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Upstream unconventionals will account for $2bn, or half, of Chevron’s cut in spending.
Chevron cuts 2020 capex budget by $4bn
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US-HEADQUARTERED super-major Chev- ron has joined the ranks of oil and gas compa- nies that are significantly cutting their capital expenditure budgets. In a March 24 statement, the company said it was reducing its capex budget for 2020 by $4bn, or 20%. Spending is now pegged at $16bn, compared with $20bn previously.
“Given the decline in commodity prices, we are taking actions expected to preserve cash, support our balance sheet strength, lower short- term production, and preserve long-term value,” Chevron’s chairman and CEO, Michael Wirth, said.
The planned spending cuts are spread across Chevron’s portfolio, with upstream uncon- ventionals accounting for $2bn, or half of the reduction. Chevron noted that this would primarily affect its operations in the Permian Basin. Beyond this, the super-major is also cut- ting $700mn in upstream projects and explo- ration, $500mn in its upstream base business, both in the US and internationally, and $800mn in downstream, chemicals and other business areas.
Chevron’s Permian spending for this year will be roughly halved as a result of its capex cut for the region. The move may not be surpris- ing given how quickly shale production can be brought online. This makes it comparatively easy to back away from shale, scaling up operations again when oil prices are more favourable.
Chevron is not the only company to announce reductions to activity in the Permian. A number of independents with operations in the basin have done the same, including promi- nent players such as Pioneer Natural Resources and Diamondback Energy. (See NorthAmOil Week 11) Rival super-major ExxonMobil – which had been ramping up Permian activity along with Chevron recently – said last week that it was planning to “significantly” reduce spending in the short term, though it has yet to
announce details. However, ExxonMobil had already stated in early March – before the failure of OPEC+ talks led to a new collapse in crude prices – that it would cut the number of rigs it operates in the Permian. With the oil price war ongoing, while the coronavirus (COVID-19) pandemic hits demand, these cuts by ExxonMo- bil are now likely to be even steeper than previ- ously anticipated.
Chevron said in its statement that excluding the impact of 2020 asset sales and price-related contractual effects, it expected its production this year to be roughly flat relative to 2019. The company’s Permian production is projected to be about 125,000 barrels of oil equivalent per day (boepd) by the end of the year, 20% below its prior guidance.
“The flexibility of our capital programme allows us to respond to these unexpected market conditions by deferring short-cycle investments and pacing projects not yet under construc- tion,” said Chevron’s executive vice-president of upstream, Jay Johnson. “At the same time, we are focused on completing projects already under construction that will start up in future years while preserving our capability to increase short-cycle activity in the Permian and other areas when prices recover.”
The capex cut comes three weeks after Chev- ron unveiled an ambitious plan to return $75- 80bn in cash to shareholders over the next five years. This included a $5bn per year share repur- chase programme, which Chevron said this week had now been suspended. The super-major noted that it had repurchased $1.75bn worth of shares during the first quarter of this year prior to the programme’s suspension.
“Chevron’s financial priorities remain unchanged,” said Chevron’s chief financial officer, Pierre Breber. “Our focus is on pro- tecting the dividend, prioritising capital that drives long-term value and supporting the balance sheet.”™
The capex cut comes three weeks after Chevron unveiled an ambitious plan to return $75-80bn in cash to shareholders over the next five years.
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