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Chevron said it would spend $16 billion instead of a planned $20 billion this year.

Mike Blake/Reuters

Chevron Corp cut its capital spending budget by $4 billion on Tuesday, leading a wave of cost-cutting announcements across the reeling oil-and-gas industry as the coronavirus pandemic has slashed demand and triggered a dramatic slide in oil prices.

Crude oil prices have crashed by 60 per cent since January as Saudi Arabia and Russia pump full bore to grab share in a dwindling market, and gasoline and jet fuel use has slumped. Demand worldwide is expected to fall by more than 12 million barrels per day, more than 10 per cent of daily demand.

The reset is being felt across the industry, as Chevron was joined on Tuesday in reducing expenses by Schlumberger, the world’s largest oil field services company, independent refiner Phillips 66, and Canada’s Suncor.

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“This is as unprecedented an oil price environment as I can recall seeing,” Chief Executive Michael Wirth said in an interview.

Chevron shares jumped 21 per cent on Tuesday to $65.73 as investors cheered the company’s budget cut, which was twice as big as analysts expected, as a sign it would not incur debt to finance operations. Shares were also buoyed by a higher U.S. stock market that was lifted by central bank stimulus measures.

Chevron will spend $16 billion this year, down from a planned $20 billion, halving its spending in the Permian Basin, the top U.S. shale field. It is the lowest spending level for the company since 2005.

Chevron now expects to pump about 125,000 fewer barrels of oil and gas per day in the Permian Basin by the end of this year, down 20 per cent from its 600,000 barrel per day target.

The field is its “most flexible” for spending reductions. Chevron has 16 drilling rigs at work in the field now, down from 20 last year, and will drop to fewer than 8, Wirth said.

This is the first indication from an oil major of how sharply it would pull back in the Permian, which has made the United States the world’s largest oil producer.

Dozens of other U.S. shale companies have curtailed spending, and analysts at Goldman Sachs expect a roughly 35 per cent drop in capital expenditure in 2020.

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Chevron will cut $2 billion from its Permian spending, from an expected pace of about $4 billion per year.

Exxon Mobil, the largest U.S. oil company, has vowed to make significant cuts this year, while Norway’s Equinor also reduced its share buyback program.

Chevron’s reductions were “much deeper than expected,” RBC Capital Markets analyst Biraj Borkhataria said.

Its $5 billion annual share repurchase program was halted after $1.75 billion of shares were bought back during the first quarter.

“Our focus is on protecting the dividend, prioritizing capital that drives long-term value, and supporting the balance sheet,” said Chief Financial Officer Pierre Breber.

The cuts do not “completely close the post-dividend outspend,” wrote analysts at Tudor, Pickering, Holt & Co.

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The company would not consider an acquisition now, said Wirth, adding: “There will be a day when opportunities may present themselves. If we do the right things today we’ll be in a position to consider that.”

Chevron was already in the middle of a reorganization when oil prices plummeted, but Wirth would not say how many jobs it may cut

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