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    BHP Is Still Caught Between a Rock and an Oil Well

    BHP is emerging as a copper powerhouse, but that strength conceals some troubling signs in oil and coal

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    Everyone knows that breaking up is hard to do. That is especially true when the assets you are bidding farewell to suddenly start looking more attractive.

    Australian giant BHP, the world’s largest mining company, delivered solid results Tuesday for its first half, showing earnings up 25% excluding a big one-off charge mostly related to the U.S. tax overhaul. (The company’s fiscal year ends in June.) Net debt fell by nearly a quarter, and the company declared an interim dividend of 55 cents a share, up by nearly half from last year. Results from BHP’s copper division were particularly strong: Operating profit more than doubled, and volumes were up 17%.

    Australian giant BHP delivered solid results Tuesday for its first half.
    Australian giant BHP delivered solid results Tuesday for its first half. Photo: David Gray/Reuters

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    Underneath all that good news, however, BHP is still struggling with the fallout from earlier strategic missteps. Its big footprint in oil, unusual for a mining company, should be an advantage now that prices are rebounding: Brent crude is trading at $65 a barrel, almost $20 a barrel higher than the average in the second half of 2016. But BHP’s underlying petroleum earnings before interest, taxes, depreciation and amortization were nearly flat. Onshore U.S. output fell 13%, as the company responded to pressure from activist investors to dial back its commitment to its low-return shale-oil business and Hurricane Harvey disrupted production.

    New conventional oil projects under development in the Gulf of Mexico and elsewhere will eventually help boost output again. Meanwhile, BHP can’t fully take advantage of rising oil prices by raising production, although it could get a better price for the shale blocks it has put up for sale, which management estimates break even around $40 a barrel. The company also cut production guidance for its profitable coking-coal division.

    All of this means that the fate of BHP’s copper division—where profits, output and capital expenditures are all rising rapidly—will be increasingly important to the company’s outlook.  For now, buoyant copper prices and excitement over the electric-vehicle revolution are tailwinds.

    If either of those trends stumbles, BHP’s quest to reinvent itself will get a lot trickier.

    Write to Nathaniel Taplin at nathaniel.taplin@wsj.com