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2015-11-19 19:50:00

OIL WRITE-DOWNS & LOSSES

OIL WRITE-DOWNS & LOSSES

 

OIL WRITE-DOWNS 2015

 

OPERATING CASH FLOW 2015

 

Oil companies announce significant write-downs in third-quarter 2015

International and U.S. upstream oil companies wrote down $38 billion in assets in the third quarter of 2015, the largest for any quarter since at least 2008 for this set of 46 companies (Figure 1). Low oil prices continue to have a significant effect on the value of companies' assets and future prospects as well as on current revenue.

Although the volume of total liquids output for this group of companies increased over third-quarter 2014, the fall in oil prices contributed to a year-over-year decline in revenue. Lower oil prices also contributed to a 33% decline in cash flow from operations in the third quarter from the previous year. However, companies reduced capital expenditures by 34% over the same period, and for the first time in a year, these 46 companies showed a surplus of cash from operations over capital expenditures. Large write-downs—also called impairments—as well as reduced cash flow suggest that investment spending will continue to decline absent a meaningful increase in crude oil prices.

The significant increase in impairment charges was an important factor many companies discussed in their third-quarter earnings releases. An impairment charge represents the decrease in value of assets a company owns, typically its amount of proved reserves. Proved reserves are estimated quantities of oil and natural gas that analyses of geologic and engineering data demonstrate with reasonable certainty are recoverable under existing economic and operating conditions. Because oil companies must publish the amount of proved reserves they own every year, an impairment charge reflects assets that have estimates of future net cash flows below what the company already spent to develop them. This situation could result from a combination of geologic and economic factors, but regardless is something that lowers the value of the company.

Impairments are nonrecurring reductions in asset values reflected on a company's income statement but do not represent cash outflows. In the third quarter, impairments represented over 40% of the $85 billion in non-cash adjustments. This is higher than in 2011-13, when impairments averaged only 10% of all non-cash adjustments. Further, the increase in impairments contributed to negative net income for this set of companies for the fourth consecutive quarter (Figure 2).

One example of an impairment charge is Royal Dutch Shell's announcement to discontinue a Canadian oil sands project, reducing its proved reserves by an estimated 418 million barrels, according to company filings. A different company, Whiting Petroleum, wrote down the value of some assets it acquired from Kodiak Oil and Gas when the two companies merged last year.

Large impairment charges represent acknowledgement by a company that some of its projects are no longer profitable and are being discontinued. While this adjustment reduces the investment expenditures that the company would incur, it also reduces the future estimated cash flow from these projects. Options for conserving cash include reductions in dividends to shareholders, elimination of share repurchase programs or increases in cash through share issuance, increasing debt, or sales of assets. Since 2014, these 46 companies reduced dividends by 16% and share repurchases by 92%. Impairments make increasing debt and selling assets more difficult. Lenders may be less willing to lend if a company's assets declined in value, or may only be willing to lend up to a certain percentage of the value of a company's proved reserves, which declined in value from impairments. Selling assets becomes difficult because they are typically sold at a lower valuation than when the company purchased them because of the impairment charge, raising less cash than otherwise would be expected.

eia.gov

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More: 

TAKEOVERS $500 BLN 

OIL CUTS $200 BLN 

CHESAPEAKE NET LOSS $12.5 BLN 

JUNK U.S. RATED 

EUROPE PAYS $8 BLN

 

Tags: USA, OIL, GAS, PRICES

Chronicle:

OIL WRITE-DOWNS & LOSSES
2018, June, 22, 13:10:00

THE LARGEST VENEZUELA'S OIL

U.S. EIA - Venezuela holds the largest oil reserves in the world, in large part because of the heavy oil reserves in the Orinoco Oil Basin. In addition to oil reserves, Venezuela has sizeable natural gas reserves, although the development of natural gas lags significantly behind that of oil. However, in the wake of political and economic instability in the country, crude oil production has dramatically decreased, reaching a multi-decades low in mid-2018.

OIL WRITE-DOWNS & LOSSES
2018, June, 22, 13:05:00

U.S. DEFICIT UP FROM $116.1 BLN TO $124.1 BLN

U.S. BEA - The U.S. current-account deficit increased to $124.1 billion (preliminary) in the first quarter of 2018 from $116.1 billion (revised) in the fourth quarter of 2017, according to statistics released by the Bureau of Economic Analysis (BEA). The deficit was 2.5 percent of current-dollar gross domestic product (GDP) in the first quarter, up from 2.4 percent in the fourth quarter.

OIL WRITE-DOWNS & LOSSES
2018, June, 22, 13:00:00

EUROPE'S NUCLEAR INVESTMENT : €50 BLN

WNN - There are 126 operational power reactors in 14 EU Member States, providing more than one-quarter of the bloc's total electricity production. In its Communication on the Nuclear Illustrative Program (PINC) published last year, the European Commission expects nuclear to maintain its significant role in Europe's energy mix up to 2050. This would require investment of some EUR40-50 billion (USD46-58 billion) in nuclear LTO by 2050.

OIL WRITE-DOWNS & LOSSES
2018, June, 20, 13:15:00

OIL PRICE: ABOVE $75

REUTERS - Benchmark Brent crude LCOc1 was up 50 cents at $75.58 a barrel by 0835 GMT. U.S. light crude CLc1 was 50 cents higher at $65.57.

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