Tim Cutt joined BHP Billiton Petroleum Ltd. in 2007 after 25 years with Mobil Oil and ExxonMobil. He became president of the global company's petroleum business, managed out of its Houston office, last summer.

Today, the Louisiana Tech engineering graduate oversees an enterprise whose total petroleum production for the six months ended December 2013 was 120.4 million net barrels of oil equivalent from onshore and offshore fields. Full-year guidance is expected to be 250 million by fiscal-year-end 2014 (at June 30).

That full-year result is underpinned by an expected 75% increase in onshore US liquids output, led by the company's increased focus on Black Hawk Field, its liquids-rich prize in the Eagle Ford shale acquired when it bought Petrohawk Energy in 2011.

Recently, Cutt and his team hosted approximately 70 analysts at BHP's headquarters in Houston and onsite in the Eagle Ford. “We talked about where we're going from a cash and earnings standpoint,” says Cutt. “When you start a business with a large initial investment, those numbers can seem low. We described a forward look for our business and we were very transparent. It was very important for us to demonstrate with facts and data that this is a substantial business. The profitability is growing very quickly.”

In a recent interview, Investor talked with Cutt about the company's growth plans offshore and what's in store for the Haynesville and Fayetteville shales.

Investor What was the most important single message you delivered to the analysts?

Cutt Three things. We're focused on value over volume. Secondly, our financials are growing in a positive direction. Finally, we believe we're going to be on the upper end of the technology approach to shale development. We see lots of improvements that will lead to increases in EURs [enhanced ultimate recoveries]; we believe in some cases, in some fields, between 20% and 50%, based on improved application of frac technology.

Investor Do these messages apply in all your plays here, or just the Eagle Ford?

Cutt I've been quoted quite a few times about the value of developing a manufacturing process in shale. I spent time in California in the heavy oil business, where we drilled thousands of wells, built water plants and installed the steam generators required to effectively steam-flood the reservoir. We learned the value of putting in a manufacturing process and driving down the cost curve in a safe and effective manner.

With shale, you must have the technology right before you launch into the manufacturing process. We see the biggest upside around completions technology—frac fluids, proppants, diverters—and that's where we're spending a lot of our time.We're also taking a lot of time to study the rock itself and understand the water saturations, the clay content, depth, pressure, and all the things that matter around how easily the formation can be fraced. Once we get the solution to that problem correct, then we go into the manufacturing process.

One of the things we've done over the past six to eight months is to reduce our rig count. We were starting to drill faster and faster—we actually improved our Black Hawk drilling times about 30% in the past 12 months. The issue with that is, you can start getting ahead of the technology. We've slowed down a bit from a value-over-volume perspective, we've moved from gas to a focus on liquids, and we are very focused on getting the frac technology just right. So as we replicate that with time, we maximize the EUR.

Investor Does your focus also include the spacing aspects?

Cutt Absolutely. We're working not only the spacing between the wells but also the spacing between fracture stimulation points within the horizontal section, so it becomes a matter of how long of a horizontal section you frac at one time.

We are using microseismic technology to understand where the fractures are going, and we're monitoring the fluids through tracers to understand that, so we're really building out three-dimensional models for each of our fields. This way, we will be able to understand how effective we are now and what we need to adjust to maximize the value of our assets.

I think the companies that can be most effective at fracing the majority of the matrix, at keeping the fractures open, will win. We do focus on our initial well rates, but we focus just as hard on the second-year and third-year rates. As you know, you get a lot of the value out of these wells early on, but if you can extend the higher rates for a year or two, there's a substan-

tial improvement in the economics.

Investor I know you're growing rapidly.

Cutt Globally, we employ approximately 4,000 people in the petroleum business. In Houston, we have about 2,000 employees. In the past six months, we've hired almost 300 people—last year we hired 700 people. Although this level of hiring is leveling out, we're still looking for specialty skills in most areas.

We're going to continue to grow, and we're doing a lot of work around how we retain people in a very competitive market.

Investor What are your strategies?

Cutt One of the things that Andrew Mackenzie, our chief executive officer, is working on across the globe in all of our businesses is developing what we call a “step-up” culture. I think the company in general, across the board, has tremendous alignment and functional expertise. The view is that we can have more motivated employees by encouraging them to bring their ideas to the table, and demonstrating that we'll execute on those ideas. We're starting to see creativity come to the forefront.

The empowerment generated by encouraging a step-up culture will help us with the second part of the agenda, which is driving for improved productivity. It's about extracting more value from our mining and petroleum assets.

Lastly, we're having much more open and transparent communications on a regular basis. Within the past six months, we've had a series of meetings in which we used technology to enable the employees to provide live feedback, which was projected onto screens to be evaluated and discussed.

It's not just sitting in a room and chatting about things. We've engaged enough with employees that almost every day in the elevator I have very positive and interesting conversations with people who know that their opinions count, which creates a relationship with management that I've not experienced in the past.

My fundamental belief in leadership is a simple model of align, then empower, then improve. I believe that we have good alignment, and we're working hard on the empowerment. And I am confident that this will drive the improvement. We're basing everything we are doing on that fundamental concept.

Investor A year ago, your predecessor, Michael Yeager, mentioned the Permian Basin briefly, but you'd really just gotten into it. What is the Permian status today?

Cutt During the analyst tour, I publicly stated that we now see an area within the basin that can be developed to at least 100,000 net barrels per day. We are enthusiastic about the Permian. It's a big, thick shale section with multiple opportunities, but there are areas we like better than others.

We've now analyzed the majority of the basin. We are divesting some of the acreage in the North Midland Basin and also the very far western part of the Delaware Basin, which is a bit shallower and gassier. There's oil and gas in all of these areas and certain companies will be able to extract value. We're really looking at how we can replicate some very high volume, financially attractive areas of the Permian. Although we're still appraising in the South Midland area, our focus area is more in the Delaware Basin.

With the lease retention requirements in the Permian, you've got to be cautious and make sure you pick up the acreage you can develop in a timely manner. And you've got to pick what wins for your company. I think you'll continue to see consolidation of acreage as people pick certain play types and focus in certain areas to leverage the infrastructure.

Investor How many rigs will you be running?

Cutt We're currently running two rigs, but before the end of the year we'll have four rigs in the Permian Basin, and likely run about five rigs next year. It's hard to talk with certainty about well count, because we're still doing a lot of analysis and testing the different horizons.

Last year we produced about a million net barrels in the Permian; this year we'll produce about 4 million net barrels there. Recently, we reached approximately 13,000 barrels per day equivalent, which is up substantially from earlier in the year. We are testing multiple horizons and analyzing the results, and we're building confidence of repeatability in certain areas. We expect to move out of the appraisal/assessment phase and into development during our financial year 2015, which starts in July 2014.

Investor What about the Eagle Ford?

Cutt It's now our biggest oil producer worldwide, over 100,000 net barrels of oil equivalent per day, and growing fairly rapidly. By financial year 2016, we said we'll probably be in the range of 200,000 barrels per day equivalent out of the Eagle Ford, which includes both Black-hawk and Hawkville fields.

From our entire portfolio, by financial year 2017, we'll be producing about net a half-million barrels equivalent out of our entire shale business, and of that, about 200,000 net barrels per day of liquids. The liquids will be produced from the Eagle Ford and Permian. It's growing into a substantial business.

Investor What about your natural gas assets? You've made a big bet on them.

Cutt You'll see some gas growth due to the associated gas that comes with the liquids, but we've moved all of our operated rigs out of the Fayetteville, although we are still investing through Southwestern Energy as it continues to drill there. We're maintaining production there through that investment.

Investor And the Haynesville?

Cutt The Haynesville is one of the most unique investment opportunities the company has globally. Rates of return for Haynesville wells are in the 30% range, and it creates a really good investment throttle for the corporation. As

“I think the companies that can be most effective at fracing the majority of the matrix, at keeping the fractures open, will win.”

we see gas prices move up, and depending on the availability of capital, we can accelerate development as the opportunity becomes increasingly competitive within the global portfolio.

Right now, we're watching gas prices, we're still testing our frac technology, making sure we have the right equation on proppants and fluids, and we're preparing for when we move into full development phase on the Haynesville. We view that as one of the best shale-gas resources in the US, and we have some of the best acreage in that play. It's all held by production, and we can be patient.

Investor Your Gulf of Mexico assets fit in well. You have a drill ship on order, right?

Cutt Yes, the Invictus will be here by midyear. It's a Transocean drill ship. We continue to be very pleased with our Gulf of Mexico position. We operate both Neptune and Shenzi fields, Shenzi being one of the highest-production-volume facilities in the Gulf deep water. We've been producing close to 100,000 gross barrels per day since the start-up, and we continue to drill development wells around it. Shenzi still has running room, and we have not tested the north side of the structure on the field, so we continue to be encouraged.

We also hold a 44% working interest position in Atlantis. We're ahead of our volume plan in our conventional business because BP, the operator, brought on a gross 30,000-barrel-per-day well earlier in the year. That put us ahead of schedule, and the rates are doing a bit better than anticipated. These are big wells, and there's quite a bit of running room on Atlantis for additional development.

Mad Dog represents one of the largest discovered Gulf of Mexico resources in the Miocene play. We're working with BP about how to bring that on line. We have a 24% stake. We still see a lot of running room, we've got lots of exploration acreage, and we continue to drill and test play types. Our Gulf of Mexico business is still a very substantial business.

Investor What percent of BHP's global oil and gas production is in the US?

Cutt We're rapidly getting to where about 50% of our production is coming out of our shale business.

Investor And most of the rest is offshore?

Cutt In our conventional business, we still have very large production in the Bass Strait offshore Australia, about 96,000 net barrels per day, and on the Northwest Shelf, about 75,000 net barrels per day equivalent. Our operated position in Australia is about 50,000 net barrels per day. The two big players are offshore—Australia and the Gulf of Mexico—and our onshore position in shale.

And then we have production in Trinidad and Tobago, about 21,000 net barrels per day, and a large exploration play we're building in the deep waters north and east of Trinidad. We recently signed an agreement for a seismic shoot, and we'll be the operator of this position. We've been producing in Trinidad for a decade, and we've been evaluating this deepwater position north of Trinidad for quite some time.

For us, it's a very attractive opportunity. The first year we would drill is in calendar year 2016 after we acquire the seismic and take a full look at what we have. From 2-D, we already know that there are some big structures, and we're pretty excited.

Investor Of all you're doing this year, which project do you feel would have the most impact? Which child do you love the most?

Cutt We are very focused on ensuring that the very best opportunities attract investment dollars. In the near term, our focus is development in the Eagle Ford, primarily in the liquids-rich Black Hawk Field. Secondly, we're moving out of appraisal into development in the Permian Basin. We're extremely pleased to have the Haynesville available for future full field development. We are still very pleased with our Gulf of Mexico position, and we think there's still more prospectivity there.

We continue to conduct exploration activities offshore Australia. We currently produce from two FPSOs [floating production, storage and offloading vessels] in Western Australia, Sty-barrow and Pyrenees, and we do believe that there are more liquids-rich plays offshore Australia to be discovered and developed.

Investor What about your new ventures, or stealth ventures?

Cutt They're not necessarily stealth. We've shot seismic on a large acreage position offshore South Africa, and we need to understand that. We've picked up a position offshore Brazil, but it's not the subsalt play, it's an Amazon River delta play to the north of Brazil. We're going to shoot seismic and then determine the next step from there.

Investor No plan to start something in shale onshore Australia? I hear the Cooper Basin is hot.

Cutt Not yet. One of the things we're doing in the next 12 months—and we're about three or four months into this—is looking at where the best shales are. We have confidence early on that some of the very best shales are found here in North America. We do think there are good shales in Argentina, for instance, but when you look at fiscal terms, ease of development, we like our near-term focus in North America. Even just consolidating acreage in the areas we operate extends our drilling life for some time.

We do need to understand the global endowment to make sure we're on the front foot. We do want to be a first-mover. For example, we've talked about the Pearsall play. We have about 100,000 acres in that, and we're doing some very early testing now, so we don't have a lot to say.

Investor If oil were to drop to $80 or $85, how would that affect your plans?

Cutt It wouldn't. One of the reasons we like onshore US shale and the deepwater Gulf of Mexico is those opportunities are still very attractive even at $80 oil.

“Last year we produced about a million net barrels in the Permian; this year we'll produce about 4 million net barrels there.”