Both BP and BG Group took a massive writedown to their US shale reserves that clouded what otherwise would have been a fairly profitable second quarter.
The latest to join the shale asset writedown was BHP, which wrote down as much as $US3 billion from its $5 billion Fayettesville shale acquisition from Chesapeake Energy last year.
In contrast, Exxon, which also made top-of-the-market, and indeed a far pricier purchase of XTO Energy at $US35 billion in 2010, got away without taking a hit on its balance sheet.
The common denominator to these companies is their exposure to shale gas assets in the US, and the plummeting natural gas prices that have eroded much of the reserves value.
However, what separates Exxon from the rest is the accounting rules it follows to measure asset impairment. While Exxon follows the US rules, the others, all headquartered in Europe, follow rules from across the pond.
The European method, which is governed by the international financial reporting standards, makes companies better reflect the gas industry conditions where the asset is located and marketed.
For example, BG Group lowered its outlook for Henry Hub natural gas price to $US4.3 per million British thermal unit from $US5/MMBtu. Applying this to its expected future discounted cash flows from its shale assets, it wrote down a whopping $1.3 billion, or almost two-thirds of its second quarter operating profit.
US accounting rules, which follow generally accepted accounting principles, allow companies such as Exxon room to maneuver.
Even though it is subject to the same gas price movements, it does not have to "mark to market" its assets and instead can value its assets as long as the gross future cash flow exceed present values.
This has allowed Exxon to keep its balance sheet pretty even though the company chief has gone on record to say they "are losing our shirts" due to low natural gas prices.
While a uniform accounting method is a desirable one enabling a better performance comparison between companies , it appears a long way off.
