Chevron is planning a 24% reduction in its 2016 capital and exploratory investment program to US$26.6 billion, compared to 2015’s $35 billion.
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Chevron's Big Foot in the GoM. Image from Chevron. |
Chevron is focused on getting its financial house in order and better balancing cash inflows and outflows – the primary motivation behind significant capex reductions, according to Simmons & Co. analysts.
A total of about $9 billion of capital spending will be spent on the US supermajor’s upstream existing base producing assets, which includes both offshore and onshore in 2016.
About $11 billion will be used for major capital projects currently underway, and approximately $3 billion is for projects yet to be sanctioned. In addition, $1 billion will be for global exploration, $2 billion decease from 2015.
Chevron expects further reductions in 2017 and 2018 into the $20 billion to $24 billion range depending on business conditions. Over time, the company also expects a rising portion of capital to go toward shorter-cycle shale development while a falling portion will go toward longer-cycle major projects, analysts said.
"Our capital budget will enable us to complete and ramp-up projects under construction, fund high return, short-cycle investments, preserve options for viable long-cycle projects, and ensure safe, reliable operations," said Chairman and CEO John Watson.
"We gain significant flexibility in our capital program as we complete projects under construction,” Watson said. “Given the near-term price outlook, we are exercising discretion in pacing projects that have not reached final investment decision."
In late October, Chevron announced further reductions to its workforce by 6000-7000 in its efforts to cut costs. Its Q3 report showed a net income of $2 billion, down from $5.6 billion in Q3 2014.
The same month, Chevron lost a battle with the Australian Tax Office (ATO) in the Australia federal court, and will have to pay more than $232 million (A$322 million) in back taxes, in addition to fines.
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