Chevron Recognizes Up To $4B in Impairments, Losses

Chevron Recognizes Up To $4B in Impairments, Losses
Chevron recognized an accounting hit of up to $4 billion from impairments of upstream assets and losses related to sold production properties in the US.
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Chevron Corp. on Tuesday recognized an accounting hit of up to $4 billion from impairments of upstream assets and losses related to sold oil and gas production properties—all from its United States operations.

Most of the impaired assets are in California, the global energy giant said in an exchange filing, blaming the devaluation on “continuing regulatory challenges in the state that have resulted in lower anticipated future investment levels in its [Chevron’s] business plans”.

Nonetheless, Chevron “expects to continue operating the impacted assets for many years to come”, it said in the disclosure with the US Securities and Exchange Commission.

The losses, meanwhile, stem from “abandonment and decommissioning obligations from previously sold oil and gas production assets in the U.S. Gulf of Mexico, as companies that purchased these assets have filed for protection under Chapter 11 of the U.S. Bankruptcy Code”.

“[W]e believe it is now probable and estimable that a portion of these obligations will revert to the Company”, Chevron said, adding it expects to undertake the decommissioning activities over the next decade.

The impaired and loss-hit assets have a total impact of $3.5 billion to $4 billion, which San Ramon city-based Chevron will absorb into its fourth quarter 2023 results.

It expects to put the negative impact under special items and exclude it from adjusted earnings.

The financial hit comes as Chevron works to complete its $53 billion acquisition of competitor Hess Corp. The all-stock transaction, which is expected to close by June 2024, is valued at $60 billion when Chevron’s assumption of Hess’ debt under the agreement is taken into account.

Chevron had $5.8 billion in cash and cash equivalents as of the end of the third quarter of 2023. It reported $41.73 billion in total current assets, compared to $33.26 billion in current liabilities.

The Chevron-Hess merger is under review by the Federal Trade Commission.

California vs Fossil Fuels

Chevron’s home state of California, under Democrat Governor Gavin Newsom, has picked up a fight with the oil and gas industry.

In September 2022 Newsom passed a health protection law prohibiting the issuance of well permits and the construction and operation of new production facilities within 3,200 feet of residential homes, educational buildings and healthcare facilities, among other locations.

In June 2023 a US landmark law in California penalizing companies that inflate gas prices beyond maximum gross refining margins came into force.

In September 2023 the state took oil and gas giants, including Chevron, to court over alleged decades of deception during which the industry purportedly ignored scientific warnings about global warming in pursuit of profits.

Besides Chevron, named as primary defendants in the suit are BP PLC, ConocoPhillips Co., ExxonMobil Corp., Phillips 66 Co., Shell PLC and the industry group American Petroleum Institute.

Chevron responded to the suit by saying local courts were not legally empowered to dictate global energy policy.

"Climate change is a global problem that requires a coordinated international policy response, not piecemeal litigation for the benefit of lawyers and politicians", Chevron said in a statement emailed to Rigzone at the time. "California has long been a leading promoter of oil and gas development. 

"Its local courts have no constructive or constitutionally permissible role in crafting global energy policy".

To contact the author, email jov.onsat@rigzone.com



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