California, the most populous state in the U.S., is bidding farewell to its over a century-old association with crude oil as part of its commitment to combat climate change. Exxon Mobil and Chevron, the two leading U.S. oil producers, will officially announce a combined $5 billion devaluation of their California assets in their upcoming fourth-quarter reports. Industry experts note that both companies ceased investments in California production long ago and now seek to divest their aging wells in the region.
Last year, Exxon Mobil concluded its onshore production activities in the state, ending a 25-year partnership with Shell PLC by selling their joint-venture properties. Citing regulatory challenges, Exxon revealed this month that it is exiting offshore production in the state, finalizing the move by financing a Texas company’s acquisition of its offshore properties. This asset devaluation, amounting to approximately $2.5 billion, marks the conclusion of five decades of oil production off the Southern California coast for the top U.S. oil producer.
Chevron is also expected to face costs of approximately $2.5 billion connected to its assets in California. Despite remaining in the state, the company is vehemently challenging state regulations governing its oil production and refining operations. A Chevron official expressed discontent, stating that California’s energy policies create a challenging investment environment, even for renewable fuels.
The state’s shift away from fossil fuels has roots in an environmental awakening triggered by the 1969 oil well blowout in Santa Barbara. This incident led to the enactment of the National Environmental Policy Act, requiring federal agencies to consider environmental impacts in permitting decisions. Over subsequent decades, California implemented regulations on drilling proximity to residences and businesses, as well as air pollution controls, setting standards adopted nationwide. The state, known for its high-tech industry, has surpassed oil as a major employer. Governor Gavin Newsom has advocated for a ban on new gasoline-powered vehicle sales by 2035.
Highlighting this transition, Newsom’s administration filed a lawsuit in September targeting the oil industry for allegedly misleading consumers about climate change for over five decades. Additionally, a bill signed into law holds Chevron and other refiners responsible for alleged consumer price-gouging.
The oil industry in California has been in decline for nearly four decades. The amount of crude oil, including from the famous Kern County fields, has dropped by one-third since its highest point in 1985. This decline is because there aren’t any new projects for oil development, and the existing fields can’t produce the high-quality gasoline the state demands.
By September, more than half of the permits given for oil drilling in the state were not being used. This has led to higher unemployment rates, especially in Kern County, where the oil industry struggles with a 7.8% unemployment rate. This is higher than the state’s average of 4.9%.
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