Summary
An oil sands explosion in an oil sands sight owned by Canadian Natural Resources is a major story across Canada, but is not attracting much attention from the rest of the world. At around 3:30 pm last Thursday near the Fort McKay First Nation, a coker (a machine that uses heat to convert bitumen to crude oil) exploded, resulting in a major fire that lasted until 6:00 pm. As a result of this, the company experienced their largest drop in shares in 5 months, losing $2.13 per share. Shares are now worth $40.82. This event will cost the company $885 million excluding tax, which will be paid over the next six months.
Connections
This article connects to the multi step income statement in this chapter. The multi step income statement introduces several new sections to the original single step income statement. The expenses from this event would fall under the “losses from unusual or infrequent events” section. This is most likely an infrequent event because of how the article describes this event as a “major story”. The company expects explosions like this to happen, but because of the rarity of these events, it is classified as infrequent. As a result of this expense, the amount recorded in this section would be $885 million. This article also connects to debits and credits. A total of $855 million would be credited from cash (assuming the payments are made using cash) and the rest would be debited from an expense account. The accounting equation would not be affected because of equal ammounts deducted from both sides.
Reflections
This is an unfortunate loss for Canadian Natural Resources Ltd, who lost a pre tax amount of $855 million over this event. The article never states why the coker exploded, whether the machine was malfunctioning or whether the workers were operating the coker incorrectly. Either way, Canadian Natural Resources will have to take extra precautions to avoid another massive loss like this in the future. Accidents like this don’t just happen spontaneously. Looking at the company’s net income during the previous year, (roughly $1.3 billion), this is a huge amount to pay off. This single expense is 65% of last year’s net income. Taking the time and money to make sure these machines are functioning properly is definitely better than losing an enormous amount of money like this over a preventable explosion.
http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=cnq&lstStatement=10YearSummary&stmtView=Ann
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This is definitely a huge loss for Canadian Natural Resources Ltd, seeing as how their net income has been declining over the past few years, even posting a net loss just two years ago. The $855 million dollar loss might not be the only thing the affects the company’s net income. This oil sands project has been shut down for a period of two to three days for investigation, according to another article I found. After this incident has been inspected, the government will decide whether or not to declare a stop-work order. This is another potential loss for the company, possibly losing out on the opportunity to make more revenue. Canadian Natural Resources’ income will certainly be lower than last year’s solid posting of $1.1 billion.
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