E & P Companies That Lost Money

By Eric Fox | May 15, 2012 AAA

While prices for crude oil remain near record highs, many exploration and production companies reported net losses on a GAAP basis during the most recent quarter. These losses were caused by charges related to derivatives pricing, the impairment of properties and other mostly one-time items.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

The Losers
Range Resources (NYSE:RRC) reported a GAAP loss of $42 million or 26 cents per diluted share in the first quarter of 2012. The largest item that impacted results was a $53 million loss related to the mark to market of the company's hedge portfolio in the quarter. The company also paid a $24 million fee related to a new tax imposed by Pennsylvania on unconventional natural gas wells drilled in the state. After excluding these and several other items, Range Resources reported adjusted net income of $24 million or 15 cents per diluted share.

SandRidge Energy (NYSE:SD) reported a GAAP loss of $232 million or 58 cents per diluted share in the first quarter of 2012. The main culprit for SandRidge Energy was a set of realized and unrealized non-cash losses on the company's derivatives portfolio. After removing these items, as well as several other onetime charges, the company reported adjusted net income of $21.2 million or 4 cents per share.

Quicksilver Resources (NYSE:KWK) also wrote down the value of natural gas properties during the first quarter of 2012 and reported a net loss of $60 million, or 35 cents per diluted share. The impairment charge for the company totaled $63 million, and like other operators was related to the drop in natural gas prices. After adjusting for this impairment and several other one-time items, the company reported adjusted net income of $15 million, or 9 cents per diluted share.

SEE: Impairment Charges: The Good, The Bad and The Ugly

EXCO Resources (NYSE:XCO) reported a GAAP loss of $281.6 million or $1.32 per diluted share in the first quarter of 2012. The proximate cause of the company's large loss was a $276 million non cash write off of natural gas properties it held in its portfolio.

Since Exco Resources employs the full cost method of accounting, it is required to perform a ceiling test on its properties and was obligated to write down these properties due to the low price for natural gas. The company squeezed out a small profit on an adjusted basis, earning $6.7 million or 3 cents per share in the first quarter of 2012.

SEE: Earning Forecasts: A Primer

The Bottom Line
The large difference between reported and adjusted net income for the exploration and production industry demonstrates why the sector is a difficult one for investors to analyze. These one-time items need to be examined to determine whether the company should be adjusting these charges away.

SEE: Understanding The Income Statement

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

comments powered by Disqus
Related Analysis
  1. Unconventional Drilling Still Has Room To Boom
    Stock Analysis

    Unconventional Drilling Still Has Room To Boom

  2. Finding An Alternative With Currency ETFs
    Stock Analysis

    Finding An Alternative With Currency ETFs

  3. Commodities: Has Their Time Come Again?
    Stock Analysis

    Commodities: Has Their Time Come Again?

  4. Why 'Bricks And Mortar' Retail Remains A Solid Bet
    Stock Analysis

    Why 'Bricks And Mortar' Retail Remains A Solid Bet

  5. Is It Finally Time To Get Defensive?
    Stock Analysis

    Is It Finally Time To Get Defensive?

Trading Center