North American Natural Gas Producers = Write-off, Impairment, Write-Down Season...

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 in 2012. 

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.

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. 

The Year of the Black Water Dragon brings a new province to China….Canada!

The value of Western Canadian crude is depressed for two reasons - so much oilsands production was being moved into the U.S. Midwest it forced down prices compared to WTI and the Keystone XL is the Spruce Goose of the 21^st Century splashed down for good. This "double discount" from world prices is costing oil companies and governments in Canada billions annually.

So goes the news for Canadian Natural Gas and shale gas.  On the convention al side FD&A costs more than $12/boe will make you unprofitable for the next decade and not to mention the creeping environmental litigation that will manifest itself as workers exposed to conditions the Canadian government didn’t protect them from produces its generation of early onset cancers and other terminal illnesses.  The forecast for natural gas for the next decade is likely to hold between USD $ 3-4 mmbtu (we’re at about USD $2.54 mmbtu).

Public discord over Drilling's fractured future is mounting an offensive: Growing hydraulic fracturing (fracking) erupted in 2011 with moratoriums now in place in Quebec and jurisdictions around the world. Using high-pressured, chemicallaced water and sand boosted North American gas production so much it's driven prices to uneconomic levels. Calgary's Encana Corp. found itself caught up in the issue late in the year when the U.S. Environmental Protection Agency linked fracking to water issues in one Wyoming village.

Enter China's resourcefulness in Canada: China's state oil companies are buying up Canadian oil, natural gas and pipeline assets like never before. It's provided greater impetus for better oil and gas pipeline links to the Pacific Rim. Regulators approved a project by Athabasca Oil Sands Inc., which is controlled by PetroChina, whose $5.4-billion deal with Encana in the Horn River Basin collapsed earlier in the year. In October, Sinopec added to a position in Syncrude Canada, paying $2.2 billion for Daylight Energy. There are billions more invested in companies like OPTI, MEG Energy and Penn West Energy from a variety of firms ultimately accountable to the Beijing government. 

Canadian Bad business ethics will bring forward more of the corrupt to trial shortly: The dollars were bigger when Niko Resources was fined $9.5 million in June for paying bribes to a government official in Bangladesh in 2005, but Alberta Securities Commission's rulings against two Calgary investment firms, Concrete Equities Inc. and Wealthstreet Inc. this fall was signally the fate for many during 2012! The ASC ruled four principals with Concrete Equities "illegitimately" raised nearly $120 million from investors in 2009. One of the four, David Jones, who promoted investments regularly on local TV and radio, was also ruled to have illegally traded securities through Wealthstreet and was levied a $1.5-million penalty. Penalties in the case of Concrete, described by the ASC as "an accident waiting to happen," haven't yet been announced.

Suncor Energy: Two years after creating Canada's biggest oil and gas company with the takeover of Petro-Canada, Suncor Energy found itself caught up in the violence of the Arab Spring more than any other Calgary company. Suncor had to write down $514 million in Libya early in the year given the uprising that brought down dictator Moammar Gadhafi before returning in December just as it pulled out of Syria amid growing violence against the Assad regime. In addition, if the geopolitical challenges weren't enough, CEO Rick George announced his retirement.

TransAlta admitted in November it manipulated electricity prices a year earlier. After approving the Heartland power line, a critical decision is looming on whether to proceed with one or both controversial north-south power lines to be funded by billions of ratepayer dollars.

A lot of strong stories - notably the battle on the board of directors at both Canadian Pacific and grain-handler Viterra Inc. - didn't make the list and will largely play out this year.