Pittsburgh Business Times – Chevron Corp. Chairman and CEO Michael Wirth said the oil and gas giant entered the Marcellus Shale at a different time in the natural gas industry and probably should have looked at what might have happened if the natural gas production was up and prices as low as they’ve gotten in recent years.
In response to a question by a Wall Street analyst during Friday’s fourth-quarter earnings conference call, Wirth seemed to acknowledge that the decision on the Marcellus didn’t fully take into account a worst-case scenario for the business or the impact of the Permian and other shale plays.
“At the time of those transactions, we and the world had a different view on natural gas,” Wirth said, later adding. “We didn’t see those things at the time.”
Chevron (NYSE: CNX) in December announced it would take substantial impairment charges on its Marcellus Shale operations, and would move to sell it off to focus on more profitable activities, including in the Permian basin. Chevron is the third-biggest natural gas production company in southwestern Pennsylvania, drilling 481 shale wells and having more than 800 permits, according to the 2020 Pittsburgh Business Times Book of Lists.
Those $6.5 billion in impairment charges from the Marcellus were the bulk of the $8.2 billion recorded in the quarter, and led to a quarterly loss of $6.6 billion, $3.51 per share. In spite of it all, cash flow remained strong at $5.7 billion in the quarter and earnings per share, without the impairment charges, would have been $2.8 billion, $1.49 per share. It also increased its quarterly dividend and plans to continue its share buyback. Wirth told CNBC in December that the Marcellus shale assets doesn’t compete as well for investment dollars as other parts of the company’s operations.
He said that one lesson to the impairment charges is to look closer at what might happen if you’re wrong about your business assumptions.
“I do think there’s a lesson about testing M&A against, you know, scenarios that are not the prevailing view on markets,” Wirth said.
Wirth said that happened in 2019, when it reached an agreement to acquire Anadarko Petroleum Corp. (NYSE: APC) for $33 billion, but decided against bidding higher when Occidental Petroleum Corp. stepped in with a larger bid.
“There’s a reason we saw a certain value level that we would be willing to transact at, and there’s a reason we wouldn’t go beyond that,” Wirth said. “That’s because commodity markets are hard to predict.”
Wirth told Wall Street analysts on Friday that it may not get better any time soon.
“We’re not banking on a recovery in gas prices,” Wirth said during the company’s fourth-quarter and full-year conference call.