Exxon Profit Tumbles on Charge; Revenue Rises -- Update
01 February 2017 - 2:18AM
Dow Jones News
By Bradley Olson and Anne Steele
Exxon Mobil Corp. was forced to write down the value of more
than $2 billion in U.S. assets as it reported sharply lower
fourth-quarter earnings on Tuesday, an extremely rare step for the
company that shows the toll low oil and gas prices have taken on
even the largest players in the industry.
The step follows an investigation begun by the U.S. Securities
and Exchange Commission in August over Exxon's accounting practices
and how the world's largest publicly traded oil company values its
future oil and gas wells, or reserves. Exxon reported a 40% decline
in fourth quarter net income, and annual 2016 profits of $7.8
billion, the lowest in 20 years.
Exxon was alone among major energy companies in not having
recognized on its books any reduction in the value of its reserves,
a development that had become fairly routine for peers as prices
crashed in recent years. Since 2014, other U.S. companies have
slashed the value of their assets by more than $200 billion,
according to S&P Global Market Intelligence.
The assets the company wrote down were for land-yielding natural
gas in the Rocky Mountains, according to the company. Exxon
purchased shale producer XTO Energy for $31 billion in 2010 in the
heart of a drilling boom that would send natural gas prices
careening downward within a few years. The price, which averaged
$5.35 per million British thermal units when the deal was announced
late in 2009, is now about $3.23.
The company has not booked a decline in the value of its assets
since at least 1990. This is due in part to Exxon's practice of
being more conservative when initially recognizing the value of new
oil and gas that it discovers, according to analysts and people
familiar with its accounting.
It is also related to a management view that it is better to
place a high burden on executives to ensure that projects can work
at lower prices than to write down their value. The company's
senior leaders wished to avoid write-downs because in accounting
terms, they have the effect of making the company's investments
appear more profitable, according to people familiar with Exxon's
practices.
"We don't do write-downs," former Chief Executive Rex Tillerson
told trade publication Energy Intelligence in 2015. "We are not
going to bail you out by writing it down. That is the message to
our organization."
For the October-to-December period, profits fell to $1.68
billion, or 41 cents a share, from $2.78 billion. Analysts polled
by Thomson Reuters were anticipating 70 cents a share.
Exxon's stock was roughly unchanged in premarket trading at
$84.80. Exxon's revenue rose for the first time in more than two
years, increasing 2% to $61 billion.
Chief Executive Darren Woods pointed to the prolonged downturn
in commodity prices as well as the impairment charge for the
decline in earnings.
Mr. Woods took the helm this month from Mr. Tillerson, who was
tapped by President Donald Trump to serve as U.S. Secretary of
State.
Write to Bradley Olson at Bradley.Olson@wsj.com and Anne Steele
at Anne.Steele@wsj.com
(END) Dow Jones Newswires
January 31, 2017 10:03 ET (15:03 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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