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Chevron unveils plan to return $80bn to shareholders
US
SUPER-MAJOR Chevron unveiled a plan this week to return up to $80bn to shareholders through dividends and share buybacks over the next five years. These projected returns, which will be raised from 7% currently to above 10%, exceed levels paid out in the years preceding the oil price downturn that started in 2014.
The surprise move was announced by Chev- ron’s CEO, Mike Wirth, at the company’s annual investor meeting in New York on March 3. It illustrates some of the pressure oil companies have been under recently to prioritise returns to shareholders. Indeed, Wirth described returning cash to shareholders as Chevron’s top priority.
“Investors in Chevron don’t need to worry about a weaker commodity price. We’re built for it,” Wirth said at the investor meeting. He added that returns were not reliant on higher oil prices, but rather on factors such as cost efficiency, cap- ital discipline and portfolio management. The announcement comes after the company paid out $9bn in dividends and bought back $4bn of its stock in 2019, equivalent to $65bn on a five- year basis.
Production in the booming Permian Basin is anticipated to be the main driver of these returns. Chevron, alongside fellow US-based super-major ExxonMobil, has shifted much of its focus to the Permian in recent years in an effort to benefit from production that can be brought online far quicker than some of its megaprojects. The company is aiming to double its Permian oil production over the next five years, with it even- tually accounting for a third of global output.
The super-major said it would save $2bn through cost cutting and margin improvements
while holding annual capital spending to no more than 10% above current levels.
Chevron’s projected investor returns “look well supported by the balance sheet”, an RBC Capital Markets analyst, Biraj Borkhataria, said in a note to clients. The plan “looks more like evolution than revolution, and continues the prior mantra around lower for longer capex, and a steady uptick in Permian performance,” he added.
The company was questioned on environ- mental targets, which are in the spotlight follow- ing UK-listed super-major BP’s announcement last month that it would bring its greenhouse gas (GHG) emissions down to zero on a net basis by 2050. However, Chevron is taking a differ- ent approach from BP, and noted its efforts to reduce the emissions intensity of its oil and gas production.
“Certainly the European companies have made longer-term aspirational commitments. What we’ve done is given you things that are very tangible here and now that we’re doing today,” Wirth said.
The company is also not pushing for a US carbon tax, unlike ExxonMobil and ConocoPhillips.
“The specifics matter. Just because we’re in favour of carbon pricing doesn’t mean we would sign on to any carbon price scenario,” Wirth said.
However, an Edward Jones analyst, Jennifer Rowland, said Chevron’s modest climate goals could signify a lack of ambition. “For a business that measures not in years but in decades, you have to question, are they doing enough?” Row- land asked.™
Chevron expects production in the booming Permian Basin to be the main driver of its shareholder returns.
The announcement comes after the company paid out $9bn in dividends and bought back $4bn of its stock in 2019.
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