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BHP Billiton dividend cut looms as it takes US$7.2-billion shale charge

A BHP oil and shale gas rig in Fayetteville, Arkansas. Australian mining giant BHP Billiton said it expects to book a US$7.2-billion pre-tax writedown against the value of its struggling onshore assets in the United States as tumbling oil prices hit shale gas.

MELBOURNE —Global miner BHP Billiton said on Friday it will write down the value its U.S. shale assets by US$7.2 billion on a bleak outlook for oil and gas prices, cementing expectations it will be forced to cut its dividend for the first time in over 25 years.

Investors have argued that BHP should abandon its policy of holding or increasing its dividend at every result, as it is having to rely on debt to fund the payout following a rout in commodity prices and steep fall in profits.

“Simply put, the company can’t afford to maintain its dividend policy without taking the balance sheet into territory that would be incredibly uncomfortable for a company of its nature,” said Ben Lyons, a portfolio manager at ATI Asset Management.

Analysts said the charge on the U.S. shale assets, which takes total writedowns on the business to $12.8 billion in less than four years, would hurt the metrics that ratings agencies assess the company, which on top of plunging prices for its products, would force a dividend cut.

“At this stage, the market would like to see them protecting the balance sheet by cutting both the dividend and their not-immediate capital requirements,” said Rohan Walsh, a portfolio manager at Karara Capital.

The so-called progressive dividend policy has been in place ever since BHP merged with Billiton in 2001, aimed at offering stability through the ups and downs of the commodities cycle. It was maintained even in August after profits hit a decade low.

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