An Exxon refinery in Baton Rouge, Louisiana.
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The U.S. Securities and Exchange Commission opened an investigation into Exxon
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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 book 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 properties in question, in the Delaware Basin of the Permian, form 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.
Yet 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 June the Wall Street Journal 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 write down assets until a couple months ago, 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.
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.
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 history, 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.
