Chevron cuts capital spending
NEW YORK: Chevron Corporation has cut its capital spending budget by $4 billion, leading a wave of cost-cutting announcements across the oil-and-gas industry as it reels from declining demand in the face of the coronavirus pandemic and a dramatic slide in prices.
Crude oil prices have crashed by 60% 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% of daily demand.
The reset is being felt across the industry, as Chevron was joined in reducing expenses by oilfield service leaders Halliburton and Schlumberger, independent refiner Phillips 66, and Canada’s Suncor.
“This is as unprecedented an oil price environment as I can recall seeing”, Chevron Chief Executive Michael Wirth said in an interview.
Chevron will spend $16 billion this year, down from a planned $20 billion, halving its spending in the Permian Basin, the top US shale field. It is the lowest spending level for the company since 2005. 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. The Permian accounts for about 4.8 million bpd of crude production, or more than a third of daily US oil output.
Dozens of smaller US shale companies have curtailed spending, and analysts at Goldman Sachs expect a roughly 35% drop in capital expenditure in 2020, and for US oil production to fall by 1.4 million bpd by the third quarter of 2021.
Shale companies have been pressuring US service companies for discounts, which is cutting into those firms’ earnings as well.