Please ensure Javascript is enabled for purposes of website accessibility

Why Didn't Continental Resources Write Down Its Property Values?

By Tyler Crowe and Taylor Muckerman - Mar 8, 2016 at 10:03AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Many oil and gas drillers have been revaluing their assets lower to reflect the current price environment. But not all of them.

As earnings reports have come out this year, many companies have marked down the values of their properties -- especially those that have high debt loads like Continental Resources (CLR 1.39%). So, what makes Continental so special?

In this video segment, Sean O'Reilly, Taylor Muckerman, and Tyler Crowe consider a few of the possible reasons that the company didn't write down its property values this past quarter, and why there's probably nothing fishy about it.

A transcript follows the video.

This podcast was recorded on March 3, 2016.

Sean O'Reilly: We've got a mailbag question from Carl in Virginia Beach, who writes, "In recent quarters, we have seen some oil and gas companies write down the value of their properties, and some have not. One company that has not is Continental Resources." Speak of the devil. "They have a huge debt load as well. Are they being honest by not writing down their properties? Sincerely, Carl."

Taylor Muckerman: I was just laughing at Billy Madison.

O'Reilly: Sincerely?

Muckerman: "Carl. Nice to see you!" About writing down assets, that's a tricky game with oil prices fluctuating like they are. It's a pretty company-dependent thing. As a shareholder, obviously you're going to want to have your own opinion about how these companies are handling their assets, and especially with oil and gas companies, because asset values do fluctuate pretty frequently, and Continental Resources has been, I guess, maybe one of the more bullish companies in terms of the speed of the turnaround they expect. Maybe they're not as quick to write off their assets because they think it's going to turn around, but if it doesn't, they could see those writedowns a little bit later than most and catch people off guard.

Tyler Crowe: There are certainly some accounting things that can go on when it comes to oil and gas for valuing properties, but there are some rules that are applied there. They're normally done by an independent ratings agency or an evaluation company that looks at their properties and says, "This is economical at such and such a price." At their most recent 10-K, it said that the price that they were going on was $50 a barrel, which was the trailing 12 months of 2015, which is standard SEC protocol, so we can't really knock them for not going at SEC protocol.

It doesn't seem like they're really doing any trickery, based on the current accounting. They brought on some new reserves that they actually -- because of cost-cutting and better economics -- they were actually able to add some stuff that was what they would call technically recoverable, but now it's economically recoverable, that helped to replace the existing reserves. When you add all those things together, it doesn't look like they're really hiding things in comparison to some other people. And also, let's take into account, over the past two years, they have written down $1 billion worth of their asset properties. Maybe they just didn't do it this particular quarter.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Continental Resources, Inc. Stock Quote
Continental Resources, Inc.
CLR
$63.99 (1.39%) $0.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
322%
 
S&P 500 Returns
113%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.