Exxon Admits 4.6 Billion Barrels Are No Longer Profitable to Produce
Embattled ExxonMobil Corporation admitted late last week that up to 4.6 billion barrels of its oil reserves may no longer be profitable to produce.
Reuters reports the reduction amounts to nearly 20% of the oil in the company’s inventory.
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“Exxon revealed in its third-quarter report that the crash in oil prices may have impacted the value of its oil and gas reserves—the amount of technically and economically recoverable oil in its fields, and a key marker of a company’s borrowing power,” FuelFix reports. “If low prices persist this year, some of Exxon’s oilfields will not qualify as proved reserves by year’s end,” and “some of the fields may become uneconomical faster than expected.”
The news came as the U.S. Securities Exchange Commission (SEC) continued its investigation into Exxon’s methods of accounting for the value of its oil reserves in light of climate risk. The announcement “pushed the company’s share price down 2.3% to $84.93 in afternoon trading,” Reuters notes, “on an otherwise upbeat day that saw Exxon and Chevron post quarterly profits that beat Wall Street expectations.”
The FuelFix report tracks a “precipitous decline for the oil giant.” Its third-quarter profits still stand at US$1.6 billion, but that’s a drop of more than one-third since last year, driven by low oil prices and narrower profit margins on refinery operations. Its quarterly earnings have fallen from $8.1 billion in 2014, to $4.2 billion in 2015, to $2.7 billion this year.
The company plans to assess the economics of its major oil and gas field by the end of the year, but “said it did not expect to end operations in fields that might be stripped from reserves,” writes correspondent David Hunn.
Meanwhile, an analysis by Bloomberg News concludes that the Paris Agreement places Exxon in no man’s land. The deal “could put billions at risk for oil companies’ biggest shareholders—pension funds, institutional investors, and large asset managers,” the news agency reports, and “no company has more to lose than Exxon.”
The colossal fossil is “widely seen as the best-run oil company in the industry,” Bloomberg acknowledges. But “it’s also been the slowest among its peers to face up to the risks that climate change poses to its business. Slowly, in fits and starts, investors are trying to push it to take better account of those risks,” with six of 11 shareholder initiatives at this year’s annual meeting having something to do with climate.
“None passed, but the votes they attracted sent a message,” Bloomberg notes. “Investors want Exxon to take better measure of the risks climate change poses.”
The fundamental problem for oil and gas is that low prices have “stopped that business cold, and the threat of climate action raises fundamental questions about whether it’ll ever be viable again,” notes reporter Matthew Phillips. “While most companies have written down the value of their reserves in light of cheap oil, Exxon has not—in line with its own 2014 report suggesting that none of its reserves were at risk of being stranded.” That helped trigger the SEC’s announcement in September.
The Bloomberg analysis referred to a report last week by the Institute for Energy Economics and Financial Affairs that showed Exxon falling into long-term decline. That same analysis prompted the International Business Times to speculate that the once-invincible fossil giant is entering a death spiral.