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Exxon Shell Earthquake Fallout

Incidentally, the cancellation of Shell’s investment in the Groninger gas field to zero does not mean that there can not be any more burdens. The company expects to have to write off part of the gas reserves in Groningen at the end of this year as well.

Printed below is an English translation of an article published today by the Dutch Financial Times, Financieele DagbladRoyal Dutch Shell and ExxonMobil each own a 50% share in NAM, the company responsible for the earthquake blighted Groningen Gas Field and consequential potential bill for untold billions in damages to effected residences.

NAM and Shell write ‘Groningen’ to zero, ExxonMobil not yet

Bert van Dijk • Entrepreneurship

Oil companies Shell and ExxonMobil differ from each other about the value of the large gas field in Groningen. Shell and ExxonMobil are the shareholders of the Dutch Petroleum Company (NAM), which operates the Groninger gas field.

The British-Dutch Shell has written off its investment in the NAM’s Groningen gas field in the past quarter, whereas the American ExxonMobil has not adjusted the value of its investment in ‘Groningen’. This is evident from the first quarter results that both companies recently announced.

In the first three months of this year, Shell took a one-off depreciation charge of $ 244 million on its investment in the Groninger gas field. Financial director Jessica Uhl of Shell stated this last week as follows: ‘The NAM is a separate entity. The company itself completed its investment in the Groningen field completely. NAM is an investment from us and is processed in the accounting according to the share method. That is why we are also obliged to write it off. ‘

NAM completed the investment entirely after the Cabinet decision in March to close the gas tap in Groningen by 2030 at the latest.

Space for postponement

ExxonMobil, just like Shell 50% shareholder in NAM, did not make any adjustments in the past quarter to the valuation of its investment in the Groningen field. The group follows US accounting standards. These differ from the IFRS method that Shell follows. ‘Based on our estimate, a write-down is not necessary now’, according to a spokesperson for ExxonMobil.

American accounting rules give a company more room to postpone or prevent a write-down than the European rules. This has to do with a difference in the way of valuing. Another difference between US accounting rules and IFRS for write-downs is the assessment of whether a decrease in value will be temporary or permanent. According to US accounting rules, it must first be determined whether it concerns a temporary impairment. In that case, it would be possible to wait with an impairment.

In the specific case of NAM it is according to auditors consulted, however, that it is a permanent decline in value, because shutting down the gas tap is a government decision and it is not expected that the gas tap will remain open longer than until 2030.

A difference in expectation about possible compensation or compensation for the government decision to close the gas tap, could therefore also play a role in the difference in depreciation between Shell and Exxon, according to a number of consulted auditors.

New gas structure

Negotiations are currently taking place between the Dutch State, NAM, Shell and ExxonMobil on a new future gas structure. It is possible that ExxonMobil will, for example, take account of tax concessions in the outcome of that consultation, which still attribute value to its investment in NAM. American accounting rules give the company more room to wait for it.

A spokesperson for ExxonMobil said that a possible compensation for shutting down the gas valve does not play a role in the estimation of ExxonMobil of the value of NAM.

Incidentally, the cancellation of Shell’s investment in the Groninger gas field to zero does not mean that there can not be any more burdens. The company expects to have to write off part of the gas reserves in Groningen at the end of this year as well. The extent of this depends, among other things, on the outcome of negotiations between Shell, ExxonMobil, NAM and the government on a new production production structure up to 2030.

SOURCE

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