BHP Billiton Ltd. (NYSE: BHP) calls the areas where it has had problems turning shale into profits the Black Hawk and the Permian. It has written down its assets in those areas, and others in the United States. The low price of oil has begun to cripple big oil nearly as much as smaller shale producers.
Shale was supposed to be the way the United States and Canada attacked OPEC because it was a relatively new way to produce crude, and thus drive up supply. When oil traded at $60 or ever $70 a barrel, the plan worked. At $30, it does not at all. The Saudis are willing to suffer financial setbacks in their kingdom to brutalize the shale model even more.
BHP Billiton expects to recognise an impairment charge of approximately US$4.9 billion post-tax (or approximately US$7.2 billion pre-tax) against the carrying value of its Onshore US assets. This charge will be recognised as an exceptional item in the financial results for the half year ended 31 December 2015.
Another blow is BHP’s view of natural gas prices:
The US gas price remains low as industry-wide productivity improvements have resulted in higher than expected supply at lower cost. BHP Billiton has previously suspended development of its dry gas acreage. The Company has now also reduced its medium and long-term gas price assumptions.
Unless the modest number of forecasts that the price of crude will double are true, BHP has lost much of its profitable operations.