Elliott Notches Win as BHP Plans to Put U.S. Shale Assets Up for Sale -- 2nd Update

Activist investor Elliott Management Corp. scored a victory as BHP Billiton Ltd. said Tuesday it now plans to sell its onshore U.S. oil-and-gas operations.

BHP, the British-Australian company that is the world's largest listed miner by market value, said its American shale operations aren't core, a departure for a company that holds more than 838,000 acres in shale-rich U.S. regions.

BHP's decision followed months of campaigning by Elliott, the New York hedge fund that questioned the fit of its shale business between BHP's petroleum division and its main units that mine iron ore, copper and other minerals. Elliott accumulated 5% of BHP and called for sweeping changes, including spinning off the shale business and launching an independent review of BHP's global petroleum operations.

"The shale acquisitions were poorly timed," BHP Chief Executive Officer Andrew Mackenzie said on a conference call Tuesday. "We paid too much and the rapid pace of early development was not optimal." Mr. Mackenzie had previously acknowledged the company overspent on its shale assets.

Shares in BHP, which also announced improved earnings, moved higher on Tuesday, closing up 2% in London and 1% in Sydney.

"It goes without saying that the performance [of BHP's U.S. shale business] has not been spectacular," said Fidelis Madavo, an executive at Public Investment Corp., South Africa's state-run pension fund and one of BHP's largest investors. "It's not a surprise" that the company would look to sell the assets, he said.

Tyler Broda, an RBC Capital Markets analyst, called the shale decision "a sign that BHP is willing to engage shareholders."

BHP's capitulation on shale oil wasn't a total win for Elliott. Amid Australian government opposition, the activist investor in May backtracked on its call for the global miner to incorporate itself in the U.K. and agreed that BHP continue to be incorporated in Australia. BHP has also so far resisted Elliott's push for the company to adopt a consistent plan of buying back shares.

Elliott declined to comment on BHP's plan for its on-shore U.S. energy business.

Elliott's stake in BHP's London shares is valued at about $1.9 billion. This investment represents one of its largest bets amid of a flurry of activity that has demonstrated the fund's power to disrupt some of the world's most vaunted boardrooms.

The hedge fund scored another win this month by moving to block Warren Buffett's Berkshire Hathaway Inc. from buying power-transmission company Oncor. Elliott, a key investor in Oncor's bankrupt parent, Energy Future Holdings Inc., backed a higher $9.45 billion offer from Sempra Energy.

Earlier this year, Elliott forced the ouster of Klaus Kleinfield, the chief executive of Arconic Inc., the metal-parts manufacturer spun off from Alcoa Inc. last year. That battle turned personal when Elliott released a letter with veiled threats from Mr. Kleinfield to Elliott's chief, Paul Singer.

Elliott reached a truce with Dutch chemicals company Akzo Nobel NV last week. Though it failed to force Akzo into sale talks over a $28 billion takeover bid from U.S. rival PPG Industries, Elliott got Akzo to separate its specialty-chemicals business and backed two new nominations to the company's board.

Elliott last week raised its stake in BHP's London-listed shares to 5% to put it in a position to call a shareholder meeting when it chooses.

BHP said Tuesday it would complete well trials, swap some acreage and look at ways to increase the value, profitability and marketability of its extensive shale operations, while also looking to sell.

Mr. Mackenzie said Tuesday that the company's plan had been to become successful in U.S. shale oil and then replicate that around the world. He also said the company concluded a study two years ago that showed shale oil opportunities don't exist on the same scale elsewhere.

Elliott's criticisms forced BHP to backpedal even as its earnings are turning around. The news about the company's shale operations was accompanied by a sharp rise in BHP's second-half dividend as it swung back to an annual profit. BHP on Tuesday announced a threefold increase in its final dividend.

The company recorded a net profit of US$5.89 billion in the 12 months through June, weaker than analysts had expected. But it was a sharp improvement from a year-earlier loss of US$6.39 billion when BHP absorbed an impairment hit on its onshore U.S. oil-and-gas business and a charge for the fatal 2015 dam failure at the Samarco iron-ore operation in Brazil.

Since Elliott disclosed ownership of a 4.1% stake in April, BHP has named a new chairman, Ken Mackenzie, an Australian known for turning around struggling companies, who is scheduled to take on the role at the end of August when current chairman Jac Nasser retires. Elliott has supported Mr. Mackenzie's appointment.

--Ben Dummett and Scott Patterson in London contributed to this article.

Write to Robb M. Stewart at robb.stewart@wsj.com and Michael Amon at michael.amon@wsj.com

(END) Dow Jones Newswires

August 22, 2017 15:36 ET (19:36 GMT)