New York Probe Investigates ExxonMobil Accounting

exxonExxon Mobile Corp is currently under scrutiny from a probe by New York Attorney General Eric Schneiderman. One major aspect of this probe is to discern why the company did not write down the value of oil and gas reserves they had during a global collapse in energy prices.

The main idea behind the inquiry is to get to the core of the situation, as there are much bigger questions at hand. For example, the probe intends to learn how Exxon may have been aware of the risks of climate change for several decades; and whether or not they could have alerted investors to the financial risks associated with energy companies in light of climate change issues. This includes analysis of the impact of long-term shifts in environmental factors as well as a shift from fossil fuel use.

This investigation began only last year.

Asset writedowns—like what the probe is asking for—have taken a heavy toll on Exxon’s company earnings since the massive fall of crude oil prices—and the major oil companies are no exception. For example, Chevron Corp reported in January, $1.1 billion in charges, which included writedowns on the value of its oil reserves and natural gas fields. In addition, independent driller Chesapeake Energy Corp realized an $853 million writedown in its gas field value.

Accordingly, Exxon spokesman Alan Jeffers comments that the company’s accounting practices are in accordance with regulatory standards. He also goes so far to note that the company’s 2015 10-K “does not view temporarily low prices or margins as a trigger even for [the reassessment of these asset values].”

In addition, the company goes on to say, “The markets for crude oil, natural gas, and petroleum products have a history of significant price volatility. Although prices will occasionally drop significantly, industry prices over the long term will continue to be driven by market supply and demand.”

This is a big deal: last year, US oil producers wrote down $177 billion in assets with an additional $15 billion within the first quarter of this year; at least, according to early estimates. And since that early decline, many producers have made publicly aware that the value for their oil field assets do not meet what economists have previously estimated.

As such, the company goes on to say, in its 2016 annual report: “The results of this assessment indicated that the future undiscounted cash flows associated with these assets substantially exceed the carrying value of the assets.”

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