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More on Apache (APA -1.5%) Q1: Net profit falls to $778M from $1.1B, due to a $390M write-down...
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Thursday, May 3, 2012, 9:01 AM ETMore on Apache (APA -1.5%) Q1: Net profit falls to $778M from $1.1B, due to a $390M write-down on Apache's Canadian oil and gas assets as a result of of lower natural gas prices. Total global production +5.1%; continues to forecast 2012 output growth of 7%-13%, including recent acquisitions.
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If the estimated future revenue of the production is less than the capitalized costs,the company must write-down the costs to be no greater than the estimated future revenue.
So what we're seeing at APA is that they have to write-down costs based on today's low cost of gas.
When gas prices increase (which I believe they will one day), the costs to be amortized against that revenue will be much smaller because of today's write-down. so more of the higher price will flow into APA's earnings.
If you believe gas prices will not go to zero,this announcement is really nothing more than a timing difference between writing off the costs today or at some future date. It's a non-event,imho.
APA is a buy. Hopefully the market will overreact on the downside (it isn't doing much in the pre-market) so I can add to my position.