Fifteen years of offshore oil production in California are to cease with Exxon Mobil's write-down of approximately $2.5 billion in damaged properties; however, a complete divestment from those assets may take some time.
Over a year ago, Sable Offshore, a 2020-founded firm, agreed to pay $643 million to acquire Exxon's Santa Ynez gas and oil property located off the coast of Santa Barbara. Exxon's fourth-quarter profits showed a write-down of the assets' book value due to the impending sale.
Per the 2022 deal, Exxon will lend Sable the majority of the funds to buy three offshore oil production systems, a pipeline, and an onshore processing plant. All of them were put on hold in 2015 due to an oil spill from a pipeline that polluted the shoreline, killing birds and marine life.
To allow Sable's parent company more time to finish a merger, the deal has been postponed twice, and the amount of the writedown has increased. Repairing the deteriorated pipeline that resulted in the 2015 oil leak and obtaining operational approvals would be required for Sable in order to restore oil flow to refineries.
Based on a lawsuit, a group of nearby landowners whose properties are traversed by an onshore section of the pipeline said that they will not consent to allow repairs to the line with no new easements, which may cost as much as $250 million.
According to a person acquainted with the situation, the landowners and Sable are in talks about a possible settlement that would put an end to the legal dispute.
Sable and Exxon's agreement requires that the production must be finished and begin running by early 2026; otherwise, Exxon will own the assets and associated liabilities.
The leading oil producer in the United States has borne the costs of maintaining the non-producing properties, which total around $80 million annually. It attributed the decision to ongoing difficulties in the state regulatory framework that have hampered efforts to resume operations, according to a securities filing made last week.
Cleanup duties
A representative for Exxon refused to speak further regarding the withdrawal, citing the filing which said the California exit was the primary cause of the $2.4 billion to $2.6 billion impairment charge. Whether the sum is before or after taxes was not made clear in the announcement.
Exxon's expenses might go up a lot if the transaction falls through. The United States last December authorized a rule requiring the retirement of California's offshore platforms and prohibiting their owners from abandoning the infrastructure in the water.
In order to secure wells and pipelines that had been earlier sold but were now abandoned in the US Gulf of Mexico, Chevron announced last week that it would accept non-cash writedowns. It also held regulators accountable for the decline in state investment.
In a December investor presentation, Sable stated that it expects the California Office of State Fire Marshall to approve its repair and restart plan this quarter. According to the presentation, production may potentially resume in July with a daily capacity of roughly 28,000 barrels of oil and gas.