MELBOURNE - BHP Billiton Ltd., the biggest overseas investor in U.S. shale, will cut the number of its rigs there by about 40 per cent as plunging petroleum prices add to concerns about lower iron ore earnings.
Drilling and development spending on U.S. onshore oil and gas fell to US$1.9 billion in the six months to Dec. 31 from US$2.1 billion a year ago, Melbourne-based BHP said on Wednesday (Jan 21) in a statement. The producer will cut the number of active rigs to 16 from 26 by July, it said.
Brent crude, a benchmark for more than half of the world's oil, declined 48 per cent last year as the U.S. shale boom contributed to a global glut. The price of iron ore, the biggest earner at BHP, slumped 47 per cent in 2014 as the largest producers raised volumes amid weaker demand from China, the largest buyer.
"Their plans to cut oil drilling rigs in the U.S. is a pointer to what's to come in the oil market," Ric Spooner, chief strategist at CMC Markets in Sydney, said by phone today. "We will eventually see a supply response to the drop in the oil price from the U.S. onshore producers."
BHP, the world's biggest miner, also flagged an after tax impairment of as much as US$350 million on its Nickel West unit in Australia and of as much as US$250 million on the sale of petroleum assets in North Louisiana and shale gas operations in the Permian basin in North America.
BHP, which is seeking savings from operations of at least US$4 billion by July 2016, has set out plans to lower capital expenditure to US$13 billion in fiscal 2016, down more than 40 per cent from 2012.