Low oil price forces BHP Billiton to exit US shale operations

(Getty)

BHP Billiton, the world’s largest mining company, has decided to pull the plug on 40 per cent of its US shale operations, citing the massive drop in the global oil price.

The company said it would close 10 of its 26 shale oil rigs although it would increase productivity at its operations in Texas.

Over the past six months the oil price has fallen from a high of just over $100 a barrel in May 2014 to yesterday’s closing price of $44.77.

Opec, the oil cartel, has shown no inclination to cut production in order to support prices, while concerns over slowing global economic growth have added to the downward price pressures.

One industry consultant, who declined to be named yesterday, said that the BHP decision to cut shale oil production would suit Opec.

“This is Opec getting what it wants, even if it is taking a short-term hit as the price of oil falls,” he said. “Its power has been on the wane for a few years, largely thanks to the boom in US domestic production, Russian oil and other non-Opec sources. It is doing what it can to force non-Opec producers, including North American shale, to toe the line or go out of business.”

BHP is the first major explorer and producer to confirm rig closures, though the oil support-service giants Schlumberger and Halliburton both announced a total of 15,000 job cuts this week.

Before its $20bn acquisition of Petrohawk Energy and Chesapeake Energy in 2011 BHP focused solely on the mining of metals and other ores. It paid a significant premium to buy the companies, which gave it its first exposure to oil production through assets in Texas, Louisiana, Arkansas and the Gulf of Mexico. Shale oil production rose dramatically over the past decade as oil prices remained high enough to make the expensive process economically viable.

BHP’s woes are not limited to its oil exposure. The decline in the price of iron ore, of which BHP is the world’s largest producer, has almost matched that of oil over the past 12 months. BHP confirmed plans that it will spin off its some of its non-core mining assets.