The entrance sign at a Chevron refinery in Pasadena, Texas, the US. Picture: REUTERS/LOREN ELLIOT
The entrance sign at a Chevron refinery in Pasadena, Texas, the US. Picture: REUTERS/LOREN ELLIOT

Houston — Chevron cut its capital spending budget by $4bn on Tuesday, leading a wave of cost-cutting announcements across the oil and gas industry as it reels from declining demand in the face of the coronavirus pandemic and a dramatic slide in prices.

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 petrol 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 oilfield service leaders Halliburton and Schlumberger, independent refiner Phillips 66, and Canada's Suncor.

“This is as unprecedented an oil price environment as I can recall seeing,” Chevron CEO  Michael Wirth said in an interview.

Chevron will spend $16bn in 2020, down from a planned $20bn, halving its spending in the Permian Basin, the top US shale field. It is the lowest spending level for the company since 2005.

This is the first indication from an oil major of how sharply it would pull back in the Permian, which has made the US the world’s largest oil producer. The Permian accounts for about 4.8-million bpd of crude production, or more than a third of daily US oil output.

Dozens of smaller US shale companies have curtailed spending, and analysts at Goldman Sachs expect a roughly 35% drop in capital expenditure in 2020, and for US oil production to fall by 1.4-million bpd by the third quarter of 2021.

Shale companies have been pressuring US service companies for discounts, which is cutting into those firms' earnings as well. Halliburton said it was testing the possibility of cutting as much as 60% to 65% in spending.

“The industry is facing an unprecedented dual impact on demand and supply side that none of us have witnessed over our professional lifetimes,” Halliburton CFO Lance Loeffler told investors on a Tuesday webcast.

Share prices were higher across the board on Tuesday, though many oil company stocks have been battered over the last few weeks.

Chevron shares jumped 21% on Tuesday to $65.73 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. Even with those gains, the stock was still down 46% on the year. Halliburton shares rose 19% on Tuesday, while Schlumberger gained 9%.

Production cut 

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 eight, Wirth said.

Chevron will cut $2bn from its Permian spending, from an expected pace of about $4bn per year.

ExxonMobil, the largest US oil company, has vowed to make significant cuts in 2020, while Norway’s Equinor also reduced its share buyback program.

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

Its $5bn annual share repurchase programme was halted after $1.75bn of shares were bought back during the first quarter.

“Our focus is on protecting the dividend, prioritising capital that drives long-term value, and supporting the balance sheet,” Chevron CFO Pierre Breber said.

The company would not consider an acquisition now, said Wirth: “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 reorganisation when oil prices plummeted, but Wirth would not say how many jobs it may cut.

Reuters

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