Financial Post – Chevron said it is looking at ways to cut spending, which could lead to lower near-term oil and gas production, following the recent collapse in the oil price.
The U.S. company is the first oil major to confirm it is reassessing its spending in the wake of the price collapse.
Oil prices have dropped by around a third over the past week after OPEC and allies led by Russia failed to agree on new output cuts and have let production curbs lapse this month.
The move was seen as an attempt to stymie the rapidly growing American shale oil industry which turned the United States to an oil exporter in recent years.
Chevron has said it plans to sharply boost its shale oil output in the coming years, but did not mention shale production specifically in its statement.
“We are reviewing alternatives to reduce capital expenditures, that are expected to lower short-term production and preserve long-term value,” Chevron said in a statement to Reuters late on Monday.
Unlike many oil and gas projects such as deepwater fields which require years of development, shale drilling can be switched on and off within weeks in most cases.
Chevron requires an oil price of around $55 a barrel in order to fully cover its spending program as well as dividend payouts and share buybacks, according to JP Morgan analysts.
In its statement, Chevron said it was already targeting $2 billion in savings through cost savings.
“Chevron has seen similar downturns before and is well positioned for a low price environment,” it said.
The drop in the oil price has already led U.S. shale producers to deepen spending cuts and was set to put the world’s top energy companies under heavy financial strain.
Chevron said last week that it would keep its spending in check and return up to $80 billion to shareholders over the next five years, with Chief Executive Mike Wirth making the case that his company is the oil major best able to produce oil and generate profits at the lowest cost.
The San Ramon, California-based company last week stuck to its capital spending plan of $19 billion to $22 billion annually through 2024.
Chevron also said last week that it expects to reach production of 1 million barrels per day (bpd) in the Permian, the top U.S. shale field, by the middle of the decade and sustain it through to 2040.
Its Permian output reached 514,000 bpd at the end of 2019, up 36% in a year.
The benchmark Brent crude price picked up on Tuesday after Monday’s rout and was trading 9% higher by 1115 GMT at around $37.50 a barrel. (Reporting by Jennifer Hiller in Houston, editing by Louise Heavens and Susan Fenton)