SUMITOMO CORP Shares Drop To 18-Year Low On Shale Gas Project Losses

Sumitomo Corp, a Japan trading house associated with the steel products, engineering, energy and minerals business, cut its annual profit forecast by 96 percent on losses on a US shale gas project and plummeting iron ore and coal prices.

Japanese trading houses have invested heavily in North American shale oil and gas fields as the world's third largest economy planned to diversify its energy sources following the 2011 Fukushima nuclear disaster. However, the revised estimates of reserves and well productivity resulted in significantly lower results.

Sumitomo said its shares fell 12.1 percent, the largest loss since June 1996. Other trading houses, including Mitsubishi Corp, Mitsui & Co Ltd and Marubeni Corp, also fell. "The size of this revision is so large that it is possible that investors will be worried about the risks associated with other trading companies," said an analyst who reviews Tokyo trading houses for Macquarie Research.

Sumitomo has announced a $ 1.6 billion write-off for its oil and gas project in the Permian Basin, Texas, which it is developing in partnership with the US-based Devon Energy Corp. Exploration drilling in the northern part of the Permian shale formation in Texas has shown that "the geological conditions are more challenging than we would have guessed," said company president Kuniharu Nakamura in a presentation.