Companies in the gas and oil business use a lot of property, plant, and equipment. Not only is there the significant investment they must make in equipment used to find, extract, and process the oil and natural gas, but they must also purchase the rights to the energy reserves themselves. Chesapeake Energy Corporation claims to be “the second-largest producer of natural gas, a top 11 producer of liquids and the most active driller of wells in the U.S. We own interests in approximately 45,400 producing natural gas and oil wells . . .”
Anadarko Petroleum Corporation is a large independent exploration and production company in the gas and oil industry. In addition to its wells in seven U.S. states and the Gulf of Mexico, it has operations in 11 other countries around the world.
The following information was taken from t he companies’ December 31, 2013, annual reports. All dollar amounts are in millions.
a. Calculate depreciation costs as a percentage of sales for each company.
b. Calculate property, plant, and equipment as a percentage of total assets for each company.
c. Based only on the percentages calculated in Requirements a and b, which company appears to be using its assets most efficiently? Explain your answer.
d. Calculate the return on assets ratio for each company. Based on this ratio, which company appears to be using its assets most efficiently? Explain your answer.
e. Identify some of the problems a financial analyst would encounter in comparing the use of long-term assets at Chesapeake versus Anadarko.