Investor says California rules could reach a company's global business

Ben Kelleran, an investor who follows small oil companies, was trying to answer an awkward question. If the Santa Ynez oil field off the California coast is so valuable, why would ExxonMobil, one of the most sophisticated buyers and sellers of oil properties in the world, hand it to tiny Sable Offshore and walk away.

His answer was about the reach of California rules. "Not only do they want to regulate the operations in the state of California, they want to regulate the international operations as well," Kelleran said.

What he meant, he explained, is something he said he has heard from others who operate there. If you do business in California, your operations outside California are expected to subscribe to California law too. For a global producer, he argued, that turns a single local asset into a compliance risk for the whole portfolio.

That mattered for Exxon, in his telling, because Santa Ynez did not move the needle next to its larger positions in Guyana, in the Permian Basin in Texas and New Mexico, and overseas. At the same time, he estimated, Exxon was spending about 50 million to 70 million dollars a year just to monitor and maintain the shut field.

Kelleran said Exxon's work abroad might not satisfy what California expects, and he imagined places where business might involve bribes. He said he was not accusing Exxon of paying bribes, only that applying California standards that broadly would be an issue.

Kelleran pointed to other departures as evidence of the same calculation. Chevron has moved its headquarters out of California, refineries are shutting down, and companies cite emission standards and special gasoline requirements among their reasons. He summed up what companies say: "We want nothing to do with the state. We'll find a better environment to operate in."