Exxon Mobil Corporation (XOM)  

​SEC investigating Exxon’s accounting

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Paul Conley | FlashRatings | Wednesday, September 21, 2016 7:23 PM EDT
The SEC has launched a probe into accounting practices at Exxon Mobil (XOM), mirroring an investigation into the oil company’s finances by New York State’s attorney general.

At issue is how Exxon, the world’s biggest oil explorer by market value, values its assets amid rising concerns over climate change. In particular, the SEC wants to know how the company is accounting for future costs related to compliance with environmental laws, according to The Wall Street Journal.

The SEC is also examining Exxon’s decision not to write down the value of oil and gas reserves as energy prices fell in the past two years. Exxon is the only major producer to have not written down assets as oil prices plummeted. Oil prices have slipped from more than $100 a barrel two years ago to less than $30 a barrel in February. 

A spokesperson for Exxon told the New York Times the company is “fully complying with the S.E.C. request for information and are confident our financial reporting meets all legal and accounting requirements.”

The practices now under SEC investigation are the same as those that have attracted the attention of N.Y Attorney General Eric Schneiderman. Over the summer, Schneiderman questioned whether Exxon had misled investors by withholding information about the threat posed to the company’s finances by the regulatory costs associated with climate change. Last week Schneiderman expanded his probe to include questions related to write-downs of oil and gas assets.

Analysts from Wells Fargo reiterated their “outperform” rating for Exxon after news of the SEC inquiry broke, but reduced their target price from $108.5 to $98.

In a note to investors, Wells Fargo said "We rate the likelihood of a negative outcome from a reported SEC investigation into ExxonMobil’s accounting/climate practices as very slight...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...However, in our view 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."

The oil company has 40 percent positive ratings over the last 30 days, with a median price target of $99. Shares of Exxon rose 76 cents, or 0.92 percent, to 83.30.