Sable Offshore, a company created in 2020, agreed more than a year ago to pay $643 million for Exxon's Santa Ynez oil and gas operation off the coast of Santa Barbara. The pending sale triggered the writedown of the properties' book value in Exxon's fourth-quarter earnings.
Exxon will loan Sable most of the money for the purchase of three offshore oil production platforms, a pipeline and onshore processing facility, under the 2022 agreement. All were idled in 2015 after a pipeline oil spill killed birds, marine life and fouled the shoreline.
But the deal has been twice delayed to give Sable's parent time to complete a merger, and the size of the writedown has grown. To resume oil flow to refineries, Sable would need to repair the corroded pipeline that caused the 2015 oil spill and received operating approvals.
A group of local landowners whose properties are crossed by an onshore portion of the pipeline have said they will not agree to allow repairs to the line without new easements that could cost up to $250 million, according to a lawsuit.
The landowners are in negotiations with Sable for a potential resolution that would end the litigation, a person familiar with the matter said.
Sable's agreement with Exxon requires the production to be up and running by early 2026 - or the assets and their liabilities revert to Exxon.
The top U.S. oil producer has shouldered about $80 million a year in costs to maintain the non-producing assets. It blamed "continuing challenges in the state regulatory environment (that) have impeded progress in restoring operations" for the decision, in a securities filing last week.
CLEANUP DUTIES
An Exxon spokesperson declined to further comment on the withdrawal, pointing to the filing that said the $2.4 billion to $2.6 billion impairment charge was due primarily to the California exit. The statement did not specify whether the amount is before of after taxes.
A failed sale could significantly raise Exxon's costs. The U.S. last December approved a requirement that California's offshore platforms be removed upon retirement, and owners not allowed to leave the infrastructure in the ocean.
Last week, Chevron said it would take non-cash writedowns for securing abandoned wells and pipelines in the U.S. Gulf of Mexico that had been previously sold. It also blamed regulators for reduced investment in the state.
Sable anticipates receiving a California Office of State Fire Marshall approval of its repair and restart plan this quarter, according to a December investor presentation. It could then restart production in July with about 28,000 barrels of oil and gas per day, the presentation said.
