Acquisition of Fayetteville Oil and Gas Shale by BHP Billiton Limited

Acquisition of Fayetteville
Oil and Gas Shale by BHP
Billiton Limited

TABLE OF CONTENTS
EXECUTIVE SUMMARY....................................................................................................................... 3
Appendix-1............................................................................................................................................ 4
Introduction........................................................................................................................................ 4
Recognising and measuring the acquisition of US Oil major as per Australian Accounting Standard
Board, Evaluating the Measurement of the aforesaid acquisition by BHP Billiton, Determining the
accounting for the aforesaid acquisition.............................................................................................4
Appendix-2............................................................................................................................................ 9
Discussion regarding the factors that have influenced measurement of the proposed acquisition and
impairment loss of BHP Billiton andAccounting treatment of impairment of assets acquired.............9
References:......................................................................................................................................... 11

COMPANY AND FINANCIAL REPORTING
EXECUTIVE SUMMARY
This report has been prepared with an intention to report accounting treatment of
acquisition of US Oil and gas major by BHP Billiton Limited, an Australian Company.
The company acquired US Fayetteville Oil and gas shale in 2011. The purpose of
preparation of report has been detailed here-in-below:
(a) Recognising and measuring the acquisition of US Oil major as per Australian
Accounting Standard Board(Refer Appendix-1);
(b) Evaluating the Measurement of the aforesaid acquisition by BHP Billiton (Refer
Appendix-1);
(c) Determining the accounting for the aforesaid acquisition (Refer Appendix-1);
(d) Discussion regarding the factors that have influenced measurement of the proposed
acquisition and impairment loss of BHP Billiton (Refer Appendix-2);
(e) Accounting treatment of impairment of assets acquired (Refer Appendix-2).
The report deals with the detailed analysis of the above stated matter.

Appendix-1
Introduction
BHP Billiton is an Australian company incorporated in August 13, 1985. It is a global
resource company. The company deals in iron ore, copper, petroleum, coal etc. The
company is a multinational giant with operations in various country and generally sells
its output via supply agreements with its customer and exchanges.(Reuters, 2018)
BHP has recently acquired US Fayetteville oil and gas from Chesapeake Energy
Corporation on 31st March, 2011 and has expanded its business under non-conventional
mode. By this acquisition, the company tried to expands its business operation in USA.
The proposed acquisition amount to US $4,819 Mio and involved 100% stake in the
acquired company. The payment outflow of resources in cash.
The resources acquired in the proposed acquisition involved4,87,000 Acres of land
which was leasehold and properties producing natural gas including 3,000 wells of which
majority are Group operated.(Anon., 2011)
The proposed acquisition was executed with much hope and future prospect but the same
turned out to be a failure for the company and as an outcome company offloaded its
investment in US Fayetteville oil and gas to Texas Energy firm. The later part of the
report deals with the recognition, accounting treatment and measurement of the assets in
terms of AASB.
Further
Recognising and measuring the acquisition of US Oil major as per
Australian Accounting Standard Board, Evaluating the Measurement of the
aforesaid acquisition by BHP Billiton, Determining the accounting for the
aforesaid acquisition
Before understanding the recognition of the acquisition of US Fayetteville oil and gas in
the books of BHP Billiton, it shall be pertinent to understand the relevant Australian
Accounting standards that are hit by such acquisition. The first and foremost AASB 3
Business combination which states what shall constitute a Business combination and the
importance of fair value measurement under such acquisition which is covered under
AASB 13 Fair Value Measurement. Further, AASB 116 shall provide the requirement of
recognition of assets in the books of BHP Billiton post acquisition.(KPMG Audit Plc,
2011)
Further in terms of AASB 11 Joint arrangement deals with joint control in which the
property is joint controlled by two or more entities.(Australian Accounting Standard
Board, 2011)
In terms of AASB 3, the following are the criteria specified for acquisition method: