Chevron to cut output up to 300,000 boe/d in May, more to come

Chevron has so far curtailed a relatively small amount of its oil and gas production due to low crude prices and dwindling demand from the global coronavirus pandemic, but bigger cutbacks are in store for May and the second quarter, its top executive said Friday.

The company plans to shut in 200,000-300,000 boe/d in May, with further volume reductions to come, CEO Mike Wirth said during a first-quarter earnings call.

A sizeable amount of curtailed volumes will come from the US' Permian Basin in West Texas/New Mexico, Wirth said, where production in Q1 was 580,000 boe/d, up 13% sequentially.

The play, the crown jewel of Chevron's portfolio and production, has grown sizeably. A year ago the company was producing about 420,000 b/d from the play, but early last year Chevron set a goal of producing 900,000 b/d from the Permian by year-end 2023.

"Curtailments [so far] were relatively modest; May-June could be more significant," Wirth said. "They are split 50-50 between the US and the rest of the world," with the Permian and other short-cycle projects being the "predominant" part of domestic shut-ins.

Outside the US, curtailed production is related to OPEC and OPEC+ production cut agreements, he said.

'OLD VERTICAL WELLS' EYED FOR PERMIAN CURTAILMENTS

Asked how Chevron will choose which Permian wells to curtail, Wirth said "old vertical wells, with pretty marginal economics" are primary candidates.

By contrast, horizontal wells are generally newer and more productive.

In general, "we'll look at ... oil-to-gas ratio of wells, storage costs, netbacks, logistics, futures prices, value chain cash flow and a whole host of things," he said. "It's a moving target."

Wirth and other producers have pointed to the experience US upstream operators have had with temporary production shut-ins during hurricane season. As recently as 2017, for example, operators in the Eagle Ford Shale were forced to temporarily close fields when Hurricane Harvey struck the Texas coast and passed inland over the South Texas play.

Chevron's companywide oil and gas production totaled 2.171 million boe/d in Q1, flat with a year ago but up 4% sequentially. Slight growth in gas was outpaced by US liquids' growth to 803,000 b/d in Q1, which was up 4% sequentially and 16% year on year.

CAPEX CUT FURTHER

Also Friday, Chevron said it has further reduced its 2020 capital spending guidance by an additional $2 billion, setting a revised capex as low as $14 billion.

The company's original 2020 guidance, announced in December, was $20 billion, the third year it was set at that level. But last month, when oil prices hit the skids from the pandemic, it reduced 2020 capex to $16 billion.

Of the incremental $2 billion cut just announced, a little less than $1 billion comes out of major capital projects, mainly the Tengiz expansion in Kazakhstan, Wirth said. A lesser amount of capital for that project was baked into the March round of capex cuts.

In addition, $500 million in cuts each comes from unconventionals, not only the US Permian Basin but also in Argentina and Canada, and from elsewhere in the base business, Wirth said. Another $200 million of spending reductions will come from downstream and chemicals, Wirth said, without getting more specific.