⚠ An Extended Period of Low Prices Removes Reserves Nobody ProducedModerate threat

ExxonMobil (XOM) — threat to the moat

A low price removes barrels nobody produced, raises the depletion charge and triggers the impairment, all in the same quarter cash flow falls.

ExxonMobil writes the warning into its own 10-K: proved reserves could be affected by an extended period of low prices, which could reduce the level of the reserve base, and reserves could also be affected by the timing and amount recovered being altered by completion, facility and price factors1. This is not an accounting technicality. It is the mechanism by which a commodity price fall turns into an impairment.

Depreciation and depletion, including impairments$20.6bn2023$23.4bn2024$26.0bn2025$15.5bnH1 20268.0% of 2025 sales against 6.2% in 2023; the first half of 2026 includes impairments.
A rising depletion charge on a falling price is how a reserve write-down reaches the income statement.

The sequence runs like this. Prices fall and stay down. The twelve-month average used for reserve reporting falls with them. Barrels at the expensive end of the portfolio stop being economic at that average and leave the proved category. Depletion is calculated over a smaller reserve base, so the charge per barrel rises. And assets carried on the balance sheet at a value supported by the old price get tested for impairment.

ExxonMobil has run this film. It has $299,373 million of net property, plant and equipment2 and it took $25,993 million of depreciation and depletion including impairments in 20253. In the first half of 2026 that line was $15,460 million against $11,803 million a year earlier, a rise the company attributes partly to impairments — Energy Products alone recorded $1,886 million of identified-item losses in the half from impairments and Middle East supply disruptions4.

What makes this worse than an ordinary write-down is the timing. Impairments arrive when prices are low, which is also when cash flow is weakest and when the company is least able to fund the spending that would replace the reserves. The balance sheet and the income statement deteriorate together, by construction.

The defence is the cost position: barrels that are economic at a low price do not leave the proved category. That is the entire argument for Guyana, and it is why the non-US half of Upstream is the resilient half.

Depreciation and depletion as a share of revenue is the early warning. It was $25,993 million on $323,905 million in 2025 — eight per cent, up from 6.2 per cent in 20235. A rising ratio in a falling price environment means the reserve base is shrinking underneath the production.

References
  1. ReportedExxonMobil writes the warning into its own 10-K: proved reserves could be affected by an extended period of low prices, which could reduce the level of the reserve base, and reserves could also be affected by the timing and amount recovered being altered by completion, facility and price factors.
    Exxon Mobil Corporation Form 10-K for FY2025, Items 1 and 2 — Business and Properties: oil and gas production and reserves tables, wells drilling, the review of principal ongoing activities by region (United States, Canada/Other Americas incl. Guyana and Brazil, Europe, Africa, Asia, Australia/Oceania), lease and production-sharing terms including the Guyana Petroleum Activities Act 2023, employees, and the list of lower-emission and new business opportunities. — FY2025 · publ. February 2026 · source ↗
  2. ReportedIt has $299,373 million of net property, plant and equipment and it took $25,993 million of depreciation and depletion including impairments in 2025.
    Exxon Mobil Corporation Form 10-K for FY2025, consolidated financial statements — statement of income, balance sheet, statement of cash flows and statement of changes in equity including the common stock share activity table. — FY2025 · publ. February 2026 · source ↗
  3. ReportedIt has $299,373 million of net property, plant and equipment and it took $25,993 million of depreciation and depletion including impairments in 2025.
    Exxon Mobil Corporation Form 10-K for FY2025, consolidated financial statements — statement of income, balance sheet, statement of cash flows and statement of changes in equity including the common stock share activity table. — FY2025 · publ. February 2026 · source ↗
  4. ReportedIn the first half of 2026 that line was $15,460 million against $11,803 million a year earlier, a rise the company attributes partly to impairments — Energy Products alone recorded $1,886 million of identified-item losses in the half from impairments and Middle East supply disruptions.
    ExxonMobil Holdings Corporation Form 10-Q for the quarter ended 30 June 2026, Management's Discussion and Analysis — the review of second quarter results, the segment earnings driver analyses for Upstream, Energy Products, Chemical Products and Specialty Products, the operational results tables for production, refinery throughput and sales volumes, the liquidity discussion, and the structural cost savings calculation. — Q2 2026 · publ. August 2026 · source ↗
  5. Moat Explorer calcIt was $25,993 million on $323,905 million in 2025 — eight per cent, up from 6.2 per cent in 2023.
    Moat Explorer calculation from ExxonMobil's reported figures. Crude oil and product purchases of $184,248 million against total costs and other deductions of $290,970 million is 63.3% (2024: $199,454m of $300,712m = 66.3%; 2023: $193,029m of $291,799m = 66.2%). Intersegment revenue of $121,005 million against gross segment revenue of $452,209 million is 26.8%. Depreciation and depletion of $25,993 million against sales of $323,905 million is 8.0% (2023: $20,641m of $334,697m = 6.2%). Income tax of $11,504 million on pre-tax income of $41,268 million is 27.9% (2024: $13,810m of $48,873m = 28.3%; 2023: $15,429m of $52,783m = 29.2%). Revenue outside ASC 606 of $96,996 million of $323,905 million is 29.9% (2024: 27.7%; 2023: 23.4%). The three downstream segments sum to $17,493m (2023), $9,662m (2024) and $11,080m (2025), a rise of $1,418m in 2025 against an Upstream fall of $4,036m. Refinery throughput of 3,979 against production of 4,736 thousand barrels a day is 0.84. Specialty Products earned $2,857m on 7,791 thousand tonnes ($367/t) against $3,052m on 7,666 ($398/t). Free cash flow of $51,970m less $28,358m is $23,612m against distributions of $17,231m plus $20,273m = $37,504m. Energy Products averaged $7.9 billion a year across 2023-2025. — FY2023-FY2025 · publ. September 2026 · source ↗
Sources
Generated September 23, 2026