Chevron Cuts 20% From 2020 Capex
US major Chevron said March 24 it would cut “organic capital and exploratory spending” in 2020 to $16bn, a 20% reduction from its initial guidance of $20bn.
“With an industry leading balance sheet and a flexible capital program, we believe Chevron is resilient and positioned to withstand this challenging environment,” CEO Michael Wirth said. “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.”
Half the reduction, or $2bn, will occur in Chevron’s upstream unconventional operations, primarily in the Permian basin, while the balance will be spread across upstream projects and exploration ($700mn), upstream base businesses in the US and internationally ($500mn), and in downstream, chemicals and other sectors ($800mn).
The reduced spending, Chevron said, will leave 2020 production roughly level with 2019 production, excluding asset sales and price-related contractual effects, which the company said push net production 20,000 barrels of oil equivalent (boe)/day higher for each $10 movement lower in benchmark Brent crude prices. Permian production is expected to be about 125,000 boe/day lower by year-end, a decline of about 20%.
“The flexibility of our capital program allows us to respond to these unexpected market conditions by deferring short-cycle investments and pacing projects not yet under construction,” said Jay Johnson, executive vice president, upstream. “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.”
In addition to the capex reductions, Chevron is taking other measures to support its balance sheet, including suspending its annual $5bn share repurchase program ($1.75bn will be repurchased in Q1 2020), completing the sale of its interest in the Malampaya gas field in the Philippines, with proceeds of more than $500mn expected in the first quarter, and closing on the sale of its upstream assets and a related pipeline in Azerbaijan in April.