UPDATE 2.25pm Investors are questioning the wisdom of BHP Billiton’s bet on unconventional gas after it wrote down the value of its American shale gas assets by $US2.84 billion ($A2.73 billion).
A rush into natural gas as a cleaner energy source by global companies has created a glut of supply in the United States, causing prices to plunge.
The world’s biggest resources company defended its $US20 billion ($A19.21 billion) shale acquisitions and said they will eventually generate strong returns.
However they led to chief executive Marius Kloppers electing to forego a salary bonus that was worth $US4.7 million last year, as will petroleum head Mike Yeager who collected a $US2.7 million bonus.
The head of one of Australia’s biggest listed investment companies, Djerriwarrh’s Ross Barker, compared the losses to Rio Tinto’s $US8.9 billion write-down off the value of its Alcan aluminium division in February.
“It was a bit of a surprise for the market that they suddenly went into shale gas because they had not really flagged it before that,” he told AAP.
“You wonder about the processes that go on behind the scenes that lead them to make these sorts of decisions.”
Djerriwarrh’s largest investment is a $75 million stake in BHP Billiton and last month Mr Barker called on BHP to divert more cash to shareholders rather than new projects.
The company’s shares outperformed other mining companies on Friday, but were still 77 cents, or 2.4 per cent, weaker at 31.26 near the close.
This week there have been reports that BHP will delay its $30 billion Olympic Dam mine and $19 billion Port Hedland harbour expansions for at least two years, although the company denies it has made a decision.
Friday’s write-downs were at the lower end of a range that had some analysts forecasting $6 billion impairment charges.
They only apply to the $US5 billion Fayetteville shale gas assets in Arkansas and not the more liquids-rich gas assets in Texas and Louisiana acquired through Petrohawk Energy for $US15 billion in August 2011.
The Petrohawk fields are able to generate revenue through separate products.
The company also wrote down its Australian nickel assets by $US450 million, meaning a $US3.3 billion hit to its net profit when it reports this month.
Mr Kloppers has been the subject of reports in recent days suggesting investors had lost confidence in him, but chairman Jac Nasser gave him his support.
“We are fortunate to have Marius’s leadership, together with a strong management team supporting him, in these challenging times,“ he said in a statement to the ASX.
“Notwithstanding the prevailing environment we are confident in the outlook for the United States natural gas market and the role our shale assets will play in BHP Billiton’s portfolio in continuing to deliver long-term shareholder returns.”
Mr Kloppers said BHP had not changed its view that natural gas would be a significant, low-carbon fuel source as the world made its future energy choices.
Analysts pointed out that other global giants such as BG Group were also taking hits on shale assets.
Patersons oil and gas analyst Alexis Clark said he thought US gas prices had hit the bottom of the cycle and at about $US3.20 per thousand cubic feet currently, there was reason for BHP to be optimistic.
He also pointed out that the write-downs were accounting, non-cash impairments.
“Sure they’ve dipped and had to take the write-off, but I think long term the assets will realise good value for the company,” he told AAP.