Does Chevron still have any booked reserves that are still economical? How often do we have to fess up and make a downward correction? Is that a ticking time bomb that shareholders dont fully appreciate? When exploration is shut down doesnt that negatively affect future reserve bookings regardless of price?
6 replies (most recent on top)
As the first reply stated, reserves are economical by definition, a very strict SEC definition. Status of reserves are determined once a year (Dec 31st) as of a price scenario at that point of time. Proved reserves are what is reported. Probable, Possible, and Potential reserves are internals numbers. Proved developed reserves are what are being currently produced or capable of being produced with minor expenditures (workovers or remedial actions). Impairment calculations at a field level are done quarterly during the year. If necessary, adjustments are made to Proved reserves at that time Proved undeveloped require a more significant expenditure to bring on production. It is these reserves that at risk with the low price scenarios. Chevron was never as aggressive booking undeveloped reserves as Proved compared to other companies (Shell, etc). Oddly enough, the low price scenario also increases Proved reserves in some countries due to how the Production Sharing contracts are written.
It usually is a once a year calculation as it would can be very challenging to recalculate with each price fluctuation and all of the other variables that can impact reserves. Also the operating units minimize operating cost to maintain economic operations (in assets where its possible) which is another reason to keep costs low. Complex issue, very interesting topic.
Previous post captures the essence. This link has detail https://www.stock-analysis-on.net/NYSE/Company/Chevron-Corp/Analysis/Property-Plant-and-Equipment
One question though, how long can a company hold impaired assets before reporting? What is the reporting status of Chevron's impaired assets today?
Any write down would be a non-cash deduction from net income and an Impairment to the assets on the balance sheet.
-dub, You are correct, but "economical" implies a price condition. When the reserves are booked, they are economical at a certain pricing condition. When the price drops dramatically, and in a relatively short period relative to longer-term spot-pricing trends, as we now see, that pricing condition may no longer render the reserves economical. OP's question, i think, relates to what happens to the value of bookings when such reserve bookings are no longer economical and how often or in what moving price/time window are bookings re-evaluated. For instance, GOM deepwater reserves were booked at a much higher price-point than $29/bbl. A new discovery in deepwater or ultra-deepwater is not likely to be economical for Chevron at the current price. This is an interesting question. From an accounting standpoint, when does the status of booked reserves change and how is the handled in earnings reports?
Reserves are economical by definition