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BHP Expects $2B Impairment Charge After U.S. Assets Review

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BHP Billiton Ltd.’s $20 billion foray into U.S. shale gas continues to sour as the world’s biggest mining company revealed it plans a further impairment charge.

It will take a $2.8 billion writedown, most of it on the Hawkville field in Texas, Melbourne-based BHP said Wednesday. That brings BHP’s pretax charges on its U.S. shale unit to about $5.9 billion since 2012, according to company filings.

The U.S. shale downturn has hurt investments made by companies including Royal Dutch Shell Plc, Statoil ASA and Total SA, which have impaired more than $15 billion in assets over the past three years.

BHP, the biggest overseas investor in U.S. oil and gas pumped out of shale rock, has said it will focus on its so-called four business pillars -- the highest earning petroleum, iron ore, copper and coal units. The writedown at BHP’s petroleum unit comes as prices for its other three key commodities trade near six-year lows amid a global supply glut.

“This is not only disappointing, it poses the question of whether or not those four pillars are the right ones,” Evan Lucas, a markets strategist in Melbourne at IG Ltd., said by phone. “All four of them are under huge price pressure.”

BHP advanced 1.1 percent to 1,249.5 pence ($19.53) at 11:39 a.m. in London trading.

‘Disappointing’ Impairment

“While the impairment of the Hawkville is disappointing, it does not reflect the quality of our broader onshore U.S. business,” BHP Petroleum President Tim Cutt said Wednesday in a statement. The expected writedown equates to about $2 billion after tax, BHP said.

The company revealed in January it planned to cut the number of rigs in the U.S. by about 40 percent to reduce costs.

The producer expects its U.S. onshore division to be cash-flow positive in the year through June 2016 with an oil price of $60 a barrel and a benchmark U.S. gas price of $3 per thousand standard cubic feet, according to the statement.

BHP spent $20 billion in 2011 on shale assets in the U.S., getting its foothold in U.S. plays in Arkansas, Louisiana and Texas. Some of today’s charge is a write-off on goodwill from the $12.1 billion takeover of Petrohawk Energy Corp. that year, according to the company. It didn’t give a breakdown.

U.S. natural gas has dropped almost a third since the start of 2014 after four years of record supply as hydraulic fracturing opened up shale reserves from Texas to North Dakota.

Futures Rise

Futures for August delivery on the New York Mercantile Exchange rose 0.5 percent to $2.854 per million British thermal units as of 10:40 a.m. London time on Wednesday.

BHP will cut spending on its U.S. onshore unit to $1.5 billion in the year through June 2016, supporting a development program of 10 operated rigs, it said today. The producer spent $3.4 billion on drilling and development in the previous year.

It booked a charge of $2.8 billion against the Fayetteville shale gas operation in the 2012 fiscal year and a $266 million writedown on its Permian basin assets in the following year. The company halted plans to sell Fayetteville in Arkansas as it couldn’t get an acceptable price, Chief Executive Officer Andrew Mackenzie said in February.

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