I don't know what to say. Leading independent Devon Energy's (NYSE:DVN) $7.1 billion writedown of oil and gas properties has simply floored me.
I know that number may not sound like a lot, compared to the $24.2 billion charge at Time Warner, the $37.2 billion writedown of Wachovia's loan book at Wells Fargo (NYSE:WFC), or, closer to home, the $34.1 billion in charges taken by ConocoPhillips (NYSE:COP). I'm still disturbed.
The Wall Street Journal noted that "[m]ost analysts pay little attention to such charges." Well, include me out, as Samuel Goldwyn would say. I'm well aware that this charge doesn't impact Devon's cash flows, which hit a record at $9.6 billion for the year. It still reflects poorly on the firm's reserve booking practices, in my opinion.
One would think this gigantic impairment charge would invite a dose of humility. However, Devon is going ahead with a 2009 capital program that will overshoot cash flow by about $1 billion. Granted, exploration and development spending will drop about 50% from last year, but it's still a fairly aggressive move in this environment.
Even Chesapeake Energy (NYSE:CHK), slighted by certain analysts for spending like a sailor, has been chastened on this front. Then again, Devon has a much better balance sheet, at less than 25% net debt to adjusted capitalization.
Maybe I'm getting all worked up over nothing here, but I find myself in Tudor Pickering's camp. That energy-focused research outfit recommended swapping E&P dollars out of Devon and into Anadarko Petroleum (NYSE:APC) or Noble Energy (NYSE:NBL). Add EOG Resources (NYSE:EOG) -- which just reported it had neither "any significant property impairments or any meaningful price related reserve revisions" -- to that list, and we're right on the same page.
