Exxon Mobil Corporation has suspended oil production at three of its offshore platforms. The company has been forced to take the decision following the shutdown of a pipeline that leaked about 101,000 gallons of crude on the Santa Barbara coast.
The three offshore platforms have been temporarily closed as the company failed to ship oil to refineries. The failure in oil delivery, in turn, stems from the rejection of the firm’s urgent application to truck oil to refineries by Santa Barbara County. However, per Santa Barbara County the company’s difficulty was not urgent enough and could use the normal procedure, which entails extensive environmental appraisal, to receive a permit to truck the oil.
The shutdown will have an adverse effect on Exxon Mobil’s bottom line, despite the yield from the platform being small compared with the company’s overall output. It will, however, not affect the oil prices. Last week, crude sold for $60–$64 a barrel and could realize over $91 when refined for automobile gas. This has been highly encouraging for ExxonMobil.
After Plains All American Pipeline, L.P.’s (PAA – Analyst Report) pipe was shut down due to a spill on May 19, Exxon Mobil reduced its production from the rigs by two-thirds. As a result of the spill, about 200 birds and over 100 marine mammals were found dead in the water. The investigation by the federal regulators disclosed that the spill was due to the severe deterioration of the two-foot wide pipe that caused the rupture. The authorities, however, have neither reported any findings nor imposed any penalties so far.
The pipeline used to transport oil to refineries from an Exxon Mobil facility in Las Flores Canyon that separates crude, water and natural gas around 15 miles west of Santa Barbara. Prior to the shutdown, daily production from the Hondo, Harmony and Heritage rigs that are placed 5–8 miles offshore had been reduced to 10,000 barrels from 30,000 barrels.
During the first quarter of the year, Exxon Mobil had reported production of just over 4 million barrels per day. The plant has a storing capacity of about 540,000 barrels of crude and the company is expected to reach its capacity within a month from its filing of emergency application on Jun 4.
Though Exxon Mobil is evaluating options, no direct layoffs are expected as the platforms need to be maintained while dormant. The extended shutdown, however, is likely to have a major impact on Santa Barbara County’s tax revenue. Per Exxon Mobil’s emergency application, the county is expected to lose about $4 million in school funding if the Las Flores Canyon facility shuts down.