ENERGY major BHP Billiton has flagged impairment charges of about US$7.2 billion (pre-tax) which are expected to be reported in the company’s interim financial results to be released in February.
Post-tax, the impairment charge is about US$4.9 billion and is against the carrying value of the company’s onshore US assets, according the company’s half year operational review ending 31 December 2015.
BHP said the impairment reflected changes to price assumptions, discount rates and development plants.
“This follows significant volatility and much weaker prices experienced in the oil and gas industry which have more than offset our substantial productivity improvements,” BHP said.
In addition, BHP expects the underlying attributable profit in the December 2015 half year to include additional charges in a range of about US$300 million to US$450 million.
These charges relate to redundancies, rig terminations in onshore US and closure of the Crinum coal mine, inventory writedowns and global royalty and taxation matters.
A JP Morgan report released on 20 January raised concern over the charges in addition to the impairment advising the new costs add to balance sheet pressure and increase the urgency to rebase the company dividend.
BHP Billiton chief executive Andrew Mackenzie said the fall in commodity prices in the first half of the 2016 financial year is putting pressure on the resources sector.
“We continue to cut costs and remain focused on safely improving our operational performance to enhance the resilience of our business.”
The group will reduce the number of operated rigs in its onshore US business from seven to five in the March 2016 quarter.
In an announcement on 15 January, Mr Mackenzie said oil and gas markets have been significantly weaker than the industry expected.
“We responded quickly by dramatically cutting our operating and capital costs, and reducing the number of operated rigs in the onshore US business from 26 a year ago to five by the end of the current quarter.”
Mr Mackenzie remained optimistic on the long term outlook and quality of acreage.
During the December 2015 quarter, the company approved an investment of US$314 million for the North West Shelf Greater Western Flank B petroleum project.
This follows the delivery of first production from the North West Shelf Greater Western A project during the December quarter.
Total petroleum production for the December 2015 half year decreased by 5 per cent to 124.7 million barrels of oil equivalent (mmboe).
Guidance for the 2016 financial year remains unchanged at 237 mmboe.
BHP said its petroleum exploration is focused on the deepwater Gulf of Mexico, the Caribbean and the Beagle sub basin off the coast of Western Australia.