The global mining company was forced to act after the dramatic plunge in the oil price left its expensive US exploration business weighing on the bottom line

This article is more than 4 years old

This article is more than 4 years old

BHP Billiton has been forced to write down the value of its onshore American oil and gas assets by more than 30% as it factors in the slump in crude oil prices.

The company said on Friday that it expected to take an impairment charge of £5bn ($US7.2bn or $A10.3bn) in its half year results, its second writedown on its US oil and gas assets in six months.

The Anglo-Australian company will also reduce the number of operated rigs in the onshore US business from seven to five in the March 2016 quarter, and said it was reviewing investment and development plans for the remainder of the 2016 financial year.

Investors, however, seemed to welcome the decision, pushing up its struggling shares more than 5% to $A15.70 in early trade in Australia on Friday.

“Oil and gas markets have been significantly weaker than the industry expected. We responded quickly by dramatically cutting our operating and capital costs, and reducing the number of operated rigs in the onshore US business,” chief executive Andrew Mackenzie said in a statement.

“While we have made significant progress, the dramatic fall in prices has led to the disappointing writedown announced today.”

Oil prices fell to a 12-year low of $US30 a barrel this week, compared with $100in mid-2014 as weakening global demand and a supply glut took their toll.

BHP said it has also reduced its medium and long-term gas price assumptions. However, its long-term price assumptions continue to reflect the market’s attractive supply and demand fundamentals.

The mining giant has been under pressure over a deadly dam disaster in Brazil in November, which could result in hefty fines and payment of damages for the company.

Ahead of today’s announcement, BHP shares had slipped below $A15 each to trade at 11-year lows.

Their resilience on Friday came despite a 1% fall in the overnight price of iron ore, down to $US38.40 a tonne.