Many exploration and production companies have taken impairment charges during the most recent quarter as they write down the value of natural gas properties. This trend will probably continue if natural gas prices fall further in 2012.
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Impairments
Anadarko Petroleum
(NYSE:APC) recorded a $1.5 billion pretax noncash charge in the fourth quarter of 2011, related to the impairment of coal bed methane properties in the Powder River Basin. The write down was caused by low natural gas prices and came to $1 billion on an after tax basis. The company said that the write down did not reduce its proved reserve total.

Conoco Phillips (NYSE:COP) reported a $190 million impairment for various natural gas properties in Canada. The company also wrote down $44 million of properties in its United States exploration and production segment, but did not give further details on these properties.

Pioneer Natural Resources (NYSE:PXD) reported an after tax noncash charge of $223 million, or $1.83 per diluted share in the fourth quarter of 2011. The write off was related to the company's properties in the Edwards trend play in Texas.

The Edwards play is present on the company's acreage in south Texas and lies below the Eagle Ford Shale in many areas. The company used to be very active in this play, and as recently as the first half of 2008, drilled 22 wells into this dry gas formation. The company suspended drilling in the Edwards trend in 2009. It also wrote off $20 million in unproved dry gas properties in other areas of its portfolio.

Comstock Resources (NYSE:CRK) also suffered from the decline in natural gas prices, and recorded a fourth quarter pretax impairment charge of $60.8 million related to its proved natural gas properties. On an after tax basis the write down was $39.5 million, or 86 cents per share.

Comstock didn't say where the impaired properties were located, but the company recently suspended operated drilling activity in the Haynesville Shale. The company plans to end development here by March 2012.

It has been very active in the Haynesville Shale over the last few years, and has drilled 180 gross wells here since entering the play in 2008. (For related reading, see A Natural Gas Primer.)

The Bottom Line
Most exploration and production companies tend to downplay impairment charges as non-charge accounting items and bury them deep in the footnotes of financial statements. Despite this treatment by management, these charged should be analyzed by investors as part of the due diligence process when researching a stock.

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

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