After months of political grandstanding and embarrassing missteps from New York Attorney General Eric Schneiderman and his allies, the Wall Street Journal reported yesterday that the Securities and Exchange Commission (SEC) is stepping in to take a closer look at how ExxonMobil assesses the value of its proven reserves, a topic that’s gotten a lot of attention across the entire industry in light of the low-commodity price environment in which we find ourselves today.
Exxon has welcomed the SEC’s investigation, noting that the agency is the “appropriate” entity to investigate its accounting and reporting practices, whereas Schneiderman’s office is not. As Politico reported:
Exxon Mobil today welcomed as “appropriate” the SEC’s inquiry into its accounting practices in what appeared to be a subtle jab at New York Attorney General Eric Schneiderman, who has drawn the oil and gas industry’s ire for pursuing multiple avenues of investigation against the company.
Reuters went even further than Politico, suggesting that Schneiderman, realizing he was up a certain creek without a paddle, may have asked the SEC to bail him out:
“Legal scholars have said Schneiderman’s casting about over the last year suggested he did not have strong case to press in court or use to force the company into a settlement. With the SEC now stepping in, Schneiderman could take credit for creating the impetus for the inquiry without having to win a case.” (emphasis added)
Translation: ExxonKnew is dead. Bill McKibben, a leader in the ExxonKnew campaign, clearly still hasn’t gotten the memo, as he took to Twitter proclaiming, “Whoa—Apparently the SEC has joined the #exxonknew investigation,” despite the investigation having absolutely nothing to do with Exxon’s climate research or what the company “knew.”
Rather, the SEC investigation is focused primarily on making sure Exxon hasn’t overvalued its assets in the wake low oil prices, though Exxon is widely known to be extremely conservative when booking the value of new oil and gas deposits, thus providing a buffer during hard times.
Importantly, regarding SEC’s look into Exxon’s prediction of how future climate change regulations could impact its business, SEC’s 2010 climate disclosure guidance specifically states: “Appropriate disclosure also shall be made as to the material effects that compliance with Federal, State and local provisions which have been enacted or adopted regulating the discharge of materials into the environment…” Thus far, no legislation, treaty, or regulation has been adopted that would prevent Exxon from developing its reserves.
SEC’s guidance says that for “pending legislation or regulation,” disclosure may be omitted if “management determines that it is not reasonably likely to be enacted.” Tristan Brown, a lawyer and assistant professor of Energy Resource Economics at State University of New York, said it best:
“Recent history indicates that the type of policy required to completely devalue the type of fossil fuel assets that Exxon Mobil holds is becoming less rather than more probable. Australia implemented a price on carbon emissions before repealing it in 2014. The United States was unable to muster enough political support to impose its own price on emissions in 2010 despite having a Democrat in the White House and Democratic majorities in the House of Representatives and Senate. Even the European Union, which has operated a cap-and-trade scheme for several years, has allowed its carbon price to hover at a level that is too low to devalue fossil fuels for most of its existence.”
In the end, SEC’s decision to intervene in the matter is decent news for Schneiderman, as it allows him to save a little face as he quietly exits the scene, stage left. But on the other hand, it’s a pretty clear indication that Schneiderman doesn’t have the goods – and knew he never would – after sorting through literally millions of documents submitted to his agency by the company.
