By Bradley Olson
New York's attorney general alleged in court papers Friday that
Exxon Mobil Corp. may have misled investors about how it accounts
for the impact of climate change on its operations by using
internal estimates that differed from its public statements.
Disclosing for the first time some of the specific evidence his
office has collected in its long-running probe of the oil giant,
New York Attorney General Eric Schneiderman claimed he found
documents and other information showing that Exxon's process for
estimating the potential future costs of greenhouse gas regulations
on its business "may be a sham."
He made the claims in a filing in New York state court seeking
to compel Exxon to release additional documents and produce
witnesses for the probe, which began in 2015. The U.S. Securities
and Exchange Commission is also examining Exxon's accounting
practices and climate change disclosures.
Legal wrangling in the case has also played out in federal
court, where Exxon has alleged that the investigation by Mr.
Schneiderman, a Democrat, is politically motivated and driven by
company antagonists. Mr. Schneiderman has denied such
accusations.
An Exxon spokesman called the allegations "inaccurate and
irresponsible" and said the company would respond in future court
filings.
Exxon's "external statements have accurately described its use
of a proxy cost of carbon, and the documents produced to the
attorney general make this fact unmistakably clear," spokesman
Scott Silvestri said in a statement.
The company, which has submitted nearly 3 million pages of
documents in the case, has strongly defended its disclosures and
said its accounting practices are legal.
The airing of certain specific evidence in the probe comes a day
after President Donald Trump said he plans to withdraw from the
Paris climate accord, a 2015 agreement by more than 190 nations to
reduce global carbon dioxide emissions.
In the past year, Exxon has repeatedly voiced its support for
the climate agreement, advocated for a carbon tax, added an
environmental expert to its board and begun testing technology to
reduce emissions at power plants.
On Wednesday, the company suffered a public rebuke on climate
when 62% of votes cast by its shareholders backed a resolution to
pressure the company to share more information about how climate
change and regulations could affect its business.
At the center of the claims the New York state prosecutor made
Friday is one of Exxon's central assurances to investors on climate
change risk: that since 2007, the company has included a "proxy
cost of carbon" in its assessment of the viability of its oil and
gas projects.
That is an estimate of how much governments around the world may
charge Exxon or other companies or consumers for the carbon dioxide
they emit, through a carbon tax or other emissions fees.
Such assessments can have a material impact on how an energy
company values its assets. With a higher estimated cost of carbon,
certain projects could become unprofitable, potentially requiring
an accounting write down or recognition of losses on a company's
books.
Mr. Schneiderman alleges that from 2010 to 2014, documents
indicate the company used "secret, internal figures" that
understated potential future costs from climate regulations, even
while suggesting publicly that it used higher estimates.
The company said in a 2014 report that it applied a cost of $60
per ton of greenhouse gas emissions in 2030 to its projects in
developed countries. The state prosecutor filed documents with the
court Friday that appeared to show it actually used a price of $40
a ton internally.
In 2010, an Exxon employee identified as a corporate greenhouse
gas manager said in an email that the $60 a ton figure used for
Exxon's annual Energy Outlook was "more realistic," according to
documents released with the filing.
Another email in 2011 suggests that former Chairman and Chief
Executive Rex Tillerson, now the U.S. Secretary of State, was aware
of the discrepancy between internal and external figures. In part,
Exxon was seeking to be "conservative" in its internal estimates,
according to the documents.
A State Department spokeswoman said questions about the probe
should be directed to Exxon.
The company ended the practice of using different internal and
external carbon cost estimates in 2014, the filing claims. Still,
documents produced in the investigation don't show that the company
has a consistent process for coming up with such estimates,
according to the filing.
"Exxon may still be in the midst of perpetrating an ongoing
fraudulent scheme on investors and the public," Mr. Schneiderman
wrote. He has broad powers to investigate allegations of corporate
fraud and alleged wrongdoing under New York law.
The state accuses Exxon of failing to provide documents
associated with an alias email account previously used by Mr.
Tillerson under the name "Wayne Tracker." In addition, it adds a
new allegation: that current Exxon Chief Executive Darren Woods
also had such an account, under the name "J.E. Gray."
Exxon has said in filings that it has complied with court orders
and objects to overly broad requests for information.
The documents appear to include a rationale for Exxon's use of a
different internal estimate for potential carbon costs: the sale of
carbon credits. Exxon is involved in a number of projects in which
carbon dioxide is captured and stored. Under some regulatory
schemes, such operations can generate revenue if the party storing
carbon can sell credits to other emitters.
Exxon this year wrote down the value of certain U.S. natural gas
assets and removed more than 4 billion barrels of crude, mostly in
Canada's oil sands, from its reserves total due to low prices.
The company has said its process of accounting for potential
future climate costs helps ensure it will be prepared in the event
that regulation or new technology slows demand for oil.
"Whatever environment we find ourselves in, we will be
competitively advantaged," Mr. Woods reiterated at the company's
annual meeting Wednesday.
Write to Bradley Olson at Bradley.Olson@wsj.com
(END) Dow Jones Newswires
June 02, 2017 19:09 ET (23:09 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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