Big Oil Accounting Scrutinized

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Big Oil Accounting Scrutinized

HOUSTON -- Shares of the world's biggest investor-owned oil companies fell on Monday amid concerns they could be affected by quality-of-earnings and accounting concerns that have hammered other sectors.

American Depositary Receipts of Royal Dutch/Shell closed down $2.50, or 5.12 percent, at $46.30 after a former employee said Shell used excessively optimistic assumptions about future prices to value more than $7.4 billion in U.S. power deals, according to a Reuters report.

Depositary receipts of BP plc fell $1.85, or 3.96 percent, to $44.85 after recovering in late trading from an earlier low of $43.10. Exxon Mobil Corp., the number-one oil company, closed 78 cents or 2.14 percent lower at $35.75.

The allegations about Shell, first reported in the Financial Times on Monday, combined with generally poor stock-market sentiment to drive other Big Oil stocks lower, the report said.

A Shell spokeswoman in London rejected the allegations made by a former company manager based in Houston, saying Shell took a very conservative approach to recognizing revenue.

Analysts said investors appeared to be punishing the oil companies for their involvement in an industry that has been tainted by scandal, even though power and natural gas marketing generated a relatively small share of their total revenues and income.

Up to now Big Oil, often seen as a safe sector, has been largely spared from the crisis of confidence that has slowly spread to other companies and industries.

Fadel Gheit, an analyst with Fahnestock & Co., said Monday's sell-off in Big Oil was "overdone," but added that the major oil companies occasionally strayed into "gray areas" in their accounting and should take steps to improve their disclosure.

"Sometimes they use the argument of not disclosing certain information for competitive reasons as a shield to hide behind," Gheit said.