Chevron Halts Share Buybacks, Slashes Permian on Oil Rout

(Bloomberg) -- Chevron Corp. became the latest major oil company to take an ax to its budget after halting its $5 billion-a-year share buyback and halving spending in the Permian Basin, which means a large decrease in projected output from America’s biggest shale region.

The California-based oil giant said Tuesday it’s lowering projected 2020 capital spending by 20%, or $4 billion. The Permian will account for the largest single element of that reduction, translating into 125,000 fewer barrels of oil equivalent per day than previously forecast, a quantity equal to about 2.5% of the basin’s total current production.

“The largest single piece is in the Permian Basin, which we’ve indicated is a flexible portion of our portfolio,” Chief Executive Officer Mike Wirth said in a Bloomberg Television interview. “The strength of Chevron’s business is the ability to flex our capital if there were market signals indicating that was the right thing to do.”

European rivals Royal Dutch Shell Plc and Total SA this week also cut their buybacks until further notice as the oil majors scramble to save money wherever they can to protect their massive dividends, which have become central to their investment case in a world that’s exploring alternatives to fossil fuels. Wirth said Chevon’s payout is his “top priority” and emphasized that it hasn’t been cut since the Great Depression.

The global energy industry is slashing spending in the face of the major demand shock caused by the coronavirus and the price war between Saudi Arabia and Russia. Chevron’s response was bigger than expected, which is “positive” for sentiment toward the stock, Biraj Borkhataria, an analyst at RBC Capital Markets, wrote in a note to clients.

There was no mention in Chevron’s statement of any reductions at Tengiz, its over-budget megaproject in Kazakhstan. Wirth had previously indicated that Chevron’s Permian oil is among the profitable parts of its portfolio, meaning the cuts announced Tuesday may reduce its overall returns on capital employed, a key metric for the industry.

Exxon Mobil Corp., the biggest Western oil major, had no buyback even before this month’s collapse in oil prices and has yet to announce its response to the crisis. At $77 a barrel, it needs the highest crude price among all the majors to fund its capital spending and dividend from cash flow, according to RBC Capital Markets.

Chevron was up 15% at $62.32 at 9:41 a.m. in New York amid broad gains for the stock market.

Chevron’s overall production this year is now seen as roughly flat relative to 2019.

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