ExxonMobil, Co-Owner of Kashagan Oil Project, Is Accused of Wrong Asset Valuation
The U.S. Securities and Exchange Commission (SEC) launched an investigation into ExxonMobil’s activities amid allegations that the company overvalued one of its key projects in the Permian Basin, The Wall Street Journal edition reported.
On Friday, ExxonMobil shares declined at the New York Stock Exchange by 4.5% to $48 per share. The historical record decline was by 6% (from $50.31 to $47.29).
The investigation was launched when the former company’s employee filed a grievance. As the whistleblower told authorities, ExxonMobil forced employees to use unrealistic estimates about the deadline for drilling wells.
In 2018 ExxonMobil managers estimated the Delaware Basin at $60 billion, while experts who participated in assessment work in 2019 used another figure – $40 billion.
The final assessment mentioned $50 billion. According to Exxon’s former employee, the company’s executives pushed the entire company to enlarge figures. For example, when the ExxonMobil official talked to the WSJ, he said that the drilling results exceeded their expectations.
In 2020 ExxonMobil lost billions because of the low demand amid the pandemic. Last year the company’s shares became cheaper by 30%.
In August 2020, these shares were removed from the Dow Jones Industrial Average even though it had been there since 1928.
In October, the company announced that it will not raise dividend payouts. This was the first time the company, which had been among S&P 500 Dividend Aristocrats since 1982, refused to raise payments for its shareholders. To stay afloat, ExxonMobil has cut expenses and its staff.
As a response to the Wall Street Journal report, ExxonMobil’s issued a statement.
«The claims made by an alleged whistleblower, and reported by The Wall Street Journal, are demonstrably false. Actual and provable performance exceeded drilling plans for the Permian, and such performance has been accurately represented to the investment community. The Wall Street Journal has been aware of these facts since September.
“The company stands by its statements to investors, and, if the company were to be asked about this matter by authorities, it would provide information that shows the accuracy of its valuation of the company’s Permian assets, and that actual drilling performance exceeded the plans,» the company said on its website.
«It is obvious that the employees who are alleged to have made the false claims lack the breadth and depth of experience to understand how and why drilling curves are routinely revised as technologies improve and understanding of the resource base expands,» ExxonMobil resumed.
Initially, the company planned to extract about 600,000 barrels of oil and gas per day from its wells in the Permian Basin. However, Exxon later said it would increase the output up to one million barrels by 2024.
The shale oil production in the United States led to lower oil prices on the global market that OPEC and some other countries (which support the OPEC+ deal) tried to avoid by reducing the oil output.
The actual oil reserves in Texas that Exxon relies on is 10 billion barrels or 10% of the company’s oil reserves as a whole.
Before the pandemic, ExxonMobil executives had expected that Permian wells would generate profit even though they may require more investments. According to Exxon estimates, oil production in the Permian Basin may generate profit even if the oil prices would fall to $35 per barrel.
In Kazakhstan, ExxonMobil owns 25% of the Tengizchevroil company that works at the Tengiz and Korolevskoye oil fields. The company has a license to explore the neighboring territory of 1,847 square kilometers.
ExxonMobil also owns 18.52% of North Caspian Operating Company (NCOC), a joint venture that operates and develops the massive shallow-water oil field named Kashagan. The main office of ExxonMobil in Kazakhstan is located in the town of Atyrau.
As the company has reported earlier, because of low demand amid the coronavirus crisis, it will cut 1,600 jobs in Europe by the end of 2021.
