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Exxon Mobil and the SEC Oil and Gas Asset Reporting Standards

On September 20, 2016, the Wall Street Journal reported that the U.S. Securities and Exchange Commission (SEC) is investigating Exxon Mobil Corporation’s asset valuation.1 The probe focuses on Exxon’s asset valuations in light of climate change regulations.2 As part of the probe, the SEC is investigating Exxon’s tradition of not writing down its reserves during price decreases.3 This blog will examine SEC regulations pertaining to oil and gas reserve reporting and valuations.

 

Exxon’s peers have reduced asset valuations by $50 billion, collectively, since oil prices began decreasing two years ago.4. Since October 31, 2014, WTI crude oil (the benchmark for American oil production) has decreased from $80.54 per barrel to $49.47 at close on October 5, 2016.5

 

SEC Rule 4-10 (a) of Regulation S-X contains the financial reporting standards for companies engaged in oil and gas production in the United States.6 The SEC calculates proved oil and gas reserves as those which “can be estimated with reasonable certainty to be economically producible … under existing economic conditions, operating methods, and government regulations” and the project must have begun or be reasonably certain it will begin within a reasonable time.7 The rule further states that the price for existing economic conditions is the average of prices for the 12-month period leading to the ending date of period of the report.8

Under Rule 4-10 (b) of Regulation S-X, a company which utilizes the successful efforts method is required to comply with FASB ASC Topic 932.9 FASB ASC Topic 932 requires a calculation of discounted future net cash flows utilizing a 10 percent discount factor to net proved reserves utilizing first-day-of-the-month average prices, also known as the company’s PV-10.10

 

Exxon reported total proved reserves of 24,759 million barrels in its 2015 10-K, compared to 25,269 million barrels at year-end 2014.11 The company states that the current depressed crude oil and natural gas prices could cause some North America oil and gas projects to not qualify as proved reserves.12 However, from 2014 to 2015, the change in Exxon’s proved reserves was primarily the result of production, extensions of its existing asset base, and new asset acquisitions.13

 

Exxon Mobil’s worldwide average realization for crude oil and NGL ($/barrel) was 44.77 in 2015, compared to 87.42 in 2014; and its worldwide average realization for natural gas ($/kcf) was 2.95 in 2015 and 4.68 in 2014.14 At year-end 2015, Exxon Mobil reported total assets of $336.8 billion, compared to $349.5 billion in 2014.15 Additionally, Exxon Mobil reported a PV-10 of its consolidated and equity interests of $70.8 billion in 2015 compared to $207.6 billion in 2014.16

 

In comparison, Chevron Corporation reported total proved reserves of 6.262 billion barrels in 2015, compared to 6.249 billion in 2014.17. Like Exxon Mobil, Chevron reported a drop in the PV-10 of its reserves from $145.35 billion in 2014 to $66.97 billion in 2015.18 Chevron reported total assets for 2015 of $266.1 billion, a slight increase from $266.0 billion in 2014.19

 

Similarly, ConocoPhillips reported total proved reserves of 8.180 billion barrels in 2015, a decrease from 8.906 billion in 2014.20 Like Chevron and Exxon, ConocoPhillips reported a drop in the PV-10 of its reserves from $83.217 billion in 2014 to $25.589 billion in 2015.21 ConocoPhillips reported total assets of $97.484 billion in 2015, a decrease from $116.539 billion in 2014.22 However, unlike Exxon Mobil and Chevron, ConocoPhillips is an independent exploration and production company which does not own refineries.23

 

Exxon Mobil has defended its tradition of not writing down its assets because of its conservative nature of recording new assets.24 The company stated it will comply with the SEC probe and defends its financial reporting standards.25

 

 


  1. Bradley Olson & Aruna Viswanatha, SEC Probes Exxon Over Accounting for Climate Change, Wall St. J. (Sept. 30, 2016), http://www.wsj.com/articles/sec-investigating-exxon-on-valuing-of-assets-accounting-practices-1474393593. 

  2. Id. 

  3. Id. 

  4. Id. 

  5. Bloomberg Markets, http://www.bloomberg.com/quote/CL1:COM (last visited Oct. 5, 2016). 

  6. 17 C.F.R. § 210.4–10 (2015). 

  7. Id. 

  8. Id. 

  9. Id. 

  10. Exxon Mobil Corp., 2015 Annual Report 110 (2016). 

  11. Id. at 109. 

  12. Id. at 103. 

  13. Id. at 103-5 

  14. Id. at 54 

  15. Id. at 36 

  16. Id. at 111 

  17. Chevron Corp., 2015 Annual Report FS- 68 (2016). 

  18. Id. at FS-70. 

  19. Id. at FS-25. 

  20. ConocoPhillips, 2015 Annual Report 3 (2016). 

  21. Id. at 162. 

  22. Id. at 83. 

  23. ConocoPhillips, http://www.conocophillips.com/who-we-are/our-company/Pages/default.aspx (last visited Oct. 5, 2016). 

  24. Bradley Olson & Aruna Viswanatha, SEC Probes Exxon Over Accounting for Climate Change, Wall St. J. (Sept. 30, 2016), http://www.wsj.com/articles/sec-investigating-exxon-on-valuing-of-assets-accounting-practices-1474393593. 

  25. Id. 

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