By James Regan
SYDNEY (Reuters) - BHP Billiton, the world's largest miner, reported a surge in underlying full-year profit on Tuesday and said it would exit its underperforming U.S. shale oil and gas business, pleasing disgruntled shareholders who called for a sale.
The Anglo-Australian mining giant, which is under pressure from U.S. hedge fund Elliott Management to rethink its investment in oil and boost shareholder returns, was buoyed by a recovery in industrial commodities markets.
It generated more cash than even in some years of the mining boom, slashed net debt by nearly $10 billion to $16.3 billion and tripled its final dividend to $0.43 a share.
Underlying profit of $6.7 billion was below expectations for $7.4 billion, according to Thomson Reuters I/B/E/S, but the market focused on the lower debt and the company's determination to exit U.S. shale, pushing its London-listed shares up 2.4 percent by 1354 GMT.
"Net debt looks very impressive ... so the cash looks like it was applied to deleveraging versus extra dividends," Shaw and Partners analyst Peter O'Connor said.
BHP joined other miners that have boosted payouts in the current earnings season to reward shareholders following a resurgence in commodity prices. Rio Tinto and iron ore miner Fortescue Metals both paid record dividends, while Anglo American reinstated its dividend.
Facing calls from some shareholders to dispose of the shale business it acquired at the height of the oil boom, the miner said it was working on an exit over the next two years.
Chief Executive Andrew Mackenzie said the preference would be a small number of trade sales. Other options could include a demerger or asset swaps.
"We certainly have plenty of people interested in taking a look," Mackenzie said on a media call. "Our determination to exit means that we have other ways to exit that do not necessarily depend on ... a competitive set of willing buyers."
Fund managers including Elliott and Tribeca have been agitating for shale's divestment, along with higher shareholder returns and the elimination of dual-structured Australia and London stock listings.
Tribeca welcomed BHP's comments that shale was no longer core to the company.
"That was our approach. We didn't see it fitting strategically in BHP. We think they can realize value ahead of market expectations for the U.S. onshore business," Tribeca analyst James Eginton said.
Elliott, which last week raised its stake in the miner's London-listed arm to 5 percent, declined to comment.
BHP's underlying profit surged from $1.2 billion a year ago as it benefited from a 32 percent rise in iron ore pricing in fiscal 2017, owing to greater demand from Chinese steelmakers, which buy the bulk of its ore.
Prices for copper, oil, coal, nickel and other commodities were also up, with only liquefied natural gas weaker.
"Strong momentum will be carried into the 2018 financial year, with volume growth of 7 percent and further productivity gains expected," Mackenzie said.
He reiterated BHP's commitment to its conventional petroleum business that includes operations in the Gulf of Mexico, saying there were opportunities to make money over the next couple of decades.
In response to disappointment from some analysts at the size of the dividend, Chief Financial Officer Peter Beaven said BHP's bias was towards further strengthening the balance sheet, but any further accumulation of cash, once a target of cutting debt to $10 billion-$15 billion was met, would go to shareholders.
Capital expenditure would be no more than $8 billion per year, he said.
At the bottom line, BHP swung to an attributable profit of $5.89 billion from a record loss of $6.39 billion a year ago.
In fiscal 2016, the bottom line was hit by $7.7 billion in write-downs, with Mackenzie vowing they would not be repeated in 2017.
Elliott's other criticisms have focused on BHP's development of its Jansen potash mine in Canada.
"It's no different from any other asset. It needs to pass through our capital allocation framework. In other words, the risk return needs to be sufficiently attractive," CFO Beaven said. "Until it passes that, it won't go forward."
(Reporting by James Regan,; Additional reporting by Barbara Lewis in London, Sonali Paul in Melbourne and Anusha Ravindranath in Bengaluru; Editing by Richard Pullin and David Evans)