This despite the fact the company also reported Q4 earnings of $3.7 billion or $0.90 per share compared to earnings of $2.8 billion or $0.67 per share in the period a year ago. Revenues for the quarter were $61.01 billion compared with expectations of $62.28 billion.
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$2 Billion Write Down
The impairment came from Exxon’s review of its oil reserves, primarily in the Rockies. The company determined that some U.S. assets anticipated cash flows no longer exceeded their carrying value.
Exxon said last quarter it planned to revise the amount of unproduced resources if oil prices remained low through the end of the year. According to the company, these resources no longer qualify as proven reserves under Securities and Exchange Commission rules.
The move by Exxon comes after the start of an investigation by the U.S. Securities and Exchange Commission in August. The investigation has to do with Exxon’s accounting practices and how the company values future oil and gas reserves.
Exxon has been the only major energy company not to have reduced the value of its reserves in recent years. Since 2014, other U.S. companies have cut asset value by more than $200 billion, according to S&P Global Market Intelligence.
In practice, Exxon hasn’t lowered value of its assets since 1990. This is partly due to Exxon’s practice of being more conservative when recognizing the value of new oil and gas that it discovers.
The practice is also related to a management view that executives should be able to ensure projects are workable when prices are lower. “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.”
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Rebalancing The Market
Many analysts expect oil prices to be more stable in 2017 following a bottoming out in early 2016. This may be helped by 2 OPEC agreements to rebalance the market. Lower costs and gains in efficiency could result in 2017 being a good year to invest in oil stocks according to some.
Among companies cited for positive signs in the coming year, ConocoPhillips (NYSE:COPC), which has reduced its breakeven point from more than $75 per barrel to less than $50 per barrel. Although the road has been rough, Conoco-Phillips is attractive because it can generate cash flow at $50.
Two others, Devon Energy (NYSE:DVNC) and Concho Resources (NYSE:CXOC), both shale operators stopped growth in 2016 to focus on reducing costs. Both companies appear to come out of the transition well positioned to begin renewed growth in 2017.