New York's Newest Exxon Mobil Probe Highlights The Flaws Of Its Previous Investigations

Tristan R. Brown profile picture
Tristan R. Brown
2.39K Followers

Summary

  • The New York attorney general has launched yet another investigation of Exxon Mobil's asset valuation methodology, this time due to its lack of recent energy asset impairments.
  • The newest investigation is at cross-purposes with the AG's August announcement that Exxon Mobil may have committed securities fraud by giving its fossil energy assets any value at all.
  • While Exxon Mobil's investors should be concerned by the most recent probe, it could mean good news for the broader energy sector if the AG abandons the previous investigations.

News of yet another investigation into Exxon Mobil's (NYSE:XOM) valuation of its fossil energy assets by New York State Attorney General Eric Schneiderman was revealed in the Wall Street Journal on Friday. The AG's office must have a working group dedicated to investigating the company based on its activity over the last several months. From the Journal:

"New York Attorney General Eric Schneiderman is investigating why Exxon Mobil Corp. hasn't written down the value of its assets, two years into a pronounced crash in oil prices.

Mr. Schneiderman's office, which has been probing Exxon's past knowledge of the impact of climate change and how it could affect its future business, is also examining the company's accounting practices, according to people familiar with the matter.

An Exxon spokesman declined to comment about the investigation by the Democratic attorney general but said Exxon follows all rules and investigations."

The article, which is well worth reading in full, goes into some detail about how Exxon Mobil's accounting practices, specifically its limited use of energy asset impairments, stand in contrast to those employed by the broader E&P sector. Upstream firms reported write-downs of $163 billion in 2015 alone as the prices of petroleum and natural gas set new multi-year lows. Exxon Mobil's lack of impaired assets on its own balance sheet has stood out against this backdrop, catching the attention of Mr. Schneiderman's office in the process.

On its own the probe is not especially noteworthy. This isn't even the first time that the company has been investigated for its lack of impairments in falling energy price environments, having already been the subject of a class-action lawsuit on the subject in 2004 that was ultimately dismissed. In 2013, the U.S. Securities and Exchange Commission raised its own questions about the company's lack of impairments in response to falling

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Tristan R. Brown profile picture
2.39K Followers
My articles do not represent investment advice. Readers should perform their due diligence before investing in any security or fund that is mentioned by my articles.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am not a member of the New York bar.

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