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Chevron to ramp Permian output, improve cash flow, could restart share buybacks

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Chevron to ramp Permian output, improve cash flow, could restart share buybacks

Oil and gas major Chevron Corp. plans to expand its upstream assets, ramp production in the Permian Basin and improve cash flow, which could leave the company in a position to restart its share buyback program, officials said March 6 at the company's annual security analyst meeting in New York.

"We intend to grow free cash flow in 2018 and thereafter," Chevron Chairman and CEO Michael Wirth said. "Even with no commodity price appreciation, we expect to deliver stronger upstream cash margins and production growth. This is a powerful combination."

After capital spending and including asset sales, the company expects cash generation of $14 billion this year at $60 per barrel. Chevron plans to maintain its disciplined capital spending approach, earmarking more than $18 billion for 2018 and an estimated $18 billion to $20 billion through 2020.

"We plan to further lower our cost structure, get more value from our existing assets and continue to high-grade our portfolio. We believe execution of these plans will support our primary commitment to shareholders, which is a sustained and growing dividend over time. As we generate surplus cash, we would expect to be in a position to resume our share repurchase program," Wirth said.

The company did not offer any specifics regarding a possible share buyback but has not repurchased shares since 2014. Buying back existing stock generally makes the remaining shares more valuable. Many of Chevron's peers, including BP PLC, Royal Dutch Shell plc and Total SA, have implemented such programs.

While capturing the recovery in oil prices and implementing regimented spending worked to improve Chevron's financials in 2017, a key part of the company's strategy for growth strength lies in growing its production, particularly in the U.S. Permian Basin, a prolific region where many oil and gas majors continue to pay billions of dollars to make heavy, strategic investments.

Chevron is banking on rising output and lucrative returns from its Permian investments. The company said its development and production costs in the Permian decreased 40% in 2017 compared to 2015 and it has accelerated its regional production guidance to about 500,000 bbl/d by the end of 2020 and 650,000 bbl/d by the end of 2022.

During the fourth quarter of 2017, Chevron's production in the Permian was approximately 205,000 bbl/d, up by 60,000 bbl/d from the same period in 2016. The company said full-year 2017 production from the region averaged 181,000 bbl/d, up 35% over the prior year.

At 10:50 a.m. ET on March 6, Chevron's stock shares on the NYSE were valued at $114.64 per share, up $1.49, or 1.32%, on the day.