Top global miner BHP Billiton said on Friday it would book a $7.2 billion writedown on the value of its U.S. shale assets, reflecting a slump in oil and gas prices and a bleak near-term outlook.
The hefty impairment is the third spawned by BHP's badly timed push into U.S. shale in 2011, when it spent $20.6 billion, including assumed debt, on two acquisitions at a time when oil and gas prices were much higher than they are now.
"Oil and gas markets have been significantly weaker than the industry expected," BHP Chief Executive Andrew Mackenzie said in a statement.
In the wake of the collapse in oil prices over the past year, BHP has sharply cut its operating costs and capital spending at its U.S. onshore operations, reducing the number of rigs from 26 to five.
"While we have made significant progress, the dramatic fall in prices has led to the disappointing writedown announced today," Mackenzie said.
BHP said it has cut its oil price assumptions for the short to medium term and lowered its medium and long-term gas price assumptions, leading to the impairments on its U.S. onshore assets.
The writedowns will take the carrying value of the business down to about $12 billion, excluding deferred tax liabilities of about $4 billion.
A fund manager said the writedown was no surprise, adding that the market was valuing BHP's shale assets in a range well below $12 billion.
"Given that gap in value, there is an expectation there will be further ongoing writedowns of the value of these assets," said Ben Lyons, a portfolio manager at ATI Asset Management.
BHP previously booked impairments on its U.S. onshore assets of $2.8 billion in 2012 and a further $2.8 billion in 2015, due to sliding gas prices and the lower-than-expected quality of one of the fields it acquired.
"For some time, the market has been of the view that previous management significantly overpaid for these assets," Lyons said.
BHP's shares, which sank to a 10-1/2 year low this week, jumped 5 percent on Friday, in line with other miners in what is seen as an oversold market.