“The federal government is joining the courageous state attorneys general, and they’re all following the trail of clues that began with powerful investigative journalism. “This is a remarkably important development,” said 350.org co-founder Bill McKibben.
Because of that, they reduced their target price/earnings multiple on the company to 18 times from 20 times the 2018 earnings/share estimate and reduced the valuation range to $93-103 from $103-114.Īctivist groups were enthused by the news of an SEC investigation, which they said was linked to Schneiderman’s wide-ranging probe into ExxonMobil’s climate research. The final reason to believe ExxonMobil is not over-capitalized is that its returns on capital employed have consistently outperformed its peers - a harder performance to deliver without write-downs…”īut the “headline risks associated with an SEC investigation create enough investor angst to damage ExxonMobil’s reputation and impact its share price performance during the investigation period,” Read and Hendrix wrote.
Other parts of the answer are likely related to ExxonMobil’s size (i.e., materiality), its ability to capitalize other reserves to offset losses and its practice of high-grading its operations through investments, acquisitions and dispositions. Their answer is they are conservative on when and how much is capitalized. Wells Fargo analysts said they have asked ExxonMobil “on multiple occasions how it avoids the asset write-down trap. “That this fact stands out might say as much or more about its competitors/peers’ willingness to over-capitalize assets as it does ExxonMobil’s aversion to writing them off.” “ExxonMobil has historically avoided asset writedowns during periods of dramatic price declines and in general. “We rate the likelihood of a negative outcome from a reported SEC investigation into ExxonMobil’s accounting/climate practices as very slight,” the analysts said in a note. Wells Fargo Securities LLC analysts Roger Read and Lauren Hendrix don’t think the SEC investigation will be a gamechanger. “With no one left to do its bidding, an SEC investigation seems like the natural, if not desperate, next step by the administration to intimidate scientific research,” Smith said. The GOP congressman slammed the SEC investigation as a way to prop up the state inquiries. Lamar Smith (R-TX), who chairs the House Science, Space and Technology committee, has criticized inquiries into ExxonMobil and sought jurisdiction over the Schneiderman-led investigation (see Daily GPI, Sept. producers in 2015 recorded property impairments, including ceiling test charges, totaling $141.8 billion (see Shale Daily, June 14).īecause it is an open investigation, the SEC had no comment about whether an investigation was underway. A study by Ernst & Young LLP found that 44 of the 50 largest U.S. recorded a $1.5 billion loss (minus 78 cents/share) in 2Q2015, with impairments and one-time charges totaling $2.8 billion. However, it did not appear to report any asset impairments.
The commission also mandates that proved undeveloped reserves, or PUDs, be developed within five years or be deleted from the reserves numbers.ĮxxonMobil earned $1.7 billion (41 cents/share) in 2Q2016, versus year-ago earnings of $4.18 billion ($1.00). producers to use the 12-month average trailing price for oil and natural gas to book the value of their reserves. Under New York’s Martin Act, the attorney general has extraordinary powers.ĮxxonMobil has not written down the value of its oil and gas assets or recorded an impairment since oil prices crashed in late 2014. Specific details were not released about what the SEC is looking at, but it is said to mirror requests by New York Attorney General Eric Schneiderman, who is spearheading two investigations into ExxonMobil - one on its climate change research and the other on reserves reporting (see Daily GPI, Sept.
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