必和必拓 (BHP) 2016 Q4 法說會逐字稿

Welcome, everyone, to our 2016 annual results. For those of you on the webcast, I'm in London, and Peter Beaven, our Chief Financial Officer, is joining from Melbourne. As usual, we have a disclaimer, and it's there to remind you of its importance to this presentation.

The 2016 financial year was a difficult one, both for us at BHP Billiton and the resources industry generally. Notwithstanding that, we've achieved, I think, very solid results in the year, and we've done this by being true to our charter values, true to our strategy and focused on the very few things that really matter.

And that means, as we begin the new year, we're extremely well placed. We have an even stronger culture of productivity that continues to build, and productivity, let me stress, is always to be delivered safely. We have engaged people, we have engaged communities and engaged stakeholders. And above all, we have a new, but I think very powerful, disciplined approach to capital management.

As usual, let me start with safety. Before I talk about safety, I have to acknowledge the tragic events of Samarco that, to some extent, casts a cloud over much of what I have to say about the rest of our operations. You know this led to the loss of 19 lives, and it's deeply affected me personally, and all of us at BHP Billiton, and I'm going to go into quite a bit of details on Samarco in a moment.

So while it is hard to be positive about the performance in the rest of our businesses in the shadow of Samarco, I do think it's worth noting that we completed the year at our operated sites with no fatalities, and with a significant reduction in significant injuries.

During the 2016 financial year, this focus on safety and productivity has delivered a further reduction in unit costs; it's increased throughput across most of our operations. But as you all know, the significantly weaker commodity prices have more than outweighed this achievement, and they've led to our underlying EBITDA being down 44% to $12.3 billion, and underlying attributable profit down 81% to $1.2 billion.

We also, during the course of the year, recorded three exceptional charges in relation to the Samarco dam failure, to the impairment of our onshore US petroleum assets, and some ongoing global taxation matters. And that contributed to our statutory loss of $6.4 billion. We're clearly really disappointed with this result, really disappointed. However, our EBITDA has remained healthy at 41%, and we are pleased by the strong cash generation of our assets which has resulted in a free cash flow of $3.4 billion.

As most of you know, during the year we made a change to our dividend policy, designed to secure our balance sheet and provide flexibility to invest through the cycle. This has been a good decision. It's positioned us well; our balance sheet is strong; net debt is broadly unchanged from December despite those lower prices; and we've been able to continue to invest in our strong pipeline of growth opportunities.

In line with our revised dividend policy, under the 50% payout ratio the minimum dividend would be $0.08 per share. In recognition, though, of the strong cash performance, and the importance that we place on cash returns to our shareholders, the Board has determined an additional $0.06 per share, to give us a final total dividend of $0.14 per share.

So now to Samarco. Shortly after the tragic events at Samarco's iron ore operations in November of last year, I went to Brazil, and I went back in June. Of course, on both occasions I was, and remain, deeply saddened, but on my second visit I was also inspired by what I was able to see for myself on the ground. I took the chance to speak to representatives of the local communities, and to some of the most affected families, thankfully, quite a few of them, in their recently restored homes and businesses.

The activity on the ground is extensive. There are over 3,000 people working to rebuild infrastructure, provide community and social services, remove the tailings and increase the defenses around the failed dam ahead of the coming wet season. We're continuing to work with Samarco, hand-in-glove, to restore conditions as quickly as possible.

And while some of the aspects of this plan are going to be delivered quickly, as I saw, others are going to take years. We, that's BHP Billiton, Vale and Samarco, all believe that the framework agreement that we jointly entered into with the Brazilian authorities in March of this year, includes the right and effective long-term work program for remediation and compensation.

Under this agreement, an independent foundation has been created to deliver 41 social and environmental rehabilitation programs. And when I was there, I saw a lot of progress being made; with 38 programs I saw 90% already significantly underway. Many, if not all of these, are bottom-up programs; they've been developed from the community's input, from scientific studies, and the advice of global experts, to properly parameterize what we should do as decent people.

The approval of funds for the Foundation, which we announced in late July, has further demonstrated our commitment to the Foundation's important work, so our approvals and that, obviously, of Samarco and Vale.

Also front of mind for all stakeholders is a safe restart of the operations at Samarco, and all our studies to date that is possible, but this is going to take some time. Samarco, and we agree with them, have confirmed that it's unlikely for us to have the necessary approvals to restart its operations this calendar year. And we, all of us, will only agree to restart when it is clearly safe to do so and all the regulatory approvals have been granted.

In the coming weeks, we are expecting to receive the external investigation report into cause, which we set up jointly right after the accident. And we're going to share those findings with the industry and the public. There have been a number of financial impacts, which continue to evolve, and Peter's going to give you an update when he comes forward shortly to talk about the finance details of these results.

So back to the rest of our operations; as you know at BHP Billiton, the health and safety of our people and the communities in which we operate must, and always does, come first. So as I said, we are pleased that we recorded no fatalities at our operated sites in the 2016 financial year, and we were able to reduce high potential injury events by 20%.

However, as you can see here, our total recordable injury frequency of 4.3 per million hours worked, whilst this is pretty low by historic and industry standards, it's a slight uptick on 2015. We're determined to reverse this in 2017, and I can tell you, we're already making a lot of progress to that effect.

Peter's going to come up in a moment and discuss the financial details as we enter the new year, but I want to give you my context up front. I am even more optimistic about the outlook of our Company. We've done an awful lot of things, but we now have the right assets and the right commodities, a near ideal portfolio, I would say, and an operating capability to match, which is enhanced by our new simplified structure and is able to deliver significant cash flow.

We are going to direct this cash in line with our capital allocation framework, which is working very well. And we'll direct it towards the balance sheet, our rich pipeline of investment opportunities, and to shareholders, in a way that maximizes both value and returns. We have a lot to say about this during this presentation but first, I'd like to hand over to Peter, who'll summarize our results. So welcome, Peter.

Thanks, Andrew. Low commodity prices made for a tough year, but we were resilient. We delivered EBITDA of $12.3 billion and a margin of 41%. It was underpinned by the continued focus on safety and productivity.

At Western Australian Iron Ore, unit costs fell 19% through increased equipment utilization across our fleets and reductions in labor and contractors. Conventional petroleum costs declined 30%, due to lower maintenance and lifting costs.

Queensland Coal, costs were down 15%, primarily from increased wash-plant utilization and a reduction in labor. And at Escondida, record material mined and increased throughput partially offset the impact of an expected 28% decline in grade.

The grade decline at Escondida created a $1.6 billion headwind to productivity and yet, our team still achieved net gains of $437 million. That underlying run rate gives us confidence that we will deliver a further $1.8 billion this financial year. And that's in addition to more than $10 billion of gains we've already delivered since 2012.

Now let's talk about our performance in more detail. Going forward, we'll report on an EBITDA basis. We think this more closely reflects underlying operating performance and is also aligned with our award structures and a new operating model.

The chart clearly highlights the impact of weak commodity prices, which reduced underlying EBITDA by $10.7 billion. And to put this into better context, it's equivalent to approximately one-half of last year's EBITDA. Inflation reduced this by a further $328 million, although this was more than offset by favorable exchange rate movements.

Now the factors we can control; we achieved record production at Western Australian Iron Ore in five of the eight coal mines in Queensland. And for the first time in a decade, Olympic Dam produced over 200,000 tonnes of copper. But despite these strong performances, volumes were down at the Group level, principally for two reasons.

First, we decided to defer development activity in our onshore US assets, due to the low prices. We're focused on maximizing value, preserving cash. We will add barrels when prices recover. Second, Escondida's 28% grade decline. The recently approved life extension of the Los Colorados concentrator will address this, enabling a 9% increase in production in this financial year alone, as it ramps up in the second half.

Now, importantly, the reduction in volumes has been more than offset by the significant reduction in controllable cash costs of $1.4 billion. And that reflects our continued focus on labor productivity, increased equipment utilization and plant utilization.

I'll cover the three exceptional items that are not included within EBITDA. At the half-year, we recognized an impairment charge of $4.9 billion after tax in relation to our onshore US business. And that reflected the change to price and development plan assumptions.

Our view on shale is unchanged. The underlying resource is high quality, it's large, and it provides us with the exposure to commodities we like. We have security of tenure, so we can be patient and we can invest at the right time.

Our second exceptional item of $570 million includes amounts provided for global taxation matters in relation to unresolved disputes.

And lastly, Samarco; as Andrew mentioned, we're committed to doing what's right. We will support Samarco through the framework agreement to rebuild the communities and restore the environment in Minas Gerais and other impacted areas. As we continue to engage with Samarco, Vale and local authorities, we're now able to provide further clarity as to the financial impacts for BHP Billiton.

As you may recall, at the half-year, we recognized an exceptional charge of $858 million after tax. That included our share of loss from Samarco relating to the dam failure, and an impairment reducing our carrying value in Samarco to zero. This impairment recognized the uncertainty in the timing of the restart of the asset.

Since then, we've signed the framework agreement. To the extent that Samarco does not meet its funding obligations under the agreement, each of Vale and BHP Billiton is liable, in proportion, to its 50% shareholding in Samarco. Therefore, at the full year, we've recognized a further $1.2 billion charge. This represents an amount equivalent to 50% of Samarco's current estimate of potential obligations under the framework agreement.

Included within this provision is funding of $134 million, which will support the Foundation. Direct Group costs of $62 million have also been incurred in the half. So the total full-year exceptional expense amounts to about $2.2 billion after tax. We, with Vale, are providing some additional funding support to Samarco. A short-term facility of $116 million is being made available to Samarco to carry out repair and dam stabilization work, and to support operations. This short-term facility will preserve the value of our investment.

Outside of Foundation obligations, progress towards the safe restart of operations, and the restructure of Samarco's debt, will be important considerations before any further funding. We believe a safe restart is possible and is in everyone's interests. Apart from our Foundation commitments, further investment in Samarco will be considered, but in accordance with our capital allocation framework and must be in our shareholders' best interest.

Now to discuss our cash flow and balance sheet. Our assets generated $10.6 billion of net operating cash flow during the year. We accelerated the release of working capital, and have further reduced our overhead costs, in part enabled by the recent organizational restructure. Free cash flow of $3.4 billion was also underpinned by significant improvements in capital productivity. We reduced capital expenditure by 40% in the 2016 financial year. We're making each dollar go further by investing in low cost, high return, latent capacity projects, and more disciplined cost management.

As a result, we generated free cash flow at every one of our segments: iron ore, copper, coal, and petroleum. And notably in the last quarter of the 2016 financial year, onshore US and Nickel West were both free cash flow positive. This momentum will continue this financial year as we reduce unit costs by a further 12%, and invest $5.4 billion in capital and exploration on a cash basis.

Assuming current spot prices and FX, we expect to generate over $7 billion of free cash flow. Of course, spot prices will change, but it's an illustration of the cash generating capability of this simple portfolio. This free cash flow supports our balance sheet, which remains strong. Our maturity profile is long dated. We have over $16 billion in total liquidity, and we've maintained our A credit rating.

Net debt of $26.1 billion is broadly unchanged from December 2015. In this half-year, we reduced net debt by $1.3 billion from excess cash after dividends. And this was offset by a $1.4 billion non-cash increase in the face value of our debt book, reflecting falling interest rates in the period.

The non-cash movement was entirely offset by movements in interest rate and currency swaps included in other financial assets and liabilities on our balance sheet. The value of these swaps are not captured in our net debt calculation; however, the rating agencies do recognize the value of these swaps as they include these items in their net debt calculation. Importantly, we expect net debt to fall from current levels, given strong free cash flow projections for this coming year.

Now moving to our capital allocation framework. Our strategy is simple; we generate shareholder value through the cycle by owning the best assets, the best commodities, with sector-leading operating capability, all underpinned by a strong balance sheet.

Our new operating model has also centralized strategy and capital allocation, and that will drive even greater discipline in how we allocate capital. It ensures a level playing field for all demands on the capital we create. And our capital allocation framework has, in turn, created clear parameters for deciding between these demands. This ensures that we have the right balance between sustaining the business, maintaining a strong balance sheet, giving cash back to shareholders, and growing the Company.

This slide depicts the outcome of our capital allocation decisions for both halves of last year, and I'll focus on the second half in the middle column. In this half, we maximized cash flow from our assets; we generated $5.3 billion of net operating cash flow. We have to maintain safe and reliable operations as our first priority and, therefore, we invested $1 billion in maintenance capital. We then tested a broad range of internal metrics and confirmed our balance sheet remains strong.

Once we satisfy these first two requirements, which we have, then we have a commitment to pay a minimum dividend of 50% of underlying earnings. After the minimum dividend determination, further shareholder returns, strengthening the balance sheet, and investments, compete for excess capital.

We have a suite of high return, valuable growth projects in our portfolio, and we continue to invest in these projects with $2.3 billion allocated. Each project has higher returns than buying back our own shares. In this period, we paid the interim dividend of around $850 million. While our balance sheet remains strong, it's fair to say that the cash flow to net debt and gearing metrics currently sit towards the higher end of our target ranges. So we were happy to send $1.3 billion to strengthen the balance sheet.

For this period, our minimum dividend, based on the 50% payout, amounts to $0.08 per share. Given our strong cash flow performance, the Board elected to pay an additional amount of $0.06 per share, which brings our total dividend determined for the half-year to $0.14 per share. This is comfortably covered by free cash flow.

We carry this momentum and discipline into the 2017 financial year, where we expect to increase volume, up to 4% excluding shale; deliver further productivity gains of $1.8 billion; invest $5.4 billion in capital and projects; and importantly, further strengthen our balance sheet as we generate more free cash flow from our assets.

We remain focused on safety and productivity to maximize cash flow. We're committed to being transparent and making disciplined capital allocation decisions. Our quality portfolio, broad suite of organic opportunities, and financial flexibility, means we are well positioned to grow value and deliver cash returns to our shareholders.

Back to you, Andrew.

Okay. Thanks, Peter. I appreciate some of this Samarco stuff's pretty complex and extends what I was saying, but maybe we can come back to that on questions. So let me now start by giving you our current views on economies and commodity markets, which are largely unchanged.

In the near term, we expect a continuation of the economic uncertainty, the political instability in the well supply markets that we've seen of late. And that's going to prolong commodity price volatility, but within more recent ranges. However, in the medium term, we feel that as markets, and they are starting to, begin to rebalance then the risk to the downside of those ranges should reduce. We'll spend a little bit less time towards the downside and more towards the upper part of those ranges.

Longer term, despite I think lower-than-expected growth than this time last year in the developed world, we are confident that as China, and other emerging economies, particularly the high population centers of India and countries of Southeast Asia, start to and then successfully navigate the various stages of economic development that we follow closely in China, that the demand for our commodities will continue inexorably to increase.

As you know, we're particularly positive about the outlook for oil and copper, and that's because field and grade decline drive the sharpest reduction in base supply and they pull the markets back into balance more quickly than other commodities. As you know, our portfolio, which I'm going to come onto now, is particularly well placed in those commodities of oil and copper.

So to the portfolio; the actions that we've taken over recent years to focus the portfolio and establish world-class systems and processes, to embed a growing culture of productivity and safety, and more recently to adopt a new operating model, have all set us up well for the conditions I've described and that we're going to face into the future.

We have a focused portfolio of Tier 1 assets, close to ideal, in the right commodities, rich in growth options, that can be exercised at a time of our choosing that unlocks the most value. They all enjoy a good security of tenure.

And our new operating model, which is perhaps the most successful organizational story of the last six months, is going well. It's been embedded and it's creating a very simple structure, which is freeing our asset leaders to focus even more on what matters to us: safety, volume, cost.

And I'm seeing, as a result of this, a much more urgent and rapid sharing of our best practice. For example, in the year, it's very gratifying for me to observe the much greater exchange of our best-in-class scheduling and maintenance practices. This is why we've been able to increase our average truck production hours right across the fleet. And then our coal assets have gone up by 7.5%. That's an additional month of operation, per truck, per year, with more to come.

In petroleum, we continue to deliver, I think, startling performance improvements, and our Black Hawk field is a great example. There, our drilling times are down from 19 days for a well in the 2015 financial year, to under nine days. And the drilling costs per well have gone from nearly $3.5 million, $3.4 million to now less than $1.5 million.

This all heralds in a fundamental change in the way we work; of course, that's where the big value comes, but it's also resulted in fewer layers of management. And that's part of why, as Peter was able to report, we've substantially lowered overheads, not just last year, but in the two years before that, in aggregate, by over $1 billion. And that's an area where momentum is still following through, so there's a lot more to come.

But what really matters about this new organization is it's driving a culture of higher collaboration and commitment to further advance safety and productivity, to get more people coming to work with a real can do attitude. But as well as that, and you've seen an example when Peter was presenting, we've got a much more complete integration of strategy, under Peter and his leadership.

That's where we're getting much greater capital discipline, which is securing the financial strength, and the returns on capital invested, that Peter spoke about. And we'll continue to do this through this, I think, clear and very transparent capital allocation framework that he spoke you through on one of his slides.

So when you think about all of these things together, these are many foundations which provide us with a super firm footing from which we're going to grow value per share, both in the near term, as we navigate the volatility in the current markets, and beyond as, for sure, fundamentals improve, driven by the growing demand for our products.

Three months ago, and there's a kind of bullet point slide here to show it, I was in Miami, and I outlined our roadmap for longer term growth. It was based exclusively on existing opportunities that sit already within the portfolio and they didn't require a significant recovery in commodity prices. But when we pool them all, we're going to increase significantly the base value of our Company.

That was back in May, and we used mid-April spot prices and foreign exchange rates to estimate what that value uplift might mean, and it came to about 70%. And I can tell you that, even in those three months, progress has been quite impressive; it's been significant.

You've seen from Peter that, this year, we delivered further productivity gains, despite the intense headwind of Escondida's grade decline, but still net of over $400 million. And our productivity momentum, for all the reasons I've just spoken about, is growing and getting even stronger, so that we see enormous potential still ahead.

Latent capacity, which is the second bullet; you know that we've got a lot of opportunities to release additional volume across the portfolio for very small amounts of investment. For example, in copper, since I last spoke, the Spence recovery optimization project is being commissioned. And that's different from the big Spence project; that's just changing the way in which we leach.

Olympic Dam started to deliver the higher grades we spoke about from the southern mining area. And at Escondida, the three concentrator strategy is going well. We now have full approval from the shareholders for the $180 million life extension at Los Colorados.

Since then, our onshore US assets have moved into free cash flow positive territory, and at consensus prices, we expect them to remain so for the rest of the 2017 financial year.

Now, if we come to our projects; our quality resource position gives us many options to increase volumes as prices recover. We've found many ways to do this. In petroleum now, we're starting to use the hedging of gas and production costs to pull forward some of the monetization of our vast gas resources, and do it profitably, even in the current volatile price environment.

And we continue to progress our attractive suite of more traditional medium-term growth options, which all have average returns in excess of 15%. So in this financial year, we expect to submit to the Board the Mad Dog 2 project, and our share of estimated capital is now below [$12.5 billion]. The Spence growth option will follow towards the end of the next calendar year, and its capital cost is now below $2.2 billion.

At a time when the industry is cutting its discretionary spend, we've accelerated our exploration program and, in the 2017 financial year, we plan to invest $800 million. We've commenced important drilling programs in the Gulf of Mexico, and Trinidad and Tobago, and the early results are already being assessed. We shared some of that with the market last week.

As always, you know with exploration the risks are high. But we are excited by the potential of our extended campaigns, both in oil and also in copper.

And finally, technology is becoming more and more important to us, as we wish to extend our productivity track record and we've progressed a number of projects. We've approved, since I spoke last, the replication of iron ore's integrated remote operating center, that's been so successful, to cover our Australian coal assets. And at Olympic Dam, our heap leach trials, which are so important for the next major expansion, remain positive, and we've chosen to advance them into the next larger scale of testing. So while there's much to do, those six areas shown on this slide are all showing strong progress.

As Peter said, we're always focused on growth in value over volume. We're also focused, of course, on the increased utilization of our assets, as you've heard, and the release of their latent capacity. And just pushing these buttons hard in this year means that volumes will increase by up to 4%, excluding what we do in shale, because in shale we have to be responsive to market conditions and produce when we think the prices are high, and likely to remain so, in order to maximize its longer term value.

So across the Group, this plot shows you we've already unwound a decade of cost inflation, and we're far from finished. We're going to deliver a further decline in unit costs in the 2017 financial year of 12%. And with all the things that we're building in terms of technology and culture, we've got a lot more still to come in subsequent years.

In 2017, these things combined are going to secure productivity gains, as Peter described, across BHP Billiton, of $1.8 billion. The dramatic increase in capital productivity also continues, and we have the lower spend in shale we spoke about. And that, combined, means that our capital exploration, and exploration expenditure in this year, will be $5.4 billion, on a cash basis. That will fund all projects that are ready for and deserve capital.

So this combination of steady volumes, lower costs and higher capital productivity is what drives us to forecast at current spot prices and foreign exchange rates, I repeat that, current spot prices and foreign exchange rates, a free cash flow for 2017 financial year of more than $7 billion.

When you then add that to our disciplined capital allocation framework, it will take this cash generation and allow us to simultaneously progress our broad suite of growth projects, that I've just described, to further increase cash returns to shareholders, and most importantly, to pay down debt.

So while BHP Billiton has been through a period of significant change, we start the new financial year with real momentum, and with the portfolio, structure, and culture to prosper even in the challenging conditions that we face currently.

Through decisive actions, we've emerged from the rise and subsequent fall in commodity prices with a stronger, simpler portfolio of exclusively high quality assets. And an operating model which will deliver increased levels, and is delivering increased levels, of both safety and productivity. And this is the combination that's going to continue to deliver lower unit costs and increase cash flow, next year and beyond.

We're far from finished, because our unchanged strategy to own the best assets and operate them at full potential, so as to generate strong cash flows through the cycle, coupled with our very rigorous and transparent capital allocation framework, which delivers balance sheet strength and investment discipline, will continue to increase the value of our business, and our shareholder returns. Thank you.

Okay, let's take a question from the floor, here in London, and then we'll maybe go to the phones.

At Samarco, just focusing on the financial side, I appreciate the humanitarian element related to it, but away from the framework agreement, can you give us a little bit more visibility on the current cash burn on a monthly basis, in terms of the operating costs? How long you can continue to sell energy back to the grid, and what sort of working capital requirements would be needed to restart operations, plus any capital commitments?

And then Peter mentioned the fact that any future cash injections would be subject to the normal discipline within the Group. So that suggests that things are coming to a head at some point over the next six months in terms of how you're thinking about this and what your potential strategic options are. Is that a reasonable timeframe?

Well, it's a very complicated question and when I prepare for these results I bone up as if I'm studying for my finals. But we may not be able to give you all the details right now, Rene, otherwise we might get it wrong. But I'm going to be a bit nasty here and pass the ball over to Peter, and see how well he can do, and then if there's anything else that I can add. And then subsequent to that, we'll obviously get Investor Relations to talk to you on the details. We also actually have Vandita Pant here, our Treasurer, and she may have even more details than she's told her boss. So on you go, Peter.

I'd say, Rene, what I could say is that we have provided, ourselves and Vale, provided $250 million of short-term facility financing assistance to Samarco. That is, in part, $134 million goes to the foundation agreement; the balance essentially goes to Samarco to support the repair of the dams and so on, as well as ongoing working capital.

Now, we haven't said anything beyond -- we're not putting timeframes on that or anything else like that, and so I'm afraid I'm not really going to necessarily going to be able to provide an answer to the level of detail you're looking for. But I think that what's important here is that that does preserve the value. This is a valuable asset. It should restart; it can restart, we believe, safely and it's in everybody's interest to do so. So we should support this for this option value, if you like.

Now, in the event that we get ourselves to the place where we have got the community support, the licenses and so on, then of course that is -- Samarco itself is a -- it's a capital allocation decision. It's an investment decision. We have an asset which is currently not started; we'll have to invest some money in that. Again, we're not providing guidance at this point in time as to what that would cost but, in the event, we will assess that as if it is a normal project. Of course, let me just be really clear on that.

The framework agreement liabilities, on the other hand, are separate to that. And those will be supported because those are an obligation that we possess at this point in time.

So just, if I could push you, is there additional capital required before yearend or will you make a strategic decision on Samarco before calendar yearend?

It's a moving feast. I would say to you that, at the moment, and Peter and I, between what we presented and what Peter has added there, have said the costs involved in Samarco fall into a few buckets. Number one, currently through Samarco we're funding the Foundation. And the Foundation, which of course relates substantially to the provision we've made, we believe, because it's bottom up, is an appropriate estimate of what we think are the reasonable costs that decent people would pay to make good this disaster. And we stand very strongly committed to that.

The second part is funding the strengthening of the dam system, and they're also included within the provision. Then there's some ongoing care and maintenance costs within Samarco and, of course, the costs that we now have of our legal actions and the work that we're doing in Brazil. I don't foresee anything in the near term, but it's a very dangerous thing to say, given the uncertain things with any huge confidence. I don't know whether, Peter, you want to add to that?

No. Again, Rene, I just want to come back to this. We fully provided for the foundation agreement and the cost. So we made an assessment of that and it's our best estimate at this point in time, Samarco's best estimate, and we don't disagree with it. But on the other hand, Samarco itself, the asset itself, will be funded on the basis that it makes commercial sense to our shareholders. So I think that's what's important from an overall economic basis for Samarco and the funding decisions thereafter.

We fully anticipate that we'll be giving you regular updates. I need to give other people a chance now.

Andrew, just a point of clarification. You referred to Mad Dog, one of the growth projects, you mentioned $12.5 billion in the presentation --

It's $2.5 billion. Sorry. Thank you for giving me the chance to say that. $2.5 billion our share.

Menno, Morgan Stanley. Just two questions; first, a slightly broader one. You talked about the ideal portfolio structure and clearly copper is high on that list there; do you not worry that we collectively suffer from group think? Everybody in the world thinks copper is the best thing since sliced bread, including prices paid and M&A transactions. Therefore, are you not worried that more will be squeezed out of all these copper assets around the world? And, therefore, copper will never fulfill the potential that we all see in it?

Secondly, the $7 billion of free cash flow is clearly a great number, but the CapEx figure of $6 billion cash is clearly at a cyclical low. And if I listen to what you're saying Mad Dog, Spence, etc., are all coming very, very close. How should I think about that CapEx point at the moment, and that free cash flow generation?

We have a balanced portfolio, so if your contrarian view on copper were to prove to be correct, there are other things that we can do to develop our Company. But I don't quite share your contrarian view. I think we've seen a period now where new supply has come on in copper in a more predictable way than has been the case for some time. I think that has led to a slightly lower prices than you might have been forecasting previously, and probably it's pushed out the time when the copper market will come into balance.

But the reality is with ongoing grade decline, and a whole range of developments, including moving to a greener world which actually consumes an awful lot more copper for a number of reasons, I think we still remain very bullish and positive about copper. And very positive, if you like, about both our growth options at Spence and Olympic Dam, and maybe, over time, at Escondida, and our exploration program. But you know we have a portfolio for some -- so that we can, to some extent, smooth out some of the concerns that you raise.

I'm not going to give you lots of forecasts of the future capital expenditure of the Company. It has to be driven by the capital allocation framework. But we have done a great job at improving the efficiency of our capital. There's an awful lot of things we're doing within $5.4 billion that previously we'd have required an awful lot more money for. Danny Malchuk is here and I'm going to put him on the spot for two things. One, he, as well as running minerals America, he is our copper expert and can give you more details on that.

But as part of our new operating model, we pushed three areas where we think more functional excellence would be good; maintenance, which is run by Mike Henry; capital, which is run by Danny, he's at the end of the row there if you want to talk to him about it. And I think those are the things that will allow us to continue to do effective things to grow the value of this Company with what will seem like quite modest capital expenditure compared to our historical past.

Sylvain Brunet, Exane BNP Paribas. Just a follow-up question on costs, but on the conventional oil part. It's fair to say that we've seen a catch up in improvement this time, compared to the mining portfolio which was probably ahead; how much of that do you reckon is left? And if you could share with us some of the examples of what's being looking at for the coming years?

A follow-up question on the portfolio; should we read that you have less of an incentive to look at other JVs at this point which were said to be under review before?

And lastly, on the portfolio, there were some press comments that you could be interested in some coal assets; if you could clarify where you feel your exposure to coal could go, or if you're happy where you are today? Thank you.

Okay. On petroleum, I think that's an important acknowledgment, but one of the great things about the sharing that's now going on in our portfolio is that, whilst perhaps the petroleum cost reduction has lagged that of minerals, their ability to reduce costs has derived huge input and help from some of the path finding that have been done in some of the minerals assets.

Most of what has come about is in the onshore area, but the offshore area has continued to drive down its costs as well. It's very capital intensive and so a lot of those things are related to being able to reduce drilling costs by just reducing the cost of drilling in the supply chain.

I've remembered your third question now. I think on the coal thing, because the counterparties to those deals are probably more important bellwethers as to what's going to happen and what's not going to happen, I'd rather suggest you talk to them, to the sellers, than talk to us as potential suitors or buyers.

Could you remind me of your middle question again?

It was just on the JVs.

The JVs, yes. No, we have done a review of our JVs and, in fact, Danny who's also here, so he's getting lots of opportunities at the end now, has actually led that review. Obviously, with Samarco, it's much more straightforward. Things have not worked out and, as we move to the potential restart, then it's a much more engaged conversation that we have with Vale as to what is the right kind of governance structure to restart that will give both sets of shareholders increased confidence about the operations.

There isn't quite the same pressure to advance changes at Cerrejon and Antamina. But we are, and through Danny and he's establishing a new component in his organization, looking at ways in which we can enhance the governance of those independent joint ventures so that we can make sure we learn all the lessons that we've learned from Samarco, but also, I think, tighten some of the controls.

But I do want to be clear; obviously, we've got a number of things to announce. There is no black and white evidence that, had the governance structure been different, that the outcome might have been different in Samarco. But it does give us an opportunity to revisit these things and put the governance on perhaps an even firmer basis. And again, Danny's looked into that in considerable detail, if you want more at the end of the meeting.

So let's take some from the phones now.

Clarke Wilkins, Citi.

Just a question comes on the capital allocation side, [not whether it's going to continue on from] your comment, but I think when you were talking about how the $7 billion flow-through, that capital allocation, I think you said most importantly to pay down debt. But just try to figure how that fits back into what effectively happened in the second half, where the decision was made to top up the dividend rather than pay down further debt. So if we do generate this free cash flow in 2017, what is the top-up to the dividend versus what is a pay down of debt?

And also, with that excess of cash, I think the comment was made that buyback's not attractive versus organic growth options. Does that effectively mean that topping up the dividend is clearly more attractive than doing buybacks for the moment?

Well, we have to cut it every six months, Clarke, before we can give you that, so I'm not going to give you precise guidance. What's behind, a couple of things. We would acknowledge that, although we feel our balance sheet is strong and very much fit for purpose, that when we're able to do so, reducing the levels of debt from current levels would be an important priority for us, and that's all I'm signaling.

When you look back to the decisions that we've made around the dividend this time, clearly, the level of the dividend on the 50% payout ratio is relatively low, compared with past practice, and we do have a bias to get cash returns through to our shareholders.

To some extent, we took a Solomon-like judgment. We put some on the balance sheet and we put some on the dividend. The buyback comment is really just Peter reiterating a commitment that he and I made, that we will test any investments that we might make against the possibility of investing in our own shares.

Thank you.

Hayden Bairstow, Macquarie.

Just a couple of quick ones from me. Just firstly on the productivity target that you set yourself. All the guidance for 2017 seems to be set at around AUD0.71; is there plenty of headroom in that target, or do we think that might be a bit of a stretch target, given where the FX currently sits?

And just secondly on the shale assets; the talk on hedging the gas prices, is there anything we need to think about there in terms of the book value of those assets if you start locking in forward gas curves as they sit today versus whatever your previous assumptions were on long-term gas prices? Or is that factored in to the current book value? Cheers.

I'm going to start and then I think Peter might want to add something on both questions. Our productivity target for this year of a 12% reduction in costs and $1.8 billion of savings is primarily based on things that we will do within our own operations, and is not something that is dependent on a significant change in the foreign exchange rates, but Peter can either correct me or add to that.

I think on the gas hedging, we're doing it in a relatively small amount at the moment. We're only doing it with existing production and we're doing it because, in this very tight US domestic market, we see patterns in the way in which the price varies because so many of the players are hedging that we need to be part of as well. And the reality is that we only get two or three years of production to actually make money from any individual wells or individual group of wells, and that's not enough time to run the full cycle.

So we have observed that we can actually lock in a decent margin through hedging both our prices, but also the majority of our costs through this small trial. If it were to become larger, Peter can answer the broader question, but the first trials have been good and we seem to be achieving returns in excess of 30% and we'll see where that takes us longer term. But, Peter, maybe you want to add to both?

Sure. On the productivity, we calculate productivity, and we display it on the EBITDA waterfall chart, that you can see it's actually independent of FX; that's a separate as well as price and so on. So the productivity number that we have provided and will provide is independent.

Of course, what is impacted is our unit costs and that does have the AUD0.71 embedded in that. That happens to be the number that we had at [Banall]; it's the average of essentially what the forward curve was saying at that time. It's moved by maybe [AUD0.01] since then but essentially, it's a number that we use to pin our guidance and nothing more than that. So I think overall, we're quite happy with the $1.8 billion, irrespective of where the currency goes.

On the shale book value, hedging is independent of how we would assess the carrying value of our shale assets. We, like most companies, will take a look at the development plans, the costs associated and, of course, we have a revenue line which is dependent on a price assumption. That price assumption isn't going to change because we do or we don't hedge.

You can't assume a forward price or a long-term price and then add something because of hedging; that would be somewhat aggressive, shall we say. So hedging is independent of the carrying value. We're quite comfortable with our carrying value on shale.

Lyndon Fagan, JPMorgan.

My first question's on Jansen; more than $0.5 billion was spent on the project during the year. Can you perhaps give us an update on what's happening there? There's close to $3 billion of net assets there, as well, which it would be great to learn how we can get that realized for shareholders.

The second question's again on the book value, this time Haynesville. Carried for almost $3 billion and there was an EBITDA loss of $67 million with no plans to ramp up the rigs there, it feels there's a, I guess, an anomaly there on that. Can you perhaps talk about what's driving that book value and how it survived the impairment testing? Thanks.

I'll handle the second question. But just to give some color, if the hedging strategy works, we may consider putting a rig back into Jansen. Peter will handle the details to Haynesville.

On Jansen, yes, we're making good progress on Jansen. We had a challenging start, but we've actually got through a lot of the technical challenges, and we're now in the two shafts down, roughly, about 600 meters with maybe 300 to 400 meters to go, depending on whether you're in the production shaft or the service shaft. And we're doing that with less money than we allocated in the $2.6 billion that the Board approved, I think, now a couple of years ago. It means that we'll probably finish the shafts around 2018, 2019, and at that point, we will face a decision.

To your point, as to whether we actually then start to construct an operation around the shafts and start to enter the market, again, there's some good news there, is that while we've been progressing the shaft, we've also continued work on the engineering studies. We've substantially reduced the costs of future development, point one.

By the way, it's not just capital cost, it's also potentially operating costs. But point two, we've actually broken it down into a smaller number of phases or modules so that we can go into the market with a smaller amount of capital and, therefore, a smaller amount of potash, as we go forward.

But the decision to do that is at least a year or two away, probably more like two, and possibly more. And it's certainly perfectly possible if, at that time, the market is not going to be ready for potash, say, in three years subsequently, that we could mothball the shafts, once we've completed them and properly lined them.

We continue to talk to partners, who may consider taking a stake in the Jansen development, and that obviously, if the shafts are going well, and we're able to bring down the capital and operating costs of a project, means that it's easier to attract more suitors. We'll definitely keep you posted.

But absolutely, our commitment is to unlock real value for shareholders, through, I think, this careful and increasingly efficient investment that we're making. And when we look forward in the plans for this Company, say 10, 20 years, then there is one scenario where quite a bit of the EBITDA is going to be coming from potash, if when we look at the capital allocation framework, and we look at the market, as times unfold, that this looks like a good investment for us to make.

Peter, maybe you want to talk about the carrying value of the Haynesville?

The Haynesville carrying value is dependent on what our view is for, again, on costs, and our development plans, going forward. We have, of course, a long term plan for Haynesville; that wouldn't surprise you, given what Andrew just said a moment ago, about the sort of returns that we can see from particularly the core of the Haynesville, which is tremendously high quality. We would expect to put rigs back into action there, and start to harvest some of the fantastic returns and value that we see in the core Haynesville.

So that's really what underpins the carrying value of Haynesville. And it is, it's a large number, because it's a very good, high quality asset, and it's large. So we're looking forward to that.

Okay, back to the floor here.

Myles Allsop, UBS. Just a couple of questions. Just going back to your $7 billion, or over $7 billion of free cash flow, spot and how you're going to allocate this; you're saying the balance sheet is at the peak of this cycle, so you're looking to get net debt down, but how are you thinking about balance sheet strength? Obviously, some peers are talking about 20% to 30% net gearing range.

You've talked about solid A credit rating; you've talked about absolute levels of debt in the past. How should we understand when you're absolutely comfortable with the balance sheet, and when we should see a higher proportion of cash being allocated to shareholders?

And then just secondly, thinking about Trinidad overseas, spending a lot of money on exploration; the first well was dry, it looks like. Is that -- or it didn't have liquids shall we say, at depth, which is I think, what you're looking for. Is that a meaningful setback; is that something that we should be concerned about, as shareholders, in terms of the amount of money still being invested in exploration?

Okay. Peter will handle your first question, because it all relates to how we drive the capital allocation framework. On your second question, the well wasn't dry, it contained significant amounts of gas in shallower reservoirs. And the indications through the well were that liquids are present, but just not trapped in that structure, in an appropriate kind of reservoir.

So we've proven that this is potentially a prolific oil and gas province, and we're on to drilling the next prospect. With all these things, there are different ways in which we might envisage entrapment of oil, as opposed to gas, and so I wouldn't be too dispirited at the moment. It would have been great if the first well had found a major oil accumulation, but the reality is it's part of a multi-well and multi-prospect program.

From the geology we saw, other than the absence of a large reservoir in a big trap, everything else, all the ingredients were there, and gave us encouragement to carry on.

Peter, maybe you want to talk about the first question then?

Yes, sure. I think we've described our strong balance sheet on a number of measures. The primary one really, is around the cash flow to debt ratios. That's really net debt ratios that we prefer, to be honest with you, and we are seeking an A through the cycle. And essentially, that's what we're on the path to maintaining; we're already there.

But as we said earlier, at this point in time, probably we're in the range. We've got a nice, good strong balance sheet, but we would prefer to reduce that net debt a little bit over the next year or two. So we will continue to assess that every six months, as Andrew mentioned, as part of our capital allocation framework. So I think that's pretty similar to the messages we've given to you in the recent past. And we're not going to give a net debt forecast.

Anna Mulholland, Deutsche Bank. Just a quick follow-up question on Trinidad & Tobago. What's your timeframe for this, or the next milestones; can you accelerate the program? I don't know how much of the $700 million total offshore exploration you're putting through on the Trinidad side. Overall, in terms of CapEx starting to go up slightly in FY18 versus FY17, what are the key drivers of the uptick? Are you assuming, for example, that you spend on Mad Dog, or is it something that's already in the pipeline?

We have one rig dedicated to Trinidad so it's one prospect at a time. The [track] well went down a lot quicker and it was a lot cheaper than we expected, so that might allow us to get through the drilling program faster than we originally thought. But it's early days, and I don't want to give you a forecast on that.

A very slight uptick, I would say, in capital going forward. Of course, it would include something for Mad Dog and potentially, in the subsequent years, something for Spence. I'm not quite sure if there's anything else behind your question, but like I said earlier, at these levels of capital we're seeing today maybe with a slight uptick. We can, in the next few years, pursue most of the things we want to do by way of growth that's happening organically and internally.

James Gurry, Credit Suisse. I've got two questions. Just firstly in relation to the dividend; you had around -- it was $5.3 billion of cash flow in the half less maintenance CapEx of about $1 billion, so that's a healthy $4.3 billion. But under the dividend policy the minimum commitment was only $200 million to pay to shareholders. Do you think, under the current dividend policy, that the depreciation amortization figure is unfairly penalizing expected dividends, going forward? Therefore, if is or it isn't, but how should we think about the additional portion of the dividend that you're likely to pay every six months?

And just in relation to hedging, it's obviously a big step forward for BHP because you obviously didn't consider hedging previously in previous years when you had a different suite of assets. Do you think that you will step up the hedging if you change your CapEx estimates for the shale division, and would free cash flow step up in lockstep if you were to lock in some hedging or increase the CapEx for shale?

Okay. I think on your first question, I was thinking too much on my answer to the second one, but on your first question, it all really just comes back to the capital allocation framework. Maybe remind me about it again, sorry.

Depreciation amortization, it's a very large figure.

Yes, [I've got it]. I wouldn't get hung up on that. The important thing is we now have a new capital allocation framework, and we have a new dividend policy, and we feel very strongly that this is the right dividend policy for the conditions that we now face. That's why we made the change when we made it. We're now committed to it, we have to be for a while, and we'll operate it exactly as we've laid out; very clearly 50% of underlying attributable earnings.

And then we'll use the capital allocation framework in the way that Peter and I have described to decide whether, in any one period, it's appropriate to top that up. But I don't think your factor is one that we consider in that. Your observation is right, but it's not a factor or something that we would consider; it's the capital allocation framework we'll to drive that.

And so the second question on hedging, what I'd want to make clear is that the hedging is very specific to US domestic gas, where there's a couple of factors that suggest that we would be foolish not to consider this as a commercial opportunity.

One, it's a very flat cost curve and, therefore, the possibility of losing exposure to the upside, it's quite a small loss of exposure compared to, say, something like the oil cost curve where we would be much more reluctant to the point of [no], at this point, of our hedging.

And certainly everywhere else in our portfolio, unlike these domestic gas opportunities, we have much longer paybacks where we have the opportunity, if you like, to see the full cycle of price that we can't see in gas. So it's very specific to gas, and I think it's one of those things that we're going to approach reasonably slowly; so far so good.

And as I suggest that maybe we'll update you on that, and there may be the case if the market suggests it can be done of justifying an additional rig in the Haynesville, on the basis of our ability to hedge. But I wouldn't put it stronger than that, and that in itself is not going to have a huge impact on our overall capital budget.

I think, Peter, I probably covered it, but if I've missed anything please jump in.

Fine, I think you covered it. I think the first point on the dividend, the depreciation is independent because there is always the ability -- we're not locked into a 50% payout ratio. That's the minimum, so in the event that, as we find ourselves in this point in the cycle where depreciation is higher or lower, or any point in the cycle when depreciation's higher or lower than the capital and, therefore, the cash flow generation [and the like], we'll take that into account through the capital allocation framework. I think we're fine that, not penalized.

[Andrew Hines, Evans & Partners].

Can I just take you to your slide 12 again, your capital allocation framework? It seems to me that there's one item missing on that slide which is sustaining capital, and I guess that goes a bit to the question earlier, but when you think about what level of capital expenditure is required to sustain the Company at the current size that it is, it feels like $5 billion/$5.5 billion is just not enough capital.

Obviously, $9 billion D&A is not representative given the over-capitalization over the last few years, but when you think about, you've mentioned a few times in the presentation, the headwinds of the depleting copper grade as Escondida, you've got a depleting resource in your petroleum division, at some stage there's a [big lick of] capital required in iron ore when Yandi needs to be replaced. It's a lot of capital just to stand still. How do you think about what that number should be, because it feels like $5 billion is really too low?

We don't recognize sustaining capital in the way that you're talking about it, so I wouldn't want to put an additional item on the capital allocation framework. The only capital that we would feel obliged to spend in advance of checking the balance sheet, paying the dividend and then getting into the multiple choices we face with any excess cash, is that which we require to maintain the integrity of existing assets, and make sure they're safe and reliable as part of our twin focuses on safety and productivity.

Whether we're investing to increase volumes or increase performance or replace volumes that we've lost through the fuel decline or grade decline, they're all projects that have to compete for capital with each other, and also for other uses of capital, whether it's on the balance sheet, it's to the shareholder, or even to buy back our own shares. So it's not an extra line that we would actually consider putting in the capital allocation framework. Point one.

Point two, all the things you talk about are plenty of reasons that we may see high value opportunities to invest in the future, and we will continue to advance them. But don't underestimate -- sorry, that sounds the wrong way, but we will continue to find ways of doing them with ever-increasing capital efficiency so that the actual costs of doing that might be quite a bit lower than historical precedent would guide you towards.

The exact numbers, until we make that expenditure clearer and more concrete, I can't forecast. But we're doing a heck of a lot for $5.4 billion, and we can continue to do an awful lot with that sort of money, including looking after maintenance capital in a manner that we'd continue to grow this Company.

We've talked a lot about our latent production capital; in Miami I talked about $1.5 billion to grow volumes by 10%. Remember, value over volume so the value has to be there. We can steadily increase the production from the Permian, and that may require more capital. But you'll have heard the wells in the Permian are not yet as cheap as those in the Eagle Ford, but the reductions in cost are equivalent. And because we're doing less there, they're likely to continue.

And then, for sure, and while I'm looking ahead, it's only $2.5 billion over a few years for Mad Dog; less than that over a few years for Spence. And it's a little while now before we'd have to make a very significant investment, for example, in a new shaft at OD, which would obviously be, even with all the best capital projects in the world, there's likely to be a bit more than $2.5 billion.

So I think it's still hard to foretell exactly what it will be, but it's going to be a lot lower than you're used to seeing in terms of capital expenditure, if you take the last 10 years as an example.

Okay. Thanks, Andrew.

Duncan Simmonds, Bank of America Merrill Lynch.

Just on shale, I wondered if you could rank the opportunity for reinvestment, say, in your oil portfolio versus restarting your gas portfolio, particularly with hedging in mind. That's the first one.

And then the second one, which is probably a lot more brief, is that press reports are talking about the divestiture of Bass Strait oil assets within the JV. I guess I'm just after a little bit more granularity in terms of what the JV is trying to achieve. What's the materiality, say, as a percentage of production, or something similar to that? Thanks very much.

I don't know about ranking; obviously, it depends on how the prices move. But what we have done through the hedging program and thinking about it is we've probably moved the Haynesville up the ranking, relative to what it would have been six months ago. And that's why we are considering the possibility that, if the current conditions that we've been able to do something with, with hedging, were to persist, and remember, in a gas market in the US at the moment rig rates are continuing to go down whereas that's not true on the oil side of shale.

And we have this very flat cost curve, which we think is likely to persist, but we can counteract that a little bit through hedging, means it's possible we might move a rig from one of our oil developments into the Haynesville. But we have a formal process where we review that monthly. It's very dynamic. Between myself, Steve and Peter we talk about it more often than that, so that's all subject to change.

But I think the simple answer is that we've probably moved the Haynesville up, relative to where it was. And whether it stays there and whether it displaces something, I'm not sure.

Peter might have a bit more details on the Bass Strait; remember, we're not the operator there, it's ExxonMobil. They're effectively tidying up the portfolio there by divesting of some of the smaller and less critical assets, while keeping the bigger production centers. But that's obviously handled by them in concert with our acquisitions and divestments group that reports to Peter. He may have some of the numbers or not so I'll leave that to Peter.

Yes, Andrew, I'd just add to that. This is not particularly material, certainly not for Exxon and not for us either. These are late stage assets; they've been tremendous for us, but in the lifecycle of any assets there comes a time where others will be the better owner of those assets. There is still upside available in exploration. There is, of course, workout specialists on those types of assets and we'll make those assets available for those folks. They'll be potentially worth more, and they'll be willing to pay more than we think they're worth in our hands.

So I think that's a perfectly sensible piece of capital recycling that we're very happy to undertake, and are undertaking and continue to undertake in the rest of our portfolio as we see opportunities.

And it's entirely consistent with our own strategy of simplification. So we're very much aligned with our partners.

Glyn Lawcock, UBS.

Just two quick questions. Firstly, just your productivity of $1.8 billion for FY17; can you talk about value over volume, which I assume means volume may not be achieved if it impacts price adversely? Just wondering, how much of that $1.8 billion is actually true savings that you can lock in versus what is volume, which may not eventuate if you actually impact price.

Then just a second question; following on from Andrew's question, I guess, just trying to look at the normalization of the business in terms of CapEx, I just want to make sure I understand you correctly. So you're basically saying that it looks like steel production is going to peak around about the mid [900s] now you talk about. So you're saying that you could be peak iron ore as well and that you'd be prepared to let the volume decline and not reinvest to replace Yandi if the market didn't need it. Is that how I should interpret this, that this is now a cash flow business? Thanks.

I think that's a somewhat heroic extrapolation going on in your last question. Remember that we sit pretty close to the bottom of the cost curve on iron ore, and although there's going to be fierce competition to claim the bottom of the cost curve crown between ourselves and the other three low cost operators, we will be playing that game to win. So even in, as you say, reduced demand out of China, we still see this as potentially being a business with a very high margin and a big cash generator, going forward. And perfectly possible in that environment that we would still be able to justify an extension or a replacement, if you like, of the production from Yandi when the time has come.

And we're working very much on options. As I said in my talk, there is, I think, strong indication that India will import iron ore and our iron ore will be required for many of the other nations of Southeast Asia. Plus, I think, the other thing that's interesting with things like the Chinese One Belt, One Road, they're now currently exporting, I think, close to 10%, 12% of the steel that they manufacture. And under some models, that could grow, particularly under One Belt, One Road. So I think that's still very much all to play for and I would be reluctant to make the extrapolation you did.

I think, on the productivity number, that $1.8 billion is, obviously, not something that we've been too heroic about. It's based on our bottom up plans of what we already intend to do, and it certainly doesn't presuppose some rapid ramp up in shale, given current prices. And that's about the only volume growth that we would make conditional on markets.

Peter can confirm that, but I don't think this idea that we may actually have to forego volume and, as a result, not make it, is actually material to that estimate. But Peter, do correct me if I've got that wrong.

No, not at all, Andrew. I think, as you know, Glyn, we've already given guidance as to what we expect our production to be for our major assets, for our major groupings of assets next year. And you can see for yourself that we've got decent productivity gains volume-wise, across the board, with the exception of petroleum, as Andrew's mentioned a moment ago. We don't put shale into that category in any event. We do split the volume piece out in terms of growth in productivity, and that growth piece is really where we put shale because it's dependent on the capital that we allocate to those rigs and, therefore, we keep it in that category.

I think that, as we've delivered this tremendous track record over the last three years, through the last year. And so I think we've consistently hit really, targets that people really felt a little bit skeptical about. Hopefully, this time people will start to believe a little bit, but we'll wait and see. I'm sure you will. We're confident.

Andrew Keen, Haitong. Just a couple of quick follow-ups on Samarco, if I can? Your $1.2 billion provision for it doesn't include any potential punitive charges, I imagine, and it also assumes a restart of the asset over time. So there's potential liabilities there that are also offset by the long-term option value of the asset.

So I guess my question is, if somebody turned up today and said, I'll take Samarco off your hands and you write me a $1.2 billion check, would you take that offer, or do you think the long-term value of the asset still outweighs those potential risks?

And then, you talked about better owners in Bass Strait; is BHP always the best owner of that asset, or does there come a point in time where you might look at divesting it?

The disaster in Brazil is terrible and no matter how you examine what caused that accident, we were part owners of that and we have, I think, a moral obligation to make good the environmental damage and the humanitarian disaster that's resulted in that. And in order to do that, I think we have to stick around for a while and so I think, therefore, it's not an appropriate time to really answer any part of your questions.

We've shown commitment to the Brazilian authorities and to the people of Minas Gerais to do the right thing by way of the environment and by way of the humanitarian disaster, and that requires us to stay there for a while and to work with Samarco and Vale. So I think I would prefer to leave your questions for now, if you don't mind.

Did you want to add anything, Peter?

Just a couple of things, if I may? You're right that there isn't anything included in the provision for punitive damages. We've made an extensive disclosure on those as a contingent liability; well, you're free to read through that. But to the other point that you made that the restart is included and netted off against the provision, that's not in fact the case.

There's two parts of what we did last year -- the last financial year, is we set up the provision for the $1.2 billion which is Samarco's estimate of 50% of Samarco's estimate of the obligations that would arise under the framework agreement. So that is completely independent in fact of Samarco itself.

On Samarco side of things, we've written that asset down to zero on the basis that we don't know when it's going to restart. If it restarted in accordance with the capital allocation framework and so on and so on, that would present value to the shareholders. And in due course, I suppose, hypothetically speaking, you can start to think about writing back some of that, but that's not where we're at the moment. Just so you know technically how that works.

Grant Sporre, Deutsche Bank. A slightly broader question. There've been recent, out of Western Australia, reports that there's a proposal to increase the government take on the iron ore, so a two-pronged question.

Firstly, the Australian mining industry was successful in heading off the MRRT previously; have you given any thoughts to how you're possibly going to head this one off?

And then secondly, have you -- in the down cycle we did see governments back off; are you starting to seeing a bit more pressure on higher government takes, for instance in Chile? Thank you.

So two parts to your question. I did actually give a very long answer, which I'm sure will get widely reported, at the press conference an hour ago, on the first part. I think, generally speaking, without wanting to get specific to individual countries, is that as governments around the world seek to try and balance their budgets, there does seem to be an increased desire to increase our rates of tax that we have to challenge, and you've seen we've actually made a bit of a provision for some of those things.

And that's something, of course, that we will point out some of the risks in doing that, in actually turning down growth and turning down future revenues for the sake of some short-term tax gain. But they'll happen all over the world.

It's a little bit different than the MRRT because this is a request specifically to ourselves and Rio. It's not broadened to the whole industry and I just made two points, which I'm not going to develop at length now, earlier.

It does strike us as a little unfair, and you could double the numbers if you added Rio. We've built an incredibly successful export-driven business for Western Australia, [from] Australia with Rio over 50 years under the banner of state agreements. We paid $65 billion of tax in Australia and quite a lot of that came from that business that we created by investing $25 billion just in the last 10 years. We've done a lot for the communities; our community spend there over the same period is nearly $300 million.

We put enormous amounts into the related industries in Western Australia. I think it's about, over the last five years, about $200 million in -- that would be $200 billion actually into the -- or $20 billion, sorry, I'm rounding my numbers there, $20 billion into some of our service costs. So our feeling is we've made a phenomenal contribution at all levels and being asked to pay a bit more now seems a bit unfair, just for us, given what we've done.

And yes, there is a risk to jobs because we've just been speaking with Glyn about further investment that will be required and so on. And that investment's a little bit less attractive if there's a possibility of things like that. And there's a lot of jobs, tens of thousands of those jobs which have been created through that iron ore industry. So it feels a bit unfair and a bit anti-jobs, and I will make those points.

Thank you.

Tyler Broda, RBC Capital Markets. My question is around the Eagle Ford; oil prices continue to trade with significant volatility, but we've seen improved fracking technology and better costs. What sort of prices would you estimate you'd need to start meeting capital return hurdles at the Eagle Ford, and how much inventory, at that level, would you see you would have?

At the same time, you alluded earlier to the improving profitability in the Permian; are we more likely to see spending return to the Permian first than Eagle Ford? I guess, leave it there.

Okay. There's a lot of detail that you might want to get with Adrian and others afterwards to fill things in, if I just keep at a broad level. Again, sorry, it's all back to the capital allocation framework and how sustained we think the prices will be. What we've done in the Eagle Ford is we've started fracking our [docks], whereas we stopping fracking for a while when the price was below [$40]. It's popped now and that's given us the encouragement, combined obviously with our lower cost, to do so.

I think Permian versus Eagle Ford, the Permian has not really been developed much, particularly our part, and so there's an awful lot more to go out there. But the costs are a bit higher, whereas there's a lot less still to develop of oil in the Eagle Ford, albeit at potentially lower cost. So we'll have to weigh all those factors up, but right now we've got two wells, sorry two rigs in the Permian, two in the Eagle Ford, we've got this competition that I talked to you about in Haynesville, and we've started fracking back in the Eagle Ford. And it's a dynamic situation, and I think Adrian can give you a little more details of that after the meeting, if you like.

Peter, did you want to jump in?

Yes, I just wanted to point out that I think this is one of the strengths of having this petroleum business inside of a broader business; in fact a shale business inside of a broader business. We have a very, very strong business, particularly in the Black Hawk; those returns are available well north of 15% today, at today's prices, given the strength of position. But, on the other hand, we're able to -- because we think that oil prices will increase, it's better for us to keep those barrels in the ground and produce them in due course for higher prices and higher returns to shareholders.

And it's that ability to time our investments appropriately is also, I think, a very great strength of how this diversified model works. Again, I think the very huge impact that the team has done in shale in reducing the ongoing spend there, to the point that certainly in the last quarter we had backed down to free cash flow neutrality. So, again, we have this option that we can hold without spending a lot of money, waiting for those better prices which we think are very much on the way.

Historically, there's been discussions about potential acquisitions in offshore oil; given where the current balance sheet is, should we assume that any acquisition activity in the low single billion dollars for non-producing assets is highly unlikely over the next 12/18 months?

And then more broadly, longer term, if you look at the more conservative approach about iron ore prices versus where we are just now and there's potential downside risk of that $7 billion, you're less excited about coal it would appear, medium term, than copper and petroleum. Is the coal division absolutely core, or is a three-legged stool more stable? And would you use potential proceeds from the coal, medium term, to pursue opportunities in copper or in petroleum if free cash flow generation is insufficient and balance capacity remains constrained?

Well, these kinds of transactions, all of them are quite hard to pull off, and that's why our plan for growth in value is entirely based on the portfolio that we now hold, and that is our base plan, if you like. A lot of that other stuff, maybe in the interests of time, I'm not sure I want to get into the real detail, but I do want to make it clear that the coal division is not a poor person division. $110 per tonne now for met coal, some substantial improvement in the thermal coal price, we're very clear that we have a four pillar strategy and with a potential fifth pillar in potash, and we haven't changed our minds on that.

So I think with that, I would like to wrap up. Thank you, everybody, for listening to Peter and me today. I'm not going to come with a big summary.

Clearly, we feel disappointed by the statutory loss, but if you look through that, you look through to a Company with a very strong portfolio of some of the best assets which is married to a very effective operating capacity that, combined, as prices have stopped falling, and we continue to deliver on safety and productivity, is starting to open up quite a decent margin, and a very healthy cash flow potential. In fact our cash flow yield, if, and I know it's a big if, if the $700 million stands, is one of the best that we've had since the merger.

So thank you very much.