Disasters, Low Oil Prices, Shale Cause $6.4B Loss at BHP Billiton

Disasters, Low Oil Prices, Shale Cause $6.4B Loss at BHP Billiton

Battered by a devastating dam disaster in Brazil, low commodity prices and losses in shale holdings – including operations in Arkansas – mining giant BHP Billiton posted a record $6.4 billion annual loss on Tuesday.

The loss at BHP Billiton, the largest mining and energy conglomerate in the world by market value, compares with a net profit of $1.9 billion the year before.

Based in Melbourne, Australia, and traded there and on the London Stock Exchange, BHP Billiton took $7.7 billion in writedowns and charges even as underlying profits sank 81 percent to $1.2 billion for the year that ended June 30. However, that $1.2 billion figure was better than analysts' predictions, and BHP's stock was up 3.5 percent on the London exchange after the announcement.

BHP listed costs of nearly $2.5 million on the collapse of a dam at the Samarco iron ore mine in Brazil in November. The dam collapse killed 19 people, flooded farms and towns and created the need for a vast environmental cleanup.

But the biggest impairment, a $7.2 billion writedown, was in onshore U.S. assets, including gas operations in the Fayetteville Shale of north-central Arkansas, among several other oil and gas holdings in the U.S. While other companies have also been buffeted by low oil and gas prices, BHP has been criticized for buying assets near the peak of oil a gas prices in 2011. That year, it pumped $20 billion into U.S. shale assets, and part of that investment was the purchase of a huge stake in the Fayetteville play.

In that deal, later regretted by CEO Andrew MacKenzie, BHP paid $4.75 billion for the Chesapeake Energy's stake in the Fayetteville shale region. In May, McKenzie told investors at a Merrill Lynch conference in Miami that BHP had paid too much for assets in Arkansas, Texas and Louisiana. 

"In reflection about the shale acquisition," he said, "of course it was poorly timed because we bought at a high time in the market."

On Tuesday, he sought to put the record loss in perspective. 

"We continue to pursue capital-efficient capacity opportunities which will support volume growth of up to 4 percent next year, excluding our onshore U.S. assets, where we continue to defer activity," he said.

He noted that the company had reshaped its portfolio and is positioned to create "substantial value over time." While the company expects commodity prices to remain low and volatile in the short and medium terms, "we are confident in the long-term outlook, particularly oil and copper," MacKenzie's statement said.