Chevron Corporation (CVX.N), a major U.S. oil company, announced on Tuesday that it is facing significant non-cash writedowns, primarily impacting its oil and gas production operations in California and relating to its responsibilities for securing abandoned wells and pipelines in the U.S. Gulf of Mexico. These writedowns are expected to substantially affect the company’s financial results for the fourth quarter of 2023.
In a recent securities filing, Chevron projected that these non-cash, after-tax charges would range between $3.5 billion and $4 billion. The company’s filing, however, did not provide detailed breakdowns of the writedowns between the Californian assets and the Gulf of Mexico obligations. Notably, the losses associated with its former offshore properties in the Gulf of Mexico pertain to abandonment and decommissioning obligations.
Chevron and other companies have been involved in legal disputes over claims that they should bear the costs of securing wells, pipelines, and platforms that were previously sold to companies like Fieldwood Energy. The issue gained prominence when Fieldwood filed for Chapter 11 bankruptcy in 2020, and its restructuring plan effectively left the burden of abandoning these offshore properties with their former owners. Chevron, acknowledging the likelihood and estimate of these obligations, stated it expects to carry out decommissioning activities over the next ten years.
The company attributed the impairment of its Californian assets to ongoing regulatory challenges in the state. These challenges have led to reduced future investment levels in Chevron’s business plans. Andy Walz, Chevron’s president of Americas products,
expressed concerns in a letter to state officials, noting that California’s policies have rendered Chevron’s investments riskier compared to other states. He mentioned that several projects were canceled in the past year due to permitting difficulties.
Despite these setbacks, Chevron plans to continue operating the affected Californian assets for the foreseeable future. According to the company’s website, Chevron produces about 75,000 barrels of oil and gas per day in Central California fields.
This announcement has led Wall Street analysts to revise their earnings estimates for Chevron’s fourth quarter. The operational challenges faced by the company are anticipated to extend into 2024. Prior to this announcement, financial firm LSEG projected Chevron’s fourth-quarter profits to be lower than the previous year, estimating a profit of $6.68 billion, or $3.27 a share, compared to $7.85 billion, or $4.09 a share, in the same quarter a year ago. This latest development signifies a notable shift in Chevron’s operational and financial landscape as it navigates regulatory challenges and fulfills its decommissioning responsibilities.
