BHP Says Gas Venture With Exxon `Immensely Valuable' After Cost Overruns

BHP Billiton Ltd., Australia’s biggest oil and gas producer, said the Turrum and Kipper gas venture off the southeast coast remains “immensely valuable” after the company’s share of the estimated costs doubled.

BHP expects its spending on Turrum and Kipper, operated by Exxon Mobil Corp., to rise to $2.3 billion, the Melbourne-based company said in January. The companies attributed the increased budget to rising labor costs, design changes and mercury found in the reservoir during the Kipper drilling in the Bass Strait.

“The fact that we are proceeding with this supplemental investment means we believe this is still a value-creating project for us,” Chief Executive Officer Marius Kloppers said on a call with reporters today after the company’s petroleum division reported a 23 percent increase in underlying profit before interest and tax in the six months through Dec. 31.

Rising labor and raw material expenses are part of “industry-wide cost pressures,” BHP said today. Australian resources companies face a potential labor shortage that threatens to drive wages higher as more projects compete for workers, Energy Minister Martin Ferguson said last month.

BHP fell 1.5 percent to A$46.63 at 10:15 a.m. Sydney time, compared with a drop of 0.2 percent for the S&P/ASX 200 Index.

Rising Oil Prices

BHP’s petroleum unit plans to drill exploration wells in Malaysia, Brunei, Colombia and Australia during the next six months while a “degree of uncertainty is associated with the new regulatory environment” after the BP Plc oil spill in the U.S. Gulf of Mexico, the company said in a statement today.

No production permits were issued in the Gulf of Mexico in the second half of last year, BHP said.

First-half underlying profit before interest and tax for the oil and gas division climbed to $2.85 billion from $2.33 billion, bolstered by a 13 percent increase in oil prices and a 6 percent gain for gas, BHP said.

Energy contributed more than a fifth of BHP’s earnings before interest and tax of $14.8 billion.

Oil and gas production in the six months was “in line” with a year earlier as delays in the Gulf and flooding in Pakistan offset gains from the Pyrenees project off Australia. Production for the year ending in June is expected to be “in line” with the 2010 financial year, BHP reiterated today.

（source from：Bloomerg）