BHP Billiton Takes Massive Write-Down on Shale Gas

on Aug 3, 2012
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BHP Billiton (BLT:LSE) has become the latest company to report it will write down the value of its U.S. shale gas assets. On Friday (August 3) the Australia-based mining company reported that plunging U.S. gas prices on the back of an abundance of shale gas supply is the reason for the $2.84 billion (£1.8 billion) impairment before tax against the carrying value of its Fayetteville shale gas assets. The multi-billion write-down prompted the company’s Chief Executive, Marius Kloppers, to decline his bonus for the last fiscal year. After the massive impairment charge on the assets, the head of BHP’s petroleum division, Mike Yeager, will also not be paid an annual bonus at his request.

BHP blamed a glut of gas supply in the United States for the $2.84 billion impairment charge against the value of its Fayetteville shale gas holdings in Arkansas, which the Australia-based company acquired for $4.75 billion (£3.04 billion) 18 months ago. BHP also announced that it will take a $450 million (£288.8 million) write-down of its nickel sites in Western Australia due to margin deterioration. The mining company, however, did not write down its other shale assets acquired through its $12 billion (£7.7 billion) purchase of Petrohawk — a deal which also came with $3 billion (£1.9 billion) of debt.

!m[](/uploads/story/236/thumbs/pic1_inline.png)Analysts had been expecting a write-down of at least $3 billion for BHP’s natural gas assets. The written down value of shale gas assets follows similar moves recently made by other energy and mining companies. Earlier this week, the British oil and gas company, BP (BP:LSE), took a $2.1 billion (£1.3 billion) impairment charge also relating mainly to the value of its U.S. shale gas assets.

“While we have responded appropriately to the changed market conditions today’s impairment is clearly disappointing,” CEO Kloppers stated, adding that he believes the assets will still prove their worth in the longer term.
After taking responsibility for the multi-million write-down, Mr Kloppers, the best-paid CEO among London-traded mining companies, and Mr Yeager announced that they will forgo their annual bonuses, potentially worth millions. Following the news for the charge, both executives advised the company’s remuneration committee that they did not wish to be considered for any bonus payment in 2012. “I didn’t feel that taking this write-down was something that deserved a bonus. And Mike [Yeager] came to the same conclusion, which was a good thing,” said Mr Kloppers.

The executives’ decision to not take a bonus follows a similar gesture by Tom Albanese, the chief executive of rival resources company Rio Tinto (RIO:LSE) and its Chief Financial Officer, Guy Elliott. Earlier this year, Mr Albanese and Mr Elliot decided to give up their payments after the company booked an $8.9 billion (£5.7 billion) one-time charge on the value of its aluminium unit.

BHP Billiton is due to release its full-year earnings report on August 22 and profit for the financial year is expected to have fallen to almost $16.88 billion (£10.83 billion) before one-off expenses from a record $21.68 billion (£13.91 billion) on a similar basis last year, according to analysts.
“These are difficult times, particularly for those companies and their shareholders who are being affected by global uncertainty,” BHP Chairman Jac Nasser said in a statement. “Notwithstanding the prevailing environment, we are confident in the outlook for the U.S. natural gas market and the role our shale assets will play in BHP Billiton’s portfolio in continuing to deliver long term shareholder returns,” he added.

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