ARKANSAS, January 10 (Future Headlines)- Exxon Mobil’s recent decision to write down approximately $2.5 billion related to its troubled California properties marks a strategic move to conclude five decades of offshore oil production in the state. The primary driver behind this significant write-down is the pending sale of Exxon’s Santa Ynez oil and gas operation to Sable Offshore, a company formed in 2020. However, the complex nature of the deal, regulatory challenges, and environmental concerns pose hurdles that could extend the timeline for a complete exit. This article explores the intricacies of Exxon’s California exit, the challenges faced in the sale to Sable Offshore, potential implications for Exxon, and the broader context of offshore oil operations.

Exxon Mobil recorded a write-down of approximately $2.5 billion in troubled California assets, reflecting the book value of properties being divested. The strategic goal is to conclude five decades of offshore oil production in California, aligning with evolving market dynamics and the company’s broader operational strategy. Sable Offshore entered into an agreement over a year ago to acquire Exxon’s Santa Ynez oil and gas operation off the coast of Santa Barbara for $643 million.

Exxon agreed to loan most of the purchase amount to Sable, allowing the latter to acquire three offshore oil production platforms, a pipeline, and an onshore processing facility. The sale to Sable Offshore has faced two delays, primarily due to the need for Sable’s parent company to complete a merger. The size of the writedown has grown as a result of these delays and uncertainties surrounding the deal.

To resume oil flow, Sable Offshore would need to repair a corroded pipeline responsible for a 2015 oil spill that led to environmental damage. Local landowners, whose properties intersect with the onshore portion of the pipeline, are in opposition, seeking new easements that could cost up to $250 million. Landowners are engaged in negotiations with Sable Offshore for a potential resolution that could lead to the end of ongoing litigation. The resolution is crucial for progressing with repairs to the corroded pipeline and meeting the 2026 deadline outlined in the agreement.

Exxon Mobil cited “continuing challenges in the state regulatory environment” as a key factor impeding progress in restoring operations. The company has incurred an annual cost of about $80 million to maintain non-producing assets, underscoring the financial impact of regulatory challenges. The failed sale or prolonged delay in restarting production could raise Exxon’s costs, given the recent requirement for California’s offshore platforms to be removed upon retirement.

Environmental considerations and adherence to regulatory standards are critical factors shaping the future of offshore oil operations. Chevron, another major player in the industry, has faced challenges in the U.S. Gulf of Mexico, leading to non-cash writedowns and reduced investment due to regulatory factors. Sable Offshore anticipates receiving approval from the California Office of State Fire Marshal for its repair and restart plan, with a potential restart of production in July.

Exxon Mobil’s decision to exit California reflects a strategic shift in response to evolving market dynamics, regulatory challenges, and the changing landscape of offshore oil operations. The complexities involved in the sale to Sable Offshore, including delays, opposition from local landowners, and regulatory hurdles, highlight the challenges associated with divesting offshore assets. The substantial write-down underscores the financial impact of challenges faced in California, and potential environmental implications necessitate careful navigation of regulatory frameworks.

Collaborative efforts between Sable Offshore and local landowners to reach a resolution are pivotal for advancing repairs and ensuring a timely restart of oil production. The challenges faced by Exxon Mobil and Chevron in different offshore locations underscore broader industry trends where regulatory factors play a significant role in shaping operations and investments.

Reporting by Moe Khaled; Editing by Sarah White