Exxon Heads for Courtroom Faceoff With N.Y. in Climate Probe

(Bloomberg) -- Exxon Mobil Corp. is headed to a courtroom in New York for the first time to try to block the state’s demand for accounting documents about how climate change will affect its finances.

New York Attorney General Eric Schneiderman, probing whether the company and its accountants tried to hide the risk from investors and the public, sued Exxon and PricewaterhouseCoopers LLP on Oct. 14 in a bid to force them to comply with a subpoena issued in August. Oral arguments are scheduled for Monday before Justice Barry Ostrager in state court in Manhattan.

Schneiderman seeks files related to PwC’s audits of Exxon, including documents about accounting and reporting of oil and gas reserves, evaluation of assets for potential impairment charges or write-downs, energy price projections and projected carbon cost estimates, according to court papers.

The probe was triggered by questions surrounding Exxon’s decision to forgo a write-down on the value of oil fields during a global collapse in prices. The price drop prompted other producers around the globe to write down the value of assets by about $200 billion since 2014, according to Schneiderman’s filing.

The attorney general argues investors may have been misled in violation of state law. "Exxon is the only major producer that has declined to take impairment charges or write-downs," Katherine Milgram, a lawyer for the attorney general, said in the filing.

Texas Law

Exxon’s lawyers say adhering to Schneiderman’s demands would violate the rule protecting accountant-client confidentiality under Texas law, and that New York law can’t be applied to the case. Schneiderman argues no such protection exists, according to court papers.

"Any resolution by this court will have significant impact on accountants and their clients in the state of Texas," Exxon lawyer Theodore Wells, of Paul, Weiss, Rifkind, Wharton & Garrison LLP, said in an Oct. 20 filing responding to the suit.

Idalia Hill, a spokeswoman for PwC, said the company has been complying with the original New York subpoena since it was issued last year. While court documents show Exxon has turned over more than 1.2 million documents to New York since then, that cooperation has fizzled in recent months, the attorney general said.

"PwC has cooperated with this investigation since first receiving the subpoena," Hill said in a statement. "The firm has responded promptly to the request and will continue to do so."

The subpoena is related to larger questions posed by several states over whether Exxon knew decades ago about climate change and failed to alert investors to the financial risks it could pose to the world’s biggest oil explorer by market value. The dispute also triggered a political fight between Schneiderman, a Democrat, and House Republicans who reject climate-change science and seek to use federal authority to derail the probe.

Massachusetts Sued

Exxon sued Massachusetts Attorney General Maura Healey in federal court in Texas in an effort to block a parallel investigation in that state, claiming she was biased in favor of environmentalists before the probe started. The judge in that case is weighing Exxon’s demand to add Schneiderman as a defendant to block New York’s investigation too.

Exxon has so far viewed its untapped oil and gas assets as immune from write-downs because the company expects them to yield value over the long term, Alan Jeffers, a spokesman for the Irving, Texas-based explorer, has said in response to the investigation. The company has said its accounting is in accordance with regulatory standards.

The states want to know if Exxon misled investors by burying internal reports that warned global warming would damage the U.S. economy and the company’s assets. The probe is also looking at whether Exxon ignored how global and domestic regulations, such as a carbon tax, might prevent it from tapping valuable reserves that are listed on its books, and whether Exxon has accounted for changes to the industry that will be required under the Paris accord on climate change.

The case is People of the State of New York v. PricewaterhouseCoopers LLP, 451962/2016, Supreme Court of the state of New York, County of New York (Manhattan).

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net. To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Peter Blumberg, Sophia Pearson