Chevron Chops Spending 20%, Aiming to Maintain Dividend -- WSJ
March 25 2020 - 03:02AM
Dow Jones News
By Christopher M. Matthews
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (March 25, 2020).
Chevron Corp. is cutting $4 billion from its capital budget as
it confronts plummeting petroleum demand and an oil-price rout, the
latest major energy company to ax its spending to shore up its
balance sheet.
The oil giant said Tuesday it would reduce its 2020 spending by
20% to about $16 billion, with the biggest cut to come in the
largest U.S. oil field, the Permian Basin in West Texas and New
Mexico. Chevron will also suspend stock buybacks but promised to
protect its dividend and said oil production would be flat.
Chief Executive Mike Wirth said the dual shock of the oil
demand-sapping coronavirus pandemic and an increase in supply due
to the oil-price war between Saudi Arabia and Russia necessitated
drastic measures.
"To see these two things happen simultaneously is really
unprecedented," Mr. Wirth said in an interview. "We can't control
that, but we're focused on making the moves that will preserve the
strength of our company."
Chevron's announcement follows similar austerity measures by its
peers and other large industrial companies.
On Monday, Royal Dutch Shell PLC halted its $25 billion share
buyback program and cut its capital expenditures by 20% in 2020 to
$20 billion from $25 billion. Total SA said Monday it planned to
trim spending by $3 billion, halt $2 billion in buybacks and borrow
$4 billion to make up for a $9 billion shortfall created by low oil
prices. ExxonMobil Corp. said last week it planned to make
significant cuts to its spending.
The industry faces its biggest challenge in decades. Analytics
firm IHS Markit forecast the largest-ever glut of oil this year if
current market dynamics continue. Globally, there could be as much
as 10 million barrels a day of oil in excess of demand for the next
several months, the firm said. U.S. producers would be among the
hardest hit, cutting as much as 4 million barrels a day of
production over the next 18 months, it said.
Such a pullback will have dramatic consequences for the
economies of oil-rich states, including Texas and North Dakota,
where the industry supports hundreds of thousands of jobs. Chevron
said it would cut $2 billion from shale drilling, primarily in the
Permian Basin, which will result in 20% lower oil production there
than Chevron previously forecast.
Such cuts would likely lead to layoffs at Chevron. Mr. Wirth
said Chevron had already planned reductions to its workforce prior
to the virus taking hold. "That remains the reality today," he
said.
Chevron's top priority is maintaining its dividend, which Mr.
Wirth said it hadn't cut since the Great Depression nearly a
century ago. The company can pay the dividend from its cash flow at
current oil prices but cannot also cover its capital expenditures,
he said. If oil prices remain below $30 a barrel, the company would
draw on its balance sheet to cover both, according to Mr.
Wirth.
"We may need to lean on the balance sheet if prices remain in
that range, which is why we have it," he said.
Write to Christopher M. Matthews at
christopher.matthews@wsj.com
(END) Dow Jones Newswires
March 25, 2020 02:47 ET (06:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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