BHP Billiton [ASX:BHP] has decided to write down the value of their onshore assets in the US.
The huge impairment charge will cost them about US$2.8 billion before tax. Once tax benefits are applied, it’s still US$2 billion. This will leave BHP with about US$24 billion worth of assets in the US. So they’re essentially discounting their US operations by nearly 10%.
Why are they doing this? Well, according to a statement from this morning, it’s mostly because of one operation. Hawkville is a field BHP owns in Texas. It’s located close to the border with Mexico, about an hour and a half drive from San Antonio. It produces both oil and gas. BHP bought Hawkville from a US company called Petrohawk back in 2011. Now, they feel they need to reduce the value on paper because Hawkville is relatively complex, in terms of geology. The fact that it’s got two different products also makes it harder to run. They’ve also sold some of the acres to other companies, under deals which see them operate wells on the land and share the profits with the other companies. BHP will also put an impairment charge on the value of the goodwill they got when they bought Petrohawk.
BHP’s boss of petrol, Tim Cutt, commented on what this move means for the future of BHP in the States. ‘While the impairment of the Hawkville is disappointing, it does not reflect the quality of our broader Onshore US business. The Black Hawk [other fields more to the south east of San Antonio] continues to exceed expectations, the Permian offers significant upside across multiple zones and the Haynesville, one of the industry’s premier dry gas positions, provides an excellent redevelopment option as market conditions improve. With industry-leading drilling costs and recoveries, we are well positioned to realise significant value for shareholders as we develop our high-quality resource base.’
So BHP still thinks their future in the US is bright. They will invest an extra US$1.5 billion in their operations there by the end of the financial year. That will pay for 10 new rigs. Over all, they’re expecting their US operations to be cash flow positive.
The market won’t be able to find out how this affects BHP’s results for the year. At least, not until the end of August when their preliminary financial results are released. But the market didn’t react terribly well to this latest news. After BHP made their announcement this morning, their share price took a steep tumble. At the time of writing, it’s down by around $0.40, or 1.47%.
Source: Google Finance
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Eva Mellors,
Contributor, Money Morning
The post Why is BHP Doing a US$2 Billion Writedown on Their US Operations? appeared first on Stock Market News, Finance and Investments | Money Morning Australia.