BHP Billiton takes $2.84 billion hit on shale gas asset

Record low gas prices in North America will result in BHP Billiton (NYSE:BHP) taking an impairment of US$2.84 billion (before tax) against the carrying value of the Fayetteville shale gas assets acquired from Chesapeake Energy in February 2011.

The company also said it will ". . . recognise a US$450 million (before tax) charge against the carrying value of its Nickel West assets as a result of margin deterioration."

However the company said it will not take a charge against its much larger acquisition Petrohawk Energy Corporation, which it acquired in August 2011 for US$12.1 billion.

"Following a comprehensive review, BHP Billiton has concluded that the value of the more extensive onshore United States shale liquids and gas assets acquired through the acquisition of Petrohawk Energy Corporation in August 2011 is not affected. The development of these assets is expected to create substantial, long term shareholder value."

CEO Marius Kloppers tried to put a positive spin on the charge.

"Our decision to enter the North American shale hydrocarbon business about 18 months ago was taken after extensive deliberation and due diligence," said Klopper in a statement.

"Our work convinced us that this significant, low-carbon fuel source would play a meaningful role as the world makes its future energy choices. We are still of this view, particularly given the ongoing positive technological advancements in the shale industry.

"We believe that our dry gas assets are well positioned for the future given their competitive position on the industry cost curve. In the short term, the accelerated development of our liquids rich shales will continue to complement investment in our traditional project pipeline given the high rates of return on offer and the rapid payback on incremental investment."