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Inside Brigham’s reported earnings loss
Posted by bakkenexpertThe following article was contributed by one of our readers, M. Klotz.
Be careful with what you hear as the press notes Brigham’s 2009 annual report on 2/25/2010. Net income before income tax for 2009 is being reported as a loss of $123.2 million. However if you dial back to Q1 ‘09, you will remember that accounting rules required a write down of $114.8 million because the discounted present value of “Proved Reserves” was less than the capitalized cost of oil and gas properties at that time. This calculation is required to be based on the realizable price of Oil/Gas at the end of Q1 ‘09. The realizable price at that date was substantially less than today. Additionally, since Q1 ‘09, Brigham’s proved reserves have increased substantially as Bakken has de-risked substantial acreage. Unfortunately, rules do not permit reinstatement of an impairment such as this once made. While this accounting rule substantially reduces 2009 net income, there is a positive carry forward impact of this write-down. The foot-notes report that this write down reduced the rate of depletion by $18.2 million ($.18 per share) for 2009. In future years this would imply similar gifts to reported net income because the expense has already been absorbed. Other oil and gas players likely have similar stories, although they may not be as extreme as Brigham. As Washington focuses on places to create new revenue sources, they are bound to look soon to oil and gas net income and return to some form of Jimmy Carter’s Windfall Profits taxes. This $.18 per share is not in fact income but recovery of premature losses caused by write-down of assets due in large part to a temporary low commodity price.
A sixth month chart of BEXP is below, the stock has support at its 50 day MA of 14.28. In pre market, BEXP was up over 3% but is down in early market trading with the rest of market due to poor uemployment data that came out before the trading session.
