Mining giant forced into second writedown in six months

Photo / Getty
Photo / Getty

Mining giant BHP Billiton will write down the value of its US shale assets by US$7.2 billion (NZ$11.19 billion) amid collapsing oil and gas prices and a gloomy short term outlook.

The company is also reviewing all further investment in its onshore US business, as it focuses on preserving cash to ride out the sharper-than-expected downturn.

"Oil and gas markets have been significantly weaker than the industry expected," chief executive Andrew Mackenzie said.

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"While we have made significant progress, the dramatic fall in prices has led to the disappointing writedown announced today."

BHP said on Friday it expects to book the impairment charge in its half year results, its second writedown on the US oil and gas assets in six months. The assets will now be valued 30 per cent lower in its books, at US$16 billion.

The resources giant has raced to stay ahead of falling oil and gas prices, slashing its rig count in the onshore US business to seven from 26 a year ago, paring back capital expenditure and booking a US$2.8 billion write-down in June.

But weakening global demand and a supply glut pushed oil prices to a 12-year low of US$30 a barrel this week, putting further pressure on the company to correct the book value of its ill-timed push into the US shale market.

The global miner had paid US$20.6 billion on two major acquisitions in 2011, and is estimated to have spent another US$15 billion on the business since then.

BHP said it will further reduce the number of operated rigs in the onshore US business to five in the March 2016 quarter, indicating it is stripping the shale drilling programme to a minimum until oil prices recover.

The company is also expected to further cut capex for the business, after saying it was reviewing investment and development plans for the remainder of the 2016 financial year.

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