S.E.C. Probe Of Exxon Renews Focus On Company’s Resistance To Write-downs

An Exxon refinery in Baton Rouge, Louisiana. In Pictures via Getty Images The U.S. Securities and Exchange Commission...


The U.S. Securities and Exchange Commission opened an investigation into Exxon

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Mobil for possibly overvaluing one of its key oil and gas properties in the Permian Basin, the highest-producing oil field in the U.S., after an employee filed a whistleblower complaint last fall, according to a report in the Wall Street Journal on Friday that sent the oil major’s market value down 5%. 

In 2019 several people complained during an internal assessment that employees were being forced to use unrealistic assumptions about how quickly the company could drill wells in the Permian to achieve a higher value, reported the Journal, which reviewed a copy of the complaint. 

Citing unnamed sources, the article reported that the SEC had begun investigating the allegations after it received the complaint. The SEC declined to comment for the story. 

The oil and gas property in question, in the Delaware Basin of the Permian, forms a key part of Exxon’s plan to ramp up shale production. In 2017 it paid $6 billion for 275,000 acres of land that at the time produced just 18,800 barrels per day, though Exxon insisted that there were 60 billion barrels of oil beneath the ground.  

Even before the Covid-19 pandemic, which turned 2020 into a catastrophically bad year for Exxon and big other oil companies, Exxon’s ambitions to boost its oil production were coming under pressure. Investors were already beginning to sour on shale oil and gas as other big energy companies flirted with green energy. 

This isn’t the first time Exxon has been accused by critics of overvaluing assets. In late June one of the same two Wall Street Journal reporters with Friday’s scoop reported that a former senior Exxon accounting analyst, Franklin Bennett, had filed a complaint under the S.E.C.’s whistleblower program claiming that Exxon had deceived investors by not writing down the value of XTO Energy, a natural gas drilling company it bought a decade ago for more than $30 billion. That article said other complaints had been filed but it didn’t identify who filed them. 

Exxon has gained a reputation for refusing to write down the value of its oil and gas holdings even as peer oil companies take large write downs in response to falling oil prices. Even in response to 2020’s oil market destruction, Exxon didn’t say it would write down assets until late November, reassessing the value of its holdings down by $17 billion to $20 billion, its biggest impairment ever, long after most other majors had lopped off large chunks of value from their holdings. 

Exxon says that it values its assets over the very long run, ignoring market fluctuations that may temporarily cause the outlook for oil to sour. Born from John D. Rockefeller’s Standard Oil monopoly, it has been around for more than 130 years. Today its well-worn refrain to doubters is that the developing world is consuming more and more oil and gas and Exxon stands ready to provide, no matter the vicissitudes of Covid-driven routs and other big price jumps. (Last year, oil futures prices briefly turned negative for the first time ever.)

But this time could be different. The Covid-induced economic crisis is looking more and more like a watershed event in the world’s evolution toward green energy sources like wind and solar and toward electric transport. It has already convinced BP, which takes a similarly long view of energy markets, to begin overhauling its operations and to permanently lower its global oil consumption projections. 

Nor do most shale oil executives see an oil rebound in the works in the near term. A recent survey of shale oil executives by Kpler, a research outfit, found that the average WTI price used to plan for capital expenditures in 2021 was $44 per barrel. The closing price of WTI on Friday was roughly $52 per barrel.

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Newsrust - US Top News: S.E.C. Probe Of Exxon Renews Focus On Company’s Resistance To Write-downs
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