Plunging global energy prices forced BHP Billiton to Friday book a US$7.2 billion pre-tax writedown against the value of its struggling onshore US assets, as the mining giant works to reign in costs and reduce risk.
The decision came as miners globally struggle to cope with collapsing commodity prices and China's once insatiable appetite -- boosted by an unprecedented investment boom in the world's second-largest economy -- waning.
Sharp falls in oil prices have ravaged the bottom line of miners across the world, pushing smaller players to the brink while tearing billions in revenue out of the budgets of resources-dependent economies such as Australia.
BHP spent US$20 billion in 2011 on shale oil and gas assets in the United States, but the move increasingly appears to have backfired with a dramatic fall in prices over the past 18 months hammering profits.
The hefty writedown, which will be booked in its next half-yearly accounts due in February, equates to US$4.9 billion after tax and follows BHP, a major player in the US oil and gas industry, taking a US$2.8 billion pre-tax hit on the same assets last year.
Chief executive Andrew Mackenzie blamed "significant volatility and much weaker" prices, adding that the company had been forced to reduce its medium- and long-term price assumptions.
"Oil and gas markets have been significantly weaker than the industry expected," he said in a statement to the market.
"We responded quickly by dramatically cutting our 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 writedown announced today."
The writedowns will reduce the book value of BHP's US net operating assets to about $US16 billion.
- Well-positioned -
The firm's shares were nevertheless 2.08 percent higher at Aus$15.19 in afternoon trade, having risen around six percent in London.
CMC Markets chief analyst Ric Spooner said the market had already priced in the move.
"While many may regret the timing and pricing of this investment, its reduced value has already been reflected in BHP's lower share price," he said.
"News that BHP will further reduce its rig count is evidence that management remains focused on cost and risk reduction in response to lower prices."
However, BHP's share price plunged more than 40 percent last year, hit by falling commodity prices, while rival Rio Tinto slid 26 percent.
CLSA's head of resources research Andrew Driscoll warned "there's potential I think for further writedowns if oil prices don't recover".
"Probably more importantly is that you'll expect that BHP will be managing its US onshore business for cash. So we'd expect rig counts to continue to decline and it's likely that capex (capital expenditure) this year will be less than their guidance of US$1.4 billion," Driscoll told AFP.
Mackenzie said the diversified miner's investment and development plans for the remainder of the year were under review as it desperately looks to preserve cash with no sign that the commodity price rout was over.
Oil and gas prices have fallen dramatically in recent months, with the US benchmark West Texas Intermediate hovering near 12-year lows at around US$31.20 a barrel as investors worry about prolonged global oversupply and an uncertain demand outlook.
Gas prices have also been under intense pressure.
Despite this, Mackenzie said he remained "confident in the long-term outlook and the quality of our acreage".
"We are well positioned to respond to a recovery," he added.