U.S. oil-and-gas producer companies have written down their field value most in 2015 compared to the previous years. Chesapeake Energy Corporation (NYSE:CHK), Anadarko Petroleum Corporation (NYSE:APC) and Devon Energy Corp (NYSE:DVN) are among the large energy firms that have accounted multibillion-dollar impairments in 2015, while many smaller companies have reported proportionally large write-downs.
The process of writing down assets can result in shrink the oil-and-gas reserves pool used as collateral products for loans. As numerous oil-and-gas producer firms spend considerably more than what they generate selling commodities, ample credit is required by them to keep operating. These companies’ shares are mostly valued on estimated production growth rather than current profitability.
The problems to mount
The impairment problems for Chesapeake, Devon and other oil and gas producers can mount even if oil prices move higher against forecasts. U.S. securities watchdog require production and exploration companies to assess drilling assets and reserves taking into account the energy prices in the last twelve months.
It indicates the formulas utilized to derive their value at June’s end will still cover oil prices from the second half of 2014, when oil prices recoded sharp descent.
The write-downs of assets have deflated quite a many shale boom’s highfliers. Chesapeake Energy Corporation (NYSE:CHK), which moved from a $50,000 startup firm to become U.S.’s leading natural-gas producer firm, has written off nearly $10 billion so far in this year. It is nearly twice the company’s stock market value.
Some of these write-downs of assets can be chalked up to the drilling property grab that was recorded in the last decade. During that time many companies quickly leased as much property as they could close to new shale prospects before peers followed and drove up prices. The impact of this action is large as big prices were paid for assets that many times turned out to be far from the best drilling areas.