Chevron cuts 2020 Permian production, capex guidance by 20%

Chevron is cutting both its guidance for shale production from the US Permian Basin and its capital spending this year by 20% in response to the oil price collapse, it said Tuesday.

Shale oil and gas output from the Permian Basin is expected to be about 125,000 b/d of oil equivalent, or 20%, below prior guidance by year-end, Chevron said in a statement. No figure was given for its original Permian production target this year but Chevron produced 514,000 boe/d in the Permian during Q4 2019 and had been ramping up to get to 1 million boe/d in the coming years.

As a result of the cutbacks, the oil major said it now sees its overall, underlying oil and gas production roughly flat relative to 2019 when it reported average output of 3.06 million boe/d.

ExxonMobil, one of the Permian's top producers, last week said it was preparing to "significantly" decrease its 2020 spending due to the coronavirus-triggered global recession that is devastating global oil demand.

"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," Chevron CEO Michael Wirth said in a statement.

The company said it is reducing its 2020 organic capital and exploratory spending by $4 billion, or 20%, to $16 billion, with half of the total primarily hitting spending in the Permian.

Spending on other upstream projects and exploration will be reduced by $1.2 billion and $800 million will cut from the downstream and chemicals division.

"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," Chevron's executive vice president of upstream Jay Johnson said.

Chevron said it has also suspended its $5 billion annual share repurchase program after repurchasing $1.75 billion of shares during the first quarter.

MORE US SHALE CUTBACKS

Other US shale producers also announced new budget reductions on Tuesday and late Monday as North American producers have slashed their 2020 capital spending plans by an average of at least 30% just this month.

Permian driller Laredo Petroleum said it will cut its capex by 36% down to $290 million and pull three of its four drilling rigs from the oilfields.

Laredo expects its production for the year to fall about 5% and average just more than 80,000 boe/d. And, starting in May, Laredo will cease its new well completions for the remainder of the year if low oil prices persist.

Likewise, Eagle Ford Shale producer Magnolia Oil & Gas will cut its capex by 45% down to about $210 million and remove one of its two rigs from South Texas.

Magnolia is run by former Occidental Petroleum CEO Steve Chazen who was appointed the new, non-executive chairman of struggling Oxy again this week. Chazen insisted the new role with Oxy won't impact his leadership at Magnolia. And he even hinted that Magnolia may look to grow and acquire once crude pricing volatility calms down.

"We expect significant opportunities to expand our business will appear later this year once market conditions clarify," Chazen said in a statement.

Because natural gas prices haven't crashed as violently as crude oil, gas producer Antero Resources said Tuesday it only plans a 13% reduction to its 2020 spending, going from $1.15 billion down to about $1 billion.