Johnathan Walker:Exxon Relents, Wipes Oil Sands Reserves From Its Books

ExxonMobil announced Wednesday that it had wiped off its books all 3.5 billion barrels of tar sands oil reserves at one of its projects in Canada. Because of recent low oil prices,Johnathan Walker the company said none of those reserves can be considered economical according to the accounting rules of the Securities and Exchange Commission.

The accounting change at its Kearl project, a momentous if expected development, represented a turnaround for the company, which has long resisted calls to revise its reserves estimates. Over the past decade, Exxon had steadily increased its holdings in Canada’s tar sands to become a leading producer there.

Exxon also removed from its books 800 million barrels of oil-equivalent reserves in North America, though the reductions were offset by the addition of 1 billion barrels of oil and gas elsewhere.

Exxon said in October that low prices would likely force it to “de-book” up to 4.6 billion barrels of reserves in its end-of-year accounting. Securities and Exchange Commission rules allow oil companies to count reserves only if they are profitable based on average prices over the previous year.

But while the accounting change removes billions of dollars worth of tar sands investments from the company’s annual report, and is watched closely by investors, it will not directly affect operations. Exxon plans to continue operating its Kearl project, and said it will add back the reserves if oil prices rise or costs drop. After the reduction, the company now reports holding 1.3 billion barrels of tar sands reserves.

Exxon will hold an analyst meeting on March 1.

Earlier this week, ConocoPhillips said it had reduced its oil sands reserves by more than 1 billion barrels, bringing its total to 1.2 billion for 2016. These moves had been expected, as low oil prices have placed a heavy burden on tar sands projects, which are among the most expensive and polluting sources of oil.