The US-based energy major has cut its 2020 spending by 20 percent to $16 billion as it braces for the effects of the COVID-19 outbreak.
Chevron noted that the reductions are expected to occur across its portfolio, estimating a $2 billion reduction in upstream unconventionals, primarily in the Permian Basin, $700 million reductions in upstream projects and exploration, $500 million reductions in upstream base business spread broadly across its U.S. and international assets and $800 million in downstream & chemicals and other.
Chevron chairman and 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.”
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 percent 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.
Chevron’s net production increases about 20,000 barrels of oil equivalent per day 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 barrels of oil equivalent per day, or 20 percent, below prior guidance.
In addition to reducing capital expenditures, the company is taking other actions to support its balance sheet. It has suspended its $5 billion annual share repurchase program after repurchasing $1.75 billion of shares during the first quarter.
The company completed the sale of its interest in the Malampaya field in the Philippines with proceeds over $500 million received in the first quarter. In April, the company expects to close the sale of its upstream interests in Azerbaijan and its interest in a related pipeline.
The company continues to execute its plans to reduce run-rate operating costs by more than $1 billion by year-end 2020.
Recent decreases in commodity prices, as a result of COVID-19 impacts on reduced demand and geopolitical pressures increasing supply, are expected to negatively impact the company’s future financial and operating results.
Due to the rapidly changing environment, there continues to be uncertainty and unpredictability around the impact on the company’s results, which could be material.
Chevron expects to provide further updates in the company’s first-quarter 2020 earnings report.