World's Largest Miner Books Massive $7.2 Billion Writedown On US Shale "Assets"
Late last month, Freeport McMoRan co-founder and executive chairman James R. Moffett was shown the door.
Moffett, known as the “last of the old-time wildcatters”, was a legend in the industry but made a fatal mistake in 2013: he paid $2.1 billion for McMoRan Exploration Co (an oil-and-gas company the parent company had separated from in the 1990s), and $6.9 billion for Plains Plains Exploration & Production.
As WSJ put it, “the deals in part were a bet that oil prices would remain high.”
Well, they didn’t, and the gamble ended up increasing the combined entity’s debt fivefold and Carl Icahn is now pushing Freeport to dump the “high cost” assets.
Freeport wasn’t the only mining giant to make an ill-timed bet on US oil and gas assets. BHP Billiton, the world’s largest miner, spent $20 billion buying US assets in 2011, making it the largest overseas investor in US shale. Now, as “lower for longer” turns to “lower for longer-er”, the company is set to take a huge writedown on its US onshore portfolio.
How huge, you ask? $7.2 billion huge (or $4.9 billion after taxes) on assets the company was carrying at just over $20 billion. The company now values its US assets at $16 billion. “While we have made significant progress, the dramatic fall in prices has led to the disappointing write down announced today,” CEO Andrew Mackenzie said. “However, we remain confident in the long-term outlook and the quality of our acreage. We are well positioned to respond to a recovery.”
Mackenzie went on to say the company would cut the number of rigs operating in the US from 26 to just 5 by the end of the quarter.
"In addition to the purchase costs, BHP has committed more than $15bn of capital investment [to the US assets]", FT notes, underscoring just how expensive a bet this truly was. "The impairments announced on Friday mean BHP has now written off almost $13bn on the deals."
As noted above, the new carrying value is $16 billion, but that includes a $4 billion deferred tax liability, so it could be more like $12 billion and that $12 billion is itself above some sellside estimates of NAV. Amusingly, UBS values the assets at $8 billion - and that assumes "long-term" WTI at $65/bbl. "There's a risk of further write downs on possible revisions to BHP’s long term oil prices," the bank writes, dryly. BofA meanwhile, values the US onshore operation at $12.8 assuming long-term WTI at a whopping $75/bbl.
Here's a look at how the writedowns affect BofA's estimates in the new year and beyond:
Anyway, next on the chopping block: the dividend.
“In what’s probably a protracted period of lower commodity prices, there’s this writedown and probably other writedowns to come elsewhere in the portfolio,” Tim Schroeders, a Melbourne-based portfolio manager at Pengana Capital Ltd., told Bloomberg by phone. “They are getting close to having to come clean on the progressive dividend."
“At the moment, the biggest concern they have is can they fund their dividend, can they fund their capex plans?”, Citi adds.
And while the likes of Melbourne-based IG Ltd. analyst Angus Nicholson say that "all things considered, it's probably a bigger writedown than many had expected," other don't agree. “Yeah well, considering you’ve got a book value of $20 billion and you haven’t reported an operating EBIT gain in the last two years, I think they’ve been lucky to get away with such a modest amount and I think that’s because the forward curve is still pointing to a snapback in crude prices," Rob Brierley Patersons SEC Head of Research told CNBC in an interview. "If that [snapback] doesn’t occur, I think they’ll be having the same discussions with their auditors in July," he added.
Yes, they probably will, because with 500 million b/d of new Iranian supply set to hit the market, with the Saudis raiding the welfare state to ensure the prolongation of the kingdom's war of attrition with US shale, and with Russia and Iraq both pumping at record levels, the fundamentals for crude are simply abysmal.
Additionally, expect the downturn in other commodities the company pulls out of the ground to continue unabated amid the global deflationary supply glut and China's acute overcapacity problem.
And then there is of course the Samarco fiasco where a tailings dam at an operation jointly owned with Brazil's Vale collapsed sending a river of toxic mud into nearby villages. That mud has now reached the ocean and no one knows what BHP's liability will ultimately end up being.
So, in addition to the "discussions" Brierley says the company will likely be having in the not-so-distant future with the auditors, one wonders if BHP, like the two dozen US shale companies we highlighted earlier this month, will also be having a "discussion" with the company's bankers regarding the size of its credit facility.
But don't worry, Citi, Morgan, and probably several others have recently upgraded the shares because all of the above apparently bodes well going forward.
We'll close with the following bit from Bloomberg which is just further evidence of the fact that when it comes to US shale, it's all starting to unravel:
Tokyo Gas Co said on Friday it expects to book 10.6 billion yen ($90 million) in impairment losses on its Texas shale gas development project in the October-December quarter, reflecting the recent steep declines in oil and gas prices. The company, Japan's biggest city gas supplier, said it was reassessing earnings projections for the business year ending March and would announce them as soon as that becomes available.
(10 votes)
»
- Login or register to post comments
- Printer-friendly version
- Send to friend
- advertisements -
Write it down to zero.
Baltic dry Index is 383.
And I was cheering when it hit 600. Happy days
Writedowns are just good ole losses. Maybe the powerball winners will bail them out.
THe NWO has something up their sleeve. Soon they will take thier bow for performance and we bow in back in the opposite direction, which is really just the coming bendover.
What is up their sleeves? War.
What! No bailouts?
We are well positioned to respond to a recovery...
that's some funny shit right there. um, i think everyone is well positioned for a recovery frikken asshat.
"It's contained."
~Soweto
In a tailings dam...
Nothing but cash is well-positioned. This is not a drill.
How far has the tide gone out?
Not far enough. :)
where is my skin? face ripped off...
$700 Trillion derivatives hanging in the balance. One domino falls could set off the whole thing. Janet better stick her thumb in the leaky dike soon.
All those "BTFD" superstars from yesterday are about to have their heads handed to them.
ISDA will ensure it never trips
Will try to unread that Janet, leaky dyke thing. Contagion. That is the sound of inevitability, Mr. Anderson. We might be prepared for this, but we'll never be ready for it.
I have a feeling that these derivatives are just lying bankers selling insurance policies that they have no intention of paying on if they fail en masse. Just one more scam to skim money for nothing. They all know our governments are absolutely dependent on them to launder their debt and will bankrupt the nation (further) to keep them afloat and "credible". Derivative defaults will not fuck the bank but be another opportunity for government to fuck us further.
My thoughts too, maybe I do not understand the derivatives though, but when a bad outcome is obvious then the obvious thing is to not allow it to happen.
Could we see the derivatives market itself seeemingly collapse into a black hole? IE nothing comes back out of it. 700 trillion of supposed something gets declared null and void and wiped clean, because there is just no lender of last resort able to bail this one out.
If you are referring to Hitlery, it is spelled DYKE
BTFD! Some sheeple will!
Hahahaha! Just like '08 where the commodities boom leads to a ecnomic bust for the world. Maybe its time to cap these paper commodities so that commodities remain priced to physical supply/demand. Nah, that's just crazy talk. Print away Mr. Yellen.
Freeport, BHP, and many other miners will be taking writedowns on their mining operations as that sector is in freefall.
FCX and BHP are some of the success stories of "Change you can beleive in!"
It's all about "Legacy."
So why is BHP only down 7%?
Because 47% will believe damn near anything.
MANIPULATION always does the trick!
We need a national sales tax to help them out. Poor shale workers.
You can bet plenty of douche bags in that industry will go hat in hand to D.C. looking for some "free" money.
Since it's not their fault prices dropped, it's only fair that taxpayers bail them out.
Mean while the cocksuckers at our state house here in S.Carolina are going to add an additional 10% on to our gasoline tax.
Bastards all!
posted that, cheap gas>op to raise taxes>predictable wanks...
BHP rivals only Dennis Fartman in terms of their investments prowess.
Does BTFD translate to Buy The Fucking writeDown?
"It's just a flesh wound" - Black Knight
No tears here....
Remember not too long ago a fill up was fucking $90
Regular gas
Cue up the intellectuals coming to explain why cheap gas is soooooooo bad.
No pushing or shoving.
vince you heartless fuck, think of E Musk, oh the horror.
tesla model S for no down and low $99/month payments coming soon.
The mighty dollar keeps going up, and oil keeps coming down. Does that not mean that countries with a currency other than the U.S$ are making roughly the same (as before, obviously not 150$ barrels) in their own currencies?
So, the only ones losing out are the U.S. producers, who pay labour, costs etc in dollars?
Maybe I'm missing something, I'm no economist (No shit Sherlock, I hear you say) but that's the way it seems to me...?!?
Yep, Russia case in point. And moar are selling and buying outside the dollar.
plus 1 for no shit sherlock!
I'm sensing alot of animosity in your post 'new game'...
Yep- I've been saying all along this was about shaking out little US producers...consolodation upward to the biggies...can't have all these upstarts running around.
Cat, has problems selling to these commodity giants..totally unexpected.
keep fucking with oil you multinational NWO elite scum..this one's gonna bite you in the ass.
Well if Arch Coal files for Banko..that kind of means your assets are crap too....
ditto for many moar. this could become very big as it prolongs.
which economies take the biggest hits? think about this as an evaporization of debt and debt creation. truely a big time hit on the feds power base of debt creation. this has the potential to derail our economy. and lets bring russia, iran and s.a. into the equation. if usa implodes faster than the energy rich nations who stands tall at the end of this eviseration? i think the oil rich countries going fwd, not the financiers pushing paper around...
and then there is moar war to reshuffle the power base-interesting tymes this overcapacity, deflationary mess the central bankers keynsians have created.
It's the jubilee year. Debt goes BOOM!
and wooosh right on thru 1867.01, ha...
double woooosh thru 15,370.33, lol
hey dude can i bum a camel?
It's amazing how far "High Oil Prices are Actually Good for the Economy" is penetrating into economic and political thinking. In the 70's and 80's we had no pity for Saudi Arabia or Houston when oil plunged. It was a huge "tax break" for 99% of the country. Today, the media distorts the stats and makes it appear that one in two American workers is employed by oil. Even the financial side has been distorted to where oil is now supposedly driving asset (stocks mainly) prices. So now everyone wants high oil prices.
Total and utter bullshit. The US economy and the world would boom with cheap oil under normal conditions. The US is a large, net importer of crude oil. Lower prices are good for us. End of story. and fuck the oil companies! When did they ever do anything for us!
That said, low oil prices are horrific for our future since we have no incentives to go green. So, fill up your Hummer, drive to your heart's content and pray that 99% of real scientists are wrong (of course, if you believe in prayer, you also don't believe in climate change...sigh).
Not to mention the recycling of petrodollars!
Boo-Yah!
expat, after years of FED & CB interventions..low oil = doom. get up to date will you!!
the future is entropy. there is no escape without somebody dying and alot of people going to jail.
Putin has to be in lots of pain seeing FCX and BHP crumbling and all the American layoffs .....
oh wait a sec...
Whatever happened to peak oil?