Cash Splash: BHP Shareholders Set For Bonanza From $15b Shale Sale

From its withdrawal from the US onshore shale oil and gas sector, BHP (ASX: BHP) will have stacked the first $US5.5 billion ($7.75 billion) instalment of the proceeds, by this time next week. From the sale to BP, the remaining $US5.25 billion, to flow in monthly instalments through to April next year, Merit Energy Co, BHP will have around $15.23 billion to play with.

With its balance sheet in original shape, the company has already declared that, at 30 June net debt was below $US11 billion, it will return the cash from the shale exit to shareholders as the cash pouring through the group. There is a lot of speculation about how that might occur in the market. BHP has three broad options, effectively, it can make an on-market buy-back, an off-market buy-back, or declare a special dividend.

BHP made a point of asking its shareholders about the proceeds from shale distributed and after its full-year results conducted a roadshow. There were voters for both an on-market buy-back of Plc shares and for a special dividend, while the off-market buy-back was said to have been the most favored, some shareholders just like cash. 

Towards the off-market buy-back of Ltd shares, it is likely that there will be a material bias, there will be a special dividend and a smaller on-market buy-back of Plc shares. Before all the cash is received, chances are that BHP’s capital management plans will be revealed. To underwrite any remaining instalments itself, BHP has the cash flows and balance sheet.

BHP have to be overflowing with cash as with copper prices solid, iron ore and oil prices strong the group’s debt at the low end of its targeted range and its productivity/cost-reduction program continuing to make gains. The treatment of the shale cash would be upfront, if it were not for Australia’s unusual dividend citation system.

Under the Australian Taxation Office guidelines at up to a 14 percent discount with BHP able to buy back its shares in Australia and because the bulk of the cost, is believed to be a franked dividend, of acquiring the shares in Ltd.

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The company has to treat both sets of shareholders equally which is the dual-entity structure of BHP, but when BHP  buys back Ltd shares Plc shareholders benefit because it gives them effectively a larger proportion of the combined entities and because of the smaller total number of shares on issue, an uplift in earnings and dividends per share.

To their Ltd counterparts Plc shares have historically traded at a 10 to 12 percent discount, that discount in the current mix makes it possible for BHP to include an on-market buy-back of Plc shares. A focus for discussion of the implications of federal Labor’s promise may also be provided the pending BHP capital management program, to raise close to $60 billion over a decade. People and institutions that pay no tax will be adversely impacted by this, individuals self-funding their retirement and self-managed super funds in retirement phase among the most affected.


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