US oil group Chevron is to make sweeping cuts to its spending plans for this year and will abandon its $5bn share-buyback program, saying the move would protect its dividend in the face of collapsing oil prices and the coronavirus hit to global crude demand. Capex would fall by $4bn, or 20 percent compared with last year, to $16bn, with half the cuts to fall in the Permian shale, the company said. On an annual run-rate basis, the cuts in upstream spending imposed now will equate to a 30 percent drop compared with the budget announced in December 2019.
Chevron said it would “continue to execute” plans to reduce operating costs by more than $1bn by the end of the year. “Maintaining and increasing the dividend is our number one financial priority,” said Mike Wirth, Chevron’s chief executive, in an interview. But a growth strategy announced three weeks ago that was designed to distribute $75bn to $8obn to shareholders over the next five years will now be pruned back and the payments reduced in light of the collapse in oil prices.
Brent crude, trading at about $27 a barrel, has fallen by almost half since early March when Chevron announced a number of targets that were scaled back on Tuesday.
The Permian shale, still core to Chevron’s long-term growth plans, will be hardest hit from its capex reduction, with $2bn cut from planned spending in the basin this year. Production would end 2020 at about 500,000 barrels a day of oil equivalent, Mr Wirth said, or about 20 per cent below earlier guidance.
“The market is sending a signal that says it doesn’t need short-term production,” the Chevron chief added. “Our response is to move to our shorter-term and most-responsive asset class, pull the capital down and preserve that cash . . . We will be prepared to increase activity in the Permian when prices recover.”
Mr Wirth said that Chevron’s rig count in the Permian, already down sharply in recent months, would fall to less than half the 16 operating now. “It will be a dramatic reduction in activity from where we were a year ago,” he said.