Exxon may face historic reserves reduction

Bloomberg

Exxon Mobil Corp. warned it may be facing the biggest reserves revision in its history as production sank to a seven-year low and profit slid amid a prolonged slump in energy markets.
About 3.6 billion barrels of reserves in the Canadian oil sands and the equivalent of another 1 billion barrels of oil in other North American fields may be in jeopardy if the average energy prices seen during the first nine months of 2016 persist, Exxon said in a statement on Friday. That would equate to 19 percent of Exxon’s reserves and would be the largest de-booking since the 1999 merger that created the company in its modern form.
Exxon’s accounting has prompted a U.S. Securities and Exchange Commission investigation into whether the company should have written down assets as a result of the oil slump, a person with knowledge of the matter said last month. The company didn’t say on Friday whether removing reserves from the books would result in asset-impairment charges that could hurt its financial results.
“The fact that everyone else has recorded charges and they have not created a red flag,” said Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis. “In the big picture, it doesn’t mean those reserves won’t eventually get produced.”
The Irving, Texas-based driller extended its longest streak of profit declines in almost three decades. Third-quarter net income was $2.65 billion, or 63 cents a share, compared with $4.24 billion, or $1.01, a year earlier, Exxon said in a statement on Friday. The per-share results exceeded the 59-cent average of 20 estimates in a Bloomberg survey, though the company pumped less crude and natural gas than analysts expected. The year-on-year decline in quarterly profit was the eighth in a row, a pattern of dwindling returns Exxon hasn’t posted since at least 1988. Exxon shares fell 2.5 percent to $84.78 at the close in New York Friday, trimming the year-to-date gain to 8.8 percent.
Brent crude, the international benchmark, averaged $46.99 a barrel during the July-to-September period, down 8.4 percent from a year earlier amid a worldwide supply glut. Refining margins in the U.S. averaged less than $14 a barrel during the quarter, 35 percent lower than the year-earlier figure.