BHP writes off $7 billion in US shale oil

From fastFT, with news just in that BHP Billiton is making a $7.2billion writedown on its US shale assets:

An impairment charge by the Anglo-Australian miner, a big player in US onshore oil and gas, had been expected but the amount makes it the largest announced by BHP during the mining downturn. The writedown equates to $4.9bn after tax, writes James Wilson in London.

In a statement Andrew Mackenzie, chief executive, said oil and gas markets had been significantly weaker than the industry expected.

“We responded quickly by dramatically cutting our operating and capital costs, and reducing the number of operated rigs in the Onshore US business from 26 a year ago to five by the end of the current quarter.

While we have made significant progress, the dramatic fall in prices has led to the disappointing write down announced today. However, we remain confident in the long-term outlook and the quality of our acreage. We are well positioned to respond to a recovery.”

Saudis finally get a small taste of blood in their losing war with the US shale oil operators. The writedown pales into insignificance how much the barbaric Kingdom has lost in oil revenue – and foreign exchange reserves, not to mention their bloated welfare budget – by maintaining production levels.

As for the share price, the news is probably already baked in:

bhp_ax_price_daily.07aug14_to_13feb16

Last night it lifted 6% on the London markets, BHP has lifted over 4% on the open today – but is this the bottom? Writedowns will have to be made elsewhere as the once nicely diversified company has been up-risked unnecessarily into focusing on four pillars that look shakier than a politicians promise.

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Comments

  1. Niccolo Machiavelli

    “by maintaining production levels.”

    If they cut production would they have miraculously have halted the US production, along with all the rest of the world.

    Saudi’s are not the ones who flooded the market with NEW supply.

    • Agreed, if the Saudis forced the price higher they would just loose market share to non OPEC producers. Why should they? Though it would have draged things out & probably would have been easier for them. Maybe this will force some changes in the kingdom. OPEC doesn’t have the muscle it used to, as far as I’m concerned saying they are doing it for other reasons is BS. Though no doubt it has surprised them just how long high cost producers are surviving, they may well have decided otherwise in hindsight

  2. I always questioned the policy of narrow focusing. It works treats in growing economy as margins are great but in slowing economy diversification is the one that will prevent margins from falling off the cliff and saves the day.

      • Today's Empire Tomorrow's Ashes

        Good insight. It’s not about timing the bottom, it’s buying low at value. A collection of quality heavy weights bought somewhere near the bottom during GFC would show spectacular returns.

  3. And will Marius Kloppers and Chuck Yeager repay their bonuses – of course not – but don’t blame capitalisim for this – why – because companies are inherently socialist as the executives never wear the losses – only the shareholders – true capitalism is risking your own capital not someone else’s – if a company can have limited liability then executives should have limited pay packets – it balances out the downside with the upside.

  4. Oil is at lows of more than 20 years (ICE Brent on incredible charts).
    US rig count is down from over 2000 to 664 (http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother )
    Russia Market Vectors US ETF is almost at its 20 year lows (incredible charts).
    Santos is pretty much at 20 year lows (Incredible Charts)
    Origin Energy is at 12 year lows (Incredible Charts).
    Coppocks 14/11/3 months are still falling but at multi year lows below zero. While it is intended more as a broad market turning point indicator for medium term investment I think it is worth watching closely for an upturn on each of these and Brazil.

  5. The (BHP) masters of the universe – HBI Port Hedland, Ravensthorpe nickel, Townsville nickel plant and the granddaddy of them all – Billiton. The directors and managers should pay the shareholders, not vice versa.

    • Well I would assume Jansen ain’t happening anytime soon – not if they want to keep paying out that stupid dividend

  6. If the Saudis cut oil production you would expect the price of oil to go up, the Saudis could get same amount of money for pumping less oil ?
    I know its a simplistic scenario but something along these lines.