BHP takes $2.8 billion writedown

With lower gas prices predicted over the next decade, are there more writedowns to come?

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

BHP Billiton Limited (ASX: BHP) has announced that it will write down the carrying value of its shale gas assets acquired from Chesapeake Energy in February 2011 by US$2.8 billion.

Of course, the shale gas writedowns will be no surprise to our Foolish readers – we've been saying for weeks now that an impairment was in the offing.

BHP acquired the Chesapeake assets for US$4.75 billion. The writedown more than halves the value of the assets, and as I noted in this article, BHP could face further writedowns on that business. The company has blamed a short term fall in gas prices for the writedown. Natural gas prices in the US have halved since BHP made the Chesapeake acquisition, and although they have recovered somewhat in the last six months, they are yet to attain their previous highs.

Having completed a comprehensive review of the shale gas assets acquired when the company bought Petrohawk Energy Corporation for US$15.1 billion in August 2011, BHP has concluded that the value of those assets aren't affected, and still expects them to create substantial long term shareholder value.

The company also announced that it was writing down the value of its Australian Nickel West assets by US$450 million. Nickel West comprises several nickel mines, a smelter and refinery in Western Australia. Prices for the commodity have fallen significantly since last year, and almost caused the demise of Mirabela Nickel Limited (ASX: MBN). The company's share price has crashed by 86% over the last 12 months.

BHP's CEO Marius Kloppers announced that both he and Petroleum CEO Mike Yeager did not want to be considered for a bonus in the 2012 financial year. Mr Kloppers has come under fire for his performance at the big mining giant over the last five years, with the missed merger with Rio Tinto Limited (ASX: RIO), and delayed projects amongst issues causing investors to lose confidence. The writedowns certainly won't help his prospects, and are likely to increase the pressure on BHP's board to look for a replacement.

Time will tell whether the low natural gas prices in the US are a short-term problem or a longer-term phenomenon, but as it stands today, the Chesapeake purchase certainly looks badly timed and significantly overpriced. A report by the US Energy Information Administration has suggested gas prices are likely to stay low for more than a decade, which is probably not a good sign for the Petrohawk acquisition either.

Here at home, gas prices have remained reasonably high, which should be good news for the likes of Woodside Petroleum Limited (ASX: WPL), however the company is facing its own problems with protestors, blocking access to its James Price Point planned gas hub.

If you're in the market for some high yielding ASX shares, look no further than our "Secure Your Future with 3 Rock-Solid Dividend Stocks" report. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

More reading

Motley Fool writer/analyst Mike King owns shares in BHP and Woodside. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »