In a bid to conclude half a century of offshore oil production in California, Exxon Mobil’s recent write-down of approximately $2.5 billion concerning troubled properties signifies a step towards departure. However, complete divestment from these assets appears to encounter hurdles and might prolong the exit process, Reuters news report said.
The write-down stemmed from the impending sale of Exxon’s Santa Ynez oil and gas operation off the coast of Santa Barbara to Sable Offshore, a company formed in 2020. The sale agreement, initiated over a year ago with a price tag of $643 million, prompted the adjustment of the properties’ book value in Exxon’s fourth-quarter financials.
The transaction entails Exxon Mobil providing most of the purchase funds to Sable for acquiring three offshore oil production platforms, a pipeline, and an onshore processing facility. These assets had been inactive since 2015 following a pipeline oil spill that resulted in environmental damage, including harm to wildlife and coastline pollution.
However, delays in the sale, attributed to Sable’s parent company undergoing a merger, have extended the timeline while concurrently enlarging the write-down. Resuming oil transport to refineries would necessitate repairing the corroded pipeline, the cause of the 2015 spill, which has obtained operational clearance.
A lawsuit revealed that local landowners, affected by the onshore portion of the pipeline, have resisted allowing repairs without renegotiating easements, potentially incurring costs up to $250 million. Negotiations between Sable and the landowners are ongoing, aiming to reach a resolution that could settle the litigation.
Exxon’s agreement with Sable dictates that production must recommence by early 2026; otherwise, the assets and associated liabilities revert to Exxon. Over the years, Exxon has borne an annual expenditure of around $80 million to maintain these non-operational assets, attributing the decision to discontinue operations to obstacles within the state’s regulatory landscape, as per a recent securities filing.
An Exxon spokesperson refrained from providing further insights, referring to the filing which underscored that the $2.4 billion to $2.6 billion impairment charge primarily resulted from the California exit. The statement did not clarify whether the mentioned amount was pre- or post-tax.
The prospect of a failed sale could considerably escalate Exxon’s financial burdens. In December, the U.S. mandated the removal of California’s offshore platforms upon retirement, disallowing infrastructure to remain in the ocean, potentially affecting the exit strategy.
Recently, Chevron also announced non-cash write-downs for addressing abandoned wells and pipelines in the U.S. Gulf of Mexico, attributing reduced investment in the state to regulatory challenges.
Sable remains optimistic, anticipating approval from the California Office of State Fire Marshal for its repair and restart plan this quarter. If granted, production could resume by July, estimated to yield around 28,000 barrels of oil and gas daily, as indicated in a December investor presentation.