Big Players Pivot in Response to Regulatory Pressures
Authors: Boschee Pam 
Published: February 2024

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Early January brought with it significant changes in the environmental side of the oil and gas industry. ExxonMobil and Chevron, the two largest US oil producers, announced they will exit California, and the Biden administration froze LNG export approvals.
After 50 years of producing oil in California, ExxonMobil will take a $2.5 billion writedown of the value of some of its California properties to be recorded in its fourth-quarter earnings. The company said the decision is primarily related to its Santa Ynez operations off the coast of Santa Barbara.
Its US Securities and Exchange Commission (SEC) filing said, “While the Corporation is progressing efforts to enable a restart of production, continuing challenges in the state regulatory environment have impeded progress in restoring operations.”
After the Refugio oil spill in May 2015 (approximately 100,000 gal), resulting from a leak from a pipeline owned by Plains All American Pipeline, ExxonMobil acquired the damaged asset in October 2015. Just a few months before the purchase, the Santa Barbara County Board denied ExxonMobil’s request to truck its oil produced off the coast of Gaviota to its Las Flores Canyon processing facility and on to refiners located in Pentland, California.
Seeking an alternative, ExxonMobil planned to replace two stretches of the 112-mile corroded pipeline for transit of its oil.
Met with opposition to replace the damaged pipeline and denied permission to repair and restart production at the site (halted since 2015), ExxonMobil is now selling the Santa Ynez operation to Sable Offshore, a blank-check company created in 2020. The company will loan Sable the money for the purchase of its three offshore production platforms, pipeline, and onshore processing facility.
Sable’s agreement with ExxonMobil requires production to be started by early 2026 or the assets and liabilities revert to ExxonMobil.
Chevron, headquartered in San Ramon, California, will write down $3.5 billion to $4 billion in assets, citing its home state’s regulations that “have resulted in lower anticipated future investment levels.” The company intends to continue operating its oil fields and related assets.
In the SEC filing, Chevron wrote it also will incur fourth-quarter charges related to decommissioning of US Gulf of Mexico assets that have reached the end of their productive lives. The company sold some of those assets, but US law stipulates that previous owners may be responsible for those costs if the current owner declares bankruptcy. Chevron wrote it’s “probable” that it may see such costs.
January closed with another unexpected announcement on 26 January. The Biden administration paused decisions on permits to export LNG to non-free trade agreement countries to review current projects seeking approvals.
US Energy Secretary Jennifer Granholm stated, “We must review export applications using the most comprehensive, up-to-date analysis of the economic, environmental, and national security considerations.” She added that this was not a ban on exports and would not affect already authorized exports, which when combined with existing plants, total 48 Bcf/D. “Within this decade another 12 Bcf/D of US export capacity already authorized and under construction will come online,” Granholm said.
While environmental impact (greenhouse gas emissions including CO2 and methane) was one of the reasons for the decision, along with market, economic, national security, and energy security, Granholm pointed out that facilities totaling 22 Bcf/D of capacity have been approved but have not yet started construction. This capacity, combined with existing infrastructure, is “more than enough to make the US a ‘behemoth’ in the LNG field,” according to Holland & Knight in an analysis dated 29 January.
The international law firm said this raises the question of whether further development of LNG facilities could hurt US citizens as higher percentages of produced gas are exported.
“This line of thinking follows the historical rhetoric on this issue as domestic users of natural gas want to ensure their feedstock price is stable. To support those claims, recent studies have concluded that ‘higher LNG exports create a tighter domestic natural gas market (all else held equal), increasing domestic natural gas prices.’”
Could unintended consequences of these recent announcements rear up in the future? And could they be a behemoth for the US or global markets?

For Further Reading
Growth in 2022 US LNG Liquefaction Capacity Hits Top of the Charts by Pat Davis Szymczak, SPE Oil and Gas Facilities.