When the price of oil plunges, as it has in the past two years, all of the largest oil companies in the world write down their losses. All, that is, except for one huge company.
Exxon Mobil doesn’t write down the value of its oil reserves, and the US Securities and Exchange Commission (SEC) has reportedly opened an investigation into its peculiar, if long-running, accounting practices. The SEC wants to know why they’re unique in the industry in doing this, and perhaps most intriguingly, what kind of affect this form of accounting has in a world of increased regulations around climate change.
As the Wall Street Journal reports, the SEC started asking for documents from Exxon last month, and the New York Attorney General’s Office has been investigating the company’s unusual accounting practices since at least last year.
Oil companies like Exxon are being asked by both governments and shareholders alike to assess what financial impact new environmental regulations might have on their businesses. Without transparent accounting practices when the price of oil dips, these kinds of assessments become increasingly harder to make.
But even with better accounting, Exxon seems hesitant to disclose that kind of information. As the Wall Street Journal notes, there was shareholder pressure this past May for Exxon to perform a “stress test” and see what would happen to company profits if greenhouse gas emissions were reduced by 80 percent by the year 2050. Exxon completely rejected the idea of making such an assessment public.
The SEC isn’t talking about any of the specifics regarding their investigation yet, but one imagines that this is just the beginning for Exxon.
[Wall Street Journal]