Exxon Mobil, which is under state and federal investigation for how it accounts for the value of its oil and gas wells, said Friday that it may be forced to recognize that as much as 4.6 billion barrels of its reserves are no longer profitable to produce.
The disclosure came as the oil producer reported a 38% decline in quarterly profit.
The vast majority of Exxon's holdings under scrutiny are in Canada's oil sands, an area that has been devastated by low prices and environmental concerns as countries around the world seek to reduce high-emitting forms of energy. The company also said it plans to examine its assets to determine whether their value should be written down.
The U.S. Securities and Exchange Commission and New York Attorney General Eric Schneiderman are investigating the company over its accounting practices and how the value of its future oil and gas wells could be impacted by government action from climate change.
The Exxon release came as the company reported third-quarter earnings of $2.7 billion, a 38% decline from the same period last year, as revenue slid more than expected amid the prolonged swoon in oil prices.
Shares lost 1.7% premarket to $85.65 as the oil giant reported its eighth straight quarter of year-over-year profit declines and its ninth straight quarter of falling revenue.
Chief Executive Rex Tillerson said the operating environment "remains challenging."
For the September quarter, Exxon, the largest U.S. oil company, reported earnings fell to $2.65 billion, or 63 cents a share, from $4.24 billion, or $1.01 a share, a year earlier. Analysts polled by Thomson Reuters were looking for 58 cents a share.
Revenue slipped 13% to $58.68 billion, below analysts' forecast for $63.85 billion.
Profit in the exploration and production, or upstream, business fell 16% to $620 million. Volumes declined 3% from a year ago, due to unplanned downtime, primarily in Nigeria, and new projects unable to fully offset declines at existing properties, the company said. In the U.S., the upstream division widened its loss to $477 million from $442 million a year earlier.
Exxon also was hurt by declining profit in the downstream division, which had previously been a boon amid lower prices for oil and gas. In the latest quarter, refining and marketing, or downstream, earnings were $1.2 billion, $804 million lower than in the year-earlier period. Exxon said weaker margins, mostly in refining, weighed on earnings by $1.6 billion while volume and mix effects lifted earnings by $170 million.
Chemical earnings, meanwhile, were comparable with last year's quarter, as higher maintenance costs, were offset by increased specialty product sales.
Exxon slashed its capital and explorations spending 45% from a year ago to $4.19 billion, bringing 2016's decline to 39%.
Write to Bradley Olson at Bradley.Olson@wsj.com and Anne Steele at Anne.Steele@wsj.com