BHP Billiton writes down Fayetteville shale values

BHP Billiton announced a $2.84 billion writedown of its US shale assets, saying a short-term over supply of natural gas resulted in a before-tax impairment charge against the carrying value of the Fayetteville shale assets that BHP Billiton acquired from Chesapeake Energy Corp. in February 2011.

Marius Kloppers, BHP Billiton chief executive officer, said the Fayetteville charge reflected the company’s decision to adjust its development plans by shifting drilling from dry gas to more liquids-rich fields in the Permian basin and the Eagle Ford shale, both in Texas.

“While we have responded appropriately to the changed market conditions, today’s impairment is clearly disappointing,” he said. The Australian company plans to issue financial results on Aug. 22.

BHP Billiton concluded no writedown was needed on assets acquired through the acquisition of Petrohawk Energy Corp., Houston, in August 2011.

BHP Billiton acquired Petrohawk for $12.1 billion, giving BHP Billiton operated positions in the US Eagle Ford, Haynesville shale resource plays, and the Permian basin (OGJ Online, July 25, 2011).

 The development of these assets is expected to create substantial, long term shareholder value.

Kloppers said BHP Billiton believes its “dry gas assets are well positioned for the future given their competitive position on the industry cost curve.”

BHP Billiton Chairman Jac Nasser said the board believes investment in the US shale assets is the right decision for BHP shareholders.

 As a result of the writedown, Kloppers and BHP Billiton Petroleum Chief Executive Michael Yeager said they do not wish to be considered for a bonus for the 2012 fiscal year. Yeager in May announced that the company was considering a writedown (OGJ Online, May 15, 2012).

Other companies previously announced noncash writedowns related to US gas shale assets.

Encana Corp. reported a $1.7 billion aftertax impairment charge, and BG Group reported a $1.3 billion noncash writedown against its US shale gas business (OGJ Online, July 30, 2012).

BP PLC reported overall impairment losses of $4.8 billion relating primarily to certain refineries, shale gas assets, and the decision to suspend the Liberty project in Alaska.

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