BHP Billiton expects to recognise an impairment charge of approximately $4.9 billion post-tax (or approximately $7.2 billion pre-tax) against the carrying value of its Onshore U.S. assets.
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This charge will be recognised as an exceptional item in the financial results for the half year ended December 31, 2015.
The impairment follows the bi-annual review of the BHP Billiton's asset values and reflects changes to price assumptions, discount rates and development plans which have more than offset substantial productivity improvements. The impairment will reduce Onshore U.S. net operating assets to approximately $16 billion.
The oil and gas industry has recently experienced significant volatility and much weaker prices.
The U.S. 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.
In addition, the oil price has fallen by more than 30 per cent over the last three months following the disruption of OPEC and stronger than anticipated non-OPEC production.
Although BHP Billiton expect prices to improve from their current lows, we have reduced our oil price assumptions for the short to medium term. Our long-term price assumptions continue to reflect the market's attractive supply and demand fundamentals.
The increased volatility in prices has also increased the discount rates applied by BHP Billiton, which has a significant flow through impact on the Company's assessment of its Onshore US asset value.
BHP Billiton will reduce the number of operated rigs in its Onshore U.S. business from seven to five in the March 2016 quarter. This will comprise three rigs in the Black Hawk and two rigs in the Permian.
Beyond this, investment and development plans for the remainder of the 2016 financial year are under review, with a focus on preserving cash flow. ■