Coverage: SEC begins investigation of Exxon Mobil

The U.S. Securities and Exchange Commission has started an investigation into how Exxon Mobil Corp. values its assets due to climate changes, which could affect other gas and energy companies.

Bradley Olson and Aruna Viswanatha of The Wall Street Journal had the news:

The SEC’s probe is homing in on how Exxon calculates the impact to its business from the world’s mounting response to climate change, including what figures the company uses to account for the future costs of complying with regulations to curb greenhouse gases as it evaluates the economic viability of its projects.

The decision to step into an Exxon investigation and seek climate-related information represents a moment in the effort to take climate change more seriously in the financial community, said Andrew Logan, director of the oil and gas program at Ceres, a Boston-based advocacy organization that has pushed for more carbon-related disclosure from companies.

“It’s a potential tipping point not just for Exxon, but for the industry as a whole,” he said.

As part of its probe, the SEC is also examining Exxon’s longstanding practice of not writing down the value of its oil and gas reserves when prices fall, people familiar with the matter said. Exxon is the only major U.S. producer that hasn’t taken a write down or impairment since oil prices plunged two years ago. Peers including Chevron Corp. have lowered valuations by a collective $50 billion.

Kevin McCoy of USA Today notes that Exxon Mobil’s shares fell on the news:

While the Wall Street regulator declined to comment on the probe, Jeffers said “we are fully complying with the SEC request for information and are confident our financial reporting meets all legal and accounting requirements.” He characterized the agency as “the appropriate entity to examine issues related to impairment, reserves and other communications important to investors.”

Similarly, responding to questions last week about New York Attorney General Eric Schneiderman’s investigation, ExxonMobil said its financial results “are in accordance with the accounting and reporting standards of the Securities and Exchange Commission and the Financial Accounting Standards Board.”

ExxonMobil’s 2016 annual report filed with the SEC also said “the Corporation performs impairment assessments whenever events or circumstances indicate that the carrying amounts of its long-lived assets (or group of assets) may not be recoverable through future operations or disposition.”

The company’s shares Tuesday closed down $1.29, or 1.5%, to $82.54.

James Osborne of the Houston Chronicle focused on global efforts to reduce carbon emissions:

In December, leaders from close to 200 countries agreed in Paris to reduce carbon emissions to try to prevent the planet from warming more than 2 degrees Celsius, setting off questions from investors about the health of the oil industry in decades ahead. Large investors and financial institutions including the California Public Employees’ Retirement System and the Bank of England are increasingly pressuring corporations to show they are prepared to adapt.

“The world is fairly quickly moving to a low carbon world,” said Andrew Logan, oil and gas director of the non-profit Ceres, which advises companies on climate change practices. “Exxon has a view of the future that is looking outdated in what we’re hearing on climate policy.”

Earlier this year, Exxon opposed a shareholder resolution urging the company to do more to address the risk of climate change regulation, arguing the company was doing enough already. The resolution failed to win a majority of shareholder support.

Determining what impact climate change regulation would have on the profits and values of oil and gas industries is difficult to discern, said Michael Webber, associate director of the Energy Institute at the University of Texas. Companies are generally loathe to report negative financial outlooks, he said, and exactly what additional regulation they could face remains unknown.