The charge, which equates to $4.9 billion post-tax, relates to the carrying value of the company’s onshore US oil gas assets amid a harsher-than-expected slump in energy prices.
The charge comes after a bi-annual review of asset values, with price assumptions, discount rates and development plans offsetting productivity improvements.
The impairment will cut BHP’s onshore US net operating assets to about $16 billion.
BHP previously suspended development of its dry gas acreage, and has now reduced its medium and long-term gas price assumptions.
BHP CEO Andrew Mackenzie admitted oil and gas prices were weaker-than-expected, but the company had responded quickly by dramatically cutting operating and capital costs and reducing the number of operated rigs in the Onshore US business from 26 a year ago to five by the end of the current quarter.
“While we have made significant progress, the dramatic fall in prices has led to the disappointing write-down announced today,” he 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.”
BHP said the broader carrying value assessment of its assets would be finalised in conjunction with the interim financial results to be released on February 23.
This week, UBS downgraded its price target for BHP by $1 to $22 due to lower oil and gas prices.
And according to Investec, the next stage of the resources cycle will be widespread asset write-downs.
It’s been a tough couple of months for the “big Australian”, with commodity prices, the Samarco disaster and speculation over the dividend weighing heavily.
The company has also been downgraded by Macquarie, Barclays and HSBC in the past week.
BHP shares closed at a 10-year low in Australia on Wednesday of $A14.77.
However, Morgan Stanley believes the miner has been oversold and upgraded it to overweight.
“In this setting, we continue to prefer companies with solid balance sheets and generate free cashflow on spot commodity prices in combination with flexibility to reduce capex, operate long life of mine assets and have sustainably low costs,” analysts said.
“We believe that BHPB fits firmly in this camp and add it to our preferred exposures.
“While the equity may yet test incrementally lower levels, increased exposure, particularly on a multi-year investment horizon, is merited.”
It was also lifted to a buy by Citi.
After rising more than 6% in London overnight, BHP shares jumped more than 5% in Sydney this morning, but last traded 2.7% higher at $15.29.
