U.S. multinational energy company Chevron has warned of a significant financial hit in the fourth quarter of 2023, with an estimated impairment of up to $4 billion, according to an Upstream Online report. This substantial figure is directly related to its US exploration and production assets, primarily in California.
In a recent SEC filing, Chevron revealed the impairment of a portion of its US upstream assets. The company attributes this to the ongoing regulatory challenges in California, which have led to re-evaluated future investment levels in its business plans. These regulatory hurdles have significantly influenced Chevron’s operational and financial strategies in the state.
Chevron to buy out Hess Corp., will gain access to world class Guyana play | OilNOW
Andy Walz, Chevron’s president of Americas products, in a communication reported by Reuters, expressed concerns over California’s policies. He stated that these policies have made investments in California riskier than in other states. Walz also noted that Chevron had canceled several projects in the past year due to permitting challenges.
Adding to Chevron’s financial burdens are the losses related to the abandonment and decommissioning obligations of previously sold oil and gas production assets in the US Gulf of Mexico. This situation arose as the companies that purchased these assets filed for Chapter 11 bankruptcy protection. Chevron now anticipates a portion of these decommissioning obligations to revert to the company, which it plans to address over the next decade. Despite these setbacks, Chevron expects to continue operating these impacted assets for many years to come.
Five major implications of the Chevron-Hess US$53 billion acquisition | OilNOW
The total financial impact of these developments is significant. Chevron is in the process of finalizing these impacts, which are expected to result in non-cash, after-tax charges of between $3.5 billion and $4 billion in the fourth quarter of 2023. These charges will be treated as special items and excluded from adjusted earnings. However, Chevron has not detailed the expected financial impact from each of the two operational areas on its bottom line.
Chevron’s fourth-quarter 2023 earnings conference is scheduled for February 2, 2024.
On October 23, 2023, Chevron announced that it had entered into a definitive agreement with Hess Corporation to acquire all of the outstanding shares of Hess in an all-stock transaction valued at $53 billion. The acquisition of Hess upgrades and diversifies Chevron’s already advantaged portfolio and will now include the Stabroek Block offshore Guyana. This license, operated by ExxonMobil, is an extraordinary asset with industry leading cash margins and low carbon intensity that is expected to deliver production growth into the next decade.
