By Christopher M. Matthews
As its peers write down U.S. shale assets by billions of dollars amid lower oil and gas prices, Exxon Mobil Corp. stands increasingly alone in not adjusting the value of its holdings.
Rivals, including BP PLC, Hess Corp. and Occidental Petroleum Corp., have recently taken multibillion-dollar impairments as a coronavirus-induced economic slowdown adds pressure to an already struggling shale sector. Chevron Corp. took a $10 billion write-down in December, and Royal Dutch Shell PLC said Tuesday that it would write down the value of its assets by up to $22 billion because of lower energy prices.
Exxon has yet to write down any shale assets this year, holding to a belief that oil and gas values will eventually rebound. Several oil and gas accounting experts allege that Exxon's reticence to adjust the value of shale assets on its balance sheet amounts to accounting fraud. In a series of complaints filed to U.S. authorities, they argue that the company is deceiving investors by failing to write down much of the value of XTO Energy Inc., a natural-gas driller it purchased for $31 billion a decade ago, along with other assets.
Exxon's refusal to write down its acquisition of XTO is part of an "arrogant, aberrant, long-standing...posture" at the company, said one of the accountants, Franklin Bennett, a former senior accounting analyst in Exxon's oil and gas business, in a complaint filed under the Securities and Exchange Commission's whistleblower program that was viewed by The Wall Street Journal. Mr. Bennett left Exxon in 1995, well before the XTO deal, but maintains the company's accounting of the acquisition fits with its past practice of handling assets that might be worth less than anticipated.
An Exxon spokesman said the company is in compliance with accounting rules and SEC regulations about disclosures to investors.
When Exxon announced its plans to acquire XTO in December 2009, the company's second-largest deal ever, U.S. natural-gas prices averaged $5.35 per million British thermal units. But over the past five years, gas prices have mostly stayed below $3/MMBtu.
Gas prices hit a 25-year low last week, then notched an 11% gain Monday, closing at $1.71/MMBtu. Future contracts for U.S. natural gas average about $2.50/MMBtu or lower for the next four years. BP estimated in February that U.S. gas prices could be around $2/MMBtu for the next 20 years.
"We probably paid too much," former Exxon Chief Executive Rex Tillerson said of the XTO deal at a conference last year.
Exxon wrote down the value of U.S. shale gas assets by $2.5 billion in late 2017. Critics of the company, including some analysts, have questioned whether that was sufficient, noting the price of the XTO deal.
The U.S. shale industry has written down more than $450 billion in assets since 2010, according to a June report by Deloitte, reassessing holdings amid a global supply glut and growing investor concerns about the long-term future of fossil fuels. The accounting firm projects additional shale impairments of as much as $300 billion in coming months as the coronavirus holds down commodity prices.
Exxon has announced about $6.5 billion in write downs since 2014, according to S&P Global Market Intelligence, far less than similarly sized competitors. Chevron has taken $16.7 billion in impairments during the same period.
Mr. Bennett, a practicing securities-law attorney, served as a committee chairman for the professional society for oil and gas accountants in the U.S. and Canada. He first filed a complaint with the SEC in 2015, which he said was based on his knowledge of historic Exxon accounting practices and analysis of its disclosures. He and a group of accountants, including a former partner in the oil and gas practice of a major U.S. accounting firm, have subsequently sent the regulator 30 supplements, including one this month, according to documents viewed by the Journal.
He said in the complaint that Exxon should be writing down the value of XTO by at least $17 billion and impairing at least $20 billion in other assets, depending on how it has booked the details. He also has sent his complaint to the Justice Department.
Under the SEC's whistleblower program, which covers more than cases involving firsthand claims of wrongdoing, Mr. Bennett could be compensated if the government takes action on his complaint. Tipsters can receive between 10% and 30% of any penalty collected as a result of providing original information.
Casey Norton, an Exxon spokesman, said the company's accounting practices withstood scrutiny when Exxon won a case in 2019 in which it was accused by New York's attorney general of failing to inform investors about the impact of climate change on its assets. He noted that the SEC also had dropped a similar investigation about whether Exxon misled investors on climate-change disclosures in 2018.
"Exxon Mobil's record on impairments and our rigorous and consistent process for testing for impairments have been repeatedly scrutinized and upheld," Mr. Norton said.
The SEC and the Justice Department declined to comment.
Exxon has long played down questions about its lack of asset write-downs, saying it is able to avoid them because it is extremely conservative in initially booking the value of new fields and wells and doesn't respond to short-term commodity-price fluctuations. Before 2016, Exxon had never recognized an asset impairment under U.S. accounting rules implemented in the 1990s.
The XTO complaint isn't the first time Mr. Bennett has contested the company's write-down policies. He was part of a 2004 lawsuit involving the Ohio state pension system and others who alleged that Exxon's failure to impair its properties undercut shareholders of Mobil Corp. in the 1999 deal that combined the companies.
Exxon denied the allegations. A federal judge dismissed the suit, finding the plaintiff's didn't sufficiently allege a fraud, and an appeals court upheld the dismissal because the statute of limitations on such claims had passed.
Write to Christopher M. Matthews at firstname.lastname@example.org