The SEC is investigating how ExxonMobil values its fossil fuel holdings

The US Securities and Exchange Commission is investigating whether ExxonMobil Corporation properly values its assets in a way that takes into account the regulatory risks associated with climate disruption and drastically reduced oil prices.

ExxonMobil is already under public scrutiny for allegedly hiding the truth its researchers had discovered decades ago about climate change. Attorneys general from the states of Massachusetts and New York are conducting probes.

Now the federal Securities and Exchange Commission is investigating how ExxonMobil values its assets in light of global action to reduce carbon emissions, which will inevitably limit how much fossil fuel oil companies can extract in the future.

The ExxonMobil probes involve two simple questions, says Andrew Logan, director of oil and gas and insurance programs for Ceres, a nonprofit coalition of companies and investors concerned about sustainability.

The first is, did ExxonMobil violate accounting principals or mislead investors by failing to recognize what are called "impairments" of its assets?

“Essentially the idea is this: If the price of oil goes down, one would assume that the value of your assets as an oil company would go down,” Logan explains. “If you look across the industry, companies have written down hundreds of billions of dollars of assets — essentially every company except Exxon. So, the question from the SEC is, what makes Exxon so special that it doesn't have any assets that are being devalued?”

Question number two is whether ExxonMobil calculated the potential effects of climate policies on its business in a way that was accurate and fair to investors. About 10 years ago, Logan says, a group of investors began raising concerns about ExxonMobil's business strategy in a world that was beginning to take climate change seriously. 

“In the oil industry, companies invest for 10, 20, even 40 years into the future,” Logan explains. “But Exxon seemed to be making these investments in a way that assumed the world would continue depending on oil and gas for most of its energy needs, and that the world wouldn't take any serious action on climate change.”

The reality, however, is that the world has changed in a fundamental way, Logan says. The Paris Agreement charts a real path forward on climate policy, and the world has seen significant innovation in technologies around electric vehicles and renewable energy sources. “So it looks like we're heading to a very different future from the one Exxon is planning for,” Logan says.

Other companies, such as ConocoPhillips, Total SAand Statoil, realize they need to diversify their business away from fossil fuels, according to Logan. “You see Total putting a lot of money into solar and into batteries for energy storage. You see Statoil putting a lot of money into wind. So, the industry is beginning to move, and there's a very real risk that Exxon and its investors are left behind.”

Shareholders have clearly gotten the message that times have changed, and that “the post-Paris world is a very different one for the fossil fuel industry,” Logan believes. ExxonMobil has been under pressure “from very large, very conservative investors in the company to change both its disclosure on climate change and some of its actions.” Last spring, just before the ExxonMobil annual meeting, investors with over $10 trillion in assets called for the company to change its stance and its actions on climate change.

“To me, that was a real sea change in the way that investors have been looking at this company,” Logan says. “It wasn't so long ago that Exxon was a gold-plated company that no one thought could do any wrong, and in a matter of just a couple of years that has completely turned around." 

When asked to comment on the investigations into ExxonMobil's business practices, the company’s media relations manager Alan Jeffers says, “The SEC is the appropriate entity to examine issues related to impairment, reserves and other communications important to investors. We are fully complying with the SEC request for information and are confident our financial reporting meets all legal and accounting requirements.”

This article is based on an interview that aired on PRI’s Living on Earth with Steve Curwood.