Houston based El Paso Corporation disclosed that it is reducing the value of its estimated proven reserve base of its oil and gas properties by 41%. Proven reserves represent what an oil and gas company can reasonably expect to produce based on economic conditions and technology. As a result, El Paso will record a one-time, non-cash charge against its fourth-quarter earnings of about $1 billion on a pretax basis, which, under federal securities rules, must be taken to reflect the decline in value of the proven reserve base on El Paso’s books.
El Paso’s move comes on the heels of Royal Dutch/Shell Group‘s announcement last month that it was reducing the value of its proven reserve base by 20 percent and El Paso’s warning to investors earlier this month that it expected to make a material negative revision in its proven reserve estimates.
El Paso continues to struggle under a heavy debt load. It has also been liquidating a number of assets over the past year to raise cash and reduce debt.
Update: The Houston Business Journal this afternoon reports that El Paso’s stock price was hammered today on the report of the reserve write down. The HBJ article includes analysis on El Paso from John Olson of the Sanders Morris Harris investment firm. Mr. Olson gained local fame when he was one of the only investment analysts who was bearish on the stock of Enron Corp. well before Enron melted down in late 2001.