Chevron announced Tuesday that it could face billions of dollars in impairments due in part to California’s regulatory environment, a development which some energy policy experts told the Daily Caller News Foundation could spell trouble for the energy industry’s prospects in the state.
Chevron said that it anticipates taking asset value reduction charges of up to $4 billion for the fourth quarter of 2023, an impairment that is partially related to oil and gas production in the U.S., especially in California, a state with a burdensome environmental regulatory structure that the company has highlighted in the past, according to a regulatory filing. The impairment charges are a troubling sign for California’s energy industry, as more companies could follow suit in a trend that would potentially imperil tens of thousands of jobs in the state, energy policy experts told the DCNF.
“Chevron’s operations in California include its major refinery in Richmond, California, along with upstream operations producing heavy oil via steam injection in the San Joaquin Valley in the central part of the state. California’s increasingly strict air quality regulatory structure and other operational regulations have significantly raised costs related to both operations and rendered them less profitable,” David Blackmon, a 40-year veteran of the oil and gas business who now consults and writes regularly about the energy industry, told the DCNF. “The regulations in question apply industry-wide and impact any company trying to do business in the state. I would expect to see other operators announce similar impairment actions in the coming months … The oil industry’s struggles with the regulatory and business climate in California are reflective of the state’s entire population. The heavy-handed control from central planners has been the main cause of the massive population and business flight out of California in recent years.”
California was one of the leading states of the U.S. in terms of oil production in 2022, with operators in the state pumping more than 124 million barrels that year, according to data from the U.S. Energy Information Administration (EIA). The state saw its local oil and gas production drop by nearly 30% over the course of the last four years, according to EIA data, a trend which Californians for Energy Independence attributes primarily to “state and local energy policies shutting down production.”
Chevron has previously highlighted the adverse impact that California’s policy has on its operations in filings with state officials. “Two decades of policy choices have reduced supply elasticity and severely limited refiners’ ability to react to higher prices,” the firm wrote in December comments to the California Energy Commission (CEC) regarding a state regulatory proposal.
“California’s policies have made Chevron’s investments in its home state riskier than investing in other states,” Chevron’s President of Americas Products Andy Walz wrote to state officials in November, according to Reuters. “In the past year, we have cancelled several projects due to permitting challenges.
On the state level, California is widely considered to be on the leading edge of climate policy, according to Stateline. Away from the regulations focused on oil and gas production, the state has pushed aggressive electric vehicle and truck rules, filed a climate change lawsuit against Chevron and other oil majors alleging that they deliberately tried to mislead the public about the nature of climate change and enacted a landmark corporate emissions disclosure requirement.
California’s local oil and gas production supports an estimated 50,000 jobs across the state, including 31,000 jobs in the otherwise economically depressed San Joaquin Valley, according to Californians for Energy Independence.
“Hundreds of small businesses at every aspect of oil and gas development are at risk, and sadly that is contributing to the state’s overall decline. If the majors are unwilling to bend to Sacramento’s never-ending lust for regulation, how can small family-run businesses with limited resources begin to comply?” Daniel Turner, founder and executive director of Power the Future, an energy advocacy group, told the DCNF. “What you will see over time is the talent leave for oil fields in oil states that reward hard work and expertise, and many businesses will close their doors for good. This is all reversible, all preventable and sadly completely foreseeable, yet California uses forward with these radical policies despite the ruin it brings their state.”
Neither Newsom’s office nor the CEC responded immediately to requests for comment.
Nick Popeon January 2, 2024
