Australian mining giant BHP has lost a quarter of its former market capitalization since its acquisition of US shale acreage from Petrohawk and Chesapeake last year. The company is keen to point out that worldwide economic conditions have impacted the price and volume of the commodities that BHP extracts and sells on a global basis. BHP’s US shale gas assets are part of its declining performance. Having paid a whopping $19bn for the shale plays in 2011, BHP now faces serious write downs. Ruud Weijermars and Matthew Hulbert ask the serious question whether the lost value simply is a result of changed market conditions – or was the acreage already worth much less at the actual time of its purchase by BHP?
BHP management concedes it is currently assessing the near-term gas price effect on the value of its gas properties acquired last year from Chesapeake (CHK) and Petrohawk (HK). To many industry analysts this is no surprise; the economic fundamentals of US shale gas production and reserves were already questioned long before the BHP sales went through. Petrohawk had never managed to earn any operational profit from its shale gas assets over its 15 years of operations. HK sold gas below the full-cycle production cost and its accumulated losses amounted to some $1 billion when the company was bailed out by BHP last year.