New York AG Alleges Exxon Misled Investors on Climate -- Update

By Bradley Olson Features Dow Jones Newswires

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.

Continue Reading Below

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.

Exxon didn't immediately respond to a request for comment early Friday morning. It 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.

Continue Reading Below

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 its shareholders backed a resolution to pressure the company to share more information about how climate change and regulations could affect its business. Exxon had pushed for a no vote on the proposal, saying additional disclosures were unnecessary due to reports the company has already produced.

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 publicly disclosed proxy cost figures were "more realistic" than those the company actually used, 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.

The company ended the practice of using different internal and external carbon cost estimates in 2014, the filing says. Still, documents produced in the investigation don't show that the company has a consistent process for coming up with such estimates, the filing says.

"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.

In another instance, the New York filing says Exxon used local emissions-related taxes in Canada to estimate potential costs "and held those figures flat into the future." That assumption was inconsistent with Exxon's publicly stated view that the cost of carbon could exceed $80 a ton by 2040 in some jurisdictions, the filing says.

Mr. Schneiderman also said evidence appears to indicate that an employee of an Exxon subsidiary in Canada "pushed back" when he was told not to include a cost of carbon in the company's assessments on certain assets in the country.

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 slow demand for oil.

In a motion last month to quash a recent New York state subpoena, Exxon said the request would require documents about almost every business decision the company has made in the last 12 years, an assertion Mr. Schneiderman disputed.

"Exxon Mobil has produced over 2.8 million pages of documents for a climate-change investigation that has long appeared to be more about publicity and politics than the sound administration of justice," the company's outside lawyers wrote.

At the company's shareholder meeting Wednesday, Exxon Chief Executive Darren Woods reiterated the company's view that climate regulations don't pose a threat to the value of its assets.

"Whatever environment we find ourselves in, we will be competitively advantaged" to meet the world's energy needs "and to grow shareholder value," he said.

Write to Bradley Olson at Bradley.Olson@wsj.com

(END) Dow Jones Newswires

June 02, 2017 08:34 ET (12:34 GMT)