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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