Chevron charge points to billions more in gas writedowns, analysts say


Oil and gas producers could wipe billions of dollars more off the value of U.S. natural gas assets in the months ahead, analysts said on Wednesday, after Chevron Corp. became the fourth oil major to slash its estimates for sector values.

A long, steady increase in U.S. gas production — much of it a byproduct of the shale oil boom — has pushed prices for the fuel heading toward a 25-year low and a number of analysts have already forecast that the oversupply will worsen in 2020.

Prior to Chevron’s impairment, BP PLC, Repsol SA and Equinor ASA had written down billions worth of North American shale assets in recent months.

Chevron on Tuesday said it expects to take writedowns to the tune of US$10 billion to US$11 billion in the fourth quarter, more than half of which is related to its Appalachia gas shale assets. Shares of the company were down 0.7 per cent at US$117.04 in early trading.

It also flagged a cut to its longer-term commodity price outlook without specifying numbers, and said it was planning to sell some natural gas projects.

“It … highlights that many companies are still carrying assets on their balance sheet that were acquired or developed with cost structures that are materially higher than today’s levels,” Berenberg analysts Henry Tarr and Ilkin Karimli said.

BP Plc said in its 2018 annual report that it determines the size of its recoverable oil and gas reserves based on a long-term Brent oil price of US$75 a barrel and a Henry Hub natural gas price of US$4 per mmbtu.

European peer Shell has also long expected improvement in prices and forecast in its 2018 annual report that Henry Hub natural gas prices would rise to US$3.50 in 2020 and 2021 from US$3.25 per mmbtu in 2019.

Benchmark gas prices are currently around US$2.28 and Morgan Stanley analysts on Wednesday lowered their forecast for next year to US$2.25 from US$2.50.

Spain’s Repsol last week recorded a 4.8 billion euro (US$5.29 billion) asset loss, primarily on its North America assets. BP took a US$3.3-billion charge in the third quarter with US$2.3-billion relating to heritage shale assets from the BHP portfolio it acquired last year for US$10.5 billion.

Norway’s Equinor wrote off US$2.8 billion in the third quarter, while Exxon Mobil Corp took a US$2 billion charge in 2017 against the value of natural gas reserves from its buyout of XTO Energy.

“The pricing companies have to use for reporting their proved reserves are on pace to be around 15 per cent lower than last year, so I’d expect reserve write-downs to be prolific,” Edward Jones analyst Jennifer Rowland said.

© Thomson Reuters 2019


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