ExxonMobil’s financial reporting under scrutiny

The company faces questions about its reserves and asset valuations as oil slumps

ExxonMobil prides itself on its reliability — in its finances as well as its engineering. So the warning the company issued on Friday about its reporting of oil and gas reserves was particularly uncomfortable.

As the world’s largest listed oil company reported a 38 per cent drop in earnings for the third quarter, Exxon made two separate but related warnings resulting from the weakness of energy prices this year.

The first was that, short of a big jump in oil prices, it was on course to have to cut about 19 per cent from the proved oil and gas reserves it reported last year. The other was that it was reviewing its assets to see if it needed to take any earnings charges for writedowns in their value.

Concerns about Exxon’s reserves reporting and asset valuations have prompted inquiries from the Securities and Exchange Commission, the chief US financial regulator, and an investigation by Eric Schneiderman, the attorney-general of New York. He has been looking at Exxon’s decisions not to take large charges to its profits for asset writedowns following the slump in oil prices since mid-2014, and its statements about the potential impact of climate change on its business.

Friday’s announcements by Exxon contributed to a 2.5 per cent fall in its shares, while those of rival Chevron, which reported better than expected earnings, rose 3.9 per cent.