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Wednesday, August 12, 2015

Energy Industry Write-Downs Abound in 2015

From the Pittsburgh Post-Gazette:
Impairments have peppered company earnings over the past year, their mentions getting more frequent and the dollar amounts ballooning as commodity prices continue their descent. 
These one-time expenses result from a company’s calculation that the costs it has capitalized to develop its assets are higher than the cash such development would bring in. 
The way things are going, 2015 is likely to see the most impairments in the past decade, said Paul O’Donnell, principal equity analyst at IHS Energy. 
Already, during the first half of the year, 66 U.S. companies examined by Mr. O’Donnell had nearly $29 billion in impaired assets. 
Just one month into the second half of the year, the same group of companies wrote down another $20 billion, which “puts 2015 on track to blow the 2008 peak out of the water,” he said. 
When proved reserves — those the company knows are in the ground and have been or can be developed economically — shrink, so does a company’s ability to borrow money, because such reserves are used as collateral for loans, according to Mr. O’Donnell.
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