The first in an expected wave of writedowns and profit restatements were announced Thursday by two companies whose energy holdings have sharply declined in value due to the collapse of oil prices.
Pacific Lighting, the parent of Southern California Gas, and oilman T. Boone Pickens Jr.'s Mesa Limited Partnership both announced steep first-quarter losses after previously having reported profits for the period.
The two firms were responding to the refusal Tuesday by the Securities and Exchange Commission to let energy companies postpone any writedowns of their reserves until later this year, when some expect oil and gas prices to rebound.
Over 200 Firms Face Problem
The problem is faced by more than 200 energy-related companies whose books are kept on a so-called full-cost accounting basis. Those accounting rules require quarterly writedowns if the market value of a company's oil and natural gas reserves falls below the value recorded on its books.
With the collapse in oil prices of about 50% in recent months, industry surveys have suggested that more than half of the companies will have to take writedowns. In some cases, that could result in a negative net worth and put firms in technical default on bank loans. Despite Tuesday's action, some SEC commissioners have indicated that they will make proposals for alleviating the situation.
A number of energy companies have said that in anticipation of the problem, they have persuaded their lenders to temporarily ease requirements so default can be avoided.
Will Not Affect Bank Loans
Pacific Lighting told shareholders Thursday at its annual meeting in Los Angeles that it was taking a writedown of $115 million because of the effect of lower oil prices on its oil and gas exploration and production subsidiary, Pacific Lighting Oil & Gas.
That changed first-quarter results from the previously reported $44.5-million profit to a $70.5-million loss. But the company said the action will not affect its bank loans, and Chairman Paul A. Miller said the writedown "does not fairly portray economic realities."
Mesa said that as a result of the SEC decision, it has reduced the recorded value of its oil and gas properties by $200 million as of March 31 and changed its reported net income of $31 million to a net loss of $169 million.
Mesa said the action will not affect cash flow, bank debt or its ability to make annual cash distributions to investors.