vt. Bailing on all those gassers positions now looks like
inspired timing on our part!
As usual, "the tape tells all". And Tuesday and Wednesday it was sure hitting me up the side of the head that something more than warm temps were on the way.
Big caps like APC and DVN gapped down hard this morning to continuing the declines that accelerated late yesterday after this little gem of a story hit the wires!
Iso
Thursday January 10, 2:17 pm Eastern Time
Charges seen burdening oil and gas firms' earnings
By Andrew Kelly
HOUSTON, Jan 10 (Reuters) - Writedowns and charges aimed at bringing lofty asset values
back down to earth will place an additional burden on the fourth-quarter earnings of U.S. oil
and gas companies already facing tough times because of sharply lower energy prices, analysts said.
Art Smith, chairman of energy research firm John S. Herold, said such
year-end charges could total $10 billion, surpassing the $8.4 billion
booked in 1998, when oil and gas prices slumped.
Accounting rules require companies to recalculate the value of their oil and
gas reserves at end-of-quarter prices and take a writedown if the value is
less than shown on their books.
The hot natural gas market in the United States during the first half of last
year pushed up the cost of acquisitions and also the cost of acquiring
reserves by drilling, setting companies up for hefty year-end writedowns,
analysts said.
``It was widely viewed six months ago that natural gas prices would be in
the $3 to $4 range (per thousand cubic feet) for the indefinite future and many acquisitions were based on those kind of
economics,'' said Smith.
Benchmark U.S. natural gas prices ended 2000 at $9.775 per thousand cubic feet at a time when the U.S. economy was still
strong and demand for gas was running ahead of production.
But gas prices ended last year at $2.57 as the economy contracted and mild weather eroded demand for gas to heat homes.
SOME CHARGES ALREADY ANNOUNCED
Anadarko Petroleum Corp. (NYSE:APC - news), the biggest independent U.S. oil and gas producer, has already taken a
third-quarter pretax charge of $827 million on Canadian oil and gas assets.
Burlington Resources Inc.(NYSE:BR - news), mainly a gas producer, has said it will take a pretax charge of up to $225 million
linked to the planned sale of U.S. assets worth about $500 million.
Lehman Brothers analyst analyst Tom Driscoll said other companies appeared vulnerable to similar charges.
``From a long-term perspective, it's indicative of a lack of value creation and high acquisition prices,'' he said.
Smith said investors seeking to identify companies with potential exposure to writedowns should look for those that paid the
highest prices to acquire natural gas reserves last year.
According to John S. Herold, companies who made the most expensive acquisitions include El Paso Corp. (NYSE:EP -
news), Amerada Hess Corp. (NYSE:AHC - news), Burlington Resources and Unocal Corp. (NYSE:UCL - news).
Other analysts were wary about trying to pick out the companies likely to take writedowns.
``There are all kinds of variables involved. It's an art not a science,'' said one.
Driscoll said asset writedowns do not represent a cash loss and typically do not move stock prices when they are disclosed.
Anadarko and Burlington shares moved broadly in line with their peer group when they announced their charges.
To the extent that such charges stem from imprudent spending, investors usually punish a company when the spending occurs
and long before the charge is taken, Driscoll said.
Smith acknowledged the non-cash nature of asset writedowns, but argued the corresponding reduction in shareholder equity
that occurs can hurt a company's balance sheet.
``It can cause the company to move from an apparently good capital position to a distressed position quickly,'' he said.
<Thursday January 10, 2:17 pm Eastern Time
Charges seen burdening oil and gas firms' earnings
By Andrew Kelly
HOUSTON, Jan 10 (Reuters) - Writedowns and charges aimed at bringing lofty asset values
back down to earth will place an additional burden on the fourth-quarter earnings of U.S. oil
and gas companies already facing tough times because of sharply lower energy prices, analysts said.
Art Smith, chairman of energy research firm John S. Herold, said such
year-end charges could total $10 billion, surpassing the $8.4 billion
booked in 1998, when oil and gas prices slumped.
Accounting rules require companies to recalculate the value of their oil and
gas reserves at end-of-quarter prices and take a writedown if the value is
less than shown on their books.
The hot natural gas market in the United States during the first half of last
year pushed up the cost of acquisitions and also the cost of acquiring
reserves by drilling, setting companies up for hefty year-end writedowns,
analysts said.
``It was widely viewed six months ago that natural gas prices would be in
the $3 to $4 range (per thousand cubic feet) for the indefinite future and many acquisitions were based on those kind of
economics,'' said Smith.
Benchmark U.S. natural gas prices ended 2000 at $9.775 per thousand cubic feet at a time when the U.S. economy was still
strong and demand for gas was running ahead of production.
But gas prices ended last year at $2.57 as the economy contracted and mild weather eroded demand for gas to heat homes.
SOME CHARGES ALREADY ANNOUNCED
Anadarko Petroleum Corp. (NYSE:APC - news), the biggest independent U.S. oil and gas producer, has already taken a
third-quarter pretax charge of $827 million on Canadian oil and gas assets.
Burlington Resources Inc.(NYSE:BR - news), mainly a gas producer, has said it will take a pretax charge of up to $225 million
linked to the planned sale of U.S. assets worth about $500 million.
Lehman Brothers analyst analyst Tom Driscoll said other companies appeared vulnerable to similar charges.
``From a long-term perspective, it's indicative of a lack of value creation and high acquisition prices,'' he said.
Smith said investors seeking to identify companies with potential exposure to writedowns should look for those that paid the
highest prices to acquire natural gas reserves last year.
According to John S. Herold, companies who made the most expensive acquisitions include El Paso Corp. (NYSE:EP -
news), Amerada Hess Corp. (NYSE:AHC - news), Burlington Resources and Unocal Corp. (NYSE:UCL - news).
Other analysts were wary about trying to pick out the companies likely to take writedowns.
``There are all kinds of variables involved. It's an art not a science,'' said one.
Driscoll said asset writedowns do not represent a cash loss and typically do not move stock prices when they are disclosed.
Anadarko and Burlington shares moved broadly in line with their peer group when they announced their charges.
To the extent that such charges stem from imprudent spending, investors usually punish a company when the spending occurs
and long before the charge is taken, Driscoll said.
Smith acknowledged the non-cash nature of asset writedowns, but argued the corresponding reduction in shareholder equity
that occurs can hurt a company's balance sheet.
``It can cause the company to move from an apparently good capital position to a distressed position quickly,'' he said.>
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