While oil majors stuck to spending discipline after the 2015-2016 price crash, ExxonMobil was the one to stand out from the crowd as it increased capital expenditures to boost production.
This year, in the second price collapse in four years, Exxon again appears to be the outlier in Big Oil as it is not writing down billions of U.S. dollars of asset values and continues to resist calls from sustainability-conscious investors to disclose price forecasts and account for climate change in the value of its assets and its future business.
Unlike its peers, Exxon hasn’t booked major writedowns since oil prices crashed earlier this year. And unlike its European peers, the U.S. supermajor hasn’t pledged any emission-reduction targets, either.
The lack of double-digit-billion writedowns at Exxon not only this year, but also in the past decade, raises two questions: does Exxon think that oil and gas prices will ultimately rise and therefore its assets fairly valued at a later date? Or has Exxon been doing some creative accounting in valuing its assets?
No Major Write Downs: Wishful Thinking Or Accounting Fraud?
Franklin Bennett, a former senior accounting analyst at Exxon, alleges that the supermajor’s stubborn refusal to write down a large part of the value of natural gas producer XTO Energy Inc that it bought for US$31 billion ten years ago is part of an “arrogant, aberrant, long-standing…posture,” The Wall Street Journal reported this week, citing a complaint Bennett has filed with the SEC under its whistleblower program.
According to Bennett, who left Exxon in 1995, the way Exxon accounted for the XTO deal fits its previous accounting practices of overestimating the value of its oil and gas assets. Bennett believes that the value of XTO should be written down by at least US$17 billion and that Exxon should make at least US$20 billion in writedowns on its other oil and gas assets, the Journal reports. Related: Oil Rallies On Bullish EIA Inventory Data
Exxon’s CEO at the time of the XTO acquisition, Rex Tillerson, admitted last year that “We probably paid too much,” because the outlook on gas prices was for them to stay at around US$5 per million British thermal units (MMBtu).
“Of course, it never saw those numbers again,” Tillerson said at a conference in June 2019.
Commenting on Exxon’s impairment accounting practices, Exxon spokesman Casey Norton told the Journal:
“Exxon Mobil’s record on impairments and our rigorous and consistent process for testing for impairments have been repeatedly scrutinized and upheld.”
Exxon has long explained the lack of huge writedowns – compared, for example, to Chevron’s US$11-billion impairment charge in Q4 2019 mostly in Appalachian natural gas – with the fact that it books the value of new oil and gas fields very conservatively and doesn’t adjust values to short-term price trends.
Last year, Exxon was…