Fertilizer Markets and Finance

Mining giant BHP Billiton’s (LON:BLT) faith in shale gas is a positive strategic shift according to Deutsche Bank.

The broker says the company’s shift towards favouring liquid rich shale gas over minerals is a positive sign for investors.

Growth across the group has been reprioritised with the highest returning projects and the shortest lead times put ahead of longer dated greenfield minerals projects.

“We believe this is a positive shift by management and will strike a chord with investors,” Deutsche analysts said.

While the company’s foray into shale has been hit by a fall in natural gas prices to a decade low, the broker now values the firm’s four US shale fields at over US$26 billion with the majority ascribed to the liquid rich Eagle Ford and Permian basins.

“Although BHPB’s acquisition of US shale gas was ill-timed, the portfolio does have flexibility,” analysts added.

“Given the rising economic uncertainty and an increasing investor focus on returns, we expect BHPB may be more circumspect in approving the Mega Minerals projects given their long lead times.”

The broker instead expects the BHP to invest more capital in Eagle Ford and Permian, which are projects which are “shorter payback, higher returns” projects.

Deutsche has a ‘buy’ recommendation on the stock but has trimmed its target price by 40 pence to 2,445 pence given the risks to the stock, which include higher capital expenditure and project timing.

Shares rose 24 pence, or 1.4 per cent, in early trading to 1,705 pence.