Exxon faces SEC probe for allegedly inflating value of oil asset

Jan 16, 2021 News

ExxonMobil’s Chief Executive Officer, Darren Woods

Kaieteur News – While the media in Guyana kicks up a storm about the country’s sloth to audit billions of dollars in costs submitted by ExxonMobil for its operations here, a Wall Street Journal (WSJ) report published yesterday may put a kick in the government’s step. Two journalists, Christopher Matthews and Emily Glazer reported for the American business-focused publication yesterday that ExxonMobil is the subject of an investigation by the Securities Exchange Commission (SEC), a powerful independent agency of the United States, tasked with maintaining the fairness and orderliness of markets.
The SEC was made to launch its investigation after an ExxonMobil employee filed a whistleblower complaint, alleging that the oil supermajor inflated the value of an important petroleum asset in the United States Permian basin, according to WSJ. It noted that the US’ whistleblower programme, among other things, allows the whistleblower to receive a cut from any imposed monetary penalty.
The whistleblower reportedly singled out ExxonMobil’s Chief Executive Officer, Darren Woods in the complaint as setting unrealistic expectations for the company’s performance in the basin.
WSJ reported that, in 2019, Woods said Exxon’s production in the Permian basin would increase to one million barrels per day, a big jump over the previous target of 600,000 barrels by 2024.
“No one I knew in the organisation thought this was possible; the pressure to deliver on Woods’s promise to the market permeated the organisation,” WSJ reported the whistleblower as saying.
The publication reported the complaint as noting that several people involved in the valuation process for the asset in question complained during a 2019 internal assessment about the instructions they received. The thrust of the complaints was reportedly that some employees were being strong-armed to use unrealistic assumptions to project or determine how quickly ExxonMobil could drill wells at the site, as this would result in a higher value for the asset.
ExxonMobil had acquired Permian acreage in 2017 for US$6.6 billion, said WSJ, and by 2018, some Exxon managers had pegged the net present value of the acreage at US$60 billion. On the other hand, the Journal said that some of Exxon’s employees produced an estimation in 2019 that was closer to US$40 billion, and that the whistleblower said this took into account that it took longer than expected to drill wells in 2018.
But when the employees delivered the estimate to the development manager in Delaware, she reportedly instructed them to “claw back” some of the value by using more optimistic assumptions.
The complaint reportedly noted that when some employees produced the revision the manager asked for, they named the file “This is a Lie.”
The Journal said the development planners ultimately estimated the net present value of the asset to be US$50 billion.
WSJ, which noted previously reporting on disagreements about the valuation, said at least one of the complainants was fired, according to a person familiar with the matter.
The Journal said that a spokesperson for the SEC declined to comment on the matter of an investigation. Similarly, Exxon spokesman Casey Norton reportedly refused to comment on that matter, as well as the question of any employee’s performance or reason for separation from the company.
He reportedly only provided that if authorities asked the company about the 2019 assessment, it would provide information showing that Exxon’s drilling performance exceeded the drilling estimates.
Following the report of the Wall Street Journal, ExxonMobil released a statement yesterday which pegged the “alleged” whistleblower’s claims as “demonstrably false.”
It said that the employees who are alleged to have made the 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.”
To buttress this point, Exxon said that its unconventional drilling performance has historically increased in short time frames as engineers and planners gather more data. It stated that there were multiple learning curves considered throughout the process, which took into consideration demonstrated learning curve performance in other unconventional projects. All in all, the company stands by the statements it has made to its investors.

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