By Ndubuisi Micheal Obineme
Chevron Corporation has officially announced new actions that it will take in response to the COVID-19 pandemic.
During its Annual Stockholders Meeting, Chevron discussed the precautionary measures to reduce the risk of exposure, including screening workers and visitors at key locations. This year’s meeting was virtual in place of an in-person event due to safety concerns related to the pandemic.
Chevron’s chairman and CEO, Michael Wirth, said: “Our thoughts are with those affected by COVID-19 and the healthcare workers on the front lines battling to contain the outbreak. We activated our pandemic response plan in January, and have continued to adapt as events have unfolded. I am proud of our workers who show up every day to keep the energy flowing into the economy.”
Commodity prices have fallen significantly due to the destruction of demand resulting from the COVID-19 pandemic and the over-supply of crude oil. The company expects its financial results will be depressed as long as current market conditions persist.
“With an industry-leading balance sheet and a flexible capital program, we believe Chevron is resilient and positioned to withstand this challenging environment,” said Chevron Chairman and CEO Michael Wirth. “Given the decline in commodity prices, we are taking actions expected to preserve cash, support our balance sheet strength, lower short-term production, and preserve long-term value.”
The company is reducing its guidance for 2020 organic capital and exploratory spending by 20% to $16 billion. Reductions are expected to occur across the portfolio and are estimated as follows:
$2 billion in upstream unconventionals, primarily in the Permian Basin
$700 million in upstream projects and exploration
$500 million in upstream base business spread broadly across our U.S. and international assets
$800 million in downstream & chemicals and other
Cash capital and exploratory expenditures are expected to decrease by $3.3 billion to $10.5 billion in 2020. Total capital and exploratory spending in the second half of 2020 is expected to be about $7 billion, an annual run rate 30% lower than the approved budget announced in December 2019.
Excluding 2020 asset sales and price related contractual effects, the company expects 2020 production to be roughly flat relative to 2019. Note that Chevron’s net production increases about 20,000 barrels of oil equivalent per day for each $10 movement lower in Brent oil prices due to contractual effects. Permian production by the end of the year is expected to be about 125,000 barrels of oil equivalent per day, or 20%, below prior guidance.
“The flexibility of our capital program allows us to respond to these unexpected market conditions by deferring short-cycle investments and pacing projects not yet under construction,” said Jay Johnson, Executive Vice President of Upstream. “At the same time, we are focused on completing projects already under construction that will start-up in future years while preserving our capability to increase short-cycle activity in the Permian and other areas when prices recover.”
In addition to reducing capital expenditures, the company is taking other actions to support its industry-leading balance sheet including:
The $5 billion annual share repurchase program has been suspended after repurchasing $1.75 billion of shares during the first quarter.
The company completed the sale of its interest in the Malampaya field in the Philippines with proceeds over $500 million received in the first quarter. In April, the company expects to close the sale of its upstream interests in Azerbaijan and its interest in a related pipeline.
The company continues to execute its plans to reduce run-rate operating costs by more than $1 billion by year-end 2020.
“Chevron’s financial priorities remain unchanged,” said Chevron Chief Financial Officer Pierre Breber. “Our focus is on protecting the dividend, prioritizing capital that drives long-term value, and supporting the balance sheet.”
Future Financial and Operating Results
Recent decreases in commodity prices, as a result of COVID-19 impacts on reduced demand and geopolitical pressures increasing supply, are expected to negatively impact the company’s future financial and operating results. Due to the rapidly changing environment, there continues to be uncertainty and unpredictability around the impact on our results, which could be material. We expect to provide further updates in the company’s first-quarter 2020 earnings press release, earnings call, and Form 10-Q.