XOM Exxon Mobil Corp

By Bradley Olson and Anne Steele 

Exxon Mobil Corp. was forced to write down the value of more than $2 billion in U.S. assets as it reported sharply lower fourth-quarter earnings on Tuesday, an extremely rare step for the company that shows the toll low oil and gas prices have taken on even the largest players in the industry.

The step follows an investigation begun by the U.S. Securities and Exchange Commission in August over Exxon's accounting practices and how the world's largest publicly traded oil company values its future oil and gas wells, or reserves. Exxon reported a 40% decline in fourth quarter net income, and annual 2016 profits of $7.8 billion, the lowest in 20 years.

Exxon was alone among major energy companies in not having recognized on its books any reduction in the value of its reserves, a development that had become fairly routine for peers as prices crashed in recent years. Since 2014, other U.S. companies have slashed the value of their assets by more than $200 billion, according to S&P Global Market Intelligence.

The assets the company wrote down were for land-yielding natural gas in the Rocky Mountains, according to the company. Exxon purchased shale producer XTO Energy for $31 billion in 2010 in the heart of a drilling boom that would send natural gas prices careening downward within a few years. The price, which averaged $5.35 per million British thermal units when the deal was announced late in 2009, is now about $3.23.

The company has not booked a decline in the value of its assets since at least 1990. This is due in part to Exxon's practice of being more conservative when initially recognizing the value of new oil and gas that it discovers, according to analysts and people familiar with its accounting.

It is also related to a management view that it is better to place a high burden on executives to ensure that projects can work at lower prices than to write down their value. The company's senior leaders wished to avoid write-downs because in accounting terms, they have the effect of making the company's investments appear more profitable, according to people familiar with Exxon's practices.

"We don't do write-downs," former Chief Executive Rex Tillerson told trade publication Energy Intelligence in 2015. "We are not going to bail you out by writing it down. That is the message to our organization."

For the October-to-December period, profits fell to $1.68 billion, or 41 cents a share, from $2.78 billion. Analysts polled by Thomson Reuters were anticipating 70 cents a share.

Exxon's stock was roughly unchanged in premarket trading at $84.80. Exxon's revenue rose for the first time in more than two years, increasing 2% to $61 billion.

Chief Executive Darren Woods pointed to the prolonged downturn in commodity prices as well as the impairment charge for the decline in earnings.

Mr. Woods took the helm this month from Mr. Tillerson, who was tapped by President Donald Trump to serve as U.S. Secretary of State.

Write to Bradley Olson at Bradley.Olson@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

January 31, 2017 10:03 ET (15:03 GMT)

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