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SEC launches probe into Exxon on Permian Basin asset valuation: WSJ

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(Reuters) - The U.S Securities and Exchange Commission has launched an investigation into Exxon, following a whistleblower complaint that the oil major overvalued a key asset in Texas’ Permian Basin, the Wall street Journal reported on Friday.

Several people involved in valuing the asset, during an internal assessment in 2019, said employees were being forced to use unrealistic assumptions about how quickly the company could drill wells there to arrive at a higher value, the report said. (on.wsj.com/2LzpVjX)

Exxon and the SEC did not immediately respond to Reuters requests for a comment.

Some Exxon managers in 2018 had initially pegged the net present value of the Delaware Basin in Permian at about $60 billion, the Journal reported in September.

But a few employees involved in Exxon’s annual development planning estimated the value was closer to $40 billion in 2019, WSJ said.

When employees delivered the new number, they were asked to “claw back” some of the lost value by using different assumptions, including a more optimistic “learning curve” that estimated the rate at which they would improve drilling times, WSJ reported, citing the whistleblower complaint.

Some employees objected to using the new learning curve, which they viewed as unrealistic, the Journal said. The value was ultimately adjusted to about $50 billion, the report added.

At least one employee who complained was fired last year, WSJ reported, citing a person familiar with the matter.

The largest U.S. oil producer has posted losses in the first three quarters of 2020 on an ill-timed spending increase that collided with a downturn in fuel demand and prices. To cope, the company has cut employees and project spending.

Last month, Exxon also signaled an up to $20 billion writedown, mostly related to its natural gas properties.

Exxon shares were down 4% at $48.31 in premarket trading.

Reporting by Rithika Krishna; Editing by Shinjini Ganguli

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