said on Thursday it would spend even less than it had previously projected to explore and produce oil and gas from wells around the world, making it clear that U.S. companies are committed to tightening their belts even as prices have started to rebound.
Chevron shares (ticker: CVX) were up 1.2% Thursday morning, about in line with the rest of the industry and ahead of the 0.5% gain for the
Dow Jones Industrial Average.
Oil prices have rebounded to the mid-$40s from the high $30s in the past month, the kind of rise that would historically have resulted in companies racing to boost production. But the pandemic and sour investor sentiment has convinced most oil companies to hold the line.
Chevron maintained its 2021 capital-spending guidance of $14 billion, and lowered its 2022-2025 expectations to $14 billion to $16 billion, down from its prior projection of $19 billion to $22 billion. That decrease comes even after Chevron bought Noble Energy, which considerably expanded the company’s available drilling locations in the U.S. and elsewhere.
Chevron’s cuts to its longer-term budget include a drop in spending on a large oil project in Kazakhstan. But it still plans to boost spending in the Gulf of Mexico and the Permian Basin of Texas and New Mexico. Chevron had cut its Permian production budget this year when oil prices crashed.
The company also plans to spend $300 million next year to “advance the energy transition” and reduce carbon emissions. Chevron said the money would be used to “cost efficiently lower the carbon intensity, increase renewables in support of our business and invest in breakthrough technologies.”
In general, U.S. oil companies have committed considerably less to carbon reduction than their European counterparts.
Chevron stock has fallen hard in 2020, dropping 25%, but has outperformed most large competitors because its dividend is seen as more reliable. The dividend yield is now 5.7%.
“We believe the release shows improved capital discipline with Chevron more than aligned with recent announcements from
(XOM) and other majors who have also indicated notable cuts to their long term capital programs,” Truist analyst Neal Dingmann wrote. He rates shares at Buy.
Chevron CEO Michael Wirth committed to cutting capital expenses before the pandemic started, so the company was better-positioned once the impact of Covid-19 swept across the industry. Some analysts have questioned whether Chevron can sustain production if it reduces its exploration budget.
In the latest quarter Chevron’s production fell 7% year over year. It didn’t include production guidance in its latest release, but executives have said in previous interviews that the company’s cuts will still allow it to show strong production in the future.
Write to Avi Salzman at [email protected]