Sustained Low Natural Gas Prices Causing Industry to Examine Long-Term Profitability

Chevron Corporation announced last week that it would be writing down the value of its oil and gas assets by more than $10 billion. The company said the impairment was related to its shale holdings in Appalachia and long-term expectations about natural gas prices. Last month, Equitrans Midstream Corporation disclosed that its YTD operating performance was affected by nearly $300 million in impairment charges recorded as a result of downward revisions to forecasted natural gas production growth in the region.

Industry analysts don’t expect pricing to pick up in the foreseeable future. Conventional wisdom held for years has been that production companies can plug wells and pause production to wait out low prices. Some in the industry are considering the possibility that buyers may never come, as the world considers the impact of fossil fuels on climate change and innovations that reduce the need for oil and natural gas are adopted. Suppliers who worry that prices may never rebound are selling reserves while they can, which is also keeping downward pressure on pricing.

With sustained depressed pricing for natural gas, and no increase expected on the horizon, exploration & production and midstream companies in the region will need to take a hard look at their oil and gas assets to determine if impairment charges are necessary. Expect other players to announce similar reassessments as the fact that these companies are writing down the value of their assets may itself represent an indicator of impairment for the rest of the industry. Smaller, independent producers with undiversified exposure to local natural gas pricing may also need to consider the impact on their long-term profitability and their ability to continue as a going concern.

Schneider Downs has experts in the oil and gas industry. Our professionals are skilled in providing audit, assurance and business advisory services to clients involved in the extraction of natural resources. Contact us for more information.

Sources:

https://www.wsj.com/articles/chevron-facing-fossil-fuels-glut-takes-10-billion-charge-11576012579

https://www.businesswire.com/news/home/20191105005457/en/ETRN-EQM-Announce-Quarter-2019-Results

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2024 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
Postcard from the AADE Operator’s Forum
An Increase in LNG Exports Could Lead to Higher Seasonal Price Volatility
Potential Accounting Changes for Environmental Credits
Marginal Well Credit Back to Zero for 2023 Tax Year
2023 Legislative & Regulatory Update
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us
Pittsburgh

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×