BHP Group Regulatory News (BHP)

BHP BILLITON RESULTS FOR THE HALF YEAR ENDED 31 DECEMBER 2016

· Despite improvements in our safety performance indicators, tragically there was a fatality at Escondida.

· Attributable profit of US$3.2 billion, Underlying EBITDA(1) of US$9.9 billion and an Underlying EBITDA margin(2) of 54% for the December 2016 half year.

· Productivity gains(3) of US$1.2 billion achieved for the period, including the benefit from the increase in estimated recoverable copper contained in the Escondida sulphide leach pad. We remain on track for US$1.8 billion of gains for the 2017 financial year, excluding any impact of industrial action at Escondida.

· Unit cash costs(4) declined at our major assets compared to the December 2015 half year. Full year unit cost guidance has been adjusted to reflect unfavourable exchange rate movements.

· Capital and exploration expenditure(5) decreased by 38% to US$2.7 billion. We now expect to invest US$5.6 billion in the 2017 financial year and US$6.3 billion in the 2018 financial year, reflecting an increase in exploration spend in both years following the successful bid for Trion in Mexico and positive drilling results at LeClerc and Caicos.

· Strong operating performance and improving capital productivity supported free cash flow(2) of US$5.8 billion.

· We strengthened our balance sheet, with net debt(2) of US$20.1 billion significantly reduced from US$26.1 billion at 30 June 2016 reflecting strong free cash flow generation and a favourable fair value adjustment of US$2.0 billion related to interest rate and exchange rate movements.

· The Board has determined to pay an interim dividend of 40 US cents per share which is covered by free cash flow. This comprises the minimum payout of 30 US cents per share and an additional amount of 10 US cents per share.

· Total copper production guidance for the 2017 financial year is under review as a result of ongoing industrial action at Escondida.

· At Samarco, substantial progress is being made on the social and environmental remediation programs. A Preliminary Agreement has been entered into with the Federal Prosecutors' Office. Restart of operations remains a focus but will only occur if it is safe, economically viable and has community support.

Results for the half year ended 31 December 2016

BHP Billiton Chief Executive Officer, Andrew Mackenzie, said: "This is a strong result that follows several years of a considered and deliberate approach to improve productivity and redesign our portfolio and operating model. Our steadfast commitment to this plan has positioned us to take full advantage in a period of higher prices with Underlying EBITDA up 65 per cent to US$9.9 billion.

The demerger of South32 and over US$7 billion of asset sales have shaped a portfolio that is now true to its strategy. Our assets are large, long-life and low-cost and provide exposure to a diverse mix of commodities with an attractive outlook. Our new operating model has sharpened the focus of our operations on the things that matter most: safety, volume and cost. A decline in unit costs at our major assets supported US$1.2 billion of productivity gains in the half, which follows the US$11 billion of annualised gains embedded over the last four years.

Greater productivity and increased capital efficiency supported strong free cash flow generation of US$5.8 billion. Strict adherence to our capital allocation framework has maximised the use of this cash. We have strengthened our balance sheet, with net debt falling sharply to close the period at US$20.1 billion. As we further strengthen the balance sheet our ability to invest counter-cyclically will only be enhanced. Our minimum 50 per cent dividend payout policy equates to 30 US cents per share. In recognition of the importance of shareholder returns and confidence in the Company's performance, the Board has determined to pay an additional amount of 10 US cents per share, taking the overall interim dividend to 40 US cents per share.

We are confident in the long-term outlook for our commodities, particularly oil, with markets expected to rebalance in the near-term, and copper where we expect a deficit to emerge in the early 2020s. We have the right settings in place to substantially grow shareholder value.

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

Health and safety are core to our values and we are committed to providing a safe workplace. BHP Billiton reported a record low Total Recordable Injury Frequency of 3.9 per million hours worked in the December 2016 half year. Despite the improvement in safety performance indicators, tragically one of our colleagues died at Escondida in October 2016.

We remain committed to supporting Samarco with the recovery of the communities and environment

Providing our support for the long-term recovery of the communities and environment affected by the Samarco tragedy on 5 November 2015 remains a priority for BHP Billiton. Substantial progress has been made on community resettlement, community health and environment restoration. The Renova Foundation has been operational since August 2016. Relocation of the communities most severely affected by the dam failure is progressing well. The program of works designed to contain tailings during the wet season was completed, as were improvements to water treatment plants along the Rio Doce.

On 18 January 2017, Samarco and its shareholders, Vale and BHP Billiton Brasil, entered into a Preliminary Agreement with the Federal Prosecutors in Brazil. This outlines the process and timeline for negotiation of a settlement of the R$155 billion (approximately US$47.5 billion) Civil Claim relating to the Fundão tailings dam failure. Under the timeframe established in the Preliminary Agreement, negotiations in relation to a final settlement arrangement with the Federal Prosecutors are expected to occur before the end of June 2017.

Restart of Samarco's operations remains a focus but is subject to separate negotiations with relevant parties and will occur only if it is safe, economically viable and has the support of the community. Resuming operations requires government approvals, the granting of licenses by state authorities, the restructure of Samarco's debt and the completion of commercial arrangements with Vale regarding the use of its Timbopeba pit.

In the December 2016 half year, BHP Billiton recorded an exceptional item of US$155 million (after tax) in relation to the Samarco dam failure. Additional commentary is included on page 35.

Our diversified portfolio and simplified structure deliver strong financial performance

Earnings and margins

· Attributable profit of US$3.2 billion includes an exceptional loss of US$40 million (after tax). That loss related to the Samarco dam failure (US$155 million), which was partially offset by US$115 million related to the cancellation of the Caroona exploration licence.

· Underlying attributable profit of US$3.2 billion.

· Underlying EBITDA of US$9.9 billion, with higher prices, operating cash cost improvements and other net movements (in total US$4.3 billion) more than offsetting the negative impact of currency and inflation movements (in total US$0.4 billion).

· Underlying EBITDA margin of 54 per cent, compared with 40 per cent in the prior period.

Productivity and costs

· US$1.2 billion of additional productivity gains compared to the December 2015 half year, with annualised productivity gains of more than US$11 billion already embedded over the last four years.

· On track to deliver approximately US$1.8 billion of productivity gains during the 2017 financial year, excluding any impact of industrial action at Escondida.

· Unit cash costs declined at our major assets when compared to the December 2015 half year.

· Escondida, Conventional petroleum, Queensland Coal, and Western Australia Iron Ore (WAIO) unit cash costs(4) decreased by 37 per cent, 10 per cent, four per cent and one per cent, respectively, compared to the December 2015 half year. Lower Escondida unit cash costs reflected the benefit related to a change in estimated recoverable copper contained in the sulphide leach pad and favourable inventory movements. In local currency terms, Queensland Coal and WAIO unit costs declined by eight per cent and five per cent respectively.

· Historical costs and updated guidance for the 2017 financial year (reflecting unfavourable exchange rate movements) are summarised below:

 (i) Current 2017 financial year guidance is based on exchange rates of AUD/USD 0.75 and USD/CLP 663. Previous guidance was based on exchange rates of AUD/USD 0.71 and USD/CLP 698.

(ii) Excludes impact from revaluation of embedded derivatives in the Trinidad and Tobago gas contract: H1 FY17 US$46 million loss; H1 FY16 US$106 million gain; FY16 US$14 million gain.

(iii) Guidance unchanged pending the outcome of industrial action.

Cash flow and balance sheet

· Delivered net operating cash flows of US$7.7 billion, reflecting higher commodity prices and further cash cost efficiencies.

· Generated free cash flow of US$5.8 billion. Our Onshore US assets are now free cash flow positive, reflecting continued improvements in both operating and capital efficiency.

· We continued to strengthen our balance sheet, finishing the period with net debt(2) of US$20.1 billion (30 June 2016: US$26.1 billion; 31 December 2015: US$25.9 billion). This reduction reflects strong free cash flow generation during the period as well as a non-cash fair value adjustment of US$2.0 billion related to interest rate and exchange rate movements, partially offset by the recognition of the Kelar finance lease of US$591 million.

· Gearing ratio(2) of 24.3 per cent (30 June 2016: 30.3 per cent; 31 December 2015: 29.7 per cent).

Dividends

· The dividend policy provides for a minimum 50 per cent payout of Underlying attributable profit at every reporting period. The minimum dividend payment for the period is 30 US cents per share.

· Recognising the importance of cash returns to shareholders, the Board has determined to pay an additional amount of 10 US cents per share, taking the overall interim dividend to 40 US cents per share.

Projects and exploration

· Capital and exploration expenditure of US$2.7 billion, down 38 per cent in the December 2016 half year, included maintenance spend of US$0.6 billion(6).

· Following the successful bid for Trion in Mexico and positive drilling results at LeClerc and Caicos, a US$820 million exploration program is now planned for the current financial year.

· All major projects under development are tracking to plan.

· On 9 February 2017, BHP Billiton's Board approved an investment of US$2.2 billion (BHP Billiton share) for the development of the Mad Dog Phase 2 project in the deepwater Green Canyon area of the Gulf of Mexico.

· Capital and exploration expenditure is now expected to be US$5.6 billion for the 2017 financial year and US$6.3 billion in the 2018 financial year, reflecting an increase in exploration spend in both years.

Disciplined capital allocation is maximising shareholder value

Strict adherence to our capital allocation framework balances value creation, cash returns to shareholders and balance sheet strength in a transparent and consistent manner. This framework continues to provide valuable flexibility.

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 dividend amounts and acquiring assets, all competing for capital.

With several of our commodity exposures currently trading above our long-term forecasts and with considerable economic and political uncertainty ahead, our bias for lowering debt remains. While the balance sheet is strong, our ongoing focus on debt reduction during this period of elevated commodity prices will protect the Company through periods of higher volatility and support counter cyclical investments as we move through the cycle. We will continue to invest in releasing near-term latent production capacity and progressing our broad suite of medium and long-term growth options which, while timed to meet identified market windows, are progressing well.

Outlook - near-term uncertainty, attractive long-term fundamentals

Economic outlook

World economic growth is likely to remain within the range of three to three and a half per cent in the 2017 calendar year. A move above this range will be delayed by rising political uncertainty which has the potential to weigh on international trade and business confidence.

Our view on China remains unchanged. China's economic growth is expected to moderate in the coming year. The growth rate will remain consistent with official guidance. We anticipate a cooling of growth rates in the housing and automobile markets in combination with a continuation of strength in infrastructure. Manufacturing investment should stabilise, however exports may be challenged by the rising threat of protectionism.

China's policymakers will continue to seek a balance between the pursuit of reform and the maintenance of macroeconomic and financial stability. We expect a continuation of efforts to address excess capacity and improve balance sheet health in over-indebted sectors. Longer term, our view remains that China's economic growth rate will decelerate as the working age population falls and the capital stock matures. China's economic structure will continue to rebalance from industry to services and growth drivers will shift from investment and exports towards consumption.

The outlook for the US economy is uncertain. The policy platform of the new administration points to a higher inflation environment than previously envisaged. The medium-term impact on growth is unclear, notwithstanding infrastructure related announcements, especially in the context of tighter financial conditions. In Europe and Japan, where the limits of monetary policy effectiveness may have been reached, any upside on growth will have to come from external demand sources. India's economy should return to a healthy growth trajectory once the demonetisation shock recedes. The stabilisation of commodity prices should help put a floor under growth in resource-exporting emerging markets.

Commodities outlook

Crude oil prices trended higher in the first half of the 2017 financial year, particularly in the second quarter. OPEC reversed course on 30 November 2016 by agreeing to its first production cut since 2008 and the first cooperative deal with non-OPEC producers since 2001. These developments, and improving fundamentals, led to the price recovery. The market is expected to rebalance in the short-term, supporting prices as inventory levels normalise. However, political uncertainty, OPEC compliance rates and rising US output may offer some headwinds. The long-term outlook remains positive, underpinned by rising demand from the developing world and natural field decline.

The domestic gas price in the US strengthened on a combination of winter heating demand, rising exports, and declining production. At the end of the reporting period, natural gas inventories were below the five-year average. This reduction in inventory levels is likely to offer price support in the near-term, notwithstanding the usual seasonal influences. The abundance of lower-cost supply is likely to moderate significant price inflation longer term, however, natural field decline and robust demand growth are forecast to incentivise development of incrementally higher-cost resources.

Copper prices improved towards the end of the first half of the 2017 financial year due to a combination of mine supply disruptions, stronger than expected Chinese demand and an improvement in investor sentiment. In the short- to medium-term, new and expanded production is expected to keep pace with demand and maintain a well-supplied market in balance. 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 by the early 2020s as grade decline, water availability and limited high-quality development opportunities constrain the industry's ability to cheaply meet growing demand.

Global steel production growth gained momentum in the first half of the 2017 financial year, led by a recovery in China. In the short-term, Chinese steel production growth is expected to moderate as the rate of growth in the housing market eases amidst escalating supply-side measures. Steel production in the rest of the world is likely to improve marginally, led by India. In the long-term, the global steel market will grow modestly, supported mainly by incremental demand from India and other populous emerging markets.

Iron ore prices have been highly volatile, starting the 2016 calendar year at low levels before recovering strongly in the Chinese spring. The price reached a two year high in December 2016, on the back of higher-than-expected steel production in China and tight supply of high grade ores. The market is likely to come under pressure in the short-term from moderating Chinese steel demand growth, high port inventories and incremental low cost supply.

Metallurgical coal prices surged in the first half of the 2017 financial year, driven by pronounced shortages in both domestic Chinese and seaborne supply and reflected the impact of China's 276-working day reform policy and adverse weather conditions in China and Queensland. Prices are expected to return to industry marginal cost once seaborne and Chinese supply constraints are eased. The application of China's coal supply reform policy is a source of short-term uncertainty. We expect emerging markets such as India will provide long-term seaborne demand growth, while high-quality metallurgical coals will continue to offer steel makers value-in-use benefits.

Capital and exploration

Historical capital and exploration expenditure and updated guidance for the 2017 and 2018 financial years (reflecting an increase in exploration spend in both years) are summarised in the following table:

 (i) Includes capitalised deferred stripping of US$200 million for H1 FY17; US$394 million for FY17 and US$878 million for FY18 (H1 FY16: US$391 million; FY16 US$750 million).

All major projects under development remain on time and on budget. During the December 2016 half year, the Bass Strait Longford Gas Conditioning Plant project achieved initial gas sales and the Escondida Water Supply project achieved mechanical completion, with first water expected to be delivered in the March 2017 quarter.

At Jansen, excavation and lining of the shafts are steadily progressing. Both shafts have been safely excavated and lined through the Blairmore aquifer. The engineering contract for feasibility studies of Jansen Stage 1 has been awarded.

On 9 February 2017, BHP Billiton's Board approved an investment of US$2.2 billion (BHP Billiton share) for the development of the Mad Dog Phase 2 project in the deepwater Green Canyon area of the Gulf of Mexico.

 (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 reflects BHP Billiton's share.

(ii) Total potash expenditure of approximately US$300 million, including capital expenditure of less than US$200 million, is expected for the 2017 financial year.

Income statement

Underlying attributable profit and Underlying EBITDA are presented below. We believe focusing on Underlying EBITDA more closely reflects operating cash generative capacity and hence the underlying performance of our business.

(i) Exceptional items of US$75 million excludes net finance costs of US$(66) million included in the total US$(155) million related to the Samarco dam failure. Total exceptional items before tax inclusive of the US$(66) million net finance costs are US$9 million.

Underlying EBITDA

The following table and commentary describe the impact of the principal factors that affected Underlying EBITDA for the December 2016 half year compared with the December 2015 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) Based on provisional, unaudited estimates. 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 increased Underlying EBITDA by US$37 million in the December 2016 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.

Depreciation, amortisation and impairments

Depreciation, amortisation and impairments declined by US$738 million to US$3.9 billion, and reflected lower production and a reduction in the depreciable asset base resulting from previously recorded impairment charges in Onshore US.

Net finance costs

Net finance costs increased by US$148 million to US$577 million due to higher benchmark interest rates.

Taxation expense

The Group's adjusted effective tax rate(2), which excludes the influence of exchange rate movements and exceptional items, was 34.7 per cent (31 December 2015: 33.5 per cent). The adjusted effective tax rate is expected to be in the range of approximately 35 to 40 per cent for the 2017 financial year.

Other royalty and excise arrangements which are not profit based are recognised as operating costs within Profit/ (loss) before taxation. These amounted to US$963 million during the period (31 December 2015: US$755 million).

Exceptional items

The following table sets out the exceptional items in the December 2016 half year. Additional commentary is included on page 35.

(i) Financial impacts of US$(155) million from the Samarco dam failure relates to US$(61) million share of loss from US$(61) million funding provided during the period, US$(41) million direct costs incurred by BHP Billiton Brasil Ltda and other BHP Billiton entities, US$(66) million net finance costs offset by US$13 million other movements in the Samarco dam failure provision including foreign exchange.

Dividend

Our Board today determined to pay an interim dividend of 40 US cents per share. The interim dividend to be paid by BHP Billiton Limited will be fully franked for Australian taxation purposes.

BHP Billiton Plc shareholders registered on the South African section of the register will not be able to dematerialise or rematerialise their shareholdings between 8 and 10 March 2017 (inclusive), nor will transfers between the UK register and the South African register be permitted between 3 and 10 March 2017 (inclusive). American Depositary Shares (ADSs) each represent two fully paid ordinary shares and receive dividends accordingly.

Details of the currency exchange rates applicable to 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 2016 half year, Escondida issued US$1.2 billion of new long-term debt to refinance US$0.8 billion of short-term debt. At the Group level, no new debt was issued and US$1.3 billion of senior debt was repaid at maturity. This is consistent with the Group's continued focus on debt reduction.

The Group has a US$6.0 billion commercial paper program backed by a US$6.0 billion revolving credit facility. The revolving credit facility expires in May 2021, after the one-year extension option was exercised in May 2016. As at 31 December 2016, the Group had US$ nil outstanding in the US commercial paper market, US$ nil drawn under the revolving credit facility and US$14.0 billion in cash and cash equivalents.

Segment summary(i)

A summary of the performance for the December 2016 and December 2015 half years is presented below.

(i) Group and segment level information is reported on a statutory basis which, in relation to Underlying EBITDA, includes depreciation, amortisation and impairments, net finance costs and taxation (expense)/benefit of US$267 million (2015: US$274 million) related to equity accounted investments. It excludes exceptional items of US$61 million (2015: US$655 million) related to share of loss from equity accounted investments. Group profit/(loss) before taxation comprised Underlying EBITDA, exceptional items, depreciation, amortisation and impairments of US$3,914 million (2015: US$4,652 million) and net finance costs of US$577 million (2015: US$429 million).

(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$567 million and Underlying EBITDA of US$49 million (2015: US$555 million and US$(27) million).

(iii) Includes US$147 million capitalised exploration (2015: US$211 million).

(iv) Includes US$43 million of exploration expenditure previously capitalised, written off as impaired (included in depreciation and amortisation) (2015: US$ nil).

(v) Group and unallocated items includes Functions, other unallocated operations including Potash, Nickel West and consolidation adjustments. Revenue not attributable to reportable segments comprises the sale of freight and fuel to third parties. Exploration and technology activities are recognised within the relevant segments.

(vi) Comprises revenue of US$43 million generated by Petroleum (2015: US$60 million) and US$11 million generated by Iron Ore

(2015: US$11 million).

(vii) Exceptional items of US$75 million excludes net finance costs of US$(66) million included in the total US$(155) million related to the Samarco dam failure. Total exceptional items before tax inclusive of the US$(66) million net finance costs are US$9 million. Refer to note 2 Exceptional items for further information.

Petroleum

Underlying EBITDA for Petroleum decreased by US$215 million to US$2.0 billion in the December 2016 half year.

(i) Average realised price: crude and condensate oil US$45/bbl (2015: US$42/bbl); natural gas US$3.21/Mscf (2015: US$2.91/Mscf); LNG US$6.35/Mscf (2015: US$8.24/Mscf).

(ii) Other includes: exchange rate; inflation; ceased and sold operations; other items. Other items includes Onshore US rig termination charges of US$6 million (2015: US$65 million) and impact from revaluation of embedded derivatives in Trinidad and Tobago gas contract of US$46 million loss (2015: US$106 million gain).

Total petroleum production for the December 2016 half year decreased by 15 per cent to 105.9 MMboe.

· Conventional production was broadly unchanged at 66 MMboe as higher production at Bass Strait and North West Shelf offset natural field decline across the portfolio and the divestment of our gas business in Pakistan.

· Onshore US production declined by 31 per cent to 40 MMboe as a result of the decision to defer development activity for value and natural field decline.

Total petroleum production guidance for the 2017 financial year remains unchanged at between 200 and 210 MMboe, comprising Conventional volumes between 123 and 127 MMboe and Onshore US volumes between 77 and 83 MMboe.

The increase in controllable cash costs reflects an increase in exploration expense, primarily attributable to expensing of the Burrokeet wells. Conventional unit costs declined by 10 per cent to US$8.42 per barrel during the December 2016 half year as a result of a decrease in workovers. Conventional unit cost guidance for the 2017 financial year is unchanged at approximately US$10 per barrel reflecting expected lower volumes as a result of seasonal demand in the second half of the year and timing of maintenance costs.

In the December 2016 half year, gains on asset divestments of US$196 million were recognised, with the majority related to the sale of 50 per cent of BHP Billiton's interest in the undeveloped Scarborough area gas fields to Woodside Energy Limited as well as some non-core asset sales in Onshore US as we continue to optimise our acreage.

Petroleum capital expenditure declined by 42 per cent to US$845 million in the December 2016 half year. This included US$273 million of Onshore US drilling and development expenditure. Despite longer and more complex laterals and trials of new wells, our overall drilling and completion costs are now 25 per cent lower than the December 2015 half year, reflecting optimised well designs, operational efficiencies and procurement savings. Our Onshore US assets are now free cash flow positive reflecting these improvements in both operating and capital efficiency.

Petroleum capital expenditure guidance of approximately US$1.4 billion (excluding US$0.2 billion from capital creditor movements) for the 2017 financial year remains unchanged. This includes Conventional capital expenditure of US$0.8 billion which is focused on life extension projects at Bass Strait and North West Shelf. Onshore US capital expenditure is expected to be US$0.6 billion with development activity tailored to market conditions.

On 9 February 2017, BHP Billiton's Board approved the development of the Mad Dog Phase 2 project in the deepwater Green Canyon area of the Gulf of Mexico. The project includes a new floating production facility with the capacity to produce up to 140,000 gross barrels of crude oil per day from up to 14 production wells, and is expected to begin production in the 2022 financial year. The project cost has more than halved since 2013 with a revised field development concept leading to significant cost reductions and is now estimated to be US$9 billion on a 100 per cent basis (US$2.2 billion BHP Billiton share). This decision follows BP's (the operator) sanction of the Mad Dog Phase 2 project in December 2016.

During the December 2016 half year, our Onshore US operated rig count was reduced from four to three. The current rig count includes the deployment of a rig in the Haynesville field in October 2016, following the successful execution of our hedging pilot. Additional hedge activity during the December 2016 quarter has led to approval of a second rig in the Haynesville with operations expected to commence in March 2017. We maintain the flexibility to add additional rigs in the Haynesville if market conditions are supportive. Completions activity in the Black Hawk was accelerated in the December 2016 quarter to drawdown drilled and uncompleted well inventory as market conditions improved.

We have further optimised our acreage through trades and swaps in the Permian, and we continue to talk to neighbouring operators about mutually value accretive swaps to enable us to drill longer wells.

We are currently progressing trials in the Black Hawk, testing the potential for staggered wells to increase recovery, larger frac jobs to improve productivity and the potential of the Upper Eagle Ford horizon. We expect early results of these trials to be known during the September 2017 quarter. These trials, combined with our improved productivity, are significantly adding to our economic well inventory that can generate a minimum 15 per cent internal rate of return at US$50 per barrel and US$3 per MMbtu.

(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 2016 half year was US$364 million, of which US$217 million was expensed. Activity for the period was largely focused in the deepwater Gulf of Mexico and the Caribbean.

During the period, positive drilling results were announced at the Caicos well in the Gulf of Mexico, with oil encountered in multiple horizons, and at the LeClerc well in Trinidad and Tobago, with gas encountered in multiple horizons. The Wildling appraisal well has been accelerated to establish the resource scale and potential for commerciality of the oil discovered at Caicos. Studies have also commenced on the volume and potential market for the gas discovered at LeClerc to assess commerciality. Non-commercial hydrocarbons were encountered at the Burrokeet-2 well, concluding Phase 1 of the Trinidad and Tobago deepwater drilling campaign. The Invictus rig was mobilised to the Gulf of Mexico to drill the Wildling appraisal well, which spud on 8 January 2017.

During the December 2016 half year, BHP Billiton won the bid to acquire a 60 per cent participating interest in and operatorship of blocks AE-0092 and AE-0093, containing the Trion discovered resource, in Mexico. Subject to satisfaction of conditions, BHP Billiton anticipates signing the relevant agreements in the March 2017 quarter. Trion provides us with a first mover advantage and an opportunity to further appraise and potentially develop this area of the deepwater Gulf of Mexico.

Following the successful bid for Trion in Mexico and positive drilling results at the Caicos well in the Gulf of Mexico and the LeClerc well in Trinidad and Tobago, an US$820 million exploration program is now planned for the 2017 financial year, an increase of US$120 million from prior guidance.

Financial information for Petroleum for the December 2016 and December 2015 half years is presented below.

(i) Petroleum revenue from Group production includes: crude oil US$1,701 million (2015: US$2,003 million), natural gas US$892 million (2015: US$933 million), LNG US$419 million (2015: US$481 million), NGL US$208 million (2015: US$206 million) and other US$68 million (2015: US$89 million).

(ii) Includes US$147 million of capitalised exploration (2015: US$195 million).

(iii) Includes US$43 million of exploration expenditure previously capitalised, written off as impaired (included in depreciation and amortisation) (2015: US$ nil).

(iv) Australia Production Unit includes Macedon, Pyrenees, Minerva and Stybarrow (ceased production June 2015).

(v) Predominantly divisional activities, business development, Pakistan (divested in December 2015), UK, Neptune, Genesis. Also includes the Caesar oil pipeline and the Cleopatra gas pipeline which are equity accounted investments and their financial information presented above with the exception of net operating assets reflects BHP Billiton's share.

(vi) Goodwill associated with Onshore US of US$3,026 million is included in Other net operating assets (2015: US$3,026 million).

(vii) Comprises closed mining and smelting operations in Canada and the United States. In October 2014, the management of the closed mine sites was transitioned to Petroleum due to their geographic location.

(viii) Total Petroleum segment Revenue excludes US$7 million (2015: US$7 million) revenue related to the Caesar oil pipeline and the Cleopatra gas pipeline. Total Petroleum segment Underlying EBITDA includes US$2 million (2015: US$2 million) D&A related to the Caesar oil pipeline and the Cleopatra gas pipeline.

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

Copper

Underlying EBITDA for the December 2016 half year increased by US$915 million to US$1.7 billion.

(i) Average realised price: copper US$2.41/lb (2015: US$2.12/lb).

(ii) Non-cash includes: development stripping capitalisation and depletion.

(iii) One-off items reflects power outage at Olympic Dam.

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

Total copper production for the December 2016 half year decreased by seven per cent to 712 kt due to reduced volumes at Olympic Dam, maintenance at Pampa Norte and lower copper grades, as planned, at Antamina.

Total copper production guidance for the 2017 financial year is under review as a result of ongoing industrial action at Escondida.

The ramp-up of the Escondida Water Supply (EWS) and the Los Colorados Extension (LCE) projects late in the 2017 financial year will enable utilisation of three concentrators during the 2018 financial year. At Olympic Dam, development into the Southern Mining Area is progressing well and, following the major smelter maintenance campaign planned for the September 2017 quarter, is expected to support a gradual increase in copper production to 230 kt in the 2021 financial year.

The decrease in controllable cash costs included a US$275 million benefit related to the increase in estimated recoverable copper contained in the Escondida sulphide leach pad following commissioning of the Escondida Bioleach Pad Extension project and a US$120 million planned build of mined ore ahead of the commissioning of the LCE project. In addition, the December 2015 half year was negatively impacted by a drawdown of lower-grade stockpiled inventory and reduced recoveries from the ramp-up of Organic Growth Project 1.

As a result, unit cash costs at our operated copper assets decreased by 24 per cent to US$1.09 per pound during the December 2016 half year and included a 37 per cent reduction at Escondida, to US$0.91 per pound. In the 2017 financial year, unit costs at our operated copper assets are now expected to be US$1.15 per pound, higher than previous guidance of US$1.05 per pound, reflecting the impact of the power outage and unplanned refinery maintenance at Olympic Dam and a stronger Chilean peso and Australian dollar. Escondida unit cost guidance of approximately US$1.00 per pound remains unchanged for the 2017 financial year, pending the outcome of industrial action.

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

Underlying EBITDA was impacted by a US$196 million increase in non-cash costs and reflects lower capitalised development stripping at Escondida and Pampa Norte consistent with the mine plans, and higher depletion at Escondida due to increased ore movement.

The state-wide power outage and resultant shutdown at Olympic Dam reduced Underlying EBITDA by US$105 million in the December 2016 half year, with that reduction being reflected in one-off items.

Financial information for Copper for the December 2016 and December 2015 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 their financial information presented above with the exception of net operating assets reflects BHP Billiton's share.

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

(v) Total Copper segment Revenue excludes US$517 million (2015: US$453 million) revenue related to Antamina. Total Copper segment Underlying EBITDA includes US$60 million (2015: US$57 million) D&A and US$99 million (2015: US$52 million) net finance costs and taxation (expense)/benefit related to Antamina and Resolution that are also included in Underlying EBIT. Copper segment Capital expenditure excludes US$109 million (2015: US$106 million) and US$ nil (2015: US$1 million) Exploration expenditure related to Antamina.

Iron Ore

Underlying EBITDA for the December 2016 half year increased by US$1.3 billion to US$4.2 billion.