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Chevron considering ways to cut costs in wake of oil price crash

In light of the recent price collapse, Chevron Corp. is the first oil major to confirm that it is evaluating ways to cut costs and tamp down spending, which could also slice into output.

"We are reviewing alternatives to reduce capital expenditures that are expected to lower short-term production and preserve long-term value," Chevron spokesperson Sally Jones said in a March 10 email.

During its annual security analyst meeting March 3, the second-largest public U.S. oil company said it would extend its spending plan, which is already strict in terms of industry standards, by another year, sticking to its plan to spend between $19 billion and $22 billion through 2025. At the same time, Chevron pledged to return as much as $80 billion to shareholders through the middle of the decade.

But the crash in oil prices amid the emerging price war between OPEC and Russia has already prompted a host of independent producers, including Occidental Petroleum Corp., to announce capital spending cuts to protect their balance sheets.

"Chevron has seen similar downturns before and is well-positioned for a low price environment," Jones said, adding that the company is already targeting $2 billion in savings from cost-cutting measures.

Although the integrated majors are better insulated from oil price down cycles than independent producers, sustained crude prices below $40 per barrel could "trigger a new wave of brutal cost-cutting," Wood Mackenzie's head of upstream analysis, Fraser McKay, said March 9.

Chevron's Brent crude oil breakeven price, the price needed to generate cash flow after paying out dividends and announced buybacks, is $55 per barrel. Brent futures settled March 9 at $34.36/bbl, down 31.3% in the prior two sessions.

Expanding its footprint in key areas such as the U.S. Permian Basin and the Gulf of Mexico in the last few years, Chevron said March 3 that it was shooting for 3% compound annual growth in output from 2019 to 2024. The major's full-year 2019 worldwide net production hit a high of 3.06 million barrels of oil equivalent per day, up by more than 100,000 boe/d, or 4%, from 2018. Chevron's fourth-quarter 2019 production totaled 3.08 million boe/d.

Chevron's unconventional output in the Permian was 514,000 boe/d in the fourth quarter of 2019. Chevron intends to hike Permian production to as much as 1.2 million boe/d by 2024.

Media representatives from Exxon Mobil Corp., BP PLC and Royal Dutch Shell PLC declined to comment on any potential plans for the companies to rein in capex or adjust dividends.

At the end of January, Shell executives announced the company would slow the pace of its massive $25 billion share buyback program after weak energy prices and margins sliced into the Anglo-Dutch major's fourth-quarter 2019 earnings by almost 50% on the year.