The Chevron logo seen in Los Angeles on April 12, 2016. The company is sticking with its previously announced capital spending plan of $19-billion to $22-billion.Lucy Nicholson/Reuters
Chevron Corp. on Tuesday said it would keep its spending in check and return up to US$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 No. 2 U.S. oil producer laid out its plan to weather what is turning into one of the most challenging markets in years, as coronavirus concerns dent short-term demand and environmental and investor pressures cloud the longer-term outlook for the industry.
Oil prices are down 20 per cent this year and natural gas prices have fallen to their lowest since the 1990s. Industry returns have lagged the broader market for a decade, souring investors. European majors such as BP PLC have set significant commitments to reduce greenhouse gas emissions from their operations.
Chevron’s Mr. Wirth, however, laid out a long-term case for growing global demand for oil and gas.
“The world will need more of what we produce, not less,” Mr. Wirth said. Chevron currently produces about three million barrels of oil daily.
Chevron will stick to its previously announced capital spending plan of US$19-billion to US$22-billion annually through 2024, setting it apart from chief U.S. rival Exxon Mobil Corp., which is spending heavily to boost production.
But the company has based its plans on a US$60 international oil price, about US$7 higher than current prices, and is working toward “increased growth in a world which looks to not need it,” analysts at Tudor, Pickering, Holt & Co said.
Returning cash to shareholders is the “number one priority,” Mr. Wirth said in a meeting with analysts and investors in New York.
While the emergence of coronavirus – which emerged in China late last year and has spread to more than 60 countries – has depressed demand for its products, Mr. Wirth said “supply chains are functioning normally.”
The spending plan is “a positive and affirming their capital-disciplined philosophy,” said Jennifer Rowland, analyst at Edward Jones.
The top U.S. shale field will continue to drive Chevron’s oil growth, and the company expects “sustained production over 1 million barrels per day in the Permian Basin through 2040 at relatively flat activity levels,” said James (Jay) Johnson, executive vice-president. Chevron reached 514,000 barrels a day of output in the field at the end of 2019, up 36 per cent in a year.
Chevron and Exxon are racing to boost Permian output, but Chevron has owned land in the Permian for decades, which gave it a zero cost of entry into that shale boom.
Shares traded up 0.4 per cent on Tuesday morning to $97.00. The company has posted a total return of -7.6 per cent in the past two years, compared with a 13.6-per-cent total return for the S&P 500 index, according to Refinitiv Eikon data.