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Exxon will need to write down its California assets by about $2.5 billion as of the fourth quarter of 2023 after it struck a deal with an energy independent to offload these.
"Continuing challenges in the state regulatory environment have impeded progress in restoring operations," the company said in a filing, referring to oil production at its Santa Ynez field in California.
Exxon agreed a year ago to sell the California operations to a company called Sable Offshore, which was set up in 2020. The price tag of the deal was $643 million, which led Exxon to calculate the impairment at between $2.4 billion and $2.6 billion, Reuters reported.
The Exxon warning comes on the heels by a similar one issued by Chevron. Earlier this week, Chevron said that because of “Continuing regulatory challenges”, it would have to take writedowns of between $3.5 billion and $4 billion on its domestic operations. The company added, however, that the total sum of the writedowns also includes assets it previously owned in the Gulf of Mexico.
The cited regulatory challenges in California refer to a piece of legislation that Governor Newsom signed into law last year. The legislation imposes what the state authorities have called a margin penalty on refiners in the state in response to what Newsom’s office last year called price gouging on the part of oil companies. The companies have denied they were price gouging.
California has the most expensive fuels in the States and it also has the higher taxes on fuels as it pursues a green energy transition agenda that leans heavily on the electrification of transport.
Chevron, which is headquartered in California, has opposed the legislation actively, arguing it would result in lower investment, higher fuel prices, and lower production of fuels.
“These arbitrary attacks on a disfavoured industry do more than this — they signal to every industry, entrepreneur, manufacturer and employer that California is closed for business,” Chevron’s president of Americas products wrote in a recent letter to the California Energy Commission.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com