2016′s top-performing hedge fund calls on BHP to sell US shale assets

Elliott Associates isn’t the only high-profile fund that wants BHP Billiton to divest its US petroleum assets.

Tribeca Global Natural Resources, the world’s top performing hedge fund in 2016, has called on the miner to sell its US onshore oil and gas business and use the funds to launch a share buyback, boost dividends and invest in future growth projects.

In an eight page letter titled ‘Making BHP Great Again’ and sent to the Anglo Australian miner on Thursday, Tribeca says the company could raise around $10bn from the sale of its US shale assets.

“We are supportive of BHP’s desire to retain its conventional oil and gas business. It is, in our view, a core business that generates significant free cashflow through the cycle”, the letter says.

“Conversely, we do not support the continued investment in the US onshore assets as these assets are unlikely to deliver appropriate free cashflow and we fail to identify where BHP has any particular skill that differentiates it from industry peers. It remains to us a tier two asset that sits in an irrational market.

“Our research indicates the sale of these assets could deliver greater than US$10bn which should be used for capital return/increased dividends, balanced with investment for future growth.”

The Sydney based-fund, which is run by former Macquarie analysts Ben Cleary and Craig Evans, also used the letter to call for an overhaul of the BHP board, which it said had overseen the destruction of over $30bn in shareholder capital.

“As is well known, the Chairman [Jac Nasser] is soon to retire. This provides a critical opportunity to reset the culture to one that covets capital efficiency and earnings per share growth and we hold high hopes that this opportunity will not be wasted. Further, we wonder whether enough change has taken place at board level more broadly to make tough decisions and steer BHP back to a path of success.”

Last month, Elliott called on BHP to reform its corporate structure and spin off its US petroleum division, which includes onshore assets and deepwater fields in the Gulf of Mexico.

Tribeca said dissolving BHP’s dual listed company structure would not create a material uplift in shareholders, backing the company’s management which has rejected the idea.

The fund, which owns shares in both the UK and Australian listing of BHP, said it had sent the letter to clarify its views in a “public forum” regarding the world’s biggest mining company.

“As a shareholder, we intend to work with all parties engaged in this debate and welcome BHP’s response to our ongoing assessment of how to unlock value within the company,” it said at the end of the letter.