BHP to take $2.8-bn hit on US gas and shale assets

Anglo-Australian mining giant BHP Billiton Plc said that it will write down $2.8 billion on its US onshore gas and shale assets during the 2015 fiscal year amid falling prices.

Although an asset write-down was anticipated, the amount exceeded most analysts' expectations.

BHP's Hawkville gas field in Texas accounts for the major part of the charge, while the remainder relates to the impairment related to the company's 2011 acquisition of Houston-based Petrohawk Energy Corp.

''BHP Billiton expects to recognise an impairment charge of approximately $2 billion post-tax (or approximately $2.8 billion pre-tax) against the carrying value of its onshore US assets as an exceptional item in the 2015 financial year results,'' the company said in a statement.

BHP Billiton Petroleum president, Tim Cutt, said, ''While the impairment of the Hawkville is disappointing, it does not reflect the quality of our broader onshore US business.''

Following this impairment, the Group's onshore US business will have net operating assets of approximately $24 billion.

''With industry-leading drilling costs and recoveries, we are well positioned to realise significant value for shareholders as we develop our high-quality resource base,'' Cutt stated.

The company plans to invest $1.5 billion in its onshore US assets in fiscal 2016 which include a 10-rig drilling programme.

Counting on an oil price of $60 a barrel of West Texas Intermediate (WTI), the company expects its onshore US business to be cash flow positive in the 2016 financial year.

According to analysts, the low costs are squeezing margins, which is hurting the company and that could be the reason why they are taking quite a large impairment charge to offset the balance sheet.

Crude oil prices have dived almost 60 per cent from around $108 a barrel for WTI crude in June 2014 to $46 in March, on the back of supply glut from the US and OPEC nations and a slowdown in China, the world's second-largest economy. Yesterday, prices dropped to below $52 a barrel.

The company invested heavily in the US assets in 2011, anticipating an oil and gas boom.

On falling prices, BHP cut its capital expenditure on US onshore shale from $4 billion to $3.4 billion in fiscal 2015 further slashing it to $2.2 billion in the following year.

According to analysts, the miner would be under pressure as the prices are likely to remain below $70 a barrel in the foreseeable future.

Chinese demand is not expected to pick up soon and Saudi Arabia and Iraq are pumping record levels of oil into the market. Moreover, Iran oil is also likely to flow following the country's nuclear deal with western powers.