Financial Accounting - Exxon Case

Financial Accounting

Exxon Accounting case

Summary

After years since the falling of oil value, Exxon Mobile is the only oil-and-gas company which has not written down his oil reserves value.

To press rumors, Exxon has merely responded that they always acted according to the rules. But their case is really an isolated one: since summer 2014, when the price of oil began to slide, there were write-downs of more than 200 billion dollars in the sector, about a quarter of which coming for the major competitors to Exxon: BP, Chevron, Royal Dutch Shell and Total.

Considerations

I would consider the Exxon strategy under two points of view: short and long term.

On the short term, keeping a steady and high value of the oil and gas reserves is bringing a considerable advantage over the competition, but it also means the risk of experience a higher tax burden and incur into legal actions.

On the long term, I would consider this strategical move as a sort of betting. It looks like the company is betting on an actual increase of the oil value over the upcoming years and indeed, if this will happen, the move will have been profitable leading to an advantage on the competition and the availability of more resources. On the other end, the opposite scenario (with the oil value that keeps decreasing) would lead Exxon to the sudden write-down of the full impaired assets in a very short period of time, meaning a huge issue for the company.

Both short and long term points of view are further analyzed in the following “Pros” and “Cons” paragraphs.

Pros

A first pro of this strategy, on the short term, is of course that Exxon is taking a considerable advantage over the competition. This is