Guest post by David Middleton
Then it was Exxon failed to inform investors of Schneiderman’s belief that Exxon’s proved reserves would be stranded by imaginary regulations… Debunked here.
Now, Schneiderman is going after Exxon for being too conservative in booking reserves…
Exxon’s Accounting Practices Are Investigated
New York attorney general’s probe focuses on why Exxon is only oil firm not to write down value of assets amid price rout
Sept. 16, 2016 5:33 a.m. ET
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 regulations.
Exxon hasn’t taken any write-downs—the only major oil producer not to do so—which has led some analysts to question its accounting practices.
The company has played down the criticism, saying it is extremely conservative in booking the value of new potential fields and wells. That reduces its exposure to write-downs if the assets later prove to be worth less than expected, it says.
Exxon Chief Executive Rex Tillerson told trade publication Energy Intelligence last year that the company has been able to avoid write-downs because it places a high burden on executives to ensure that projects can work at lower prices, and holds them accountable.
“We don’t do write-downs,” Mr. Tillerson told the publication. “We are not going to bail you out by writing it down. That is the message to our organization.”
Out of the 40 biggest publicly traded oil companies in the world, Exxon is the only one that hasn’t booked any impairments in the last 10 years, according to S&P Global Market Intelligence.
The company is known for its conservatism in recognizing the value of reserves, a practice that results in lower write-downs, said Sean Heinroth, a principal in the energy practice at management consultancy A.T. Kearney. Exxon is also known for rigidly interpreting regulations and sometimes pushing back against regulators if company leaders feel their practices follow the law, he said.
Exxon has previously faced a lawsuit over its impairment practices. Plaintiffs including the Ohio state pension system alleged in a 2004 class-action suit that the company’s failure to impair its properties undercut shareholders of Mobil Corp. in the 1999 deal that combined the companies.
The suit alleged that Exxon should have seen write-downs of between $3 billion to $7 billion in the late 1990s, another period of historically low prices. It included an allegation from a former Exxon insider that the company “operated under an order” by former Chief Executive Lee Raymond that “no impairment would be recorded.”
Exxon denied the allegations. The lawsuit was dismissed because the statute of limitations on such claims had passed.
I’ll address the last bit of nonsense first. The Ohio state pension system was suing ExxonMobil for something they claimed Mobil didn’t do prior to the merger. So, even if that lawsuit had any merit, it is 100% irrelevant to Schneiderman’s latest witch hunt.
Impairments and write-downs are bad, really bad… Unlike AGW, impairments and write-outs are actually worse than previously imagined. All publicly traded companies are required to have their financial and reserve reports audited. These reports are subject to very stringent SEC rules. The fact that ExxonMobil managed to get through the late-1990’s and 2008 price collapses without having to book impairments or write-downs ought to serve as a pretty good clue that they are extremely conservative in booking the value of their proved reserves.
It is way passed time for ExxonMobil to do what Chevron did…
Judge Rules in RICO Trial
U.S. Federal Court finds the judgment in Ecuador a product of fraud and racketeering.
Chevron is defending itself against false allegations that it is responsible for alleged environmental and social harms in the Amazon region of Ecuador. In February 2011, an $18 billion judgment—later reduced to $9.5 billion—was rendered against Chevron by a court in Lago Agrio, Ecuador, for alleged contamination resulting from crude oil production in the region.
On March 4, 2014, the U.S. District Court for the Southern District of New York ruled that the $9.5 billion Ecuadorian judgment was the product of fraud and racketeering activity, finding it unenforceable.
The nearly 500-page ruling (1.6 MB) finds that Steven Donziger, the lead American lawyer behind the Ecuadorian lawsuit against the company, violated the federal Racketeer Influenced and Corrupt Organizations Act (RICO), committing extortion, money laundering, wire fraud, Foreign Corrupt Practices Act violations, witness tampering and obstruction of justice in obtaining the Ecuadorian judgment and in trying to cover up his and his associates’ crimes.
The ruling prohibits Donziger and his associates from seeking to enforce the Ecuadorian judgment in the United States and further prohibits them from profiting from their illegal acts.
Schneiderman and his ilk are clearly engaging in fraud and racketeering activities.