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Business Litigation Alert: "SEC Launches Investigation Into Exxon's Accounting and Climate Change Practices"

In the face of dropping oil prices, the SEC has launched an investigation into how Exxon Mobil Corp. has valued its assets.  While the value of competitors' assets have dropped dramatically since oil prices have plunged, Exxon has not written down its oil and gas reserves, making the company the only major US oil and gas producer not to do so.   The Wall Street Journal has covered this story here and here

Equally interesting, the SEC is also investigating how Exxon is calculating the impact climate change will have on its business.  The organization is closely examining how Exxon is calculating the future costs of compliance with greenhouse gas regulations.  Some feel that this could mean that the SEC will be looking more closely at climate-related regulation and enforcement, something that could have far reaching implications for the oil and gas industry.

As this is early in the investigation into Exxon's practices, there is much yet to be determined and concrete lessons are hard to draw right now.  However, there are several points to consider now:

  • Accounting for reserves is extremely complicated, and it is important to not only have reservoir engineers and auditors who understand the issues, but a law firm that has experience with the nuances of estimating and valuing reservoir assets.
  • Industry experts agree that energy companies have some latitude under U.S accounting rules, and this case will test those limits. 
  • With both reservoir accounting and climate change at issue in this matter, this dispute could have long lasting implications on the energy industry as a whole moving forward.

While we do not yet know the outcome of this investigation into the reservoir estimation, accounting, and climate change practices at Exxon, we do know that this matter is one for the oil and gas industry to watch.  We will be closely tracking this issue and reporting on key takeaways as developments occur.

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