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BHP takes $7.2bn hit on US shale assets

Jan 15 2016 15:26

Sydney - Plunging global energy prices forced BHP Billiton [JSE:BIL] to Friday book a $7.2bn pre-tax write down against the value of its struggling onshore US assets, as the mining giant works to rein in costs and reduce risk.

The decision came as miners globally struggle to cope with collapsing commodity prices and China's once insatiable appetite - boosted by an unprecedented investment boom in the world's second-largest economy - waning.

Sharp falls in oil prices have ravaged the bottom line of miners across the world, pushing smaller players to the brink while tearing billions in revenue out of the budgets of resources-dependent economies such as Australia.

BHP spent $20bn in 2011 on shale oil and gas assets in the United States, but the move increasingly appears to have backfired with a dramatic fall in prices over the past 18 months hammering profits.

The hefty write down, which will be booked in its next half-yearly accounts due in February, equates to$4.9bn after tax and follows BHP, a major player in the US oil and gas industry, taking a $2.8bn pre-tax hit on the same assets last year.

Chief executive Andrew Mackenzie blamed "significant volatility and much weaker" prices, adding that the company had been forced to reduce its medium- and long-term price assumptions.

"Oil and gas markets have been significantly weaker than the industry expected," he said in a statement to the market.

"We responded quickly by dramatically cutting our operating and capital costs, and reducing the number of operated rigs in the onshore US business from 26 a year ago to five by the end of the current quarter.

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

The write downs will reduce the book value of BHP's US net operating assets to about $16bn.

Well-positioned

The firm's shares were nevertheless 2.08% higher at Aus$15.19 in afternoon trade, having risen around six percent in London.

CMC Markets chief analyst Ric Spooner said the market had already priced in the move.

"While many may regret the timing and pricing of this investment, its reduced value has already been reflected in BHP's lower share price," he said.

"News that BHP will further reduce its rig count is evidence that management remains focused on cost and risk reduction in response to lower prices."

bhp billiton  |  world economy
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