Exxon Cuts Reserves By A Record 3.3 Bilion Barrels As Oil Crash Finally Takes Toll

Tyler Durden's picture

Last September, when the price of oil was well below where it had been trading for the bulk of the past several years,  we reported that NY Attorney General Eric Schneiderman was probing why Exxon Mobil hasn’t written down the value of its assets, two years into a pronounced crash in oil prices. The complaint was simple: out of the 40 biggest publicly traded oil companies in the world, Exxon - then still led by now Secretary of State Rex Tillerson - was the only one that hasn’t booked any impairments in the prior 10 years.

As the WSJ wrote at the time, "since 2014, oil producers world-wide have been forced to recognize that wells they plan to drill in the future are worth $200 billion less than they once thought, according to consultancy Rystad Energy. Because the fall in prices means billions of barrels cannot be economically tapped, such revisions have become a staple of oil-patch earnings, helping to push losses to record levels in recent years." And yet, Exxon had - until the later half of 2016 - declined to take any write-downs, the only major oil producer not to do so, which has led some analysts to question its accounting practices. 

Maybe the NYAG was on to something? 

To be sure, the company had played down the criticism, saying it is extremely conservative in booking the value of new potential fields and wells. That reduced its exposure to write-downs if the assets later prove to be worth less than expected. Then again, not even the most "conservative" company could have factored in oil crashing from $100 to $42 without that impacting the balance sheet.

Needless to say, avoiding reality and Exxon’s "ability" to avoid write-downs, and the massive losses that come with them, had been the main factors helping the company outperform rivals since prices began falling in mid-2014. Exxon shares had fallen by about half of the average of top peers Chevron,  Royal Dutch Shell, Total and BP. Since 2014, those companies have booked more than $50 billion overall in write-downs and impairments.  But not Exxon.

Then-CEO Rex Tillerson has an unusual explanation why Exxon has refused to write down assets so far: Rex told trade publication Energy Intelligence in 2015 that the company has been able to avoid write-downs because it places a high burden on executives to ensure that projects can work at lower prices, and holds them accountable.

“We don’t do write-downs,” Mr. Tillerson told the publication. “We are not going to bail you out by writing it down. That is the message to our organization.”

All of that changed this afternoon, when Exxon, now ex-Tillerson, disclosed the deepest reserves cut in its history as the ongoing rout in oil prices erased the value of a $16 billion oil-sands investment and other North American assets.  In a press release filed after the close, Exxon announced that "proved reserves were 20 billion oil-equivalent barrels at year-end 2016, inclusive of a net reduction of 3.3 billion oil-equivalent barrels from 2015. Reserves changes in 2016 reflect new developments as well as revisions and extensions to existing fields resulting from drilling, studies, analysis of reservoir performance and application of the methodology prescribed by the U.S. Securities and Exchange Commission."

As a result of very low prices during 2016, certain quantities of liquids and natural gas no longer qualified as proved reserves under SEC guidelines.

In other words, after years of denials, and claims that "we don't do write-down", Exxon just concluded the biggest reserve cut on record, as 3.3 billion barrels of crude was removed from the company's "proved reserves" category. The revisions were triggered when low energy prices made it mathematically impossible to profitably harvest those fields within five years. The massive 3.5-billion barrel Kearl oil-sands development in western Canada accounted for most of the hit, with another 800 million oil-equivalent barrels in North America did not qualify as proved reserves, "mainly due to the acceleration of the projected economic end-of-field life."

Following the reserve cut, the company's total reserves dropped to 20 billion, the lowest in two decades.

As Bloomberg adds, the oil-sand mines in northern Alberta are among the costliest types of petroleum projects to develop because the raw bitumen extracted from the region must be processed and converted to a thick, synthetic crude oil. As such, they have been particularly hard hit by the worst oil slump in a generation.

The reductions were partially offset by reserves additions of oil and natural gas totaling approximately 1 billion barrels of oil equivalent in the U.S., Kazakhstan, Papua New Guinea, Indonesia and Norway, which replaced 65% of production and were the result of acquisitions, improved asset performance and a decision to fund an expansion of the Tengiz project in Kazakhstan.

According to Bloomberg calculations, the 19 percent drop amounts to the largest annual cut since at least the 1999 merger that created the company in its modern form. That includes 1.5 billion barrels of reserves that were pumped from wells. The previous record cut was a 3 percent reduction taken during the height of the global financial crisis in 2008.

Proved Reserves are among the most important metrics watched by investors because they are an indicator, along with commodity prices, of future cash flow. When the 2008 reserves cut was announced in February 2009, Exxon shares lost more than 4 percent in a single day, wiping out almost $17 billion in market value.

Today, after the biggest reserve write down in history, the shares gained 0.2% to $81.08 in after-hours trading as of 5:46 p.m. in New York on Wednesday, after closing at $80.93, suggesting that either the market does not care about fundamentals, or had largely priced in the announcement. As noted above, Exxon was facing an SEC probe into how it valued its portfolion, and signaled in October and again last month that the revision was probably coming, which may explain the lack of reaction.

On Tuesday, ConocoPhillips engaged in a similar reserve reduction when it removed the equivalent of 1.15 billion barrels of oil-sands crude from its books as part of a 21 percent cut that pushed the Houston-based company’s reserves to a 15-year low.

Under SEC rules, proved reserves can only include oil fields that can be produced economically within the next half decade. Price trends from the previous 12 months are compared against the estimated cost to harvest crude and gas in determining which reserves are counted.

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Antifaschistische's picture

Is this a reserve 'writedown' because the 'reserve' is no longer economically viable (as stated) or is it really because the 'reserve' is actually non-existent? (not stated)

HedgeAccordingly's picture

Fairly large "write down" ---- interesting though... http://ow.ly/RtuY309gHFg

BetterOffDead's picture

Typical; new boss comes in, writes down everything. Later, writes it up and pays himself a big bonus.

max2205's picture

They had 3 billion or they didn't 

JLee2027's picture

Not recoverable at current low price. Later on...

yttirum's picture

revised from previous target

Spungo's picture

BetterOffDead is exactly right. New managers always do what is called "big bath" accounting. Everything that can be written down will be written down. All of the write downs will be attributed to the previous manager fucking everything up. The next year looks amazing by comparison, so the new manager gets a huge bonus.

CRM114's picture

That happens in practically every job. In my experience, most of the time the previous manager WAS either a f#ckwit or a crook.

I am a Man I am Forty's picture

or old boss fudges numbers until he sells his stock then leaves

GUS100CORRINA's picture

The OIL and GOLD companies always CHANGE these numbers based on price averages.

These kind of events when they take place are done for a financial advantage. Nothing really changes, but just how these companies choose to recognize the commodity.

With regards to global oil reserves, oil has been found in Golan Heights, which was taken by Israel, from Syria, in the 1967 war. (Haaretz: “Genie Confirms Report of Possible Big Golan Oil Find,” Oct 11, 2015)

As a side note, I believe in the concept of abiotic oil because I believe in a GLOBAL FLOOD mentioned in book of GENESIS. From this perspective, the earth oil reserves are a lot bigger than anyone wants to believe.

The abiotic hypothesis is that the full suite of hydrocarbons found in petroleum can either be generated in the mantle by abiogenic processes, or by biological processing of those abiogenic hydrocarbons, and that the source-hydrocarbons of abiogenic origin can migrate out of the mantle into the crust until they escape .

Can you imagine what would happen to the price of oil if the TRUTH was known? In other words, the "PEAK OIL" theory is wrong.

To speak this TRUTH is HERESY and TREASON in the ENERGY MARKET.

yttirum's picture

HERESY damnit, I tell ya this is HERESY! Dinosaur bones, assholes.

Gold Pedant's picture

There's nothing more obnoxious than a newly minted "businessman" (aka retired Frat Daddy) from one of those papermills called US universities. Hearing them chant out "peak oal... jabber jabber jabber PEAK OAL jabber peak oal .... peak oal ... PEAK OAL" at some "social" function right after they graduate from Bovine University, and let us not forget that it is purely rehearsed from their "profs," is wonderful. Same thing as anyone wanting to doubt the "SCIENTISTS"--that is, some sort of non-evil academic bogeyman--some nameless class of people who "obviously know way more than we do because YAY SCIENCE!" over something like global warming. Sorry, bud, burning wonderful raw materials that can be used to make anything in the universe is stupid, but having the gall and arrogance to say that humans are definitively terraforming the earth to the point that it will be uninhabitable by, say, 1999, and not bothering to patiently wait around for a few eons to collect irrefutable data is, well, shall I continue?

unsafe-space-time's picture

So the earth is 6000 years old? Where are all of the oil volcanoes? If earth is 4 billion years old then oil generation is would slower than biotic.

south40_dreams's picture

Is there a problem?

CRM114's picture

I bet you said that after Hiroshima too.

Gold Pedant's picture

CRM114, do not be such a discriminator.

dlfield's picture

Ohh...so the overall reserve numbers driving oil and gas prices is fake too...figures.

dlfield's picture

Wait, oil & gas prices are based on futures, which are derivatives of fake numbers.  Even more awesomeness.  So what we pay at the pump is contrived-fakeness, not actual supply and demand driven.

thecondor's picture

Yep.  You are right, it's mostly all speculation.  I think that if you can't take delivery, you can't buy oil futures.  And the same goes for all commodities.

NoPension's picture

Remind me again...how many $billions of market cap do Facebook and Uber have? 

  And that's all good, eh, Eric?

Arnold's picture

No write down of their non performing assets, eh.

CRM114's picture

Not possible, their 'assets' (ie. liberal customers) have always been, and are incapable of, performing. 

64n6l4nd's picture

oil sands needs fracked gas; it's a racket

Sonny Brakes's picture

Oilsands oil requires high energy inputs along with the permanent polluting of fresh water in order to be recovered.

The oil business does not account for the clean up of their environmental damage; they leave that up to the taxpayer to pay for.

NoPension's picture

One more reason we should switch to clean burning, renewable ethanol.

 

Yes, it's fucking sarcasm..

yttirum's picture

Pelosi pussy farts are high octane, from what I hear.

CRM114's picture

You'll need H2S training :((

Government needs you to pay taxes's picture

I wonder whether the permanent pollution of water caused by oil sand recovery is less than, equal to, or greater than the permanent pollution of the Pacific Ocean by the Fuckushima Power Plant incident.

#buysomeperspective

#focusonwhatmatters

francis scott falseflag's picture

 

For 5 year's I've been saying oil reserves have been overstated and we're in

for some trouble in 10, 15 years.  This is just the beginning.  When all the 

large American producers finish restating, then it's the foreign producers/countries' turn

64n6l4nd's picture

 

 

5 years ???? lol you ve been making that argument for at least 25 years!

 

....they might be overstating their "reserves"


sure, for whatever reason, market share image, stawk "price", quarterly earnings, eps  etc, whatever, BUT

 

there is no peak oil;

 

oil is literally everywhere

 


francis scott falseflag's picture

 

oil is literally everywhere

 

Well, be sure and wipe your feet off before getting into bed

yttirum's picture

Bwaha! Thanks for that. Yeah, every 10 years since 1956 (American Petroleum Institure meeting) we have the "PEAK OIL" scare. They put it on covers of magazines, newspapers, TV, and bring tards out of the wood work with pretty graphs and PhDs to tell us how fucked we are.

Don't let your head get caught in the oil sands.

CRM114's picture

Whilst new records are being set every day, I think we are still a long way from Peak Bullshit.

francis scott falseflag's picture

The point of the fable about the 'boy who cried wolf' is that eventually the hungry wolf shows up.

If he doesn't show up today, watch out for tomorrow.

Just sayin

ronron's picture

so Gartman will be pleasanly long with a bit of caution?

sinbad2's picture

All the American oil companies are insolvent, low oil prices and a high dollar means they cannot turn a profit. The US Government allows them to declare false asset values, and they pay dividends by borrowing money.

Tim Knight from Slope of Hope's picture

What "rout in oil prices"????? Oil hasn't budged for THREE SOLID MONTHS!

unsafe-space-time's picture

All you antipeakoilers are retards. How can oil reserves stay the same without any new major discoveries. Last 100 years you have been getting something for nothing. Of course you're in denial because oil supports your luxuriously faggy lifestyles.

adr's picture

So in 1999 when it looked like oil was heading to $5 a barrel after the confirmation oil was abiotic and essentially limitless, Exxon had over 20 billion in proven reserves. They planned further explorations, deep water drilling, etc spending billions of dollars. 

WHEN OIL WAS UNDER $15 A BARREL!

After the discovery the Wall St pigs saw a massive opportunity. They lobbied for new cuts in regulations to let them turn the most important commodity on Earth into a playtoy so they could make trillions off fucking the commodity market. 

Oil belongs at $20 and oil futures trading belongs to true consumers of the product. SCREW THE FUCKENSTEINS KILLING THE GLOBAL ECONOMY. 

TheRealBilboBaggins's picture

Worked as a mud logger (well-site geologist) for a couple of years, and saw what was mentioned above. Oil is literally everywhere, just not in particularly profitable quantities. For example, an hour north of  my house there is a vein of black shale that goes across my entire state. It once produced tremendous amounts of nat gas, and still does produce some oil and gas. But as far as drilling it horizontally and fracking it, it doesn't appear to be profitable. 3 hours south there is a similar vein, that may have more commercial viability. 2 hours southwest there are wells producing up to 400 bbls a day, and 6 hours east are vast nat gas and nat gas liquids fields that at the proper price level will flood the world with nat gas and crackable liquids. Hydrocarbons are everywhere because hydrocarbons are laid down by water floods.

It's my opinion that most areas that were drilled looking for oil lakes will be drilled again by frackers. Peak oil is a joke. It won't be in my lifetime.

It looks to me that oil sands will not be profitable for many years, because fracked oil has pushed the price below oil sands' breakeven, just as fracked nat gas has hurt coal. With the reserve time restrictions, it seems inevitable that oil sands investments will be written down, perhaps until they are off the books completely. 

But oil sands will be back.

When the price is right.   JMHO.

TheRealBilboBaggins's picture

Worked as a mud logger (well-site geologist) for a couple of years, and saw what was mentioned above. Oil is literally everywhere, just not in particularly profitable quantities. For example, an hour north of  my house there is a vein of black shale that goes across my entire state. It once produced tremendous amounts of nat gas, and still does produce some oil and gas. But as far as drilling it horizontally and fracking it, it doesn't appear to be profitable. 3 hours south there is a similar vein, that may have more commercial viability. 2 hours southwest there are wells producing up to 400 bbls a day, and 6 hours east are vast nat gas and nat gas liquids fields that at the proper price level will flood the world with nat gas and crackable liquids. Hydrocarbons are everywhere because hydrocarbons are laid down by water floods.

It's my opinion that most areas that were drilled looking for oil lakes will be drilled again by frackers. Peak oil is a joke. It won't be in my lifetime.

It looks to me that oil sands will not be profitable for many years, because fracked oil has pushed the price below oil sands' breakeven, just as fracked nat gas has hurt coal. With the reserve time restrictions, it seems inevitable that oil sands investments will be written down, perhaps until they are off the books completely. 

But oil sands will be back.

When the price is right.   JMHO.

Sapere aude's picture

adr

 

Abiotic oil theory has NEVER been confirmed, its absolute tosh. It was original a Russian theory to act as propaganda, but that was before Russia found itself a super power as far as energy goes.

Not ONE oilfield, not one oil company has ever tapped into mythical abiotic oil and all tests on moveable hydrocarbons take place, and would show up abiotic oil, and they haven't!

This constant farce of oil 'glut' that isn't is going to meet a sticky end with $200 oil, as the U.S. has been the main protagonist in keeping oil price down.

Exxon are doing what they are required, and if anything have OVERSTATED reserves which is why they have to appear before SEC.

Shales in all their forms are ponzi schemes. Look at Continental Resources.

 

What amazes me is the writers using Tyler Durden seem so far up their own backsides, that they turn on a dime, forever trying to prove a glut that doesn't exist, using pictures that were photoshopped, false figures put out by the EIA, and then have a story like this.

OIL HAS TO GET DEARER AS WE ARE PAST PEAK OIL

Sapere aude's picture

RealBilbo:

Not a bad post except one comment which suggests you are not as qualified as your post suggests: "Peak oil is a joke."

If you are geologist, well site or otherwise then you would no doubt know that Peak Oil theory was about 'conventional' oil, first mooted in 1956 by another geologist M. King Hubbert.

There was no shale oil, as they had yet to perfect horizontal wells let alone multi stage fracs so to discount Hubbert's theory is idiotic.

Just do a bit of research first, because then you will find Mr Hubbert was really on the money.

In 1956 and for the following decades to the present day, we have seen geology that would never have been tackled, and oils that were once discarded!

Sour oil for example was never included in any drillers target, as no one wanted it. Same with Sour Gas. Same with oil sands, and there was very little effort in enhanced methods of oil recovery, because CONVENTIONAL OIL, with its lower decline rate, and non sour was SO PLENTIFUL THEN!

That has changed over the decades to a situation where we have to explore offshore, ever deeper ever more dangerous locations, and take ANY oil, heavy, sour, radiated, etc., with every drop being used and every effort to increase recovery rates with enhanced recovery systems and water flooding, gas injection etc. etc., so Mr Hubbert was actually proved right, not wrong.

Look back and see what the world's oil production was using sweet oil. Today instead of sweet oil being all that is used, the MAJORITY of all oils recovered are SOUR, or oils previously discarded.

Geological formations are being tackled that would never have been tackled and are in the main not even economically viable. Ask Continental Resources or any of the companies involved in ponzi shale, as whilst they talk the talk about profitable at $50, NONE OF THEM HAVE MADE A PROFIT, EVEN AT $80.

The declines rates are extraordinary, as are the thousands upon thousands of legacy wells that are nothing more than stripper wells after about 3 years, and where now we see oil well leakage.

In just four States alone, there have been 6,600 fluid leaks from hydraulically fractured wells, the largest being 100,000litres of fluid, and I'm not anti fraccing if its done right.

You then have the legacy of these stripper wells running at a loss, but still considerably cheaper than dealing with properly plugging and abandoning them, and most of this is kept off the balance sheets, as companies already 'effectively bust' would immediately go down the drain if they let it be known what their true liabilities were for these often dangerous and uncommercial wells that could cost $2-3m each to properly plug and abandon, and where the ponzi of shale, by virtue of the incredible decline rates in the first year, mean that the Red Queen Syndrome eventually catches up with all shale companies, where they have to drill more and more wells to even stand still on production, but where sweet spots are tackled first, and eventually the field has no more space for any other wells, leaving more and more wells as stripper wells, which all really need plugging and abandoning to make them safe.

Look at the shale fields that are declining rapidly, The Eagle Ford, The Bakken, and many of the other shales where the EIA formerly gave reserve figures that were like fairy stories only later to be downgraded, but where their main purpose was propaganda to control oil prices on the world stage downwards!

Its even more dire, because of the Super Giant fields, such as Ghawar, which is now in terminal decline, and I'm not surprised Saudi wants to sell off a percentage, as its in terminal decline, even though its been kept a hard secret, but where we know water flooding has been taking place for some years, to try to eek out the last drops.

Be assured that the reserve figures for them will be massaged by a U.S. bank though, as they can't let the world know how perilous the state of play is in hydrocarbons, and the idea of renewables displacing them was a complete joke from the start.

The opposite was true. Those in the know tried unsuccessfully to bring in enough renewables to try to eek out oil supplies longer, but they simply do not compete in terms of energy, or in terms of the collossal false subsidy of electric vehicles and renewables, and where much of these are not the ecological miracle suggested.

The CIA commissioned a report some time ago, as did the U.S. military such was their concern over the future supplies of hydrocarbons, and they made a play to ensure the U.S. military would be totally free of hydrocarbon use, even spending billions trying to use a distant member of the cabbage family as a substitute from its seeds, along with other research, but where the cost per gallon was astronomical.

Even climate change, global warming where the U.S. originally were 'cold' on the subject and rightly so, saw a chance to use that pseudo science with DODGY figures to help increase its own supplies of cheap oil by telling the world about global warming etc., and how THEY should not be using oil.

Why do you think the U.S. did such an about turn on climate change, where formerly it was rightly sceptical, it was not about the science, as the figures never support it and still don't.

Of course you get myriads of scientists funded by governments saying its a fact, because their jobs would not exist if they didn't. But delve into how these figures have been falsfied over the years, and how even charted have their axis deliberately truncated and it shows exactly what a farce global warming/climate change is.

Tough times as even on full production using oil sands, shale oil, conventional, unconventional, etc. etc., the world cannot pump enough and oil use is still rising and every drop is one drop less remaining.

All this when you have countries that don't have fertilizers, pharmaceuticals, water, power, or fuel for even 2 hours a day, where they want the same things as we all want, but where oil is simply not plentiful enough.

So you just adjust world oil production to take out sour oil, shale oil, oil sands, enhanced recovery, then look again at Peak Oil with different eyes.

 

 

 

katagorikal's picture

There's no such thing as a reserves (singular). There is a reserve curve, showing the oil & gas available at a given cost of extraction. The curve changes with discoveries, production, reservoir modelling and the cost of extraction.

The fracking revolution has had a dramatic effect in the US, but there are many other countries with accessible shale plays, some as large as the US. Some countries have banned fracking, others do not have the technology for horizontal drilling, or the capital to invest at these oil prices. But you can be sure that in the future, as prices rise again, these large resources will be tapped. 

Sapere aude's picture

kata

 

It is not a fraccing revolution. Fraccing can be tracked back til 1862 during the battle of Fredericksburg. In 1862 Edward Roberts developed and patented an exploding torpedo to frac artesian wells.

Even commercial hydraulic fraccing has been around since 1940's.

The problem is I'm afraid that too many readers take their knowledge from the media who have failed to research in the first place, then that poor news becomes fake news.

The real development that increased production in the U.S. was not hydraulic fraccing, which of course allowed tight geology to produce oil and gas from that fraccing but it was the advent of pad drilling that really increased the production, but also increased the Red Queen Syndrome, whereby so many wells have to be drilled just to compensate for lost production in a comparatively short period of time, and where decline rates in the first year of shales is often around 65%, and by year 3 or 4 that well may be then confined to stripper status, but too expensive to properly plug and abandon, not not economical production either, but balance sheet is improved because keeping it less of a demand than spending around $2m per well to plug and abandon. This is going to leave a terrible legacy of unsafe unecomical wells where companies don't want to pick up the bill for plugging and abandoning.

The idea that some do not have the technology is not strictly true, as the major U.S. companies are all over the world offering those services. The reason shales have not been developed elsewhere is usually geology, where the porosity means there is absolutely no likelihood of commercial production, and indeed in the U.S. there has never been any chance of VIABLE PROFITABLE SHALE PRODUCTION.