Chevron to focus on cash and lock in spending cuts
Investors will want to know what CEO Mike Wirth plans to do with the windfall from 2021’s rally in oil prices
Houston — US oil major Chevron outlined plans to boost free cash flow and investor returns as it locks in 2020’s spending cuts through to the end of 2025.
The company said on Tuesday ahead of its annual investor presentation that it will double returns on capital employed and increase free cash flow by 10% annually over the next four years. Those targets assume a Brent oil price of $50, far lower than current levels.
The Covid-19 pandemic had a profound impact on Big Oil, accelerating the push by some down a path away from fossil fuels, while others rowed back on long-term growth plans.
Chevron was in the latter camp, pledging to spend about 27% less than pre-pandemic levels all the way through 2025. That means more cash in the near term but muted production growth in the longer term as investments in major oil and natural gas developments sag.
The main question for investors is what CEO Mike Wirth plans to do with the windfall from 2021’s rally in oil prices. The company has a lower debt burden than its Big Oil rivals and has shown an unwillingness to take on major growth projects. Still, Chevron has bought back shares in recent years and pursued takeovers such as the $5bn purchase of Noble Energy in 2020.
Though Chevron may be in a better place than its peers, the trauma of 2020 will be evident for some time to come. The company’s debt increased by 64% to $44.3bn due to the double blow from low oil prices and weakening refining margins.
Chevron’s key Permian Basin asset took the biggest hit when the company cut capital spending in 2020. The company previously said that its production in the Permian before the addition of Noble’s assets would decline about 5% in 2021. But with the crisis in energy markets now over, Chevron has the option of restoring much of that drilling to take advantage of higher prices.
Chevron has yet to follow its largest European rivals in announcing a long-term net zero target. Like Exxon, the California-based oil giant is focusing on reducing emissions from its own operations and small-scale joint ventures in novel technologies. Chevron has committed to spend about $300m on such investments in 2021, or 2% of its annual budget. Wirth has sounded caution on soaring valuations of clean-energy start-ups in recent months.
Chevron’s stock has climbed about 20% in the past month, buoyed by surging crude prices and prospects for a recovery in energy demand to pre-pandemic levels.
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