BHP Reveals 2016 Capital Budget, Confirms Plans To ‘Defer’ Fayetteville Shale Expansion

After a dismal fiscal 2015, Australian mining giant BHP Billiton has unveiled plans to essentially mothball the company’s drilling operations in the Fayetteville and Haynesville dry-gas shale plays until commodity prices rebound in the future.

In its recently released results for the fiscal year 2015, which ended June 30, BHP reported earnings from continuing operations of $1.30 per American Depositary shares (ADS), down $74.5% from $5.11 per ADS a year ago. Revenues for full-year fiscal 2015 totaled $44.6 billion, down 21.4% from $56.8 billion in the year-ago period.

BHP said the decline in profits and sales was mainly caused by a significant fall in market prices of the company’s major commodities, which include iron ore, coal, cooper, crude oil and natural gas.

In its U.S. onshore operations, the Sydney-based mining and industrial conglomerate said it expects to see further improvements in drilling and completions efficiency in 2016 that will support stable volumes in the liquids-rich Black Hawk and Permian basins despite lower capital spending.

“However, we anticipate a 19% decline in the combined production of the predominantly gas-rich, and currently lower-margin Haynesville, Fayetteville and Hawkville fields as we continue to defer development of these assets for longer-term value,” BHP said. “Conventional volumes are expected to decrease as a result of planned maintenance programs and natural field decline.”

Based on the company’s assessment, the company plans to cuts it onshore U.S. capital spending to $3.7 billion for 2016, down 26% from $5 billion in fiscal 2016.

As part of the 2016 capital budget, which began July 1, BHP plans to spend $3.1 billion in the liquids-rich Eagle Ford Shale and Permian shale basins. Only $400 million and $200 million has been allocated respectively for the dry-gas Haynesville and Fayetteville shale plays, essentially shutting down those developments except for completion and wellhead production activities.

In July, BHP confirmed that it planned to make spending cuts to its U.S. onshore oil and gas development. Still, the Australian mining giant holds a leasehold position of 487,000 net acres in the Fayetteville Shale play, making it the second-largest operator behind Southwestern Energy Corp.

In late 2011, shortly after the Australian mining giant landed in Arkansas, BHP said it planned to quadruple production from its onshore U.S. shale operations, adding nearly 20 new rigs in the Fayetteville Shale region and increasing natural gas production four-fold by the end of the decade. At the time, BHP said its U.S. capital spending program would jump from $4.5 billion to $6.5 billion annually by 2020, with the lion’s share targeted toward its Arkansas natural gas development.

Today, BHP has no ongoing drilling operations in the Arkansas shale play, where the state’s rig count has dwindled down to a total of only four as of Sept. 4, according to Baker Hughes.