BHP Billiton counts cost of shale oil

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BHP said the charge would reduce the net value of its onshore USA assets to about $16bn.

The third round of writedowns on the miner’s USA onshore gas assets was widely expected given the 30 per cent fall in oil prices over the last three months, but the numbers are a reminder of how far this business has drifted from initial expectations.

Chief executive Andrew Mackenzie said the company had been forced to reduce its medium and long-term price assumptions.

Oil and gas prices have plummeted in recent times as production from U.S. shale producers and countries included in the Organization of the Petroleum Exporting Countries (OPEC) sent world markets into oversupply, as they sought to force one another out of the market.

BHP Billiton shares were down 5.8% in London on Friday morning.

Since July, BHP has written off nearly $10 billion for its US onshore portfolio. The number of operated rigs in in the USA onshore business is being cut to five from seven by the end of March.

BHP Billiton shed 6 percent, the top faller on the pan-European FTSEurofirst 300, after saying it would write down the value of its U.S. shale assets by $7.2 billion.

According to the company’s website, BHP has operations in the Eagle Ford and Permian basin in Texas, the Fayetteville shale in Arkansas and the Haynesville shale in Louisiana.

“Beyond this, investment and development plans for the remainder of the 2016 financial year are under review, with a focus on preserving cash flow”, the company said.

The group said the oil and gas industry had experienced significant volatility and much weaker prices.

Despite BHP’s efforts to run rigs only on the acreage that produces liquids, the company will still be beholden to weak USA gas prices because the fields that produce liquids also produce gas.

The charge will be taken as an exceptional item in the next half year figures and reflects a reduction in its medium-term oil and gas price assumptions following the slide in crude prices to around US$30 per barrel, a twelve year low.

Randgold was the best-performing stock on the FTSE 100 as it benefited from a rise in the price of gold itself, which typically gains in value when there are fears about the global economy, due to gold’s status as a safe-haven asset. BHP has reduced the cost to drill a well by more than 50 per cent to around just over US$6 million a well compared to what it cost three years ago. Companies like BHP are suffering big time.

Earlier this week, RBS and Morgan Stanley warned crude prices could fall within the $10-$16 a barrel range, while other analysts expect the decline to continue, with prices driven lower by oversupply, weakening demand and geopolitical developments.

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