Uncertainty

9 Months Ended

Sep. 30, 2024

Risks and Uncertainties [Abstract]

UNCERTAINTY

2.    UNCERTAINTY

In September 2022, California adopted Senate Bill No. 1322 (SB 1322), which requires refineries in California to report monthly on the volume and cost of the crude oil they buy, the quantity and price of the wholesale gasoline they sell, and the gross gasoline margin per barrel, among other information. The provisions of SB 1322 were effective January 2023.

In March 2023, California adopted Senate Bill No. 2 (such statute, together with any regulations contemplated or issued thereunder, SBx 1-2), which, among other things, (i) authorized the establishment of a maximum gross gasoline refining margin (max margin) and the imposition of a financial penalty for profits above a max margin, (ii) significantly expanded the reporting obligations under SB 1322 and the Petroleum Industry Information Reporting Act of 1980, which include reporting requirements to the California Energy Commission (CEC) for all participants in the petroleum industry supply chain in California (e.g., refiners, marketers, importers, transporters, terminals, producers, renewables producers, pipelines, and ports), (iii) created the Division of Petroleum Market Oversight within the CEC to analyze the data provided under SBx 1-2, and (iv) authorized the CEC to regulate the timing and other aspects of refinery turnaround and maintenance activities in certain instances. SBx 1-2 imposes increased and substantial reporting requirements, which include daily, weekly, monthly, and annual reporting of detailed operational and financial data on all aspects of our operations in California, much of it at the transaction level. The operational data includes our plans for turnaround and maintenance activities at our two California refineries and the manner in which we expect to address the potential impacts on feedstock and product inventories in California as a result of such turnaround and maintenance activities. The provisions of SBx 1-2 became effective June 26, 2023.

In September 2023, Governor Newsom directed the CEC to immediately begin the regulatory processes concerning the potential imposition of a penalty for exceeding a max margin and the timing of refinery turnarounds and maintenance. Consequently, in October 2023, the CEC adopted an order instituting an informational proceeding on a max margin and penalty under SBx 1-2, as well as an order initiating rulemaking activity under SBx 1-2. In May 2024, the CEC issued resolutions adopting emergency regulations implementing new and expanded refining margin, refinery maintenance, and marine import reporting requirements, all of which became effective in June 2024. It remains uncertain as to what extent any regulations will address the remaining reporting requirements under SBx 1-2. In September 2024, the CEC held a workshop to explore structures for determining a potential max margin and penalty; however, it remains uncertain whether and when the CEC will decide to set a max margin and penalty.

SBx 1-2 also requires that certain California agencies prepare specified reports and assessments, including that the CEC prepare and publish a Transportation Fuels Assessment. In August 2024, following the publication of two CEC staff reports and a joint workshop with the California Air Resources Board, the CEC published a final Commission Report on its Transportation Fuels Assessment, which among other things, proposes various policy options intended to mitigate gasoline price spikes in California, including polices designed to reduce the demand for gasoline, encourage fuel conservation, and allow more active participation and management of the petroleum industry supply chain by the State. It remains uncertain whether and when the State will pursue any of the policy options proposed therein.

In September 2024, Governor Newsom held a special legislative session to consider related legislation, Assembly Bill No. 1 (ABx 2-1), regarding minimum inventory requirements and the timing of refinery maintenance and turnarounds, which California adopted in October 2024. Among other matters, ABx 2-1 (i) authorizes the CEC to require that refiners maintain minimum levels of inventories of refined transportation fuels, including any feedstocks and blending components for those fuels, and (ii) provides certain requirements for CEC regulations governing the timing of refinery turnarounds and maintenance under existing SBx 1-2 authority, including that the refiner first make resupply plans or other arrangements to the satisfaction of the CEC’s executive director.

We continue to review and analyze the provisions of SBx 1-2 and related legislation, the possible impacts to our refining and marketing operations, and potential impacts on consumers in California. While the CEC has not yet established a max margin, imposed a financial penalty for profits above a max margin, imposed restrictions on turnaround and maintenance activities, imposed minimum inventory levels, or finalized any of the other policy options proposed in its Transportation Fuels Assessment, the potential implementation of a financial penalty, of any restrictions or delays on our ability to undertake turnaround or maintenance activities, of minimum inventory level requirements, or of other undeveloped policy options creates uncertainty due to the potential adverse effects on us. Any adverse effects on our operations or financial performance in California could indicate that the carrying value of our assets in California is not recoverable, which would result in an impairment loss that could be material. In addition, if the circumstances that trigger an impairment loss result in a reduction in the estimated useful lives of the assets, we may be required to recognize an asset retirement obligation that could be material. Other jurisdictions are contemplating similarly focused legislation or actions.

The ultimate timing and impacts of SBx 1-2 and any other similarly focused legislation or actions are subject to considerable uncertainty due to a number of factors, including technological and economic feasibility, legal challenges, and potential changes in law, regulation, or policy, and it is not currently possible to predict the ultimate effects of these matters and developments on our financial condition, results of operations, and liquidity. Consequently, we have continued to evaluate strategic alternatives for our operations in California. As a result, we updated our impairment analysis and determined that the carrying value of these assets was recoverable as of September 30, 2024. Future developments from our evaluation of strategic alternatives could significantly impact our asset impairment assumptions and result in an impairment loss that could be material.