BHP Billiton may be forced to slash its planned $4bn spending this year on US shale wells and book writedowns on its shale assets as it battles plunging prices for its biggest earners iron ore, oil and copper.
The mining giant, which has cut capital spending for the past two years, needed further savings to have enough cash to meet a promise not to reduce its dividend, analysts and investors said, with some tipping it could slice its US onshore drilling budget in half.
The spending cuts could come as soon as tomorrow, when BHP will release its December quarter operational review.
US onshore drilling, the biggest single item in BHP’s capital budget, is seen as the easiest target after a 41% plunge in oil prices, 16% drop in iron ore prices and 12% drop in copper prices over the past three months.
Other candidates for cuts in its $14.2bn capital and exploration spending plan could be its longer-dated projects such as the Canadian Jansen potash project and Australian Olympic Dam copper expansion study.
“When you are pushed up against the wall you have to make some difficult decisions, so all those things are possibilities,” said Richard Knights, an analyst at London-based investment bank Liberum.
“Commodity prices are falling very quickly, very sharply.
Shale drilling is much easier to shut than conventional oil and gas wells as individual wells are smaller, making it a logical target for cuts. It is not expected to cut spending on its conventional wells in the Gulf of Mexico.
Writedowns on the shale assets, which BHP acquired in 2011 for $17bn when gas prices were much higher, were also inevitable, analysts and investors said, based on a much weaker outlook for forward prices.