Billiton hit by fall in shale gas price

Via Bloomberg

An undated handout photograph shows operations at BHP Billiton Ltd.'s Griffin oil and gas project off the coast of Western Australia, provided to the media. BHP Billiton Ltd., the world's largest mining company, said first-half profit more than doubled, beating analyst expectations as demand for commodities surged in China and India. Source: BHP Billiton Ltd. via Bloomberg EDITOR'S NOTE: NO SALES. EDITORIAL USE ONLY.

Bloomberg

BHP Billiton will book one-time charges totalling $3.3 billion (R26.9bn) on the value of its US shale gas assets and nickel operations in Australia because of falling prices.

The value of its Fayetteville shale gas assets in Arkansas would be cut by $2.84bn and its nickel assets in Western Australia by $450 million, the company said on Friday.

Chief executive Marius Kloppers and petroleum division chief executive Mike Yeager would not be paid a bonus for fiscal 2012 at their request, chairman Jac Nasser said.

BHP Billiton joins BG Group and Encana in taking charges as natural gas prices have fallen to a 10-year low this year.

However, its write-down was smaller than expected, with Citigroup analysts having forecast a $3bn to $5bn cut.

“The problem in the long run will always be the price that they paid for it,” said Tim Barker, who helps manage investments at BT Financial Group. “There’s no doubt that the timing of the acquisition was perhaps not the best.”

BHP Billiton fell 2.3 percent in Sydney on Friday. On the JSE, BHP Billiton gained 0.67 percent to close at R244.72.

Kloppers’ request to forego a bonus follows a similar decision by Rio Tinto chief executive Tom Albanese and chief financial officer Guy Elliott after the London-based company in February booked an $8.9bn one-time charge to write down its aluminium unit.

“These are difficult times, particularly for those companies and their shareholders who are being affected by global uncertainty,” Nasser said. “We are fortunate to have Marius’s leadership, together with a strong management team supporting him, in these challenging times.”

The shale venture’s success is important for Kloppers as it came after he had three deals totalling more than $100bn aborted or rejected in the past four years.

Energy firms in the US have been struggling to adjust to lower prices since a glut in supplies from booming shale output deflated gas futures. Producers have cut output, shifted drilling to look for crude and cut spending. – Bloomberg