Flood of Oil Asset Writedowns Seen Across Asia on Crude Rout

  • CNOOC, Santos, Inpex may report losses, Bernstein says
  • Crude prices have dropped almost 70% in past two years

Investors in Asian oil and gas companies should prepare for a wave of writedowns after a collapse in crude prices.

CNOOC Ltd., Santos Ltd. and Inpex Corp. are among explorers and producers that may report full-year net losses because of writedowns that may be equal to as much as 10 percent of book value, analysts at Sanford C. Bernstein & Co. in Hong Kong wrote in a report Tuesday.

“The future value of oil and gas properties has been significantly reduced,” according to the Bernstein analysts, including Neil Beveridge. “The impairment loss will likely be larger than earnings for the year for some companies, pushing several E&P’s in the region into a loss.”

Oil prices have tumbled almost 70 percent in the past two years, weighing on earnings and forcing explorers to cut spending. Writedowns at Santos, the Adelaide-based energy company that built the $18.5 billion Gladstone liquefied natural gas project in Australia, may exceed A$3.4 billion ($2.4 billion), according to UBS Group AG.

Companies including PTT Exploration & Production Pcl that have been active in mergers and acquisitions over the past five years also are expected to write down the value of assets, the analysts wrote. Writedowns at Chevron Corp. last week pushed the company to its first quarterly loss in 13 years.

“Investors should look through impairment losses at the underlying earnings or cash flow for each company,” according to the Bernstein analysts, who expect a recovery in oil in the second half of the year. “Assuming an oil price of greater than $50 a barrel, we see value in the sector.”

The market has continued to weaken, with oil sliding 9.2 percent last month amid volatility in global markets, brimming U.S. crude supplies and the outlook for increased exports from Iran after the removal of international sanctions. West Texas Intermediate on Tuesday was down 2.1 percent at $30.97 a barrel at 1:41 p.m. Hong Kong time. Prices lost 30 percent last year.