Climate Change and Oil Reserve Estimates — New Securities Litigation Risks

King & Spalding

A Texas Federal Judge Turns Up The Heat On Oil Companies Facing Climate Change-Related Securities Class Actions -

On August 14, 2018, the United States District Court for the Northern District of Texas issued a surprisingly shareholder-friendly opinion denying a motion to dismiss filed by Exxon Mobile Corp. See Ramirez v. Exxon Mobil Corp., et al., Civ. No. 3:16-CV-3111-K. The shareholders alleged that Exxon and its management team (including Rex Tillerson) made material false statements concerning Exxon’s oil and gas reserves to maintain its stellar credit rating and secure a $12 billion debt offering on favorable terms. Specifically, the shareholder plaintiffs alleged that Exxon applied a proxy carbon cost when evaluating

investment and business decisions that underestimated the actual costs of government policy changes on climate-related control. Plaintiffs also alleged that as the price of oil and gas declined in 2014, Exxon did not follow other oil and gas companies and reduce (or “de-book”) its oil and gas reserves. Rather, Exxon falsely assured investors that it had superior investment processes and project management that allowed it to profitably extract its oil and gas assets. According to plaintiffs, the market learned the truth about these misstatements through a series of partial disclosures that concerned potential and actual reductions to Exxon’s proved oil and gas reserves.

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