BHP Group Regulatory News (BHP)

BHP RESULTSFOR THE HALF YEAR ENDED 31 DECEMBER 2018

Safety and sustainability: We will continue our work to improve safety at our operations

• Tragically we had a fatality at Saraji in December 2018, despite improvements in our safety performance indicators.

Maximise cash flow: Solid free cash flow generation and margin above 50%

• Attributable profit of US$3.8 billion and Underlying attributable profit(i) of US$3.7 billion down 8% from the prior period.

• Underlying EBITDA(i) of US$10.5 billion at a margin(i) of 52% from continuing operations.

• Net operating cash flow of US$6.7 billion and free cash flow(i) of US$3.6 billion from continuing operations with volumes and commodity prices broadly in line with the prior period.

• Productivity(i) guidance is now expected to be broadly flat for the 2019 financial year largely reflecting the unplanned production outages at Olympic Dam, Western Australia Iron Ore, Spence and Nickel West.

Capital discipline: Net debt reduced to US$9.9 billion and to remain at the lower end of the target range

• Net debt(i) of US$9.9 billion, reduced by US$1.0 billion from 30 June 2018 (reduced by US$5.5 billion from 31 December 2017), which includes US$7.0 billion(ii) of proceeds received from the Onshore US sale, partially offset by the completion of a US$5.2 billion off −market BHP Group Limited share buy −back.

• Capital and exploration expenditure(i) of US$3.5 billion. Guidance unchanged at below US$8 billion per annum for the 2019 and 2020 financial years. This includes investments in the high returning West Barracouta (Bass Strait) and Atlantis Phase 3 (US Gulf of Mexico) projects approved in December 2018 and February 2019, respectively.

• In exploration, we encountered oil at Trion (Mexico), hydrocarbons at Bongo −2 (Trinidad and Tobago) and had early success at our copper exploration program in the Stuart Shelf (South Australia). We also added new optionality with interests acquired in the Orphan Basin (offshore Eastern Canada) and SolGold (Cascabel copper project in Ecuador).

Value and returns: Onshore US sale completed with US$10.4 billion net proceeds returned to shareholders

• The Onshore US sales process was completed on 31 October 2018, with the net proceeds of US$10.4 billion returned to shareholders through a combination of an off −market buy −back in December 2018 and a special dividend (US$1.02 per share) in January 2019.

• The Board has determined to pay an interim dividend of 55 US cents per share which includes an additional amount of 18 US cents per share (equivalent to US$0.9 billion) above the 50% minimum payout policy. This brings the total announced returns to shareholders over the last six months to US$13.2 billion.

• Underlying return on capital employed(i), excluding Onshore US assets, of 15% (after tax).

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Results for the half year ended 31 December 2018

BHP Chief Executive Officer, Andrew Mackenzie:

"The collapse of the Brumadinho dam in Brazil is a tragedy and we offer our heartfelt sympathy to all those affected. At BHP, we are committed to learn from what happened, and as an industry we must redouble our efforts to make sure events like this cannot happen.

Our focus on portfolio simplification, cash generation and capital discipline delivered higher cash returns to shareholders in the December 2018 half year.

Our strong balance sheet and fully funded capital investment plans allowed us to return the US$10.4 billion net Onshore US proceeds to shareholders in the form of a US$5.2 billion off −market share buy −back completed in December 2018 and a US$5.2 billion special dividend paid in January 2019. The Board has also today determined to pay an interim dividend of 55 cents per share, which equates to a payout ratio of 75 per cent.

Since the beginning of 2016, we have reduced debt by US$16 billion, reinvested US$20 billion in the business and returned more than US$25 billion to shareholders.

A strong second half is expected to partially offset the impacts from operational outages in the first half, with unit costs across our business forecast to improve.

We have a portfolio of attractive development opportunities and have recently approved the West Barracouta and Atlantis Phase 3 projects in petroleum and had early success in our oil and copper exploration programs. We are confident in our plans to increase shareholder value and returns."

Sustainability is one of our core values

The health and safety of our employees and contractors, and that of the broader communities in which we operate, are central to the success of our organisation. Tragically, one of our colleagues died at Saraji in Queensland in December 2018. Our Total Recordable Injury Frequency (TRIF) was 4.3 per million hours worked(iii) for the first half of the 2019 financial year, a two per cent reduction from 30 June 2018. The frequency rate for high potential injuries, which are injury events where there was the potential for a fatality, declined by 25 per cent(iii).

We are determined to become safer through the redesign of our work and increased application of technology to eliminate hazards, while improving our awareness through leadership engagement in the field. Proactive hazard reporting from the workforce and in −field safety leadership engagements increased significantly in the December 2018 half year.

BHP remains committed to supporting the Renova Foundation with the recovery of communities and ecosystems affected by the Samarco tragedy.

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Resettlement of the Bento Rodrigues, Paracatu and Gesteira communities is a priority of the Renova Foundation. Key milestones have been achieved in each of the three relocation programs.

As part of the compensation program, more than 8,200 general damages claims have been resolved in addition to the resolution of approximately 260,000 claims for temporary interruption to water supplies immediately following the dam failure. The river remediation programs continue to deliver improvements in water quality, with turbidity levels in impacted areas returned to historical levels.

The restart of Samarco's operations will occur only if it is safe, economically viable and has the support of the community. To restart, Samarco requires the necessary licencing approvals and the funding for restart preparation works. A key consideration regarding further shareholder funding is that restart remains economically viable, which includes an appropriate debt restructure. 

In the December 2018 half year, BHP reported an exceptional loss of US$210 million (after tax) in relation to the Samarco dam failure. Additional commentary is included on page 42.

Financial performance

Ÿ Attributable profit of US$3.8 billion includes an exceptional gain of US$32 million (after tax), compared to an attributable profit of US$2.0 billion, which includes an exceptional loss of US$2.0 billion (after tax), in the prior period. The December 2018 half year exceptional gain is related to the reversal of provisions for global taxation matters which were resolved during the period, partially offset by a loss related to the Samarco dam failure. The December 2017 half year exceptional loss related to the US tax reform and the Samarco dam failure.

Ÿ Underlying attributable profit of US$3.7 billion, compared to US$4.1 billion in the prior period.

Ÿ Profit from operations (continuing operations) of US$7.3 billion, compared to US$7.2 billion in the prior period, has increased as a result of lower depreciation and amortisation charges and the favourable impacts of exchange rate movements, partially offset by higher costs.

Ÿ Underlying EBITDA (continuing operations) of US$10.5 billion, compared to US$10.8 billion in the prior period, with higher costs (including production outages), inflation and other net movements (in total US$1.1 billion) more than offsetting the benefits of higher volumes at WAIO and Queensland Coal and favourable exchange rate movements (in total US$0.8 billion).

Ÿ Underlying EBITDA margin (continuing operations) of 52 per cent, compared to 55 per cent in the prior period.

Ÿ Underlying return on capital employed of 13.0 per cent (after tax), compared with 12.8 per cent in the prior period. Underlying return on capital employed, excluding Onshore US assets, is approximately 15 per cent (after tax), compared with 17 per cent in the prior period.

Productivity and costs

Ÿ A negative movement in productivity of US$460 million was recorded and reflects a negative impact of US$835 million related to unplanned production outages at Olympic Dam (acid plant outage in August 2018), WAIO (train derailment in November 2018), Spence (fire at the electro −winning plant in September 2018) and Nickel West (fire at the Kalgoorlie smelter in September 2018). This impact was partially offset by the build −up of inventory levels during the outages (benefit of approximately US$160 million) as well as record volumes at Jimblebar and South Walker Creek. The inventory build from the outages will be released in the coming periods.

Ÿ We expect a strong second half performance to offset the negative productivity movement in this period, bringing the overall movement to broadly flat for the full year, down from the previous guidance of US$1 billion.

Ÿ We will continue to drive productivity improvements as we unlock value through technology with the ongoing automation of our supply chain, reduce our reliance on labour hire through the continued roll out in Australia of our Operations Services initiative to leverage best practice in production and maintenance, and continue to set records for underground development, equipment utilisation, milling and production across our operations.

Ÿ Unit costs(i) at our major assets were above full year guidance (at 2019 financial year guidance exchange rates of AUD/USD 0.75 and USD/CLP 663) as a result of planned maintenance and production outages during the period.

Ÿ Full year unit cost guidance remains unchanged for our major assets (based on exchange rates of AUD/USD 0.75 and USD/CLP 663).

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Ÿ Historical costs and guidance are summarised below:

(1) FY19 unit costs guidance are based on exchange rates of AUD/USD 0.75 and USD/CLP 663.

(2) Average exchange rates for H1 FY19 of AUD/USD 0.72 and USD/CLP 671.

Ÿ Production and guidance are summarised below:

(1) Other copper comprises Pampa Norte (including Cerro Colorado production for the full 2019 financial year to reflect its retention, previous guidance only included 35 kt of production for the first half of the 2019 financial year), Olympic Dam and Antamina.

(2) Increase in BHP's share of volumes reflects the expiry of the Wheelarra Joint Venture sublease in March 2018, with control of the sublease area reverted to the Jimblebar Joint Venture, which is accounted for on a consolidated basis with minority interest adjustments.

Ÿ Group copper equivalent production was broadly unchanged in the December 2018 half year(iv), with volumes for the full year also expected to be in line with the 2018 financial year(iv).

Cash flow and balance sheet

Ÿ Net operating cash flows (continuing operations) of US$6.7 billion, with volumes and commodity prices broadly in line with the prior period and higher Australian and Chilean income tax payments in the period.

Ÿ Free cash flow (continuing operations) of US$3.6 billion for the half year. Free cash flow of US$10.6 billion, which includes US$7.0 billion(ii) of proceeds received from the sale of Onshore US. Remaining consideration of US$3.5 billion to be received during the June 2019 half year.

Ÿ Our balance sheet remains strong with net debt of US$9.9 billion at 31 December 2018 (30 June 2018: US$10.9 billion; 31 December 2017: US$15.4 billion). The reduction of US$1.0 billion in the half year (or US$5.5 billion from 31 December 2017) includes proceeds received from the sale of Onshore US, partially offset by the completion of a US$5.2 billion off −market buy −back.

Ÿ We will maintain a strong balance sheet through the commodity price cycle, with a targeted net debt range of US$10 to US$15 billion(v). In the near term, we expect net debt to remain at the lower end of the target range.

Ÿ Gearing ratio(i) of 15.2 per cent (30 June 2018: 15.3 per cent; 31 December 2017: 19.9 per cent).

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Dividends and share buy −back

Ÿ On 17 December 2018, a US$5.2 billion off −market buy −back of BHP Group Limited shares was successfully completed. On 30 January 2019, a special dividend of US$1.02 per share, representing the balance of US$5.2 billion of the net proceeds from the sale of Onshore US, was paid to shareholders.

Ÿ 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 December 2018 half year period is 37 US cents per share or US$1.9 billion.

Ÿ The Board has determined to pay an additional amount of 18 US cents per share or US$0.9 billion, taking the interim dividend to 55 US cents per share. This is equivalent to a 75 per cent payout ratio.

Ÿ This brings the total announced returns to shareholders over the last six months to US$13.2 billion.

Capital and exploration

Ÿ Capital and exploration expenditure of US$3.5 billion in the December 2018 half year included maintenance expenditure(vi) of US$0.8 billion, exploration of US$0.4 billion and Onshore US expenditure of US$0.4 billion.

Ÿ Capital and exploration expenditure guidance is unchanged at below US$8 billion per annum for the 2019 and 2020 financial years, subject to exchange rate movements.

Ÿ This guidance includes a US$0.9 billion exploration program being executed for the 2019 financial year, with US$750 million for petroleum exploration and appraisal expenditure.

Ÿ Historical capital and exploration expenditure and guidance are summarised below:

(1) Includes capitalised deferred stripping of US$1.0 billion for the FY19e and US$508 million for the H1 FY19 (H1 FY18: US$433 million; FY18: $880 million).

(2) Conventional Petroleum capital expenditure for FY19e includes US$0.6 billion of development and US$0.1 billion of maintenance.

Ÿ Average annual sustaining capital expenditure guidance over the medium term is unchanged and forecast to be approximately:

- US$4 per tonne for WAIO, including the capital cost for South Flank;

- US$8 per tonne for Queensland Coal; and

- US$5 per tonne for New South Wales Energy Coal (NSWEC).

Ÿ At the end of the December 2018 half year, 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.

Major projects

Ÿ On 13 February 2019, the BHP Board approved an investment of US$0.7 billion (BHP share) for the development of the Atlantis Phase 3 project in the deepwater Gulf of Mexico.

Ÿ Major projects are summarised below:

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(1) 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 reflect BHP's share.

(2) Potash capital expenditure of approximately US$240 million is expected for the 2019 financial year.

Capital Allocation Framework

Adherence to our Capital Allocation Framework aims to balance value creation, cash returns to shareholders and balance sheet strength in a transparent and consistent manner.

(1) Includes dividends paid to non −controlling interests of US$0.6 billion for H1 FY19 (H1 FY18: US$0.9 billion); excludes exploration expenses of US$0.2 billion (H1 FY18: US$0.2 billion) which is classified as organic development in accordance with the Capital Allocation Framework; net cash outflow of US$0.4 billion (H1 FY18: US$0.7 billion).

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Outlook

Economic outlook

The global economy grew around 3¾ per cent in the 2018 calendar year, with a notable pick up in the US economy and resilient growth in China. We expect world growth to sit in the range of 3¼ per cent to 3¾ per cent for the 2019 calendar year. Further escalation in trade protection is a downside risk.

We expect China's economic growth to slow modestly in the 2019 calendar year. The negative impact of weaker exports will be partially offset by easier monetary and fiscal policy. In our view, China's policymakers will continue to seek a balance between the pursuit of reform and maintenance of macroeconomic and financial stability. Over the longer term, we expect China's economic growth rate to decelerate as the working age population falls and the capital stock matures.

The US performed strongly in the 2018 calendar year but near −term prospects are less certain. The expansionary impact of tax cuts will progressively fade and trade policies remain unpredictable. In Europe and Japan, we believe business confidence and manufacturing momentum peaked in the 2018 calendar year. In India, growth prospects are solid. The general election, timed for the first half of the 2019 calendar year, is a key milestone for the country's reform trajectory.

Commodities outlook

Crude oil prices were volatile in the second half of the 2018 calendar year. Brent Crude hit a four year high ahead of US sanctions on Iran taking effect. Prices then fell sharply towards the end of the 2018 calendar year on mounting oversupply concerns, despite OPEC "Plus" announcing further production cuts in December 2018. The fundamental outlook remains positive, underpinned by rising demand from the developing world and natural field decline in supply.

The Japan −Korea Marker price for LNG was higher on average compared to the previous calendar year, reflecting strong demand and slower than expected ramp −ups. A material amount of new supply is expected to come online in 2019. Longer term, the demand outlook for gas remains positive. Depleting domestic gas supplies in some major consuming markets will help LNG to grow faster than overall gas demand.

Copper prices have maintained a relatively tight range for much of the December 2018 half year. This period of stability followed a sharp drop associated with the trade tensions that escalated in the June quarter of 2018. Against this backdrop, we believe underlying fundamentals remain sound. Copper demand should grow steadily. Grade decline, rising input costs, water constraints and a scarcity of high −quality future development opportunities continue to constrain the industry's ability to cheaply meet this growing demand and provide support for our positive outlook.

Global steel production has maintained healthy growth in the 2018 calendar year. Growth is expected to slow in the 2019 calendar year, along with the global economy. Margins have begun to normalise from the extremes seen in the initial stages of steel Supply Side Reform in China. That is an anticipated development. We expect quality differentiation to remain a durable element in price formation for steel −making raw materials.

The Platts 62% Fe Iron Ore Fines index performed solidly in the December 2018 half year, driven by firm pig iron production and unanticipated supply disruptions. The lump premium has been strong. In the short term, the supply picture is uncertain following the tragedy in Brazil. Total demand in the 2019 calendar year is expected to be similar to last year.

The Platts premium low −volatility metallurgical coal price index finished the 2018 calendar year strongly, with healthy demand conditions, especially in India, set against a modest recovery in seaborne supply. China's import policies remain a source of uncertainty. Over the longer term, India is expected to sustain strong demand growth, while high quality metallurgical coals are expected to continue to offer steelmakers value −in −use benefits in mature markets.

Potash prices have performed strongly over the last year, despite several major capacity additions coming online. Demand lifted again in the 2018 calendar year, following a record in 2017 calendar year. We expect annual demand growth of between two and three per cent over the next decade, resulting in demand exceeding available supply from existing and forthcoming capacity by the mid −to −late 2020s.

Further information on BHP's economic and commodity outlook can be found at: bhp.com/prospects

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Underlying EBITDA

The following table and commentary describe the impact of the principal factors(i) that affected Underlying EBITDA for the December 2018 half year compared with the December 2017 half year:

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

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Prices and exchange rates

The average realised prices achieved for our major commodities are summarised in the following table and are presented on a total operations basis:

(1) Based on provisional, unaudited estimates. Prices exclude sales from equity accounted investments, third party product and internal sales, and represent the weighted average of various sales terms (for example: FOB, CIF and CFR), unless otherwise noted. Includes the impact of provisional pricing and finalisation adjustments.

(2) Includes internal sales.

(3) Hard coking coal (HCC) refers generally to those metallurgical coals with a Coke Strength after Reaction (CSR) of 35 and above, which includes coals across the spectrum from Premium Coking to Semi Hard Coking coals, while weak coking coal (WCC) refers generally to those metallurgical coals with a CSR below 35.

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

(5) Comparative financial information has been restated for the new accounting standard, IFRS 15 Revenue from Contracts with Customers, which became effective from 1 July 2018.

In Copper, the provisional pricing and finalisation adjustments will decrease Underlying EBITDA by US$272 million in the 2019 financial year.

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

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

Depreciation, amortisation and impairments

Depreciation, amortisation and impairments decreased by US$449 million to US$3.1 billion, reflecting lower depreciation and amortisation at Petroleum due to lower volumes at Shenzi and an increase in estimated remaining reserves at Atlantis, lower depreciation at Escondida due to an increase in asset life of the Escondida Water Supply project, and lower impairment charges compared to the previous period which predominantly related to conveyors at Escondida.

Net finance costs

Net finance costs decreased by US$125 million to US$533 million due to higher interest earned on increased cash and term deposit holdings along with higher interest.

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Taxation expense

(1) Refer exceptional items below for further details.

The Group's adjusted effective tax rate, which excludes the influence of exchange rate movements and exceptional items, was 36.1 per cent (31 December 2017: 28.0 per cent). The higher adjusted effective tax rate reflects a reduction in US tax credits related to Chilean taxes. The adjusted effective tax rate is expected to be in the range of 33 to 38 per cent for the 2019 financial year.

Other royalty and excise arrangements which are not profit based are recognised as operating costs within Profit before taxation. These amounted to US$1.2 billion during the period (31 December 2017: US$986 million).

Exceptional items

The following table sets out the exceptional items for the December 2018 half year. Additional commentary is included on page 36.

(1) Refer to note 4 Exceptional items and note 12 Significant events - Samarco dam failure of the Financial Report for further information.

(2) Financial impact of US$242 million relates to the reversal of provisions for global taxation matters which were resolved during the period. Refer to note 4 Exceptional items of the Financial Report for further information.

Debt management and liquidity

During the December 2018 half year, the Group continued to focus on debt reduction, with no new debt issued and a €1.25 billion bond repaid at maturity. The repayment of maturing debt and fair value adjustments contributed to a

US$1.3 billion overall decrease in the Group's gross debt, from US$26.8 billion at 30 June 2018 to US$25.5 billion at 31 December 2018.

At the subsidiary level, Escondida refinanced US$0.2 billion of maturing long term debt.

The Group has a US$6.0 billion commercial paper program backed by a US$6.0 billion revolving credit facility which expires in May 2021. As at 31 December 2018, the Group had no outstanding US commercial paper, no drawn amount under the revolving credit facility and US$15.6 billion in cash and cash equivalents.

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Dividend

The BHP Board today determined to pay an interim dividend of 55 US cents per share (US$2.8 billion). The interim dividend to be paid by BHP Group Limited will be fully franked for Australian taxation purposes.

BHP's Dividend Reinvestment Plan (DRP) will operate in respect of the interim dividend. Full terms and conditions of the DRP and details about how to participate can be found at bhp.com.

BHP Group 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 6 March and 8 March 2019 (inclusive), nor will transfers between the UK register and the South African register be permitted between the dates of 1 March and 8 March 2019 (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.

Any eligible shareholder who wishes to participate in the DRP, or to vary a participation election, should do so in accordance with the timetable set out above or, in the case of shareholdings on the South African branch register of BHP Group Plc, in accordance with the instructions of their Central Securities Depository Participant (CSDP) or broker. The DRP allocation price will be calculated in each jurisdiction as an average of the price paid for each share purchased to satisfy DRP elections. The allocation price applicable to each exchange will made available at bhp.com/DRP.

On 17 December 2018, BHP determined to pay a special dividend of US$1.02 per share (US$5.2 billion), which was paid on 30 January 2019 related to the disbursement of proceeds from the disposal of Onshore US.

Corporate governance

During the December 2018 half year, we announced that Wayne Murdy had decided not to stand for re −election at the 2018 Annual General Meetings of BHP, and retired from the Board as a Non −executive Director effective

2 November 2018.

The current members of the Board's committees are:

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Segment summary(1) 

A summary of performance for the December 2018 and December 2017 half years is presented below. It excludes Onshore US.

(1) 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 of US$291 million (2017: US$318 million) related to equity accounted investments. It excludes exceptional items of US$117 million (2017: US$137 million) related to share of loss from equity accounted investments.

Group profit before taxation comprised Underlying EBITDA, exceptional items, depreciation, amortisation and impairments of US$3,206 million (2017: US$3,671 million) and net finance costs of US$533 million (2017: US$658 million).

(2) Revenue is based on Group realised prices and includes third party products. Sale of third party products by the Group contributed revenue of US$633 million and Underlying EBITDA of US$26 million (2017: US$725 million and US$29 million).

(3) For more information on the reconciliation of certain alternative performance measures to our statutory measures, reasons for usefulness and calculation methodology, please refer to alternative performance measures set out on pages 57 to 66.

(4) Exceptional items of US$(150) million excludes net finance costs of US$(60) million included in the total US$(210) million related to the Samarco dam failure.

(5) Includes US$175 million capitalised exploration (2017: US$272 million).

(6) Includes US$1 million of exploration expenditure previously capitalised, written off as impaired (included in depreciation and amortisation) (2017: US$71 million).

(7) 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.

(8) Comprises revenue of US$37 million generated by Petroleum (2017: US$38 million) and US$5 million generated by Iron Ore (2017: US$6 million).

(9) Comparative financial information has been restated for the new accounting standard, IFRS15 Revenue from Contracts with Customers, which became effective from 1 July 2018.

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Petroleum

Underlying EBITDA for Petroleum, excluding Onshore US, increased by US$625 million to US$2.3 billion in the December 2018 half year.

Conventional Petroleum unit costs increased by 10 per cent to US$11.14 per barrel of oil equivalent due to the impact of planned maintenance and lower volumes. Unit cost guidance for the 2019 financial year remains unchanged at less than US$11 per barrel (based on an exchange rate of AUD/USD 0.75). In the medium term, we expect an increase in unit costs to less than US$13 per barrel as a result of natural field decline.

(1) Conventional Petroleum assets exclude divisional activities reported in Other and closed mining and smelting operations in Canada and the United States.

(2) Exploration expense represents conventional Petroleum's share of total exploration expense.

(3) Other includes non −cash profit on sales of assets, inventory movements, foreign exchange, provision for onerous lease costs and the impact from revaluation of embedded derivatives in the Trinidad and Tobago gas contract.

(4) H1 FY18 and H2 FY18 restated to exclude costs related to the Onshore US sale process

(5) H1 FY19 based on an exchange rate of AUD/USD 0.72.

On 13 February 2019, the BHP Board approved the development of the Atlantis Phase 3 project in the US Gulf of Mexico. The project includes a subsea tie back with the potential to increase production by an estimated 38,000 barrels of oil per day (100 per cent basis) at its peak from eight new production wells. This decision follows sanction by BP (the operator).

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Petroleum exploration

Petroleum exploration expenditure for the December 2018 half year was US$316 million, of which US$166 million was expensed. Activity for the period was largely focused in the US Gulf of Mexico, Trinidad & Tobago and Mexico. A US$750 million exploration and appraisal program is being executed for the 2019 financial year.

In the US Gulf of Mexico, Samurai −2 and Samurai −2 ST01 drilling has delineated the accumulation of oil. Further appraisal and development planning at Samurai is in progress. In the southern portion of the Wildling sub −basin, we continue to assess the potential resource, with further appraisal drilling now expected in the 2020 financial year. In the Western US Gulf of Mexico, the Ocean Bottom Node(vii) seismic acquisition was completed in early January 2019 and processed data is expected to be delivered during the March 2020 quarter.

Following the success in Trinidad and Tobago of the Bongos −2 Exploration well in the first half of the 2019 financial year, phase 3 of our deepwater exploration drilling campaign has been accelerated and will start in the second half of the 2019 financial year. Phase 3 will test three wells on three prospects in the northern licence area.

In Mexico, we spud the Trion −2DEL appraisal well in November 2018 and encountered oil in line with expectations. This was followed by a planned down dip geologic sidetrack which encountered oil and water, as predicted, further appraising the field and delineating the resource. Following the recent encouraging results in the Trion block, an additional appraisal well (3DEL) to further delineate the scale and characterisation of the resource is expected to be drilled in the second half of the 2019 calendar year.

Having been the successful bidder in October 2018 for licences in the Orphan Basin, offshore Eastern Canada, we have begun working with the Canada −Newfoundland and Labrador Offshore Petroleum Board to meet all regulatory requirements for the exploration phase. The licences became effective 15 January 2019.

Financial information for Petroleum for the December 2018 and December 2017 half years is presented below.

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(1) Total Petroleum statutory result revenue includes: crude oil US$1,667 million (2017: US$1,403 million), natural gas US$676 million (2017: US$581 million), LNG US$665 million (2017: US$423 million), NGL US$175 million (2017: US$141 million) and other US$20 million (2017: US$33 million which includes third party products).

(2) Includes US$150 million of capitalised exploration (2017: US$241 million).

(3) Includes US$1 million of exploration expenditure previously capitalised, written off as impaired (included in depreciation and amortisation) (2017: US$71 million).

(4) Australia Production Unit includes Macedon, Pyrenees and Minerva.

(5) Predominantly divisional activities, business development, UK (divested in November 2018), Neptune and Genesis. Also includes the Caesar oil pipeline and the Cleopatra gas pipeline, which are equity accounted investments. The financial information for the Caesar oil pipeline and the Cleopatra gas pipeline presented above, with the exception of net operating assets, reflects BHP's share.

(6) Comprises closed mining and smelting operations in Canada and the United States. Petroleum manages the closed mine sites due to their geographic location.

(7) Total Petroleum statutory result Revenue excludes US$8 million (2017: US$8 million) revenue related to the Caesar oil pipeline and the Cleopatra gas pipeline. Total Petroleum statutory result Underlying EBITDA includes US$2 million (2017: US$2 million) D&A related to the Caesar oil pipeline and the Cleopatra gas pipeline.

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Copper

Underlying EBITDA for the December 2018 half year decreased by US$1.3 billion to US$1.9 billion.

Escondida unit costs increased by 10 per cent to US$1.17 per pound, mainly due to lower concentrator head grade (11 per cent decrease) and labour settlement costs. Unit cost guidance for the 2019 financial year remains unchanged at less than US$1.15 per pound (based on an exchange rate of USD/CLP 663), as improved labour productivity and maintenance optimisation strategies are expected to partially offset a decrease in average concentrator head grade of approximately 15 per cent, consistent with the mine plan, and an increase in the usage of higher cost desalinated water. Unit costs are expected to remain at less than US$1.15 per pound over the medium term.

(1) H1 FY19 based on exchange rates of AUD/USD 0.72 and USD/CLP 671.

Consistent with our exploration focus on copper, in September 2018, BHP acquired an initial 6.1 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, for an investment of US$59 million, with our total interest now approximately 11.2 per cent.

In November 2018, BHP confirmed identification of a potential new iron oxide, copper, gold mineralised system, located 65 kilometres to the south east of BHP's operations at Olympic Dam in South Australia. Laboratory assay results show downhole mineralisation intercepts ranging from 0.5 per cent to six per cent copper with associated gold, uranium and silver metals. This exploration project is at an early stage and there is currently insufficient geological information to assess the size, quality and continuity of the mineralised intersections. BHP is evaluating and interpreting the results reported, and planning a further drilling program to commence in early in the 2019 calendar year.

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Financial information for Copper for the December 2018 and December 2017 half years is presented below.

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

(2) Includes Spence and Cerro Colorado.

(3) Antamina, SolGold and Resolution are equity accounted investments and their financial information presented above with the exception of net operating assets reflects BHP Group's share.

(4) Predominantly comprises divisional activities, greenfield exploration and business development. Includes Resolution and SolGold (acquired in October 2018).

(5) Total Copper statutory result Revenue excludes US$562 million (2017: US$746 million) revenue related to Antamina. Total Copper statutory result Underlying EBITDA includes US$56 million (2017: US$58 million) D&A and US$120 million (2017: US$155 million) net finance costs and taxation expense related to Antamina, Resolution and SolGold that are also included in Underlying EBIT. Total Copper Capital expenditure excludes US$119 million (2017: US$103 million) related to Antamina.

(6) Comparative financial information has been restated for the new accounting standard, IFRS15 Revenue from Contracts with Customers, which became effective from 1 July 2018.

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Iron Ore

Underlying EBITDA for the December 2018 half year increased by US$34 million to US$4.3 billion.

(1) Increased volumes reflecting the expiry of the Wheelarra Joint Venture sublease in March 2018, with control of the sublease areas reverting to the Jimblebar Joint Venture, which is accounted for on a consolidated basis with minority interest adjustments.

WAIO unit costs decreased by three per cent to US$14.51 per tonne (or US$13.85 per tonne on a C1 basis excluding third party royalties(2)), reflecting favourable exchange movements which offset impacts from maintenance and unplanned outages during the period. Unit cost guidance for the 2019 financial year remains unchanged at less than US$14 per tonne (based on an exchange rate of AUD/USD 0.75). In the medium term, we expect to lower our unit costs to less than US$13 per tonne.

(1) H1 FY19 based on an average exchange rate of AUD/USD 0.72.

(2) Excludes third party royalties of US$0.84 per tonne (December 2017: US$0.73 per tonne), exploration expenses, depletion of production stripping, demurrage, exchange rate gains/losses, net inventory movements and other income.

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Financial information for Iron Ore for the December 2018 and December 2017 financial years is presented below.

(1) Includes US$25 million of capitalised exploration (2017: US$31 million).

(2) Samarco is an equity accounted investment and its financial information presented above, with the exception of net operating assets, reflects BHP Billiton Brasil Ltda's share. All financial impacts following the Samarco dam failure have been reported as exceptional items in both reporting periods.

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

(4) Includes inter −segment and external sales of contracted gas purchases.

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Coal

Underlying EBITDA for the December 2018 half year increased by US$235 million to US$2.0 billion.

Queensland Coal unit costs decreased by one per cent to US$70 per tonne, reflecting higher sales volumes and favourable exchange rate movements, partially offset by the impacts from planned maintenance during the period. Unit cost guidance for the 2019 financial year remains unchanged and is expected to be between US$68 and US$72 per tonne (based on an exchange rate of AUD/USD 0.75). In the medium term, we expect to lower our unit costs to approximately US$57 per tonne.

(1) H1 FY19 based on an average exchange rate of AUD/USD 0.72.

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NSWEC unit costs increased by 14 per cent to US$54 per tonne as a result of unfavourable inventory movements and increased strip ratio and contractor stripping activity. This was partially offset by increased sales volumes and the impacts from favourable exchange rate movements. Unit cost guidance for the 2019 financial year remains unchanged at between US$43 and US$48 per tonne (based on an exchange rate of AUD/USD 0.75), with costs expected to be towards the upper end of the guidance range. In the medium term, geological constraints are expected to continue as the mine plan works through the monocline, with unit costs forecast to remain at approximately US$45 per tonne during this period.

(1) H1 FY19 based on an average exchange rate of AUD/USD 0.72.

Financial information for Coal for the December 2018 and December 2017 half years is presented below.