Please ensure Javascript is enabled for purposes of website accessibility

Why ExxonMobil Stock Is Sliding Today

By Matthew DiLallo - Updated Jan 15, 2021 at 11:24AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The oil giant is reportedly under investigation.

What happened

Shares of ExxonMobil (XOM 0.54%) declined by as much as 6% by 10:45 a.m. EST on Friday. Weighing on the oil stock was a Wall Street Journal report that the Securities and Exchange Commission has launched an investigation of the company.  

So what

According to the Journal, an Exxon employee filed a whistleblower complaint against the company last fall, alleging that it overvalued its assets in the Permian Basin. The company reportedly forced employees to use unrealistic assumptions in an internal assessment in 2019 about how quickly it could drill new wells in the region to arrive at a higher valuation for its properties. Exxon reportedly fired at least one of the employees who complained about this aggressive approach. 

A drilling rig near a pump at dusk.

Image source: Getty Images.

Some of the company's managers initially estimated that the net present value (NPV) of its properties in the Delaware Basin was $60 billion. However, some employees involved in the planning reportedly put the NPV of those assets at around $40 billion. That discrepancy is leading the SEC to investigate if the company misled investors about the value of these assets. 

As it turns out, Exxon won't be able to achieve its original ambitious goal to expand its oil and gas output in the region to 1 million barrels of oil equivalent per day by 2025 due to much lower-than-expected oil prices. That slump forced the company to significantly reduce its capital spending program, affecting its ability to grow its output in that region. Thus, the assets are likely worth much less than the company's optimistic assessment. 

Now what

ExxonMobil's stock had been on a tear this year, fueled by higher oil prices and increasing bullishness by analysts who follow the company. Even after today's slide, shares are up more than 15% on the year. While the SEC investigation will likely weigh on the company until it's resolved, oil prices will remain the main driver for Exxon this year. If crude maintains its upward trajectory, shares could continue rallying. If not, the stock could give back its recent gains. Because of that, investors need to keep a close eye on crude prices since they hold the key to Exxon's future.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
XOM
$91.14 (0.54%) $0.49

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
327%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.