Chevron has announced several steps it is taking in response to market conditions.
“With an industry leading balance sheet and a flexible capital program, we believe Chevron is resilient and positioned to withstand this challenging environment,” Michael Wirth, Chevron Chairman and CEO, 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.”
The company is reducing its guidance for 2020 organic capital and exploratory spending by 20% to $16 billion. Reductions are expected to occur across the portfolio and are estimated as follows:
- $2 billion in upstream unconventionals, primarily in the Permian Basin;
- $700 million in upstream projects and exploration;
- $500 million in upstream base business spread broadly across our US and international assets; and
- $800 million in downstream and chemicals and other.
Cash capital and exploratory expenditures are expected to decrease by $3.3 billion to $10.5 billion in 2020. Total capital and exploratory spending in the second half of 2020 is expected to be about $7 billion, an annual run rate 30% lower than the approved budget announced in December 2019.
Excluding 2020 asset sales and price related contractual effects, the company expects 2020 production to be roughly flat relative to 2019. Note that Chevron’s net production increases about 20,000 barrels of oil equivalent per day (BOE/d) for each $10 movement lower in Brent oil prices due to contractual effects. Permian production by the end of the year is expected to be about 125,000 BOE/d, or 20%, below prior guidance.
“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,” Jay Johnson, Executive Vice President of Upstream, said. “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 reducing capital expenditures, the company is taking other actions to support its industry leading balance sheet including:
- The $5 billion annual share repurchase program has been suspended after repurchasing $1.75 billion of shares during Q1;
- The company completed the sale of its interest in the Malampaya field in the Philippines with proceeds over $500 million received in Q1. In April, the company expects to close the sale of its upstream interests in Azerbaijan and its interest in a related pipeline; and
- The company continues to execute its plans to reduce run-rate operating costs by more than $1 billion by year-end 2020.
“Chevron’s financial priorities remain unchanged,” Pierre Breber, Chevron Chief Financial Office, said. “Our focus is on protecting the dividend, prioritizing capital that drives long-term value, and supporting the balance sheet.”