Chevron Cites “Regulatory Challenges” in California Asset Impairment
Chevron announced January 2, 2024 that it will record an impairment charge for a portion of its U.S. upstream assets, primarily in California, due to “continuing regulatory challenges” in the state. Chevron will also recognize a loss “related to abandonment and decommissioning obligations from previously sold oil and gas production assets in the U.S. Gulf of Mexico.” These actions are estimated to result in non-cash, after-tax charges of $3.5 billion to $4 billion for fourth quarter 2023.
Chevron expects to continue operating the impaired assets “for many years to come,” but regulatory challenges have resulted in lower anticipated future investment levels in its business plans. The impairment, which occurs when an asset has a market value less than the value on the company’s balance sheet, comes shortly after the company said it has reduced investment in California by hundreds of millions of dollars since 2022.
Chevron, one of California’s oldest oil companies, has had an increasingly tense relationship with state lawmakers. In December, the company blamed high gasoline prices on California’s “adversarial” policies toward fossil fuels and said “burdensome” regulations deter energy investment in the state, including investment in renewable energy.
Chevron notably opposed the state’s proposed “Maximum Gross Gasoline Refining Margin and Penalty” under SBX1-2, arguing that, “[r]ather than solving supply challenges or enabling increased production of clean, affordable gasoline, a margin penalty would contribute to a decades-long trend of decreasing investment and tightening supply.” State policies “have made Chevron’s investments in its home state riskier than investing in other states, with projects being lower in quality and higher in cost,” the company argued.
These “adversarial” oil policies are part of the state’s goal to phase out the use of fossil fuels. Governor Gavin Newsom has stated that he wants to end oil drilling in California by 2045, and the California Geologic Energy Management Division (CalGEM) has effectively stopped issuing permits for new oil wells. Additionally, California is suing major oil companies, including Chevron, alleging that they deceived the public over the climate risks associated with fossil fuels and caused billions of dollars in damage to communities and the environment.
In 2022, California passed a law requiring a 3,200-foot buffer zone, known as a setback, between oil wells and schools, homes, and playgrounds. Drilling setbacks can significantly reduce oil production by rendering oil and gas resources within the buffer zone unavailable for extraction. Implementation of the law has been suspended pending the results of a voter initiative on the law in November 2024.
Many local governments have also implemented policies to restrict and phase out oil production. Los Angeles County, for example, banned new oil and gas drilling in unincorporated areas and will phase out existing operations over 20 years, while the City of Los Angeles also banned new oil and gas production immediately and will also phase out all existing oil and gas production within 20 years.