Oil price slump forces BHP Billiton to slash US shale operation

Image credit: bhpbilliton.com

BHP Billiton announced on Wednesday that it will cut its spending of shale drilling in the US over the next six months in response to falling oil prices which now dropped below $50 a barrel.

Image credit: bhpbilliton.com
Image credit: bhpbilliton.com

The company, which entered the shale sector when it bought Petrohawk Energy and Chesapeake Energy in the US four years ago, said it would reduce the number of rigs from 26 to 16, but maintained it expected increased productivity to boost output by over 50% over the period.

“In Petroleum, we have moved quickly in response to lower prices and will reduce the number of rigs we operate in our Onshore US business by approximately 40% by the end of this financial year. The revised drilling program will benefit from significant improvements in drilling and completions efficiency,” said BHP Billiton Chief Executive Officer, Andrew Mackenzie.

“Our ongoing shale investment program will remain focused on our liquids-rich Black Hawk acreage. However, we will keep this activity under review and make further changes if we believe deferring development will create more value than near-term production.”

However, despite the unfavourable market conditions dictated by the falling prices of oil, iron ore and copper, BHP increased production by 9% during the December 2014 half year with records achieved for eight operations and five commodities, including iron ore production, which jumped 16% in the period.

“Our operational performance over the last six months has been strong. We are reducing costs and improving both operating and capital productivity across the Group faster than originally planned,” Mr Mackenzie said.

“These improvements will help mitigate some of the impact of lower commodity prices and we remain alert to opportunities to further increase free cash flow.”

Mr Mackenzie added that BHP was committed to execute its plan to demerge $15 billion of non-core assets by the end of the financial year and reiterated that the company would not reduce dividends to shareholders despite dramatic price falls in all its main commodities – iron ore, copper and oil.