Ah, the Balance Sheet! The topic I’ve been waiting 11 months to really dive into.

Ok. Not really. But it is extremely important to an oil and gas company. Let’s start with the most important point and work backwards. Don’t use a balance sheet to value a company as many economic assets ARE NOT accounting assets.

For example, the largest single asset (most likely) on a balance sheet is the Property, Plant and Equipment. Broadly, this is the AT COST price of wells, plants and equipment less the depreciation (done at unit of production). Simplistically, if you spend $1 mm on a well and It has 100 mboe of reserves, PPE is $1 mm and you depreciate that balance at $10/ produced boe.

The balance sheet is a snapshot in time and is, by definition, balanced. On one side- Assets and on the other- Liabilities and Shareholder Equity.

But, the most important part of the balance sheet is found in the “Liabilities” section and is labeled DEBT: current, long term and preferred. That is the amount YOU MUST pay back.

So when I say “O&G is in a crisis of balance sheets” it is the size and term of THIS particular line item that makes me scared. Tomorrow, the income statement, which summarizes the activity between two periods on the balance sheet (snapshot vs video)