Losses Announced In The Permian

Japan’s Sumitomo Corporation, one of the largest trading houses in Asia, announced a considerable impairment charge of its US tight oil assets in the Permian Basin. It was the largest loss for the company since 1998 and wiped out ~96% of its profit for the year. Although there were two other impairments, they paled in comparison to the loss on tight oil.

According to the Financial Times, a company spokesman said:

“It is difficult to extract the oil and gas efficiently,” adding that [the company] could not “expect as much production to recover the investment.”

Sumitomo is not the only Japanese trading company to incur losses on US shale assets. Itochu Corp. had a large impairment charge in 2011.

Sumitomo had partnered with Devon Energy. Devon has had negative free cash flow from operations since 2009. Its net income in 2011 was $4.7B dropping precipitously through 2012-2013 to close YE 2013 at a loss. Further, interest expense as a percentage of operating income is running at a hefty 67% for 2013.

Sumitomo is selling its Permian assets.