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SandRidge Energy, Inc. Message Board

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  • rogerwenman rogerwenman Aug 5, 2012 6:51 PM Flag

    Yahoo has upsated SD stats

    The two vastly different eps numbers were explained by "badbernanke" in the comments to the Seeking Alpha article about SD being slammed. The comments are not shown on Yahoo, so I'll copy his comment here:

    "The biggest adjusting item was taking out $515 million of unrealized gains on derivative contracts and there was another $57 million in gains realized from early settlement of derivative contracts.

    Derivative gains and losses (which are based on hedges of oil and gas) can fluctuate dramatically based on the price of oil and gas at the end of the quarter. If you understand derivative accounting, you can see why companies back it out to arrive at an adjusted number. GAAP and the real world part company a bit in derivative accounting. Although GAAP would give you a big gain where oil pries have dropped in relation to derivatives (e.g., if you have a hedge at $100 and oil drops to $80, you may well have a paper gain; but if oil prices reverse and go back to $100, the former "gain" can be totally eradicated by a "loss" in the next quarter even though in neither circumstance have you had any cash impact on operations). In effect GAAP has you report gains and losses on derivative contracts that extend beyond the current reporting period.

    The effect is to make a quarter look amazingly good (or bad) in what many think is an artificial manner. So companies adjust for such odd things to try to give a better picture of operating results."