(EnergyAsia, August 6 2012, Monday) — The unconventional oil and gas bubble may have burst with Australia’s BHP Billiton writing off a massive US$2.84 billion off the value of US shale gas assets it bought last year.

The company paid a total of US$17 billion for the Fayetteville assets from Chesapeake Energy in February 2011 when US natural gas prices were about double current levels and the industry was raving about the huge prospects of shale hydrocarbons.

Despite the loss, Australia’s largest miner said it will continue to develop the assets as they are expected to create “substantial, long term shareholder value.”

BHP Billiton CEO Marius Kloppers said: “The Fayetteville charge reflects the fall in US domestic gas prices and the company’s decision to adjust its development plans by shifting drilling from dry gas to the more liquids rich fields. While we have responded appropriately to the changed market conditions today’s impairment is clearly disappointing.

“Our decision to enter the North American shale hydrocarbon business about 18 months ago was taken after extensive deliberation and due diligence. Our work convinced us that this significant, low-carbon fuel source would play a meaningful role as the world makes its future energy choices. We are still of this view, particularly given the ongoing positive technological advancements in the shale industry.

“We believe that our dry gas assets are well positioned for the future given their competitive position on the industry cost curve. In the short term, the accelerated development of our liquids rich shales will continue to complement investment in our traditional project pipeline given the high rates of return on offer and the rapid payback on incremental investment.”

BHP Billiton chairman Jac Nasser said: “The board remains of the view that the investment in the US shale assets is the right decision for BHP Billiton shareholders.

The assets we acquired, in particular the substantial Petrohawk business, are of high quality and will generate good returns for shareholders.

“The board supports the actions of Marius and Petroleum CEO, Mike Yeager, to optimise shareholder value by shifting our current drilling plans from the dry gas fields in Fayetteville and Haynesville, to the liquids rich fields in the Permian and Eagle Ford.

“However, it is very disappointing that low US gas prices have impacted the carrying value of the Fayetteville assets. As a result of the write down, both Marius Kloppers and Mike Yeager have advised the Remuneration Committee that they do not wish to be considered for a bonus for the 2012 financial year. The committee and the board respect and agree with that decision.”