Exxon Mobil Refuses Write-Downs Amid Lower Oil And Gas Prices
Exxon Mobil Corp. has resisted with write-downs amid declining oil and gas prices, according to The Wall Street Journal.
As the coronavirus has crashed the shale-drilling market, companies including BP PLC, Hess Corp., and Occidental Petroleum Corp. have adjusted the values of their holdings. Chevron Corp. took a $10 billion write-down in December. Royal Dutch Shell PLC said Tuesday that it would take a $22 billion write-down.
Exxon’s refusal to write down any shale assets this year has caused the allegations from oil and accounting experts, arguing that “the firm is deceiving investors by failing to write down much of the value of XTO Energy Inc., a natural-gas driller it purchased for $31 billion in 2010, along with other assets.”
Franklin Bennett, a former senior accounting analyst in Exxon’s oil and gas business, noted in the Securities and Exchange Commission’s whistleblower program that such refusal is “part of an arrogant, aberrant, long-standing...posture at the company.”
Exxon acquired XTO based on the average U.S. natural-gas prices at $5.35 per million British thermal units in 2009, but gas prices have dropped below $3/MMBtu over the past five years.
With $1.71/MMBtu closing on Monday, future contracts for U.S. natural gas could be $2.50/MMBtu or lower for the next four years. BP predicted that U.S. gas prices could be around $2/MMBtu for the next 20 years.
Former Exxon Chief Executive Rex Tillerson said last year that “we probably paid too much.”
The U.S. shale industry has taken more than $450 billion impairments since 2010, according to a June report by Deloitte. The accounting firm predicted that additional write-down could be up to $300 billion due to the coronavirus-induced economic downturn.
Exxon in late 2017 took a $2.5 billion write-down in U.S. shale gas assets. Compared to Chevron’s $16.7 billion impairments during the same period, Exxon has written down only $6.5 billion since 2014.
Critics of Exxon have argued that the firm does not take sufficient write-down.
Bennett said that “Exxon should be writing down the value of XTO by at least $17 billion and impairing at least $20 billion in other assets, depending on how it has booked the details.”
An Exxon spokesman Casey Norton said that the firm’s accounting practices were under scrutiny by New York’s attorney general and SEC about whether Exxon deceives investors on climate-disclosures.
“Exxon Mobil’s record on impairments and our rigorous and consistent process for testing for impairments have been repeatedly scrutinized and upheld,” said Norton.
Exxon had never recognized an asset impairment before 2016, saying “it is extremely conservative in initially booking the value of new fields and wells and doesn’t respond to short-term commodity-price fluctuations.”