Page 103 - Annual Report 2020

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Key drivers of conventional petroleum’s financial results
Price overview by US$76 million reflecting the sale of our interests in the Bruce
Trends in each of the major markets are outlined below. and Keith oil and gas fields in the prior period, and cessation Strategic Report
of operations at Minerva in FY2020. Lower volumes decreased
Crude oil Underlying EBITDA by US$588 million mainly due to natural field
Our average realised sales price for crude oil was US$49.53 per decline across the portfolio, a decrease in tax barrels at Trinidad
barrel (FY2019: US$66.59 per barrel). Crude oil prices dropped and Tobago, weaker market conditions, the impacts from Tropical
significantly in the second half of FY2020 due to a brief OPEC Cyclone Barry and Tropical Cyclone Damien and planned
and its non-member allies’ (‘OPEC+’) price war in March 2020 maintenance at Atlantis. Other items such as exchange rate
and COVID-19, with Brent falling below US$20/bbl in April 2020 at and inflation also negatively impacted Underlying EBITDA by
the height of the global lockdowns and peak demand destruction. US$27 million.
The prices have partially recovered since then mainly due to swift
output cuts from OPEC+ and a partial recovery in mobility. Very Petroleum unit costs decreased by 8 per cent to US$9.74 per Governance at BHP
large storage builds flipped to draws in late May 2020, which barrel of oil equivalent due to a reduction in price-linked costs,
allowed benchmark prices to move up to approximately US$40/ cost efficiencies and lower maintenance activities at our Australian
bbl. Demand is expected to recover to pre-COVID-19 levels no operations due to COVID-19, partially offset by lower volumes.
earlier than the end of CY2021. In our longer-term outlook, we The calculation of conventional petroleum unit costs is set out
believe oil will be attractive, even under a plausible low case, in the table below.
for a considerable time to come.
Petroleum unit costs
Liquefied natural gas US$M FY2020 FY2019
Our average realised sales price for LNG was US$7.26 per Mcf Revenue 4,070 5,930
(FY2019: US$9.43 per Mcf). The Japan-Korea Marker (JKM) price Underlying EBITDA 2,207 4,061
for LNG performed poorly in FY2020, reflecting a deepening Gross costs 1,863 1,869 Remuneration Report
oversupply situation. JKM hit an all-time low in April 2020 as a
slowdown in Asian demand growth due to warm weather and Less: exploration expense (1) 394 388
COVID-19 and large increments of new supply coming online Less: freight 110 152
weighed on the market. Longer term, the commodity offers a Less: development and evaluation 166 46
(2)
combination of systematic base decline and an attractive demand Less: other 131 8
trajectory. However, gas resource is abundant and liquefaction Net costs 1,062 1,275
infrastructure comes with large upfront costs and extended pay Production (MMboe, equity share) 109 121
backs. North American exports are expected to provide the (3)
marginal supply across multiple longer-term scenarios for the Cost per Boe (US$) 9.74 10.54
LNG industry, with new supply likely to be required to balance the (1) Exploration expense represents conventional petroleum’s share of total
market in the middle of this decade, or slightly later. Within global exploration expense. Directors’ Report
gas, LNG is expected to gain share. Against this backdrop, LNG (2) Other includes non-cash profit on sales of assets, inventory movements, foreign
exchange, provision for onerous lease contracts and the impact from the
assets advantaged by their proximity to existing infrastructure revaluation of embedded derivatives in the Trinidad and Tobago gas contract.
or customers, or both, will be attractive. (3) FY2020 based on an average exchange rate of AUD/USD 0.67.
Production Delivery commitments
Total Petroleum production for FY2020 decreased by 10 per cent We have delivery commitments of natural gas and LNG of
to 109 MMboe. approximately 1 billion cubic feet through FY2034 (83 per cent
Crude oil, condensate and natural gas liquids production Australia and Asia, 17 per cent others), and crude and condensate
decreased by 11 per cent to 49 MMboe due to the impacts of commitments of 7 million barrels through FY2021 (57 per cent
Tropical Storm Barry in the Gulf of Mexico, Tropical Cyclone United States, 35 per cent Australia and Asia, 8 per cent others).
Damien at our North West Shelf operations, maintenance at Atlantis We have sufficient proved reserves and production capacity to fulfil Financial Statements
and natural field decline across the portfolio. Weaker market these delivery commitments.
conditions, including impacts from COVID-19, also contributed to We have obligation commitments of US$43 million for contracted
lower volumes in the June 2020 quarter. This decline was partially capacity on transportation pipelines and gathering systems
offset by higher uptime at Pyrenees following the 70 day dry dock through FY2025, on which we are the shipper. The agreements
maintenance program during the prior year. have annual escalation clauses.
Natural gas production decreased by 9 per cent to 360 bcf, Other information
reflecting a decrease in both production and tax barrels (in
accordance with the terms of our Production Sharing Contract) Drilling
due to weaker market conditions in Trinidad and Tobago, impacts The number of wells in the process of drilling and/or completion as
of maintenance and Tropical Cyclone Damien at North West Shelf of 30 June 2020 was as follows: Additional information
and natural field decline across the portfolio.
Exploratory wells Development wells Total
For more information on individual asset production
in FY2020, FY2019 and FY2018, refer to section 6.3. Gross Net (1) Gross Net (1) Gross Net (1)
Australia − − 2 1 2 1
Financial results United States − − 26 8 26 8
Petroleum revenue for FY2020 decreased by US$1.9 billion to Other (2) − − 1 0 1 0
US$4.1 billion. Gulf of Mexico, which includes Atlantis, Shenzi Total − − 29 9 29 9
and Mad Dog, decreased by US$784 million to US$1.1 billion.
In Australia, Bass Strait and North West Shelf collectively decreased (1) Represents our share of the gross well count.
(2) Other is comprised of Algeria.
by US$716 million to US$2.2 billion. The Trinidad Production Unit Shareholder information
decreased by US$96 million to US$0.2 billion while the Australian
Production Unit, which includes Macedon, Pyrenees and Minerva,
decreased by US$146 million to US$0.4 billion.
Underlying EBITDA for Petroleum decreased by US$1.9 billion
to US$2.2 billion. Price impacts, net of price-linked costs,
decreased Underlying EBITDA by US$1.1 billion. Controllable
cash costs increased by US$30 million reflecting higher business
development costs in Mexico following the successful exploration
program at Trion, partially offset by lower maintenance activity
at our Australian assets. Ceased and sold operations decreased
BHP Annual Report 2020 101