BHP to Book $723 Million Windfall after Renegotiating Contracts with PowerGen

Strategic Insights -

A significant breakthrough has been achieved in the gas industry as BHP has renegotiated contracts with PowerGen, securing a substantial windfall for the company. The agreement, valued at $324 million, reflects a 35 percent price cut on the gas supplied from the Liverpool Bay fields. This reduction brings the gas price closer to current market rates, providing a long-term contract for PowerGen while releasing cash for BHP.

Key Takeaways:

  • BHP will receive $723 million as its share of the $324 million deal, representing a significant windfall for the company.
  • The renegotiated contracts provide PowerGen with a 35 percent price cut, reducing its costs and bringing the gas price closer to market rates.
  • The agreement marks further progress by BHP in its portfolio management program, allowing the company to realize significant early value from the Liverpool Bay asset.
  • BHP's partners in the Liverpool Bay gas fields, including Lasmo, Monument Oil and Gas, and Centrica Resources, will also benefit from the agreement.
  • The renegotiation of contracts coincides with BHP Petroleum launching a further round of cost cuts, resulting in $78 million being slashed from the cost base and potential job losses.
  • The cost-cutting measures are part of BHP Petroleum's push to survive in the low-price oil environment.

Statistics:

  • $723 million: BHP's expected share of the $324 million deal.
  • 35 percent: The price cut achieved through the renegotiated contracts.
  • $324 million: The total value of the deal.
  • 46.1 percent: BHP's ownership stake in the Liverpool Bay gas fields.
  • 1991: The year in which PowerGen signed the original gas supply contracts.
  • 60 percent: The estimated margin by which PowerGen was paying over existing market prices for the liverpool Bay gas.
  • $95 million: The budget cut for BHP's 1999 financial year.
  • $55 million: The amount trimmed from exploration as part of the first phase of cost cutting.

Sources:

  • BHP (As reported by news agency)