2015 was the year of the write-off for energy companies. As oil prices collapsed, the value of reserves held by oil producers also declined and prospects that were viable with oil trading above $90 a barrel are now no longer economic.
With oil prices falling, the write-downs came thick and fast for the energy sector. Oppenheimer reports that during 2015 the top 30 publicly traded US-based exploration and production companies collectively booked $101 billion in asset impairments compared with only $23 billion of impairments during 2014 and $9.3 billion of impairments in 2013.
It doesn’t look as if these write-offs are going to end anytime soon. Year-to-date asset write-offs are still running ahead of 2013 and 2014 levels although they remain significantly below 2015’s high water mark figure.
Oil sector asset impairments in excess of $100 billion
Asset impairments this year for the top 30 publicly traded US-based E&P companies currently amount to $18.7 billion, led by Devon Energy with $4.5 billion, Concho Resources with $3.0 billion, Chesapeake with $2.8 billion, and Southwestern with $2.5 billion.
The three-year total of asset impairments charges for the 30 US-based E&P firms that Oppenheimer covers is $134 billion. As a percentage of the companies’ market capitalisation over the period, impairment charges averaged 26% of market value. Devon Energy has been the hardest hit. As a percentage of the company’s market capitalisation, the company has written off 111% since the beginning of 2013. Anadarko has written off 40% of its market capitalisation, and Occidental impairment charges come in at 31% of the group’s 2013 market value.
The ten largest E&P companies in the group wrote off asset impairments of more than $52 billion in 2015, led by Devon with $20.8 billion, followed by Occidental with $9.7 billion and Anadarko with $7.3 billion. The group write-offs were $16 billion in 2014, led by Occidental with $7.4 billion, Anadarko with $2.1 billion and Apache and Devon with $1.9 billion each. In 2013 the group’s write-offs were $7.8 billion, led by Devon with $2 billion, Anadarko with $1.7 billion and Pioneer with $1.6 billion.
In the small and mid-caps, California Resources and Chesapeake Energy booked the highest impairments. As Oppenheimer explains:
“The 10 medium E&P companies recorded asset impairments write-off of $21.5B in 2015, led by SWN with $7B, followed by Newfield (NFX) with $4.9B, Cimarex (XEC) with $3.7B, Murphy (MUR) with $2.5 and Marathon Oil (MRO) with $2B.
The 10 small E&P companies wrote off ~$28B in asset impairments in 2015, led by Chesapeake Energy (CHK) with >$18B, followed by California Resources (CRC) with $4.9B, Whiting Petroleum (WLL) with $1.7B, Matador Resources (MTDR) with $800M and SM Energy (SM) with $597M.
Total asset write-offs for the 2013-2015 period as a percentage of the companies’ market capitalization…averaged 226% for the small E&P companies, led by CRC at >1500%, CHK at >420% and WLL at 125%. Companies with the lowest asset impairment write-offs as a percentage of market capitalization were CXO at 3%, NBL at 7%, and COP at 8%.”