BHP Billiton has scrapped the sale of its US Fayetteville shale assets in the face of weak oil prices, less than four months after it was announced.
The mining giant has been unable to attract a decent price for the assets, for which it paid $US4.75 billion in 2011.
The company has cuts its 2014/15 US onshore shale capital expenditure budget by 15 per cent to $US3.4 billion, and a further 35 per cent to $US2.2 billion in the following year as it reduces drilling activity.
That still represents 27 per cent and 20 per cent of overall capex for those respective years.
Oil prices have plunged almost 50 per cent in just six months amid oversupply from the US and Middle East, and a slowdown in the Chinese and Euro zone economies.
Still, chief executive Andrew Mackenzie is bullish about a recovery, something he did not say about the price of its biggest earner, iron ore.
“It is a very dynamic situation and we are able to reduce investment or increase investment as we see prices evolve,” Mr Mackenzie said.
“We do believe prices will recover and therefore for quite a bit of the things we will invest in, it is worth delaying that investment until the products of that investment can command a higher price.
“That’s the kind of game we play.”
Iron ore is still BHP’s biggest commodity, ahead of petroleum and copper, but came back to the pack in the first half of 2014/15, with pre-tax earnings falling 35 per cent to $US4.2 billion.
Combined earnings from petroleum and copper were more than iron ore for the first time in years.
BHP spent $US20 billion buying up US shale assets in 2011 to capitalise on the region’s oil and gas boom, but Fayetteville was infamously written down by $US2.84 billion a year later.
BHP still intends to lift its full year oil production in US shale by 50 per cent.
Mr Mackenzie said China’s economy was still growing at seven per cent each year and was moving towards a consumption economy, while stronger consumer spending in the US augured well for future demand, particularly oil and copper.