CVX Chevron Corporation

By Nina Trentmann and Mark Maurer 

Chevron Corp.'s chief financial officer is resorting to a tested playbook that involves slashing capital expenditures and reducing costs to respond to a sharp decline in oil prices and lower petroleum demand.

"It's obviously more extreme than we expected," Chevron CFO Pierre Breber said in an interview.

The San Ramon, Calif.-based oil giant Tuesday said it would cut $4 billion in capital expenditures amid lower oil consumption caused by the coronavirus pandemic and the continuing oil price-war between Russia and Saudi Arabia. Oil prices have fallen more than half since the beginning of the year to around $30 a barrel.

Chevron said it would reduce its 2020 spending by around 20% to about $16 billion, with deep cuts to its Permian Basin project in West Texas and New Mexico. Chevron said it also would suspend share buybacks but pledged to keep its dividend.

There will be additional cuts to operational costs associated with capital programs, said Mr. Breber, a company veteran who took over Chevron's finance function last April.

Mr. Breber said his response to the coronavirus pandemic focuses on preserving short-term cash, managing liquidity and protecting the dividend, a set of actions that mirror those taken by the company in response to the 2008 financial crisis and the 2014 oil-price drop.

Chevron significantly cut staff during both periods, and in the latter case, reduced capital spending.

Mr. Breber said he talked to predecessors Patricia Yarrington, who ran Chevron's finances from 2009 to 2019, and Steve Crowe, who served as CFO before Ms. Yarrington, to discuss Chevron's response to the steep decline in oil prices in recent weeks.

Chevron has more flexibility than during previous crises to reduce production and cut spending, according to Bill Selesky, an analyst at Argus Research Co. "Back in 2008, 2009, the Permian Basin was not a big deal," Mr. Selesky said. "Today it is -- and they can turn it on and off depending on where the oil price sits."

S&P Global Inc. on Monday forecast Brent oil to average $30 a barrel for the remainder of the year and West Texas Intermediate, the U.S. oil-price benchmark, to stay at around $25 a barrel.

"We don't know exactly what's going to happen in the short term, but we have to prepare for what looks like much lower demand in the short term and more supply," Mr. Breber said.

Chevron earlier this year presented a five-year outlook based on an average price of $60 a barrel for Brent. Even though the assumptions have changed, it helps to have a long-term framework, Mr. Breber said. "It's fundamentally looking at a medium-term financial framework where you're looking for cash balance," he said.

The company likely will observe how the market develops in the next few months before making more cost-cutting moves, said Jason Gabelman, an analyst at Cowen & Co. "I don't think that you want to do too much too fast because those decisions could ultimately be incorrect if the market turns on you and then you've become less efficient," he said.

Chevron's move follows similar actions by other oil companies, including Royal Dutch Shell PLC, Total SA and Exxon Mobil Corp. Total, for example, said it plans to cut $3 billion in spending, borrow $4 billion and suspend $2 billion in share buybacks.

Write to Nina Trentmann at nina.trentmann@wsj.com and Mark Maurer at mark.maurer@wsj.com

(END) Dow Jones Newswires

March 24, 2020 19:25 ET (23:25 GMT)

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