Encana, BG report writedowns in US shale gas values

Encana Corp. and BG Group each separately reported noncash writedowns in the value of their US natural gas shale assets on July 27 during presentations on second-quarter financial results.

Randy Ersman, Encana chief executive officer and president, said additional shale gas writedowns are expected under US full-cost accounting rules.

Encana reported a $1.7 billion aftertax impairment charge against net earnings in the second quarter resulting primarily from the decline in 12-month average trailing gas prices. The impairment charge does not affect cash flow or operating earnings and is not reflective of the fair value of the assets, the company said.

“Given the current pricing environment, the company expects that further declines in 12-month average trailing natural gas prices will likely result in the recognition of future ceiling test impairments,” an Encana news release said.

The Calgary company is accelerating development of new plays targeting liquids.

“We will continue to advance our strategic shift towards achieving a diversified portfolio of production and a more balanced stream of future cash flows by accelerating our development of oil and liquids rich natural gas plays,” Eresman said. “We are taking a low risk approach to increasing our production of oil and liquids as we focus on the extraction of more natural gas liquids.”

BG Group reported a $1.3 billion noncash writedown against its US shale gas business, and BG Group Chief Executive Officer Frank Chapman said the writedown was “a result of a lower long-term Henry Hub price premise.”

“In keeping with our new US gas price premise, we have further reduced our rig count to six. Our efforts in the US business are now focused on progressing our significant opportunities for the export of LNG from North America to BG Group’s global customers,” Chapman said.

BHP Billiton Petroleum in May said it was considering a possible writedown of its US shale gas assets (OGJ Online, May 15, 2012).

Meanwhile, Exco Resources Inc. of Dallas reported a first-quarter $276 million noncash writedown on its assets.

Exco Resources, which operates in the Haynesville and Marcellus shales, is scheduled to release its second-quarter results after the markets close on July 31 and to discuss those results on Aug. 1.