Bhp Billiton (NYSE:BHP)
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BHP Billiton Ltd. (BHP) will decide later this year on whether the slump in U.S. gas prices will force a writedown on its shale assets there, as it continues to switch its focus to developing liquids instead, a senior company executive said Monday.
The company has more than 1.6 million acres across Texas, Louisiana and Arkansas after it last year bought Petrohawk Energy Corp. for more than US$12 billion in cash and paid US$4.75 billion for Chesapeake Energy Corp.'s (CHK) Fayetteville shale acreage. Some analysts have forecast the company will be forced to write down the book value of the assets after U.S. gas prices fell below US$2 per per million British thermal units this year due to a market oversupply and warmer-than-usual winter. Prices have recently edged back above US$2.00 as companies scale back output, but were hovering between $4-$5 in the first half of 2011.
J. Michael Yeager, the head of the mining giant's petroleum division, said it will devote 85%-90% of spending on its U.S. onshore energy prospects to developing liquids next year to combat lower gas prices.
"On the 30th of June, at the end of our fiscal year, we will have to do an accounting snapshot," Mr. Yeager told reporters, adding the analysis will include a consideration of what BHP paid for the assets, forward investment plans and costs, and the company's view on the direction of energy prices.
"We will do a BHP Billiton normal process on that, and we will let the accounting fall where it may," Mr. Yeager said.
The executive said BHP will spend a little less than a previously targeted US$4 billion this financial year on its U.S. onshore assets, mainly due to backing off on its gas prospects. "I think it's safe to say we'll spend more next year. Eighty five-to-ninety percent of it will be on liquids. We do need to drill a few of the gas wells to hold the large amounts of acreage," he said.
To develop more liquids, BHP is switching its focus to the liquids-rich Eagle Ford and Permian shales. It is targeting the recovery of about 1.5 billion barrels of liquids, which is 500 million barrels larger than its previous target.
"Eagle Ford liquids-rich wells are among the highest return and fastest payback of any BHP Billiton investment," Mr. Yeager said.
The company's Eagle Ford assets are expected to reach output volumes of 300,000 barrels of oil equivalent a day, half of which will be liquids, over the next five-to-six years, Mr. Yeager said. The goal with the Permian acreage, where net production is about 80% liquids, is to reach 100,000 barrels a day, he said.
Mr. Yeager said the concentration on liquids won't impact BHP's annual production guidance for the whole company of 225 million barrels of oil equivalent. "I think we'll be real, real close to that," Mr. Yeager said.
-By Ross Kelly and Robb M. Stewart of Dow Jones Newswires; 612-8272-4692; firstname.lastname@example.org