Tokyo Gas, Japan’s biggest city gas supplier, has announced that it projects an impairment loss of approximately ¥10.6 billion ($90 million) because the business value of the shale gas development project in the Barnett basin in Texas has been re-evaluated as a result of the impact from the decline in gas and oil prices.
The company originally bought a stake in a shale gas field in Texas’ Barnett Basin from Quicksilver Resources, expecting it to give the company 0.35 million to 0.5 million tpy of gas output. The purchase was at the time a part of an overall strategy of Tokyo Gas to hedge the LNG imports from the U.S. by buying more shale acreage in North America.
“We try to expand our investment in the shale gas production in the United States. That can be the natural hedge for LNG,” said Shigeru Muraki, a board member and executive adviser at Tokyo Gas in May 2015.
Muraki said at the time that U.S. gas delivered to Asian destinations is competitive to oil-indexed supplies when oil is at $70 a barrel, but loses its cost competitiveness at $50 a barrel. Oil price hit an all-time low of $28 per barrel on Monday after rebounding slightly today.
As a result of the recent impairment along with an impairment posted in March 2015, Tokyo Gas expects to post a valuation loss on shares of affiliated companies of ¥24.6 billion. This valuation loss on the shares of affiliated companies concerning Tokyo Gas America Ltd. will be offset in the consolidated settlement, so it will have no impact on the consolidated earnings of Tokyo Gas.
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