Shares of BHP Billiton Limited (ASX: BHP) have come under more selling pressure today after the miner flagged a multi-billion dollar impairment charge against its onshore US petroleum business.
In a market sensitive announcement this morning, BHP Billiton said it expects to write down its US onshore assets by approximately US$2.8 billion ($3.74 billion) before tax, or US$2 billion post-tax. The write-down will be included as an exceptional item in its 2015 financial year results, significantly impacting the earnings that will be reported to the market in late August.
BHP's Hawkville field, which is predominantly gas focused, will wear the brunt of the write-down which reflects its "geological complexity", together with its product mix, acreage relinquishments and amended development plans. The remainder of the impairment will be recognised against the group's goodwill which is associated with its Petrohawk acquisition.
Commenting on the announcement, BHP Billiton's Petroleum President Tim Cutt said: "While the impairment of the Hawkville is disappointing, it does not reflect the quality of our broader Onshore US business."
He added that: "The Black Hawk continues to exceed expectations, the Permian offers significant upside across multiple zones and the Haynesville, one of the industry's premier dry gas positions, provides an excellent development option as market conditions improve."
The value of BHP's Onshore US petroleum assets will be around US$24 billion following the impairment, while the miner still intends to invest around US$1.5 billion in onshore oil and gas during the 2016 financial year. It believes the division will be cash flow positive assuming that West Texas Intermediate (WTI) crude oil climbs to around US$60 a barrel (it's currently at US$53) and that the gas price hovers around US$3 per thousand standard cubic feet (Mscf) (Henry Hub).
A serial offender
Today's impairment is the latest in a string from BHP Billiton in relation to its oil and gas assets which will certainly raise criticism from the company's doubters.
Unfortunately, there is every chance that WTI crude oil could fall even further than its current level in the near future which could put the miner under even more intense pressure – especially considering the headwinds also facing BHP's other core commodities, being iron ore, coal and copper.
BHP Billiton acted as the biggest drag on the market today as a result with the miner slipping 1.5% to $26.69 per share.
