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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: Think4Yourself who wrote (82530)12/22/2000 11:30:05 PM
From: jim_p  Read Replies (1) of 95453
 
John,

One of the main reasons cash flow is used in place of earnings is because of the two different methods of accounting for oil and gas expenses, full cost vs. successful efforts.

Earnings vary from company to company depending on which method you use. It would not be fair to compare the earnings of one company to another if one expenses their dry hole costs and the other capitalizes it. As a result, when comparing oil and gas companies you use earnings before non-cash expenses so you are comparing apples to apples.

Back when Clarence Samson was the chief accountant of the SEC, I argued the merits of changing to full cost from successful efforts with the SEC and won. As a result, all oil and gas companies were allowed to make a one time change to either method.

Jim
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