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Report Claims SEC Is Investigating ExxonMobil Over Asset Valuation; Company Responds

By Howard Smith - Jan 15, 2021 at 3:20PM

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A whistleblower complaint last fall initiated the review of a Permian Basin asset.

The Securities and Exchange Commission reportedly has begun an investigation into ExxonMobil (XOM 0.35%). This comes in response to an employee filing a whistleblower complaint last fall, which alleges that the company overvalued some of its Permian Basin assets, according to a Wall Street Journal report released this morning. 

The dispute began after CEO Darren Woods said in early 2019 that the company would increase oil and gas production in the Permian Basin from 600,000 barrels per day (bpd) to over 1 million bpd. Some employees considered that target unrealistic for those assets, according to the report. 

Exxon responded this afternoon with a strong denial. In a statement, the company called claims in the report "demonstrably false." Exxon claims that performance of the assets "exceeded drilling plans" and that it could prove it. Further, the oil giant says that it can "provide information that shows the accuracy of its valuation of the company's Permian assets." 

oil well operating in the plains

Image source: Getty Images.

Exxon acquired assets in the Delaware Basin portion of the Permian in 2017 for $6.6 billion. A year later, management reportedly valued the Delaware Basin at about $60 billion. However, the whistleblower complaint reportedly alleges that internal employee estimates for the region in 2019 were a third lower than that, at $40 billion. The whistleblower further alleges that, when it look longer to drill wells than expected, the development manager of the area asked employees to change assumptions in order to be more optimistic about how fast the company could improve drilling times.

In its response, however, ExxonMobil says, "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."

In a March 2020 investor presentation, Neil Chapman, head of Exxon's oil and gas division, said: "We're drilling more efficiently every month. If I thought that we were operating inefficiently, I will be the first to pull back."

At least one employee involved was fired last year, according to the WSJ report. The reason for the termination is unclear.

Time will tell as to the significance of these allegations for Exxon and its shareholders. Nevertheless, few investors are excited to read a press release that includes the phrase "if the company were to be asked about this matter by authorities."

Editor's Note: This article was updated at 3:20 Eastern Time to incorporate Exxon's response to this morning's report

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