BHP to keep oil, gas business despite Rio bid-analysts

SYDNEY, Nov 12 (Reuters) BHP Billiton Ltd/Plc was unlikely to offload its lucrative petroleum division to help fund a 0 billion takeover bid for rival Rio Tinto , analysts said.

BHP is poised to reap major returns from the business, with some of its biggest oil and gas projects due to come onstream in the next two years.

''Selling the assets right now, ahead of completing major developments, means they won't be able to realise the maximum value,'' said Warren Edney, a resource analyst at ABN AMRO.

Analysts said BHP's strong balance sheet meant it should easily be able to secure the financing needed for such a deal without having to sell the petroleum business to raise funds.

British newspapers reported over the weekend that BHP may look to sell its oil and gas arm for billion to help fund a bid for Rio, which is not in the oil business.

A BHP spokeswoman declined to comment on the report.

BHP has so far proposed an all-scrip bid to Rio, which has rejected the offer, and fund managers have suggested it may need to sweeten the offer with a cash component.

Analysts said BHP's suite of oil and gas assets, which span Australia, United Kingdom, the United States and the Middle East, are worth more than billion.

BHP, whose petroleum business accounted for about 20 percent of the group's total profits of .67 billion in fiscal 2007, produced 116 million barrels of oil equivalent (boe) last year and has oil-equivalent reserves of about 1.36 billion barrels.

Its petroleum arm has spent more than SYDNEY, Nov 12 (Reuters) BHP Billiton Ltd/Plc was unlikely to offload its lucrative petroleum division to help fund a $140 billion takeover bid for rival Rio Tinto , analysts said.

BHP is poised to reap major returns from the business, with some of its biggest oil and gas projects due to come onstream in the next two years.

''Selling the assets right now, ahead of completing major developments, means they won't be able to realise the maximum value,'' said Warren Edney, a resource analyst at ABN AMRO.

Analysts said BHP's strong balance sheet meant it should easily be able to secure the financing needed for such a deal without having to sell the petroleum business to raise funds.

British newspapers reported over the weekend that BHP may look to sell its oil and gas arm for $40 billion to help fund a bid for Rio, which is not in the oil business.

A BHP spokeswoman declined to comment on the report.

BHP has so far proposed an all-scrip bid to Rio, which has rejected the offer, and fund managers have suggested it may need to sweeten the offer with a cash component.

Analysts said BHP's suite of oil and gas assets, which span Australia, United Kingdom, the United States and the Middle East, are worth more than $40 billion.

BHP, whose petroleum business accounted for about 20 percent of the group's total profits of $14.67 billion in fiscal 2007, produced 116 million barrels of oil equivalent (boe) last year and has oil-equivalent reserves of about 1.36 billion barrels.

Its petroleum arm has spent more than $2 billion since 2005 on exploration and development and is set to reap big rewards when its projects in the U.S. Gulf of Mexico and Australia come online.

The 50,000 barrel per day (bpd) Neptune oil project off the U.S.

Gulf of Mexico is scheduled to start pumping oil by the first quarter of 2008, while its Angel gas project and North West shelf liquefied natural gas (LNG) train five expansion project, both in Australia, are expected to begin production by late 2008.

Other multi-billion dollar projects due to come online in 2009 include the 100,000 bpd Shenzi oil project in the Gulf of Mexico and 96,000 bpd Pyrenees oil field off western Australia.

The upcoming projects will boost BHP's oil and gas production by about 30 percent to 150 million barrels of oil equivalent in 2008.

In a report dated Sept. 25, Goldman Sachs JBWere valued BHP petroleum business at between $47 billion to $83 billion.

''At board level I think there is strong support for the oil business. It's a natural hedge for the rest of the business and tends to run in different cycles to base metals and bulks,'' said Mark Pervan, a senior resource analyst at ANZ Bank in Melbourne.

If BHP was to divest any of its assets, ABN's Edney said it would probably be its thermal coal business in the United States or its 60 percent stake in South African manganese producer Samancor.

''Rio is also considering selling its coal unit in America, so that could fit in quite nicely,'' he said.

Rio said last Friday it was considering selling its Energy America units, the second-largest U.S. coal producer by tonnage to help fund its purchase of aluminium group Alcan.

REUTERS SLD SSC1233 billion since 2005 on exploration and development and is set to reap big rewards when its projects in the U.S. Gulf of Mexico and Australia come online.

The 50,000 barrel per day (bpd) Neptune oil project off the U.S.

Gulf of Mexico is scheduled to start pumping oil by the first quarter of 2008, while its Angel gas project and North West shelf liquefied natural gas (LNG) train five expansion project, both in Australia, are expected to begin production by late 2008.

Other multi-billion dollar projects due to come online in 2009 include the 100,000 bpd Shenzi oil project in the Gulf of Mexico and 96,000 bpd Pyrenees oil field off western Australia.

The upcoming projects will boost BHP's oil and gas production by about 30 percent to 150 million barrels of oil equivalent in 2008.

In a report dated Sept. 25, Goldman Sachs JBWere valued BHP petroleum business at between billion to billion.

''At board level I think there is strong support for the oil business. It's a natural hedge for the rest of the business and tends to run in different cycles to base metals and bulks,'' said Mark Pervan, a senior resource analyst at ANZ Bank in Melbourne.

If BHP was to divest any of its assets, ABN's Edney said it would probably be its thermal coal business in the United States or its 60 percent stake in South African manganese producer Samancor.

''Rio is also considering selling its coal unit in America, so that could fit in quite nicely,'' he said.

Rio said last Friday it was considering selling its Energy America units, the second-largest U.S. coal producer by tonnage to help fund its purchase of aluminium group Alcan.

REUTERS SLD SSC1233