Exxon Writes Off Record Amount From Value of Assets Amid Energy Market Downturn
Updated at 10:15 a.m. ET on Dec. 3
After insisting for months that its oil and gas investments remain as valuable as ever, Exxon Mobil Corp. plans to write down $17 billion to $20 billion in natural gas assets in the largest such announcement the company has ever made.
The assets are located in the U.S., Canada and Argentina, according to an announcement released Monday afternoon. Many of those assets in the U.S. were acquired a decade ago when Exxon struck a poorly timed $41 billion deal to expand its natural gas holdings.
The news comes as OPEC, the powerful cartel of oil producers, is deliberating whether to extend dramatic production cuts in light of the prolonged economic effects of the ongoing coronavirus pandemic. (For more on OPEC's deliberations, click the play button above.)
Many oil companies announcedwrite-downs this year after oil and gas prices dropped sharply because of the pandemic. That's because companies make investments based on predicted commodity prices, and price drops can make a planned project suddenly unprofitable. Taking such projects off the books is called an impairment, or a write-down.
For many companies that's a routine accounting practice after a price drop. But Exxon has long been an outlier, maintaining its plans are unchanged despite the adjustments made by its rivals. The company argues it makes investments based on long-term strategies that are not affected by short-term prices.
And while some companies are starting to factor in long-term reductions in oil demand due to climate action, Exxon maintains that demand for petroleum will remain robust even as climate concerns mount.
Even now, as it announces its largest-ever impairments, Exxon is not attributing the change to any underlying shift in price forecasts. Instead, it said it is dropping "less strategic assets" from its plans.
The company was also accused of improperly removing climate change risks from business calculations, including impairments; a court ruled that Exxon did not commit fraud.
Andrew Logan, senior director of oil and gas at the sustainability nonprofit Ceres, works with investors who want to push fossil fuel companies to engage on issues of climate change. He said Exxon's announcement is primarily an acknowledgement of a past strategic error, rather than a signal of any major shift going forward.
"The assets it is writing off require there to be massively higher natural gas prices to break even, and it has been clear for a while that the company would never be able to develop them," Logan said. "What is significant here is that the company is finally, begrudgingly, admitting this."
Exxon is continuing to make investments based on its prediction of a future where demand for oil grows for decades, Logan added.
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