Primarily due to dramatically reduced trailing 12-month natural gas prices, we recorded a full cost ceiling test write-down of $1.1 billion net of taxes at the carrying value of our natural gas and oil properties. Oil and gas property accounting rules do not allow us to increase the carrying value of our properties when commodity prices improve. Said in another way, it's a one-way street.As you are probably aware, the 2 primary reserve accounting standards for E&P companies are full cost and successful effort methods. Impairment tests for the successful effort methods are subjective and differ from the full cost method in 3 primary ways. First, the successful efforts impairment test is based on expected future commodity prices as opposed to trailing 12-month average pricing for full-cost companies. Second, successful efforts impairment test are valued on 3P reserves, whereas full-cost companies are limited to proved reserves alone. Finally, future cash flows are measured on an undiscounted basis for successful efforts companies, compared to future cash flows discounted 10% for full-cost companies. As a result, successful-effort companies are less susceptible for ceiling test impairments during periods of low prices.
Ultra Petroleum Management Discusses Q2 2012 Results - Earnings Call Transcript
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