Chevron Corp will cut capital spending by $4 billion this year and suspend share buybacks, the latest oil company to slash costs in the face of massive demand destruction from the worsening coronavirus pandemic and an unprecedented slide in oil prices, as reported by Reuters.
Oil LCOc1CLc1 has crashed by more than 60% since January and demand worldwide is expected to fall by more than 12 million barrels per day, more than 10% of daily demand.
REUTERS/Loren Elliott
An entrance sign at the Chevron refinery, located near the Houston Ship Channel, is seen in Pasadena, Texas, May 5, 2019.
The twin supply and demand shocks have pushed crude oil prices to less than $25 per barrel and forced dramatic cost-cutting from oil majors and firms across North America who are competing with cheap Saudi oil.
The dramatic reset is being felt across the industry, as Chevron was joined Tuesday by cuts from refining giant Phillips 66 and Canadian giant Suncor, both which cut spending. Chevron said it would spend $16 billion instead of a planned $20 billion this year, including halving spending in the Permian Basin, the top U.S. shale field.
It now expects to pump about 125,000 fewer barrels of oil and gas per day in the Permian Basin by the end of this year, down 20% from earlier plans. It had expected output to exceed 600,000 barrels per day.
This is the first indication from an oil major of how sharply it would pull back spending in the Permian field, output from which has helped the United States become the world’s largest oil producer. Numerous other U.S. shale companies have already planned spending cuts, and analysts at Goldman Sachs expect a roughly 35% drop in capital expenditures in 2020.
Chevron will cut $2 billion from its Permian spending, from an expected pace of about $4 billion per year.
Royal Dutch Shell on Monday said it would cut spending by $5 billion and suspend its $25 billion share buyback plan.
Exxon Mobil, the largest U.S. oil company, has not released its new spending plan but said cuts would be “significant,” while Norway’s Equinor has also reduced its share buyback program.
Chevron’s spending cuts were “much deeper than expected,” RBC Capital Markets analyst Biraj Borkhataria said, adding that the suspension of share buybacks was in line with expectations.
The $5 billion annual repurchase program was halted after $1.75 billion of shares were bought back during the first quarter.
Earlier this month Chevron had promised to keep its spending in check and return up to $80 billion to shareholders over the next five years.
“Our focus is on protecting the dividend, prioritizing capital that drives long-term value, and supporting the balance sheet,” said Chief Financial Officer Pierre Breber.
The cuts do not “completely close the post-dividend outspend,” analysts at Tudor, Pickering, Holt & Co said, but added that Chevron is the “best positioned to weather this downturn” of the major oil companies.
Chevron shares closed on Monday at $54.22, down 8.7%, but were up 6.7% in premarket trading to $57.80.
Reporting by Jennifer Hiller in Houston, Shariq Khan in Bengaluru; Editing by Shinjini Ganguli, Kirsten Donovan and Jan Harvey; Editing by Nick Zieminski
