Companies write down value of shale gas assets
() - Shale gas driller Encana, Canada's largest natural gas producer, announced July 27 it had written down more than $1.7 billion in shale gas assets on its books, the majority from its U.S. shale operations. CEO Randy Eresman said he expects the company to take additional shale gas asset write-downs in the near future. Such asset write-downs directly affect the industry's credit lines, as the reduced book value results in financial lenders making less cash available going forward.
Other shale gas development companies have also written down major assets as aggressive development plans meet the realities of the tough economics of low prices that the industry never fully anticipated. BG Group decreased the value of its U.S. shale operations by $1.3 billion July 27 to reflect a weak outlook for U.S natural gas prices. And BHP Billiton is embroiled in a decision to write down by an estimated $2.5 billion the shale gas assets it acquired just last year from Chesapeake Energy for $4.75 billion.
When the shale drilling boom began, companies proclaimed aggressive values for the gas held in the ground as calculated in lease agreements with landowners. As the drilling boom took off unabated and natural gas began building up in storage, the price the market was willing to pay declined month by month. In addition, extraction costs for shale gas are significantly higher compared to conventional drilling into large pockets.