 2016 financial year. In addition, the use of lower-grade ore stocks will support a 45 per cent increase in material stacked over the period to maintain optimal cathode production in the 2017 and 2018 financial years.

 (i) Royalties are reported within taxation expense. Comparative periods have been restated to exclude by-product credits.

(ii) Sales volumes adjusted to exclude intercompany sales and purchases.

(iii) Adjustment to present unit cost on a grade-equivalent basis relative to the 2015 financial year.

Lower depreciation and deferred stripping largely reflects a reduction at Escondida and Cerro Colorado in line with lower production.

Financial information for the Copper business for the December 2015 and December 2014 half years is presented below.

 (i) Escondida is consolidated under IFRS 10 and reported on a 100 per cent basis.

(ii) Includes Spence and Cerro Colorado.

(iii) Antamina and Resolution are equity accounted investments and are reported on a proportionate consolidation basis (with the exception of net operating assets).

(iv) Predominantly comprises divisional activities, greenfield exploration, business development and ceased and sold operations. Includes Resolution.

Iron Ore

Underlying EBIT for the December 2015 half year decreased by US$2.3 billion to US$1.9 billion.

(i) Average realised price: iron ore US$43/wmt, FOB (2014: US$70/wmt, FOB).

(ii) Other includes: fuel and energy; depreciation, deferred stripping and impairment; asset sales; other items. Other items includes net profit from the equity accounted investment in Samarco, but does not include any financial impacts following the Samarco dam failure which has been treated as an exceptional item.

Total iron ore production for the December 2015 half year increased by four per cent to 118 Mt.

· Western Australia Iron Ore (WAIO) production increased by six per cent to a record 131 Mt (100 per cent basis), underpinned by the Jimblebar mining hub operating at full capacity and improved ore handling plant utilisation at Newman.

· Samarco production decreased by 25 per cent to 11 Mt (100 per cent basis). Mining and processing operations remain suspended following the dam failure. The final shipment of pellets from port stockpiles is expected to be completed in the March 2016 quarter.

Total iron ore production for the 2016 financial year of 237 Mt is expected, four per cent lower than prior guidance.

· Revision of total iron ore guidance reflects the suspension of operations at Samarco.

· WAIO guidance remains unchanged at 270 Mt (100 per cent basis). However, following unfavourable weather conditions in January we will continue to monitor progress against guidance and will provide an update in the March 2016 operational review if required.

Work has commenced on the installation of a new primary crusher and additional conveying capacity at Jimblebar. Associated costs are included within WAIO's average annual sustaining capital expenditure which is now expected to be approximately US$4 per tonne following continued improvements in capital productivity. The ramp-up of additional capacity at the Jimblebar mining hub along with further productivity improvements, will deliver an increase in system capacity to 290 Mtpa over time.

WAIO unit cash costs declined by 25 per cent to US$15.21 per tonne, underpinned by a stronger US dollar, reductions in labour and contractor costs, and lower diesel prices and consumption. Unit cost guidance for the 2016 financial year remains unchanged at US$15 per tonne(10).

The sale of BHP Billiton's 100 per cent interest in its Liberia iron ore project to Cavalla Resources was completed in October 2015.

Financial information for the Iron Ore business for the December 2015 and December 2014 half years is presented below.

(i) Samarco is an equity accounted investment and is reported on a proportionate consolidation basis (with the exception of net operating assets).

(ii) Predominantly comprises divisional activities, towage services, business development and ceased operations.

(iii) Includes inter-segment and external sales of contracted gas purchases.

Coal

Underlying EBIT for the December 2015 half year decreased by US$481 million to US$(342) million.

(i) Average realised price: hard coking coal US$82/t (2014: US$110/t); weak coking coal US$67/t (2014: US$92/t); thermal coal US$49/t (2014: US$61/t).

(ii) One-off items reflect royalty and taxation matters.

(iii) Other includes: fuel and energy; asset sales; ceased and sold operations; other items (including loss from equity accounted investments).

Metallurgical and energy coal production both declined by three per cent, to 21 Mt and 19 Mt respectively, in the December 2015 half year.

· Record metallurgical coal production at four Queensland Coal mines was offset by a convergence event at the Broadmeadow mine and completion of longwall mining at the low-cost Crinum mine.

· First metallurgical coal production from the Haju mine in Indonesia was achieved.

· Drought conditions at Cerrejón and heavy rainfall and blasting constraints at New South Wales Energy Coal reduced energy coal production.

Metallurgical coal production guidance for the 2016 financial year remains unchanged at 40 Mt. Energy coal production for the 2016 financial year is now expected to be 37 Mt following completion of the sale of the San Juan Mine to Westmoreland Coal Company on 31 January 2016.

Queensland Coal unit cash costs declined by 17 per cent to US$59 per tonne, as the operations benefited from a stronger US dollar, lower diesel prices and a reduction in labour and contractor costs reflecting continued productivity improvements. This offset inventory write-downs due to weaker coal prices, the impact of a convergence event at the Broadmeadow mine, a higher than usual number of planned maintenance shutdowns, and costs associated with the closure of the Crinum mine as it reached the end of its economic reserve life. Unit costs for the 2016 financial year are now expected to be US$59 per tonne(10), as favourable currency movements offset the removal of low-cost Crinum volumes.

Higher depreciation in the December 2015 half year reflects the completion of the Hay Point Stage Three Expansion and accelerated depreciation related to the closure of the Crinum mine. Queensland Coal's average annual sustaining capital expenditure is expected to be approximately US$6 per tonne.

Financial information for the Coal business for the December 2015 and December 2014 half years is presented below.