BHP Takes $2.8 billion Writedown

SYDNEY -- BHP Billiton (ASX: BHP.AX) has announced that it will write down the carrying value of its shale gas assets acquired from Chesapeake Energy in February 2011 by $2.8 billion.

Of course, the shale gas writedowns will be no surprise to our Foolish readers. We've been saying for weeks now that an impairment was in the offing.

BHP acquired the Chesapeake assets for $4.75 billion. The writedown more than halves the value of the assets, and as I noted in this article, BHP could face further writedowns on that business. The company has blamed a short-term fall in gas prices for the writedown. Natural-gas prices in the U.S. have halved since BHP made the Chesapeake acquisition, and although they have recovered somewhat in the last six months, they are yet to attain their previous highs.

Having completed a comprehensive review of the shale gas assets acquired when the company bought Petrohawk Energy for $15.1 billion in August 2011, BHP has concluded that the value of those assets isn't affected and still expects them to create substantial long-term shareholder value.

The company also announced that it will write down the value of its Australian Nickel West assets by $450 million. Nickel West comprises several nickel mines, a smelter, and a refinery in Western Australia. Prices for the commodity have fallen significantly since last year, almost causing the demise of Mirabela Nickel (ASX: MBN.AX). The company's share price has crashed by 86% over the last 12 months.

BHP CEO Marius Kloppers announced that both he and petroleum division CEO Mike Yeager did not want to be considered for a bonus in the 2012 financial year. Kloppers has come under fire for his performance at the big mining giant over the last five years, with the missed merger with Rio Tinto (ASX: RIO.AX) and delayed projects among the issues that have caused investors to lose confidence. The writedowns certainly won't help his prospects, as they're likely to increase the pressure on BHP's board to look for a replacement.

Time will tell whether the low natural-gas prices in the U.S. are a short-term problem or a longer-term phenomenon, but as it stands today, the Chesapeake purchase looks poorly timed and overpriced. A report by the U.S. Energy Information Administration has suggested that gas prices are likely to stay low for more than a decade, which is probably not a good sign for the Petrohawk acquisition, either.

Here at home, gas prices have remained reasonably high, which should be good news for the likes of Woodside Petroleum (ASX: WPL.AX). However, the company is facing its own problems, with protestors blocking access to its James Price Point planned gas hub.

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Motley Fool writer/analyst Mike King owns shares in BHP and Woodside. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, while it's still available. This article contains general investment advice only (under AFSL 400691). Authorized by Bruce Jackson.


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