Marius Kloppers, chief executive of BHP Billiton, will not take a bonus this year after the world’s biggest resources company was forced to take a large writedown against the value of its US shale gas assets.
BHP blamed a glut of gas supply in the US for a US$2.84bn impairment charge against the value of its Fayetteville gas assets, which it acquired for US$4.75bn eighteen months ago. It will also take a US$450m impairment charge against the value of its Nickel West business in Western Australia due to margin deterioration.
The decision by Mr Kloppers and Mike Yeager, head of BHP’s petroleum business, to decline a bonus mirrors that of Tom Albanese, the chief executive of rival resources company Rio Tinto. In February, Mr Albanese and Rio’s finance director Guy Elliot decided to waive their payments after the company was forced to take a US$8.8bn hit on Alcan, its aluminium business.
Last year, Mr Kloppers received a cash bonus of US$2.35m and the equivalent amount in deferred shares.
Analysts had been expecting BHP to take an impairment charge after BP, BG Group and Canada’s Encana energy wrote down the value of their US shale gas assets.
However, BHP said it would not take an impairment charge against Petrohawk Energy, its major shale gas business. This is because its fields contain liquids rich shale – rocks that can also contain high value oil.
Mr Kloppers said the charges were “disappointing”, but defended his decision to enter the shale gas market just before a major downturn in US natural gas prices.
Five months after inking the Fayetteville deal, BHP acquired Petrohawk Energy, another US shale gas producer, for US$15.1bn . When those deals were struck, US natural gas prices ranged from US$4 to US4.50 per million British thermal units. After sinking to less than US$2mBtu earlier this year, the price has recovered but only to US$3mBtu.
“Our decision to enter the North American shale hydrocarbon business about 18 months ago was taken after extensive deliberation and due diligence,” said Mr Kloppers. “Our work has convinced us that this significant, low carbon fuel source would play a meaningful role as the world makes its future energy choices.”
Mr Kloppers, who is under pressure from investors to detail BHP’s spending plans when he announces annual results later this month, received a vote of confidence from chairman Jac Nasser.
“The assets we acquired, in particular the Petrohawk business, are of high quality and will generate good returns for shareholders,” said Mr Nasser.
BHP has responded to the downturn in natural gas prices by shifting its US onshore drilling campaign away from the dry gasfields in Fayetteville, Arkansas toward Petrohawk’s liquids rich properties in Texas.
Shares in BHP fell 2 per cent to A$31.36 in morning trading in Sydney.