Chevron Braces for Tougher Oil & Gas Market After Brutal 2020

Researched by Industrial Info Resources (Sugar Land, Texas)--Chevron Corporation (NYSE:CVX) (San Ramon, California) ended a rough year on a rough note: a $665 million net loss for the fourth quarter brought its full year to a $5.5 billion net loss, its first year in the red since 2016. The oil and gas giant slashed capital spending 35% following the COVID-19 outbreak, but it could not escape the effects of weak market conditions, heavy acquisition costs and renewed concerns over U.S. regulations as the Biden administration begins to lay out its energy agenda. Industrial Info is tracking more than $51 billion in active Chevron projects worldwide, including about $14 billion worth in North America.

Click on the image at right for a graph detailing Chevron's active projects worldwide, by industry sector.

In a quarterly earnings-related conference call, Chief Executive Officer Mike Wirth tried to reassure investors and analysts that Chevron is maintaining capital discipline amid the turmoil. "We pulled spending down 35% over just nine months last year, because we could flex that downward," Wirth said. "We have a great degree of flexibility. We've got a high degree of capital efficiency in our portfolio. And even at these further reduced levels of spending, the production will be somewhere between flat and up 3%."

In December, Chevron announced it would slash its total capital and exploratory budget through 2025 to between $14 billion and $16 billion, a significant drop from the prior forecast of up to $22 billion. Executives did not provide any updates in the quarterly conference call, but did say they expect "only a gradual recovery in the global economy, which would support gradual recovery in commodity prices." The budgetary outlook was based on a per-barrel price of oil at less than $60.

Wirth and other executives said they were keeping an eye on the Biden administration's rapidly developing energy policies, including a moratorium on new oil and gas leases on federal lands and waters. Wirth noted Chevron's U.S. footprint is "weighted toward private land more than federal land," giving them "a fair degree of flexibility" and "a highly attractive place for us to step capital [spending]."

Nonetheless, Wirth said the regulatory risks for Chevron are greater in the Gulf of Mexico, where the company is at work on several high-profile projects. Among those tracked by Industrial Info are the Jack/St. Malo water injection project and the Anchor Field development, which are expected to undergo multiple stages of development through 2023 and 2024, respectively. Click here for a list of projects related to Jack/St. Malo, and click here for a list of projects related to Anchor Field.

"At deepwater Gulf of Mexico, I think we just have to see how this unfolds," Wirth said. "Certainly, we like the projects that we're advancing here, and there has been general signaling that existing leases are secure--and we would presume the permitting that would go with those leases is also likely to proceed. But there are questions about this that I think we're just going to have to work our way through."

Global Factors Weigh on Chevron's Brand
Officials acknowledged that production is "modestly below capacity" at Chevron's Wheatstone gas-drilling project offshore Australia, while it repairs a damaged inlet separator. The company also is performing an estimated $31 million in well-intervention and infill-drilling work at Wheatstone, which it expects to complete in the summer of 2022. For more information, see Industrial Info's project report.

The company also acknowledged repairs on Train 1 at its Gorgon project in Western Australia slowed production at the natural gas development, but it said they are nearing completion and the facility will return to production in March. Industrial Info is tracking nearly $880 million worth of active projects as part of Chevron's Stage 2 field development at Gorgon; click here for a list.

Chevron officials also provided some updates on its highest-valued project under construction: the Tengiz Future Growth Project in Koschagyl, Kazakhstan, which includes a $27.1 billion processing plant, which is expected to process 260,000 BBL/d of crude oil and 960 million standard cubic feet per day of natural gas; a $3.5 billion drilling program; a $750 million powerhouse, which is expected to generate 470 MW from four gas-fired turbines; and a $500 million pipeline system, which covers more than 370 miles.

Wirth noted in the conference call that "construction is about 60% complete" on the Tengiz project. Following some pandemic-related setbacks, Chevron plans to accelerate mobilization in February, but "we'll need to get some progress under our belt here to really see data on productivity." Pierre Breber, Chevron's chief financial officer, added: "At [Tengiz], our project workforce reached 20,000 by year-end before we paused due to a virus resurgence. Next month, we expect to resume re-mobilization for the spring campaign and are targeting a project workforce of 26,000 by the end of the first quarter."

For more information, see Industrial Info's project reports on the processing plant, drilling program, powerhouse and pipeline system.

Conditions in the energy markets became so brutal in 2020 that executives from Chevron and ExxonMobil Corporation (NYSE:XOM) (Irving, Texas) toyed with the idea of merging, according to The Wall Street Journal. People familiar with the talks said they did not go beyond a purely conversational level, but that two giants would even propose such an idea shows how vulnerable the industry has become to any long-term decline in oil or gas demand.

Chevron has a market value of $164 billion, while Exxon's is $190 billion, which means a combined company's market value could top $350 billion, according to the Journal. Still, such a company would trail Saudi Aramco (Riyadh, Saudi Arabia) in both market capitalization and production.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.