Will BHP Be Forced to Write Down Shale Assets?

BHP Billiton’s (NYSE:BHP) chief petroleum executive J. Michael Yeager hinted at the possibility of the firm having to take a write-down in the value of its U.S. shale gas assets in view of the relentless fall in shale gas prices.

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The Fayetteville and Petrohawk shale gas assets cost BHP $17 billion last year. With gas prices at half their 2011 levels, a write-down of the value of these assets may be in order.

“If we have to take an accounting snapshot here, we hope everybody knows that we’ll take another accounting snapshot in the future and whenever those circumstances are changed, that whatever action we take now, may get reversed later on,” Yeager said.

But Yeager points to redeeming factors on the investment, specifically that prospects over the longer term are bright considering the proven underground resource, its large market potential, and gradually recovering gas prices. Petrohawk has the added advantage of being a mix of oil and gas, which affords the company flexibility in choosing its drilling priorities.

Currently, the company is putting further gas spending on the backburner as oil prices continue to surge. “Any near-term downward view on gas and its value as a part of this has been more than offset by the liquids,” Yeager said.

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