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Current gas prices are shown at a Chevron gas station in Encinitas, Calif, on Oct. 10, 2014.Mike Blake/Reuters

Chevron Corp. slashed its drilling budget by the most in 12 years, suspended share buybacks and laid off workers as energy producers around the world curtail ambitions to cope with free-falling oil prices.

Chevron lowered its 2015 capital-spending target by 13 per cent to $35-billion (U.S.) and halted stock repurchases that absorbed $5-billion in cash last year. The San Ramon, California-based company reported a 30 per cent drop in earnings from the year-ago period.

Chevron's reduction is the most by dollar amount among about $40-billion in spending cuts announced industry-wide since Nov. 1. Still, other producers have slashed on a bigger scale, with some cutting outlays by 50 per cent or more. Chevron's accountants are hamstrung by multi-billion dollar developments that are too close to completion to postpone.

"Chevron doesn't have quite the flexibility of some other companies to cut spending in the near term because they are still finishing some mega-projects," said Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis. "Beyond 2015, their flexibility will improve."

Oil explorers and the contractors that help them drill wells, build offshore platforms, lay pipelines and feed rig crews have been whiplashed by the seven-month rout of oil markets that saw the value of a barrel of crude shrink by 57 per cent.

Office Space The industry has responded by cutting more than 30,000 jobs, halting exploration projects and deferring investments in everything from gas-export terminals to petrochemical plants.

The ripple effects from contraction in the $1.7-trillion-a– year oil industry is being felt across North America. The U.S. economy grew at a slower pace than expected in the fourth quarter as business investment cooled. Gross domestic product expanded at a 2.6 per cent annualized rate after a 5 per cent gain in the third quarter, according to the Commerce Department Friday. Economists' forecasts had called for a 3 per cent advance.

Even as demand falls for office space in oil hubs like Houston and Calgary, rock-bottom gasoline prices are goosing some economic activity because consumers have more cash to spend on non-fuel purchases.

American consumer confidence reached an 11-year high in January as a strengthening labor market and plunging gas prices kept households looking on the bright side. The University of Michigan final consumer sentiment index rose to 98.1, the highest since January 2004, from 93.6 in December.

Weakening Profits The retrenchment by Chevron, the second-largest U.S. energy producer, followed the company's weakest quarterly profit report since the global financial crisis half a decade ago. Net income in the final three months of 2014 dropped 30 per cent to $3.47-billion, or $1.85 a share, from $4.93-billion, or $2.57, a year earlier, according to a company statement.

Chevron's per-share result was 21 cents higher than the average of 20 analysts' estimates compiled by Bloomberg.

Chevron fell 0.4 per cent to $102.63 at 2:20 p.m. in New York. Before today, the shares had declined 11 per cent in the past year.

Chairman and Chief Executive Officer John Watson said in an interview last autumn that he'll look beyond current price declines when assessing the profit potential of future energy projects.

Despite the steep fall in prices, "we believe long-term market fundamentals remain attractive," Watson said in Friday's statement. He said the company would seek to reduce its expenses "throughout our supply chain."

Existing Projects Chevron's budget cut announced Friday was its largest since 2003, when spending plunged 26 per cent and crude prices were half their current levels.

The majority of Chevron's spending this year will go toward supporting existing production, including decades-old fields in California and Texas, and projects under construction, such as its Gorgon natural gas project in Australia. Chevron said that spending will account for $26-billion of the planned $35-billion budget, with $3-billion aimed at exploration.

All projects, particularly shale assets, will be tested for profitability against current market prices, with Chevron "selecting only the most attractive opportunities to move forward," Watson said.

Chevron has expanded investments in deep-sea oil fields as crude prices fell almost 60 per cent since June.

Gulf of Mexico In December, Chevron inaugurated production from the Jack/St. Malo deep-sea development in the Gulf of Mexico, a $7.5-billion venture that is expected to pump oil and natural gas for four decades. Earlier this week, the company agreed to take control and buy stakes in two Gulf discoveries and a nearby exploration prospect from BP Plc for an undisclosed price.

Watson has said he wants to boost Chevron's worldwide output by more than 20 per cent by the end of 2017. The company has slated about $150-billion in new oil and gas installations both on land and at sea to meet that goal.

That goal could be harder to reach with spending constrained by the market crash.

"I'm assuming their production doesn't grow this year," Youngberg said. "The growth outlook will need to be scaled back."

Brent crude, the benchmark for most of the world's oil, fell 30 per cent to an average of $77.07 a barrel during the final three months of 2014. The year-earlier average was $109.35.

U.S. natural gas averaged $3.83 per million British thermal units during the quarter, little changed from the $3.85 average of the year-earlier period.

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