Annual reserves report could lower oil

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Scott Jagow: Energy shares were a real drag on the Dow last week, with the price of oil continuing to plummet. Oil’s back up some this morning to about $42 a barrel. But by the end of the year, energy companies have to report the size of their reserves. And in this case, price matters. Here’s Sam Eaton.

Sam Eaton: It’s an annual ritual in the oil and gas industry. Securities rules require companies to calculate how much of their reserves are economically feasible. And that’s based on the price of oil and gas at year’s end. The calculation is then used to estimate a company’s value, so it’s not exactly a time when energy companies want to see oil prices plunge.

Fadel Gheit is an analyst with Oppenheimer and Company:

Fadel Gheit:It is a physical asset that has certain market value, and banks use it as a collateral, you know, for loan as well as an indication of the financial viability of the company.

And oh, what a difference a year can make. The financial viability of energy companies at last year’s $96 a barrel close looks a lot different from this year’s lows.

Gheit says companies with high-cost portfolios like oil sands or deep water projects may find it harder to borrow or attract investors.

In Los Angeles, I’m Sam Eaton for Marketplace.