Chevron will write down the value of $3.5 billion to $4 billion in assets due to restrictive government policies in California and environmental liabilities in the Gulf of Mexico.
The charges “primarily” stem from California regulations that “have resulted in lower anticipated future investment levels,” the company said in a filing on Tuesday. Chevron’s production in the state has dropped 15% since the Covid-19 pandemic and now accounts for just 3% of its worldwide output.
Despite the writedowns, Chevron said it plans to continue operating the oil fields and related assets for years to come.
Chevron’s relationship with its home state has turned increasingly adversarial in recent years as its Democratic officials seek to phase out fossil fuels. California already has the toughest clean-fuel standards in the country and is considering capping refining profits. Last year, the state sued Chevron and other major oil companies for allegedly lying about climate change.
Chevron has rejected California’s climate-change allegations and has reduced refinery investments, citing a “difficult” business climate. The company is a key supplier of jet fuel to the San Francisco and Los Angeles airports.
Chevron also will incur fourth-quarter charges in the Gulf of Mexico related to the costs of cleaning up decades-old installations that have reached the end of their productive life. Although the company sold some of those assets, under US law the previous owner is on the hook for clean-up costs if the current owner declares bankruptcy.
It’s “probable” that a portion of environmental costs of previously sold operations will revert to Chevron, the company said in the filing, without naming the affected assets.
“We expect to undertake the decommissioning activities on these assets over the next decade,” according to the filing.
Chevron rose 0.8% to $150.39 at 11:40 a.m. in New York.