BHP Billiton Petroleum is the Houston-based, global oil and gas arm of the world’s largest mining company, BHP Billiton, headquartered in Australia. And it is among the largest independents in terms of both total oil and gas production and resource base. The company entered the onshore U.S. shale business in 2011 in a big way, spending $20 billion to buy assets in Texas, Louisiana and Arkansas, including the acquisition of Petrohawk Energy Corp. for $15 billion in cash.

BHP Billiton Petroleum’s U.S. onshore workforce has since doubled—and the company now operates 45 land drilling rigs in the U.S., in addition to its deepwater drilling operations in the Gulf of Mexico. It’s in a dozen countries, including India and the Philippines. It just picked up four blocks in Trinidad and Tobago, subject to final government approval, and it is looking in the South China Sea and elsewhere.

The company produces about 650,000 barrels a day, with the U.S. onshore contribution about 250,000 of that, or $4 billion out of $6.5 billion in capex.

With huge growth ahead from its four U.S. onshore assets—the Haynesville, Fayetteville, Eagle Ford and Permian Basin—the company is hiring. Chief executive J. Michael (Mike) Yeager joined the company in 2006 and is also a group executive for the parent company. He recently announced a plan to hire 500 employees in fiscal 2013 (ending June 30), and to build a new 30-story office tower in Houston’s Galleria area to house the company’s global oil and gas headquarters.

Oil and Gas Investor caught up with him during the recent Australian-American Chamber of Commerce event held in Houston in January.

Investor With so many global opportunities, why are you so heavily invested in U.S. shale plays?

Yeager This is the single biggest thing that’s happened in my 35 years in this business, and it is possibly the biggest thing we’re ever going to see. Look at the size of the opportunity—it’s giant, in a time where more and more people are going to need energy, and where it’s tougher to find it around the world. And it’s happening right here in this nation.

Because of the long-life nature of the business, it’s got all the ability to handle the ups and downs of pricing over time. It’s in a nation with the rule of law. And it’s going to compete economically with anything in the world. The enormity of it is exactly what a corporation like ours needs to be in. We want to hand our common stock to people that know BHP has a series of giant things, whether that be iron ore or oil and gas.

These fields are so large that our grandchildren are going to be drilling wells in these fields. We’d be irresponsible not to be here.

Investor What are you emphasizing onshore and why?

Yeager We’re in only four fields, but we’re in four of the largest: on the natural gas side, the Fayetteville and Haynesville; on the liquids side, the Eagle Ford and the Permian. That gives us options, and right now, with things as they are, our emphasis is on the liquids.

Investor Of these four, which play do you see as the best for BHP Billiton?

Yeager The Eagle Ford may turn out to be the best and most economic shale in the world, and we are the biggest operator in the Eagle Ford. That’s not a bad place to be. That’s our emphasis now.

These wells yield a 100% rate of return. They are 50% liquids, 50% gas. It’s on the Gulf Coast where you can get it into the refining system quickly, so you don’t have price-differential problems. It’s the kind of thing where a big company with its technology and its money and its process-oriented workforce can really attack it. That’s what we’re doing.

Investor What’s your assessment of your Permian Basin positions?

Yeager The Permian is still being appraised. We’ve got eight rigs testing different areas, seeing if we can have a repeatable, economic and highly reliable business there. We’re in three different segments: the South Midland area, and the north and south of the Delaware Basin. We’ve got rigs working in all three. It will probably be this next summer before we have anything to say about that. We just need a little more time.

It’s turning out that the Wolfcamp, unlike the Eagle Ford, is very complicated, so we’ve got to study it. We’ve got to make sure we’re in the best part of it, and we’ve got to understand the mineralogy, the way the Wolfcamp changes through the upper, lower and mid sections. And the Permian Basin is so large. Unlike other places, we can drill wells here and they’re hundreds of miles apart. That’s the exciting thing over 50 years, but it’s the slow part of getting your feet under them.

The Wolfcamp is prevalent in both the Midland and Delaware basins. You’ll see us work that pretty hard. In the Delaware Basin you’ve got the Bone Spring and the Avalon and other targets we haven’t even looked at yet. We’ll see how each one of those plays out. It’s going to take us some time to get it sorted out, and eight rigs will give us a good chance over the next several years to at least understand what’s there and to prioritize our work.

Investor What is your overall shale business model? Do you have a unique approach?

Yeager Our model is to attack each and every component of this in a rigorous way and be elite at each piece of it. We don’t turn this over to teams of generalists. We have an expert approach, whether it be drilling the vertical section of the well, or the curve, or the lateral. You’ll see us have distinct focus on those three. You’ll see us focus on the clusters of perforations, on the frac half length.

Our approach is to be rigorously, technologically hard on every bit of that, then repeat it over a 45-rig program simultaneously. We own an advantage on the ability to have a highly disciplined approach to repeatability. We are very good at attacking each piece (of the drilling process) and making it pay off.

Investor Given low natural gas prices, what are your near-term and long-term plans for your Fayetteville and Haynesville shale-gas assets?

Yeager Near term, we’re going to make sure that we hold on to the acreage that we have and keep the opportunity. Even today, with the rigs we have working in those two plays, we can run a moderate program and still make a 20% rate of return on every well we drill. Particularly in the Haynesville, we’re in the crest of the crest. The bottomhole pressure is 9,000 pounds per square inch. These wells that we drill just have giant resources. We don’t need many of them right now, but we’re keeping our advantage solid.

And although our corporation as a strategy does not hedge going forward, if the forward curve plays out, we’ll make billions of dollars. We have the luxury of liquids prices now, but with this giant position, we’re going to like it a lot over the long term. That’s why we took it.

Investor What do you see as the upside, and when might that play out?

Yeager For shale in general, the upside is in doubling or tripling what we see today. Right now our development plans get about 25% of the gas out of the ground, and single digits on the liquids. The upside is taking that 8% to 10% liquids recovery and turning it to 20% or 30%. This industry has done that every time it’s had that challenge over time. Now we’ve got 30 years to do it.

Investor Can you give me an idea of your capital spend on U.S. shale plays?

Yeager We’re going to spend about $4 billion this year. Our plans going forward would not alter much from that. That’s 85% liquids-based economics, and 15% in the gas. We’ll spend $40- to $60 billion over the next 10 years to develop this.

This will probably be the world we’ll stay in until such time as we declare something commercial in the Permian, then you will see drilling there ramp up. Or if gas prices improve sufficiently, you would see that aspect ramp up. We don’t see it coming down.

The thing you have to keep in mind about shale capex is that you get 40% of that money back in year one. Imagine that compared with offshore, where you don’t get anything back for seven years. It is a very different business model.

Investor Might BHP expand further into other U.S. shale basins?

Yeager When we can drill for 20 years on what we’ve got, and we’ve just had it only 18 months, we’re working hard to understand what we have. Second, we’ve still got to hire hundreds of people to get this sorted out. Our efforts, for the near term at least, are such that we couldn’t handle more if we wanted to. Having said that, while our priorities are not to expand too much right now, over time we hope to have the chance to do that.

Investor How do the economics of U.S. unconventional compare with global opportunities?

Yeager Right now the Eagle Ford is superior in economic viability to anything we have in our portfolio today, and that includes the deepwater Gulf of Mexico. It has a growth rate su- perior to anything we have today. And it has the reserve adds, and all the attributes you want to have, that allow you to get bigger and stronger for decades to come. In that sense it’s the best thing we have and it will do nothing but get better. It’s also one of the best if not the finest investments in the corporation.

Right now we’re going very slow on the gas because of the circumstances, and we don’t know about the Permian. We’re working hard to know.

Investor Might you apply your U.S. shale knowledge onshore Australia?

Yeager We’ve looked at things all over Europe, we have done work in Australia, and we are very confident that over a longer period of time, we want to be part of that. Having said that, it is becoming more obvious that the unique characteristics of the U.S. are ultra-unique. This royalty owner piece that we have here in this nation separates it from anything else in the world, where the people who own the land want you to be there because they are your partners.

Secondly, in the U.S., we have this large market, so we can sell it. In Australia, if we go and find a bunch of gas, we can’t sell it. Third, we have a pipeline system and service companies here. Elsewhere, you don’t have that.

So in the very near term, the game is going to be here in North America.

Investor How important are LNG exports to U.S. natural gas markets? Can demand meet the supply without export?

Yeager In the U.S. today, you’re seeing a return to having to make money on this. When the U.S. shale was being developed by smaller companies, the market rewarded them for growth rate and capturing these leases, and quite honestly, it did not reward them for profitability. The rig count decline is real at a fundamental level. In the Haynesville, the largest gas field in the U.S., that didn’t even exist seven years ago, the rig count has declined from 200 to 20. It’s economics.

The bigger part of the sustainability of the U.S. gas price is going to be economics and then absorption into this giant U.S. market, particularly if we get manufacturing up. We’re bullish on what’s going to happen right here at home over the longer term.

Exports are not an unimportant part—we think free trade is a key part of what makes the U.S. what it is, and we support that, but we don’t see it being a fundamental game-changer on pricing. It’s a matter of having the ability to arbitrage gas and run a global portfolio. Ninety percent of our outlook is about the U.S using this gas for its own needs. It will be helpful and part of a global balance.

Investor With recent challenges in the Gulf of Mexico—not just Macondo, but the financial crisis and a series of hurricanes before—what do you see as the opportunity for BHP in the deepwater?

Yeager There are four super-giant oil fields in the Gulf of Mexico, and we’re part of three of them: Shenzi, Atlantis and Mad Dog. (We’re not in Thunder Horse.)

These three fields will have development drilling for years to come. These wells make 20,000 barrels a day. For the next five to 10 years our position is to continue to develop these just like we are.

We’re still recovering post-Macondo from a regulatory slap on the wrist that is really significant; we’re all regaining our sea legs. But next to the U.S. onshore, it will be the most logical place to put our money. Our costs out there are about $6 of cash costs, depreciation of $15 to $20, then you get the $110 price. That margin comes to us.

It’s a very lucrative place to be. We will continue to explore and try to expand our footprint as best we can.

Investor Going forward, what are you targeting in the Gulf of Mexico?

Yeager We have all the seismic that is outboard of us, and that’s all being looked at. We’re ordering a brand new drillship that will show up in the next 12 months that will allow us to get into the 12,000-foot water depth. It will be able to pick up pipe at 2.5 million tons of hookload, which we can’t do today. We’re preparing ourselves for that next tranche physically and with the geosciences. Let’s just hope this proliferation of hydrocarbons that so far has continued to move deeper is out there. That’s where we’ll be.

Investor What are your plans for 2013 in the Gulf?

Yeager We just finished up one wildcat and, unfortunately, it was dry. We’ll probably drill two more this year. These are field makers if they occur. These are not small and not step-outs. They are deeper and outboard of where we are today.

Investor How does the deepwater Gulf of Mexico compete with your other offshore global opportunities?

Yeager The fiscal terms in the U.S. are better than anywhere else in the world. We continue to explore offshore Western Australia, where we have infrastructure and LNG capability. We have things that we want to make sure continue to be full. That will continue to be a focal point for us.

After that, we have been looking strategically at a trend in the South China Sea that extends from Brunei to Malaysia and into the Philip-pines. We own a pretty good set of acreage there. We’re running seismic across it now and will be looking at it over the next several years.

Investor What’s your vision of the next five years for BHP?

Yeager If we could lock in the forward curve like it is today, with the current things we have today, without any exploration success, we would move from 650,000 barrels a day today to over 1 million barrels a day globally. We have a super-exciting set of assets. That will put us in very rare territory.