BHP wipes off half of Chesapeake investment

BHP Billiton has confirmed what many have prophesied – that the Anglo Australian major will have to write down its shale assets in the US to the tune of $US2.84 billion ($A2.7 billion), more than half the $5 billion paid for them.
BHP wipes off half of Chesapeake investment BHP wipes off half of Chesapeake investment BHP wipes off half of Chesapeake investment BHP wipes off half of Chesapeake investment BHP wipes off half of Chesapeake investment

Putting on a brave face for the market, it said the impairment would only affect its Fayetteville shale assets acquired from Chesapeake Energy is February last year for $5 billion but not the more liquids-rich assets it picked up from Petrohawk in August.

The latest dry gas write-down continues the trends of majors during the current reporting season, with the BG Group the latest to be slayed by low natural gas prices in the US.

Its profits slumped on the back of a $1.3 billion post-tax write-down of its shale assets.

A similar tale of woe was weaved by Encana, which posted a whopping $1.5 billion net quarterly loss after it booked a $1.7 billion non-cash impairment.

Overnight, Apache Corporation recorded a $480 million write-down on its dry shale assets as its earnings year on year plummeted by 72% to $337 million.

"The Fayetteville charge reflects the fall in United States domestic gas prices and the company's decision to adjust its development plans by shifting drilling dry gas to the more liquids rich fields," BHP chief executive officer Marius Kloppers said.

"While we have responded appropriately to the changed market conditions, today's impairment is clearly disappointing."

Dry gas prices are currently hovering around $32.1790 per million British thermal units on the New York Mercantile Exchange futures market but dipped below $2/MMBtu earlier this year.

However, BHP will hold onto its Fayetteville assets believing there is a future in dry gas.

"We believe that our dry gas assets are well positioned for the future given their competitive position on the industry cost curve," Kloppers said.

The push into US shale is thought to be the brainchild of BHP petroleum boss Michael Yeager, who has faced constant pressure over the investment decision as prices have collapsed.

Chairman Jac Nasser said he had the full support of the board.

"The board supports the actions of Marius and petroleum CEO Mike Yeager to optimise shareholder value by shifting our current drilling plans from the dry gas fields in the Fayetteville and Haynesville to the liquids-rich fields in the Permian and Eagle Ford," Nasser told investors this morning.

Both Kloppers and Yeager have elected to forego a bonus for the 2012 financial year.

While BHP will hold off on drilling its dry gas assets while it focuses on the more immediate-return liquids plays, Securities and Exchange Commission rules - which came into effect this year - require petroleum companies to develop their resources within a five-year window if they wish to book reserves.

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