BHP Billiton's shale gas writedowns may not have come as a surprise, but Australia's commentariat still found plenty to ruminate on in the announcement and management's defence. One scribe says BHP chair Jac Nassar is showing chief Marius Kloppers more support than many realise, while another is sure the board is working on a succession plan. Others see hints of Alcan and Magna Copper. Elsewhere, jotters warn that the pervading forces that landed Europe and America in so much trouble are more dangerous than the individual crises themselves, and pour cold water over suggestions the Reserve Bank will intervene to bring down the value of the Australian dollar.
But first, The Australian Financial Review's Matthew Stevens reckons BHP chair Jac Nasser's "carefully crafted" defence of Marius Kloppers is "rather more definitive than a bald assertion of support."
"The first thing [Nassar] did was claim boardroom ownership of the US shale strategy. Nasser said the board 'remains of the view that the investment in the US shale assets is the right decision' and endorsed efforts by Kloppers and Yaeger to redirect capital from the price-pressed dry gas and to the liquids-rich territories of Petrohawk. He admitted disappointment over the Fayetteville impairments and expressed the board and remuneration committee’s 'respect' and agreement with the call made by both to surrender their bonuses. And finally, Nasser expressed confidence BHP was 'fortunate to have Marius’s leadership ...in these challenging times'. Now that is about as close as you get to unqualified endorsement while avoiding the clumsiness of a football president-style vote of confidence in an ill-starred coach."
However, the newspaper's Chanticleer columnist, Tony Boyd, suspects Nassar is still working on a 'plan B'.
"Kloppers is employed on a contract that can be terminated by either side at any time. While Nasser was happy to accept an offer from Kloppers to forgo his bonus for 2012 of about $2 million, the chairman would be working hard on the BHP CEO succession plan. … The latest writedown was not a career killer but the ice under Kloppers’ feet might start cracking if there are any further blows to his credibility."
The Australian's Barry Fitzgerald sees a link between BHP's foray into shale gas and Rio Tinto's disastrous aluminium buy at the top of the market.
"… BHP would get real uncomfortable if there were any comparisons made between the no-bonus response of Kloppers and Yeager on the Chesapeake writedown to the no-bonus, thanks, response of Rio Tinto chief executive Tom Albanese and finance director Guy Elliott in February. Rio had just made a $US8.9bn writedown on the value of its aluminium business, one greatly enlarged by the $US40bn acquisition of Alcan in 2007. On a disaster scale of one to 10, the acquisition of Chesapeake shale assets ranks as two or three for BHP. Alcan for Rio was a brightly lit 10. Ongoing losses from Rio's aluminium division, which will be reported next Wednesday, will prove the point."
Fitzgerald's colleague, John Durie, takes aim at BHP's boom-time "arrogance," which he attributes to the $30 billion in free cash-flow China was generating every year, and seems to think things could get worse based on the miner's past experience.
"In each boom BHP management has made bold statements about the growth prospects ahead. In the early 1990s, then BHP boss John Prescott declared a $50bn five-year capital expenditure program on the back of high oil, copper and iron prices. That bravado brought us Magna Copper, HBI and other disasters. Whether Kloppers' $US80bn over five years will deliver the same number of disasters remains to be seen."
Writing in The Australian, Terry McCrann notices similarities between BHP and Crown, which are both leveraged to the China growth story – and to one chapter in particular.
"… both their ambitions, selling very different products to what might be described as different facets of the 'wholesale' end of the Chinese market, depend ultimately, crucially, on sustained development at the Chinese retail end: the middle class. And that will only happen if, first, China is able to reignite its macro-growth dynamic; and then, secondly, sustain it over time by switching the growth drivers to the domestic consumption that has been the foundation of sustained growth and prosperity in every developed economy."
In economics, The Australian Financial Review's Alan Mitchell argues the world economy faces far larger challenges than Europe's debts and America's de-leveraging. The current crisis, says Mitchell, is the result of a "collision of major structural trends": financial innovation and deregulation in the 1990s and 2000s, Asia's industrial revolution, Asian governments' unwillingness to let their exchange rates appreciate, demographic change, and the 20-year euro experiment. He warns the "dangerous global imbalances" those forces combined to create, haven't gone away.
In the Fairfax press, Ross Gittins is disappointed by the reaction to the review of the Fair Work Act, which he considers too adversarial. In these difficult economic times, he'd prefer to hush the more militant unions and employers in an effort to pull workers and bosses closer together.
At The Australian, David Uren thinks the Reserve Bank is "a long way" from intervening to bring down the value of the Australian dollar, but offers some ideas about what action the central bank might take were it to act.
Finally, after the centenary of Milton Friedman's birth passed last week, The Australian's Adam Creighton wonders what the legendary economist would think about the world's current attitude to monetary policy. In particular, Creighton recalls Milton's famous axion: "There's no such thing as a free lunch."