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Page added on October 28, 2016
Exxon Warns on Reserves as it Posts Lower Profit
Oil producer to examine whether assets in an area devastated by low prices and environmental concerns should be written down
Exxon Mobil Corp. warned that it may be forced to eliminate almost 20% of its future oil and gas prospects, yielding to the sharp decline in global energy prices.
Under investigation by the U.S. Securities and Exchange Commission and New York state over its accounting practices—and the impact of future climate change regulations on its business—Exxon on Friday disclosed that some 4.6 billion barrels of oil in its reserves, primarily in Canada, may be too expensive to tap.
Exxon is facing near- and long-term threats as it seeks to exploit the full value of a vast oil and gas portfolio that stretches from Texas to the Caspian Sea, and deliver the handsome dividends that its shareholders have come to expect since it was part of John D. Rockefeller’s Standard Oil.
Today, the company is suffering amid a two-year plunge in oil prices that has a barrel trading for around $50, a level Chief Executive Rex Tillerson believes may linger as U.S. shale producers ramp up at the first uptick in prices, prolonging the current glut and putting a ceiling on any price upswing.
Earlier this year, Exxon lost the triple-A bond rating it had held from Standard & Poor’s Rating Services since 1930, a standing of creditworthiness shared with just two other companies, Microsoft Corp. and Johnson & Johnson. Last year, it failed to find enough new oil and gas to replace what it produced for the first time in 20 years. Its profits in the last 12 months are the lowest since 1999, before it merged with Mobil Corp.
Exxon is alone among major oil companies in not having written down the value of its future wells as prices fell. It has said it follows conservative practices in booking reserves. It now plans to examine its assets to test, under rules governed by accounting standards, whether they are worth less than carried on its books.
The company said the 20% reserves reductions, which are governed separately by SEC rules, may be necessary based on the average 2016 price by the end of the year, though higher prices in November and December could mitigate the extent of the decline. It added that any reserve reductions could be added back if prices recover.
In an investor call on Friday, Exxon declined to discuss potential reserve write-offs or accounting write-downs in detail beyond its statement. The SEC declined to comment on Exxon’s disclosure.
“Exxon has long been the best at what they do, but these external constraints are putting them more in line with everyone else, forcing them to the level of their competitors,” said Sean Heinroth, a principal in the energy practice at management consultancy A.T. Kearney.
Though Exxon didn’t mention climate change or regulators in its disclosure, most of the assets it said may not be economic are among the most scrutinized by climate change activists: Canada’s oil sands.
Since 1999, energy companies have invested more than $200 billion in Alberta’s oil sands, which has the third largest oil reserves behind Venezuela and Saudi Arabia, says the Canadian Association of Petroleum Producers.
Nine of the world’s top oil companies, including Exxon, Chevron and Royal Dutch Shell PLC, have been counting on wringing more Canadian crude from the ground in the coming decades. Combined, Canadian crude accounts for 23% of the firms’ proven reserves, according to data from investment bank Peters & Co.—up from only 5% in 2006.
New investments in the oil sands may be much harder to come by after Exxon’s announcement, said Andrew Logan, director of the oil and gas program at Ceres, a Boston-based nonprofit that has pushed Exxon and other companies for better disclosure on the potential impact of climate change on the energy business.
“Why would any company invest billions of dollars in a new oil sands project now, given the near certainty that the world will be transitioning away from fossil fuels during the decades it will take for that project to pay back?” Mr. Logan said.
The potential loss of reserves has broad ramifications for Canada, which depends on the development of its crude stores to support its economy, but like other western countries has been moving to strengthen regulations to address climate change. Canadian Prime Minister Justin Trudeau earlier this month unveiled a national carbon-pricing proposal, sparking an immediate clash between the national government and the province of Alberta.
The Liberal government’s proposal to charge a price for carbon emissions compounds the headwinds energy companies already face if they want to mine Canada’s oil sands for decades to come.
Amy Myers Jaffe, executive director for Energy and Sustainability at University of California, Davis, said Exxon’s warning signals that it doesn’t believe oil prices will rise significantly in the near future.
“This company had positioned itself for growth and oil sands were a key part of its strategy,” she said, adding: “If lots of companies have to do write downs on their Canadian reserves, it sends a gloomy message about the oil sands,” she said.
Longer term, Exxon faces headwinds from regulations aimed at reducing carbon dioxide and other greenhouse gas emissions, measures that are widely expected to fall most heavily on its industry.
Exxon’s other major obstacle: U.S. competition. Advanced shale drilling techniques have unleashed a new wave of American oil into world markets. Those drilling and fracking techniques have made smaller American companies the industry’s new “swing producers,” or those most able to ramp up output quickly.
Exxon’s Mr. Tillerson acknowledged that prospect in a recent speech at a conference in London where other energy executives were forecasting a sharp supply shortfall in coming years.
“I don’t necessarily agree with the premise,” he said.
Exxon shares fell 2.5% to $84.78 at 4 p.m. in Friday trading after reporting a quarterly profit that declined 38% compared with a year ago.
13 Comments on "Exxon Warns on Reserves as it Posts Lower Profit"
Apneaman on Fri, 28th Oct 2016 7:15 pm
No need to worry about any serious environmental regulations – that shit is just theater to keep the lefty sheeple hopeful and compliant. When the oil age ends it will be due to economics and nothing else.
THIS CHANGES NOTHING: THE PARIS AGREEMENT TO IGNORE REALITY
“Therein lies the problem with the Paris Agreement; it is a fantasy which lacks any actual plan of how to achieve the targets for emissions reductions. There are no mentions of GHG sources, not a single comment on fossil fuel use, nothing about how to stop the expansion of fracking, shale oil or explorations for oil and gas in the Arctic and Antarctic. Similarly, there are no means for enforcement. Article 15 on implementation and compliance establishes an expert committee that will be ‘non-adversarial and non-punitive’, which means that it has no teeth and can do nothing about non-compliance. Then, there is Article 28, which offers the withdrawal option without any sanctions. Everyone seems to have already conveniently forgotten how Canada backed out of the Kyoto Protocol in order to frack on a massive and environmentally catastrophic industrial scale.”
http://www.wrongkindofgreen.org/2016/10/27/this-changes-nothing-the-paris-agreement-to-ignore-reality/
onlooker on Fri, 28th Oct 2016 7:19 pm
Well this is a Oil company that is getting close to admitting the production prospects are getting dimmer and dimmer for Oil companies. Which is what Short and his Hills group have been repeatedly stressing. Combine that with Saudi Arabia and over leveraged oil companies in the fracking/shale plays and well the picture is very clear now of an Oil Industry which is teetering.
paulo1 on Fri, 28th Oct 2016 10:22 pm
Good article and good comments. Much is in doubt these days. I just want to add that Canada liked the revenues from the big Alberta boom, but it was more gravy than anything. In fact, it was huge distractor and side tracked our potential, as far as I’m concerned.
“A new poll released Friday shows the majority of Canadians assume development in the Alberta oilsands has a much larger impact on nation’s economy than it actually does.
According to the poll, conducted by Environics and commissioned by Environmental Defence, 41 per cent of Canadians believe the importance of the oilsands to the economy is six to 24 times higher than it actually is. And a full 57 per cent of Canadians overestimate the value of oilsands to the country’s economy.
The oilsands, according to Statistics Canada, account for only 2 per cent of the national GDP.”
http://www.desmog.ca/2014/07/04/new-poll-canadians-overestimate-oilsands-contribution-economy-yet-still-want-clean-shift
dissident on Fri, 28th Oct 2016 11:07 pm
That Stats Can evaluation is BS. If the tar sands are irrelevant then Harper would not have been prancing around claiming that Canada was an oil superpower. Elsewhere I have seen the current oil price drop actually invoked as a major factor in the poor economic state in the country.
Apneaman on Sat, 29th Oct 2016 1:20 am
dissident, where does it say they are “irrelevant”? Harper is both a neo liberal and religious nut job who pranced around claiming a lot of bullshit and if anything is irrelevant it’s the shit that came out of his mouth. Harper said so – that’s your argument? BTW, the Canadian economy is not doing all that well, but can you provide a list of the countries that are? How about all the countries doing better than Canada. I guess the staticians at Stats Canada are part of some conspiracy against Harper eh? Fudging the numbers for some nefarious purpose? Good thing we have super sleuths like you to catch these. And of course who needs evidence to prove these accusations when “I just know”.
joe on Sat, 29th Oct 2016 8:28 am
Exxon should have known that its investment in tight oil was risky, a basic view of bumpy plateau peak oil shows that tight oil supresses the price of easy oil as easy oil is used to produce tight, its inefficiency built in makes it price unstable. Better to shut down all tight oil, then let peak oil happen naturally than to face the next phase, which is consolidation and friction. As we move away from oil in the west, it is about to become more important than ever.
Kenz300 on Sat, 29th Oct 2016 10:22 am
Climate Change is real….. we will all be impacted by it.
Exxon’s Climate Change Cover-Up Is ‘Unparalleled Evil,’ Says Activist
http://www.huffingtonpost.com/entry/exxon-evil-bill-mckibben_561e7362e4b028dd7ea5f45f?utm_hp_ref=green&ir=Green§ion=green
shortonoil on Sun, 30th Oct 2016 9:27 am
Steve Angelo at https://srsroccoreport.com/ is going to soon be posting an article on EXXON’s recent 20% write down on their reserves. Like us, he believes that there are going to be a lot more of that coming down the pike.
Has anyone located that Plan B, yet?
http://www.thehillsgroup.org/
Boat on Sun, 30th Oct 2016 11:35 am
ape,
Have you read the agreement?
orbit7er on Mon, 31st Oct 2016 10:14 am
Who the hell provided $200 Billion to invest in tar sands which are incredibly expensive to produce and IF they are produced are guaranteed to fry the planet?
Is this what the Greenwash banksters are doing with all the Fed money at 0.50% interest??
How foolish and short sighted!
That could have been invested in Green Transit, solar, wind anything else for either energy conservation or renewable energy would have been a better investment…
Kenz300 on Wed, 2nd Nov 2016 11:41 am
The world is moving to a more sustainable future
Electric cars, bikes and mass transit are the future…..fossil fuel ICE cars are the past
Think teen agers vs your grand father cell phones vs land lines
NO EMISSIONS……..climate change is real
Paris Goes Car-Free First Sunday of Every Month
http://ecowatch.com/2016/05/17/paris-goes-car-free/
The transition to safer, cleaner and cheaper alternative energy sources continues
Germany Achieves Milestone – Renewables Supply Nearly 100 Percent Energy for a Day
http://www.renewableenergyworld.com/articles/2016/05/germany-achieves-milestone-renewables-supply-nearly-100-percent-energy-for-a-day.html
Portugal ran entirely on renewable energy for 4 consecutive days last week
http://electrek.co/2016/05/16/portugal-ran-entirely-on-renewable-energy-for-4-consecutive-days-last-week/
Apneaman on Wed, 2nd Nov 2016 12:07 pm
Kenz300, you’re right extinction is sustainable. It’s forever.
Spare me these bullshit green fantasy articles eh? They are written to mislead by torturing numbers and logic.
Germany Runs Up Against the Limits of Renewables
Even as Germany adds lots of wind and solar power to the electric grid, the country’s carbon emissions are rising. Will the rest of the world learn from its lesson?
https://www.technologyreview.com/s/601514/germany-runs-up-against-the-limits-of-renewables/
LongDistanceVoyager on Thu, 1st Dec 2016 5:32 pm
Some great Comments folks – the World may be moving into a Peak oil stage but there appears to be a surplus of Wisdom out there in respect to the Global energy supply /demand market.
The concept of Peak Oil is more than just about supply running lower, it is about instability, supply of cheap resources exhausting and a treadmill of declining profits and rising costs to extract unconventional sources which creates higher prices – which ripple and work their way thru the economies like Collateral Damages in a war.
The Pretend to the End Crowd which most Western peoples are culturally conditioned to join as we grow up is sliding down the slopes shopping and being happy …like the sheeple they are. They refused to make structural Political changes to change directions and now the Titanics are so huge it will be painful as we sail into strong headwinds.
Long gone is the EROEI of 80 to 1 for cheap oil and the lower end of shale oil plays has a EROEI around 25 to 1 and those dirty toxic Tar Sands in Canada tend to be 5 or 6 to 1 .
Marginal economic $$ returns and Massive Environmental costs and damages.
You Canadians are not the only ones caught up in these Faustian dilemmas – down in the States Heartland we grow industrial corn to make ethanol at a EROEI of 1.5 to 2 to the 1 put in. , barely get more out than energy put in.
So both countries are engaged in Follies of EPIC proportions. It has been well researched by leading Economists and Agricultural Agronomists that modern society can’t function if the EROEI return on energy invested is at 5 or below.
Everything runs on oil right now but it cant run if the energy return gets too low
Most economists think the US needs $65 per barrel to make the shale play work and give the industry the retained earnings needed to continue and expand etc. But $ 65 per barrel oil impact on the economy creates economic contraction and recession etc due to the embedded energy costs in everything.
So we have some decisions to make and its clear we need a massive conversion to more Sustainable energy models and usage patterns. Wiser people with Noble Guidelines backed by the masses must intercede and stop the entrenched interests including the banksters and their carbon dependents from destroying us all. The Laws of Diminishing Returns are bigger than any Corporation or Bank for that matter. The dark energy path is not going to change but the negative economics will only increase.
Dont be jealous of those of us who see a better path. Germany’s situation is complex – they dont have access to reasonably priced gas to balance out their grid so regrettably they have turned to prolonging coal to balance out their grid. Bad deal
Also they do it for jobs which is a different issue , Apneaman its not as simplistic as your Red Herring claim against Green energy.
If they had lots of gas it would be different indeed!
Roling along