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Chevron leads another wave of massive oil-industry spending cuts

March 26/2020

MOSCOW (MRC) -- Chevron Corp cut its capital spending budget by $4 billion, leading a wave of cost-cutting announcements across the reeling oil-and-gas industry as the coronavirus pandemic has slashed demand and triggered a dramatic slide in oil prices, reported Reuters.

Crude oil prices have crashed by 60% since January as Saudi Arabia and Russia pump full bore to grab share in a dwindling market, and gasoline and jet fuel use has slumped. Demand worldwide is expected to fall by more than 12 million barrels per day, more than 10% of daily demand.

The reset is being felt across the industry, as Chevron was joined on Tuesday in reducing expenses by Schlumberger, the world's largest oilfield services company, independent refiner Phillips 66, and Canada's Suncor.

"This is as unprecedented an oil price environment as I can recall seeing, Chief Executive Michael Wirth said in an interview.

Chevron shares jumped 21% on Tuesday to USD65.73 as investors cheered the company's budget cut, which was twice as big as analysts expected, as a sign it would not incur debt to finance operations. Shares were also buoyed by a higher US stock market that was lifted by central bank stimulus measures.

Chevron will spend USD16 billion this year, down from a planned USD20 billion, halving its spending in the Permian Basin, the top US shale field. It is the lowest spending level for the company since 2005.

Chevron 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 its 600,000 barrel per day target.

The field is its "most flexible" for spending reductions. Chevron has 16 drilling rigs at work in the field now, down from 20 last year, and will drop to fewer than 8, Wirth said.

This is the first indication from an oil major of how sharply it would pull back in the Permian, which has made the United States the worlds largest oil producer.

Dozens of other US shale companies have curtailed spending, and analysts at Goldman Sachs expect a roughly 35% drop in capital expenditure in 2020.

Chevron will cut USD2 billion from its Permian spending, from an expected pace of about USD4 billion per year.

Exxon Mobil, the largest US oil company, has vowed to make significant cuts this year, while Norways Equinor also reduced its share buyback program.

Chevron's reductions were "much deeper than expected," RBC Capital Markets analyst Biraj Borkhataria said.

Its USD5 billion annual share repurchase program was halted after USD1.75 billion of shares were bought back during the first quarter.

"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," wrote analysts at Tudor, Pickering, Holt & Co.

The company would not consider an acquisition now, said Wirth, adding: "There will be a day when opportunities may present themselves. If we do the right things today we'll be in a position to consider that."

Chevron was already in the middle of a reorganization when oil prices plummeted, but Wirth would not say how many jobs it may cut.

As MRC informed earlier, US-based Phillips 66 remains open to developing another ethane cracker for its Chevron Phillips Chemical (CP Chem) joint venture, the refiner's CEO said in March 2018.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,093,260 tonnes in 2019, up by 6% year on year. Shipments of all PE grades increased. PE shipments rose from both domestic producers and foreign suppliers. The estimated PP consumption in the Russian market was 1,260,400 tonnes in January-December 2019, up by 4% year on year. Supply of almost all grades of propylene polymers increased, except for statistical copolymers of propylene (PP random copolymers).

Headquartered in San Ramon, California, Chevron Corporation is the the second-largest integrated energy company in the United States and among the largest corporations in the world. Chevron is involved in upstream activities including exploration and production, downstream activities including refining, marketing and transportation, and advanced energy technology. Chevron is also invested in power generation and gasification processes.
Author:Margaret Volkova
Tags:PP, PE, LLDPE, crude and gaz condensate, homopolymer PP, propylene, HDPE, ethylene, petrochemistry, Chevron, Chevron Phillips, Phillips 66, Russia, USA.
Category:General News
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