Correspondence 0000093410-24-000061 from CHEVRON CORP (CVX) (CIK 0000093410) (CVX)
CHEVRON CORP (CVX) (CIK 0000093410)
Date: Nov. 12, 2024 · CIK: 0000093410 · Accession: 0000093410-24-000061
AI Filing Summary & Sentiment
File numbers found in text: 001-00368
Referenced dates: August 7, 2024, October 3, 2024
Letter
Via EDGAR Division of Corporation Finance Form 10-K for Fiscal Year ended December 31, 2023 (“2023 Form 10-K”) Filed February 26, 2024 Response Letter dated August 7, 2024 File No. 001-00368
Dear Ms. Moosariparambil:
In your letter dated October 3, 2024, you provided comments from the review of Chevron Corporation’s (“Chevron” or “the Company”) 2023 Form 10-K and Chevron’s response letter dated August 7, 2024, by the staff (“Staff”) of the U.S. Securities and Exchange Commission (“SEC”). These comments and the Company’s responses are set forth below.
As used in this response letter, the term “Chevron” and the “Company” may refer to Chevron Corporation or one or more of its consolidated subsidiaries.
Form 10-K for Fiscal Year Ended December 31, 2023
Item 15. Exhibit and Financial Statement Schedules
Notes to the Consolidated Financial Statements
Note 24 – Other Contingencies and Commitments, page 97
1.Your response states that the decommissioning liabilities were transferred to each of the buyers and the asset
Chevron Corporation
5001 Executive Parkway, Suite 200, San Ramon, CA 94583-5006
Tel 925 842 1000
Ms. Myra Moosariparambil
U.S. Securities and Exchange Commission
November 12, 2024
Page 2
retirement obligations were derecognized by the Company at the time of the respective sales. In addition to the assets sold to Cox in 2015 and Fieldwood in 2016, we note Cox and Fieldwood acquired additional assets previously owned by Chevron through subsequent acquisitions. Please quantify the amounts derecognized for each of the sales included in the appendix.
Company Response:
The Company derecognized $55 million in asset retirement obligations (“AROs”) associated with the 2004 sale to Anglo-Suisse Offshore Partners, LLC; $65 million, $63 million, and $111 million in AROs associated with the 2008, 2009, and 2011 sales to Hilcorp, respectively; and $378 million related to the 2015 sale to Cox.
The Company also derecognized $92 million in AROs associated with the 2015 sale to Fieldwood, as well as an additional $15 million in 2016. Prior to being acquired by Chevron, Noble Energy, Inc. (“Noble”) disclosed that it had derecognized $216 million in AROs associated with its 2018 sale to Fieldwood and $45 million associated with its 2006 sale to Coldren Resources LP, which was subsequently acquired by Fieldwood.
Information related to the derecognition of AROs by Texaco Inc., Unocal Corp. and Noble in 2003 and earlier is not available.
2. Your response indicates that “In December 2023, a subset of producible leases from the Cox Debtors’ estate was sold to a third party, but in a lesser amount than the Company had anticipated, potentially indicating more decommissioning obligations than anticipated reverting to the Company.” Please address the following:
•Describe for us the “subset” of producible leases from the Cox Debtors’ estate and how that “subset” related to the entire Cox Debtors’ estate;
Company Response:
At the time of its May 2023 bankruptcy filing, Cox represented that it had over 470 operating platforms and interests in over 400 leases. Chevron monitored assets in the Cox Debtors’ estate in which it was a predecessor in interest. As detailed in the table below, Chevron (or companies acquired by Chevron) was in the chain of title for 205 leases in the Cox Debtors’ estate, 134 of which had outstanding decommissioning obligations and included approximately 990 wells and 347 platforms. Of the 134 leases that had outstanding decommissioning obligations, 33 leases were producing at the time of the bankruptcy filing, including approximately 430 wells and 190 platforms. Also, there were an indeterminate number of additional leases that were not producing but were capable of producing given the right economic conditions.
The “subset” in our initial response refers to 19 leases included in a Purchase and Sale Agreement between the Cox Debtors and W&T Offshore, Inc. (“W&T”) filed with the bankruptcy court in December 2023 (“W&T Agreement”), of which Chevron was in the chain of title for 11. This subset included approximately 37 wells and 21 platforms.
Ms. Myra Moosariparambil
U.S. Securities and Exchange Commission
November 12, 2024
Page 3
A summary of the leases, wells, and platforms is included in the following table:
Note - All lease, well, and platform counts are estimates
Leases Wells Platforms
Cox Debtors’ estate (May 2023) 400+ n/a 470+
Cox Debtors’ leases with Chevron in chain of title 205 990 347
Chevron in chain with no decommissioning obligation 71 n/a n/a
Chevron in chain with decommissioning obligation 134 990 347
Not currently producing 101 560 157
Producing (potential sale candidate) 33 430 190
Cox agreed to sell to W&T (December 2023) 19 n/a n/a
Of which Chevron in chain of title 11 37 21
•Tell us the amount for which the “subset” of producible leases was sold and the sales amount that you had anticipated prior to the sale;
Company Response:
W&T agreed to purchase 19 leases (the “subset” of producible leases) for $72 million pursuant to the W&T Agreement filed with the court in December 2023. Chevron had predecessor liability for 11 of the leases purchased by W&T. While the amount of sales proceeds was relevant to determining if Cox can reorganize, it did not fully inform the Company’s potential exposure, which is impacted by knowing which decommissioning obligations would revert to Chevron. On December 12, 2023, after failing to reach terms to sell other assets from its estate, Cox filed its Motion to Abandon certain properties and to reject associated leases/agreements that it deemed a burden to the Cox Debtors’ estate.
The Company had reasonably assumed that all of the 33 leases in the Cox Debtors’ estate where Chevron was a predecessor in interest and that were producing would be sale candidates. Hence, in the second quarter of 2023, the Company expected that decommissioning obligations for 560 wells and 157 platforms, which were not currently producing, could reasonably revert to the Company. After the W&T sale in the fourth quarter of 2023, however, the Company learned that decommissioning obligations for 953 wells and 326 platforms could ultimately revert to the Company.
•Tell us the amount or range of decommissioning obligations you had anticipated reverting to the company prior to the sale of the “subset” of producible leases;
Company Response:
In the second quarter of 2023, the Company estimated the potential range of exposure related to the Cox bankruptcy as zero to $1.4 billion. The estimate was based on publicly available estimates published by the
Ms. Myra Moosariparambil
U.S. Securities and Exchange Commission
November 12, 2024
Page 4
Bureau of Safety and Environmental Enforcement (“BSEE”) for nearly all federal leases in the Cox Debtors’ estate for which Chevron had predecessor liability and decommissioning obligations remained outstanding. BSEE estimates provide costs to plug and abandon wells, abandon pipelines, remove platforms, and perform site clearance, and were readily available. At the time of the Cox bankruptcy filing, the Company had access to financial security of approximately $170 million (as detailed below) associated with the assets previously sold to Cox, or to companies acquired by Cox. If the Company could liquidate all financial security, the cost estimate would reduce to $1.2 billion. On the other hand, the Company's exposure could be zero based on examples of other companies that have sold assets from debtors’ estates, where assets that are either producing or capable of producing can reasonably be sold through bankruptcy proceedings, and where debtors reorganize1 around these assets. The Company believed all of the producing assets in the Cox Debtors’ estate would be sold, without the reversion of associated decommissioning obligations to the Company, and therefore assumed the exposure would be lower than the high end of the estimated range, which the Company concluded was not material.
To provide additional context, there were approximately 134 leases with decommissioning obligations outstanding that were in the Cox Debtor’s estate where Chevron was in the chain of title, representing 990 wells and 347 platforms. Approximately 33 of the leases were producing, including approximately 430 wells and 190 platforms. If all of the producing leases were sold, decommissioning costs would not revert to the Company for approximately 43 percent of the wells and 55 percent of the platforms. In that case, the Company’s cost estimate would have been reduced by roughly the same percentage (for reference, 50 percent of our second quarter 2023 and fourth quarter 2023 estimates would have been $700 million and $1,040 million, respectively).
•Tell us when and how the amount or range of decommissioning obligations you had anticipated reverting to company was first estimated; and,
Company Response:
While the Company has been monitoring this risk of exposure since the sale in 2015, it was not until the second quarter of 2023, after the Cox bankruptcy filing, that the Company first estimated the possible range of decommissioning obligations that could revert from Cox. At this time, the Company relied on readily available
1 Examples of other companies in our industry that have recently reorganized from Chapter 11 bankruptcy, without decommissioning obligations reverting to predecessor companies, include the following:
•Ascent Resources Marcellus Holdings, LLC; Case No. 18-10265; Del.; filed 2/6/2018
•EV Energy Partners, L.P.; Case No. 18-10814; Del.; filed 4/2/2018
•Snachez Energy Corp.; Case No. 19-34508; S.D. Texas; filed 8/11/2019
•Whiting Petroleum Corporation, et al; Case No. 20-32021; S.D. Texas; filed 4/1/2020
•Ultra Petroleum Corp., et al; Case No. 20-32631; S.D. Texas; filed 5/14/2020
•Unit Corporation, et al; Case No. 20-32738; S.D. Texas; filed 5/22/2020
•Chesapeake Energy Corporation, et al; Case No. 20-33232; S.D. Texas; filed 6/28/2020
•California Resources Corporation, et. al; Case No. 20-336568, S.D. Texas; filed 7/15/2020
•Lonestar Resources, LP; Case No. 20-34805; S.D. Texas; filed 9/3/2020
•Remora Petroleum, LP; Case No. 20-34037; S.D. Texas; filed 8/12/2020
Ms. Myra Moosariparambil
U.S. Securities and Exchange Commission
November 12, 2024
Page 5
BSEE P90 decommissioning cost estimates to assess potential range of exposure as zero to $1.4 billion before tax. This estimate reflected nearly all federal leases sold by Chevron to the Cox Debtors and was created using BSEE P90 decommissioning cost estimates to plug and abandon wells, abandon pipelines, remove platforms, and perform site clearance, and was limited to the federal leases in the Cox bankruptcy that had decommissioning obligations outstanding (both producing and non-producing) and for which Chevron was a predecessor in interest.
During the third quarter of 2023, the Company started developing internal estimates, including the estimated time required for decommissioning activity and the possible extent of maintenance and monitoring that could be required. For context, it takes time for the Company to develop quality estimates for complex matters such as costs to decommission assets that were sold many years ago and geographically spread across a large area in the Gulf of Mexico, particularly when such estimate is used to support entries in the Company’s financial statements. In fact, Chevron’s recurring processes for comprehensive asset retirement obligation reviews for individual properties that are owned by the Company take up to six months to develop quality estimates before they are approved by management.
•Tell us whether and when the amount or range of decommissioning obligations you had anticipated reverting to the company was communicated to the board of directors or a committee or subcommittee thereof.
Company Response:
Management, including those responsible for financial reporting, notified the Company’s Board Audit Committee (“BAC”) of the possibility that decommissioning obligations could revert to the Company following the Cox bankruptcy. This notification occurred as management was reviewing the second quarter 2023 Form 10-Q, where it routinely discusses noteworthy topics and new or evolving disclosures. The possibility of the obligations reverting, along with management’s assessment that the obligation was not probable or reasonably possible to be material, was communicated at that time. During the review of the third quarter 2023 Form 10-Q with the BAC, management shared that it was continuing to monitor Cox bankruptcy proceedings and possible exposure, but there was no change to the initial assessment provided in the second quarter.
Because of Cox’s Motion to Abandon certain leases filed on December 12, 2023, the Company re-evaluated the likelihood and extent of its exposure and concluded, in late December 2023, that it was probable and estimable that decommissioning obligations previously assumed by Cox would revert to the Company. Chevron then completed its analysis and was able to finalize the estimate and obtain management concurrence with the amount. Upon these determinations, the Company shared this information with the Board of Directors.
Ms. Myra Moosariparambil
U.S. Securities and Exchange Commission
November 12, 2024
Page 6
Supplemental information regarding the increase to the estimate between 2Q23 and 4Q23
After Cox filed its Motion to Abandon, the Company reassessed its exposure based on the totality of the new information that was available at that time, including the listing of leases with outstanding decommissioning obligations that would revert to the Company in Cox’s Motion to Abandon, and the announced sale of certain leases to W&T. The Company was then reasonably able to anticipate the overall volume of decommissioning work and prepare a projected timeline for completion of such work. The Company concluded that the overall scope of work was expected to take approximately 10 or more years and the total cost estimate pertaining to the decommissioning obligations related to the Cox bankruptcy was $2.1 billion. The cost estimate developed in the fourth quarter of 2023 was largely based on updated BSEE P90 decommissioning estimates for federal leases, but also included costs associated with maintenance and monitoring as the locations and the anticipated logistical and oversight support costs to oversee the scope of the decommissioning obligations and anticipated duration of such work were now known. Further, because of the identification of the assets in the Motion to Abandon, the Company’s fourth quarter 2023 estimate also included projected costs to abandon rights-of-way, right-of-use easements and state properties that the Cox Debtors sought to abandon (as such estimates are not available in public databases), resulting in additional incremental costs. Estimates were then benchmarked against actual costs incurred from similar projects recently completed by Chevron including Genesis Spar and Neptune Spar decommissioning, following which the cost estimates were further increased. Lastly, leases that were originally included in the second quarter 2023 estimate but were later included in the announced sale to W&T were deducted from the Company’s estimate.
For the reasons described above, the following table summarizes the change in estimate between second quarter 2023 and fourth quarter 2023:
Description $ - Millions (b/t)
2Q23 Estimate (high end of range)
$ 1,400
Maintenance and monitoring until decommissioning work is completed
Logistical and oversight support
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Document
Alana K. Knowles
Vice President and Controller
November 12, 2024
Via EDGAR
Ms. Myra Moosariparambil
U.S. Securities and Exchange Commission
Division of Corporation Finance
100 F Street, NE
Washington, D.C. 20549
Re: Chevron Corporation
Form 10-K for Fiscal Year ended December 31, 2023 (“2023 Form 10-K”)
Filed February 26, 2024
Response Letter dated August 7, 2024
File No. 001-00368
Dear Ms. Moosariparambil:
In your letter dated October 3, 2024, you provided comments from the review of Chevron Corporation’s (“Chevron” or “the Company”) 2023 Form 10-K and Chevron’s response letter dated August 7, 2024, by the staff (“Staff”) of the U.S. Securities and Exchange Commission (“SEC”). These comments and the Company’s responses are set forth below.
As used in this response letter, the term “Chevron” and the “Company” may refer to Chevron Corporation or one or more of its consolidated subsidiaries.
Form 10-K for Fiscal Year Ended December 31, 2023
Item 15. Exhibit and Financial Statement Schedules
Notes to the Consolidated Financial Statements
Note 24 – Other Contingencies and Commitments, page 97
1.Your response states that the decommissioning liabilities were transferred to each of the buyers and the asset
Chevron Corporation
5001 Executive Parkway, Suite 200, San Ramon, CA 94583-5006
Tel 925 842 1000
Ms. Myra Moosariparambil
U.S. Securities and Exchange Commission
November 12, 2024
Page 2
retirement obligations were derecognized by the Company at the time of the respective sales. In addition to the assets sold to Cox in 2015 and Fieldwood in 2016, we note Cox and Fieldwood acquired additional assets previously owned by Chevron through subsequent acquisitions. Please quantify the amounts derecognized for each of the sales included in the appendix.
Company Response:
The Company derecognized $55 million in asset retirement obligations (“AROs”) associated with the 2004 sale to Anglo-Suisse Offshore Partners, LLC; $65 million, $63 million, and $111 million in AROs associated with the 2008, 2009, and 2011 sales to Hilcorp, respectively; and $378 million related to the 2015 sale to Cox.
The Company also derecognized $92 million in AROs associated with the 2015 sale to Fieldwood, as well as an additional $15 million in 2016. Prior to being acquired by Chevron, Noble Energy, Inc. (“Noble”) disclosed that it had derecognized $216 million in AROs associated with its 2018 sale to Fieldwood and $45 million associated with its 2006 sale to Coldren Resources LP, which was subsequently acquired by Fieldwood.
Information related to the derecognition of AROs by Texaco Inc., Unocal Corp. and Noble in 2003 and earlier is not available.
2. Your response indicates that “In December 2023, a subset of producible leases from the Cox Debtors’ estate was sold to a third party, but in a lesser amount than the Company had anticipated, potentially indicating more decommissioning obligations than anticipated reverting to the Company.” Please address the following:
•Describe for us the “subset” of producible leases from the Cox Debtors’ estate and how that “subset” related to the entire Cox Debtors’ estate;
Company Response:
At the time of its May 2023 bankruptcy filing, Cox represented that it had over 470 operating platforms and interests in over 400 leases. Chevron monitored assets in the Cox Debtors’ estate in which it was a predecessor in interest. As detailed in the table below, Chevron (or companies acquired by Chevron) was in the chain of title for 205 leases in the Cox Debtors’ estate, 134 of which had outstanding decommissioning obligations and included approximately 990 wells and 347 platforms. Of the 134 leases that had outstanding decommissioning obligations, 33 leases were producing at the time of the bankruptcy filing, including approximately 430 wells and 190 platforms. Also, there were an indeterminate number of additional leases that were not producing but were capable of producing given the right economic conditions.
The “subset” in our initial response refers to 19 leases included in a Purchase and Sale Agreement between the Cox Debtors and W&T Offshore, Inc. (“W&T”) filed with the bankruptcy court in December 2023 (“W&T Agreement”), of which Chevron was in the chain of title for 11. This subset included approximately 37 wells and 21 platforms.
Ms. Myra Moosariparambil
U.S. Securities and Exchange Commission
November 12, 2024
Page 3
A summary of the leases, wells, and platforms is included in the following table:
Note - All lease, well, and platform counts are estimates
Leases Wells Platforms
Cox Debtors’ estate (May 2023) 400+ n/a 470+
Cox Debtors’ leases with Chevron in chain of title 205 990 347
Chevron in chain with no decommissioning obligation 71 n/a n/a
Chevron in chain with decommissioning obligation 134 990 347
Not currently producing 101 560 157
Producing (potential sale candidate) 33 430 190
Cox agreed to sell to W&T (December 2023) 19 n/a n/a
Of which Chevron in chain of title 11 37 21
•Tell us the amount for which the “subset” of producible leases was sold and the sales amount that you had anticipated prior to the sale;
Company Response:
W&T agreed to purchase 19 leases (the “subset” of producible leases) for $72 million pursuant to the W&T Agreement filed with the court in December 2023. Chevron had predecessor liability for 11 of the leases purchased by W&T. While the amount of sales proceeds was relevant to determining if Cox can reorganize, it did not fully inform the Company’s potential exposure, which is impacted by knowing which decommissioning obligations would revert to Chevron. On December 12, 2023, after failing to reach terms to sell other assets from its estate, Cox filed its Motion to Abandon certain properties and to reject associated leases/agreements that it deemed a burden to the Cox Debtors’ estate.
The Company had reasonably assumed that all of the 33 leases in the Cox Debtors’ estate where Chevron was a predecessor in interest and that were producing would be sale candidates. Hence, in the second quarter of 2023, the Company expected that decommissioning obligations for 560 wells and 157 platforms, which were not currently producing, could reasonably revert to the Company. After the W&T sale in the fourth quarter of 2023, however, the Company learned that decommissioning obligations for 953 wells and 326 platforms could ultimately revert to the Company.
•Tell us the amount or range of decommissioning obligations you had anticipated reverting to the company prior to the sale of the “subset” of producible leases;
Company Response:
In the second quarter of 2023, the Company estimated the potential range of exposure related to the Cox bankruptcy as zero to $1.4 billion. The estimate was based on publicly available estimates published by the
Ms. Myra Moosariparambil
U.S. Securities and Exchange Commission
November 12, 2024
Page 4
Bureau of Safety and Environmental Enforcement (“BSEE”) for nearly all federal leases in the Cox Debtors’ estate for which Chevron had predecessor liability and decommissioning obligations remained outstanding. BSEE estimates provide costs to plug and abandon wells, abandon pipelines, remove platforms, and perform site clearance, and were readily available. At the time of the Cox bankruptcy filing, the Company had access to financial security of approximately $170 million (as detailed below) associated with the assets previously sold to Cox, or to companies acquired by Cox. If the Company could liquidate all financial security, the cost estimate would reduce to $1.2 billion. On the other hand, the Company's exposure could be zero based on examples of other companies that have sold assets from debtors’ estates, where assets that are either producing or capable of producing can reasonably be sold through bankruptcy proceedings, and where debtors reorganize1 around these assets. The Company believed all of the producing assets in the Cox Debtors’ estate would be sold, without the reversion of associated decommissioning obligations to the Company, and therefore assumed the exposure would be lower than the high end of the estimated range, which the Company concluded was not material.
To provide additional context, there were approximately 134 leases with decommissioning obligations outstanding that were in the Cox Debtor’s estate where Chevron was in the chain of title, representing 990 wells and 347 platforms. Approximately 33 of the leases were producing, including approximately 430 wells and 190 platforms. If all of the producing leases were sold, decommissioning costs would not revert to the Company for approximately 43 percent of the wells and 55 percent of the platforms. In that case, the Company’s cost estimate would have been reduced by roughly the same percentage (for reference, 50 percent of our second quarter 2023 and fourth quarter 2023 estimates would have been $700 million and $1,040 million, respectively).
•Tell us when and how the amount or range of decommissioning obligations you had anticipated reverting to company was first estimated; and,
Company Response:
While the Company has been monitoring this risk of exposure since the sale in 2015, it was not until the second quarter of 2023, after the Cox bankruptcy filing, that the Company first estimated the possible range of decommissioning obligations that could revert from Cox. At this time, the Company relied on readily available
1 Examples of other companies in our industry that have recently reorganized from Chapter 11 bankruptcy, without decommissioning obligations reverting to predecessor companies, include the following:
•Ascent Resources Marcellus Holdings, LLC; Case No. 18-10265; Del.; filed 2/6/2018
•EV Energy Partners, L.P.; Case No. 18-10814; Del.; filed 4/2/2018
•Snachez Energy Corp.; Case No. 19-34508; S.D. Texas; filed 8/11/2019
•Whiting Petroleum Corporation, et al; Case No. 20-32021; S.D. Texas; filed 4/1/2020
•Ultra Petroleum Corp., et al; Case No. 20-32631; S.D. Texas; filed 5/14/2020
•Unit Corporation, et al; Case No. 20-32738; S.D. Texas; filed 5/22/2020
•Chesapeake Energy Corporation, et al; Case No. 20-33232; S.D. Texas; filed 6/28/2020
•California Resources Corporation, et. al; Case No. 20-336568, S.D. Texas; filed 7/15/2020
•Lonestar Resources, LP; Case No. 20-34805; S.D. Texas; filed 9/3/2020
•Remora Petroleum, LP; Case No. 20-34037; S.D. Texas; filed 8/12/2020
Ms. Myra Moosariparambil
U.S. Securities and Exchange Commission
November 12, 2024
Page 5
BSEE P90 decommissioning cost estimates to assess potential range of exposure as zero to $1.4 billion before tax. This estimate reflected nearly all federal leases sold by Chevron to the Cox Debtors and was created using BSEE P90 decommissioning cost estimates to plug and abandon wells, abandon pipelines, remove platforms, and perform site clearance, and was limited to the federal leases in the Cox bankruptcy that had decommissioning obligations outstanding (both producing and non-producing) and for which Chevron was a predecessor in interest.
During the third quarter of 2023, the Company started developing internal estimates, including the estimated time required for decommissioning activity and the possible extent of maintenance and monitoring that could be required. For context, it takes time for the Company to develop quality estimates for complex matters such as costs to decommission assets that were sold many years ago and geographically spread across a large area in the Gulf of Mexico, particularly when such estimate is used to support entries in the Company’s financial statements. In fact, Chevron’s recurring processes for comprehensive asset retirement obligation reviews for individual properties that are owned by the Company take up to six months to develop quality estimates before they are approved by management.
•Tell us whether and when the amount or range of decommissioning obligations you had anticipated reverting to the company was communicated to the board of directors or a committee or subcommittee thereof.
Company Response:
Management, including those responsible for financial reporting, notified the Company’s Board Audit Committee (“BAC”) of the possibility that decommissioning obligations could revert to the Company following the Cox bankruptcy. This notification occurred as management was reviewing the second quarter 2023 Form 10-Q, where it routinely discusses noteworthy topics and new or evolving disclosures. The possibility of the obligations reverting, along with management’s assessment that the obligation was not probable or reasonably possible to be material, was communicated at that time. During the review of the third quarter 2023 Form 10-Q with the BAC, management shared that it was continuing to monitor Cox bankruptcy proceedings and possible exposure, but there was no change to the initial assessment provided in the second quarter.
Because of Cox’s Motion to Abandon certain leases filed on December 12, 2023, the Company re-evaluated the likelihood and extent of its exposure and concluded, in late December 2023, that it was probable and estimable that decommissioning obligations previously assumed by Cox would revert to the Company. Chevron then completed its analysis and was able to finalize the estimate and obtain management concurrence with the amount. Upon these determinations, the Company shared this information with the Board of Directors.
Ms. Myra Moosariparambil
U.S. Securities and Exchange Commission
November 12, 2024
Page 6
Supplemental information regarding the increase to the estimate between 2Q23 and 4Q23
After Cox filed its Motion to Abandon, the Company reassessed its exposure based on the totality of the new information that was available at that time, including the listing of leases with outstanding decommissioning obligations that would revert to the Company in Cox’s Motion to Abandon, and the announced sale of certain leases to W&T. The Company was then reasonably able to anticipate the overall volume of decommissioning work and prepare a projected timeline for completion of such work. The Company concluded that the overall scope of work was expected to take approximately 10 or more years and the total cost estimate pertaining to the decommissioning obligations related to the Cox bankruptcy was $2.1 billion. The cost estimate developed in the fourth quarter of 2023 was largely based on updated BSEE P90 decommissioning estimates for federal leases, but also included costs associated with maintenance and monitoring as the locations and the anticipated logistical and oversight support costs to oversee the scope of the decommissioning obligations and anticipated duration of such work were now known. Further, because of the identification of the assets in the Motion to Abandon, the Company’s fourth quarter 2023 estimate also included projected costs to abandon rights-of-way, right-of-use easements and state properties that the Cox Debtors sought to abandon (as such estimates are not available in public databases), resulting in additional incremental costs. Estimates were then benchmarked against actual costs incurred from similar projects recently completed by Chevron including Genesis Spar and Neptune Spar decommissioning, following which the cost estimates were further increased. Lastly, leases that were originally included in the second quarter 2023 estimate but were later included in the announced sale to W&T were deducted from the Company’s estimate.
For the reasons described above, the following table summarizes the change in estimate between second quarter 2023 and fourth quarter 2023:
Description $ - Millions (b/t)
2Q23 Estimate (high end of range)
$ 1,400
Maintenance and monitoring until decommissioning work is completed
270
Logistical and oversight support