Chevron Cuts Long-Term Output Target as Gas Drilling SlowsJoe Carroll
Chevron Corp., the second-largest U.S. energy producer by market value, reduced its 2017 production estimate and said it will sell $10 billion in assets during the next three years.
Chevron lowered its production forecast by 6.1 percent as it slows U.S. natural gas drilling and higher crude prices reduce its share of production in some nations, the company said during a presentation to analysts in New York today. The company now sees output equivalent to 3.1 million barrels of crude a day from a previous estimate of 3.3 million. Last year Chevron pumped the equivalent of 2.6 million barrels a day.
Lower-than-expected U.S. gas prices prompted the company to curtail some drilling in Pennsylvania’s Marcellus Shale gas formation, said Chairman and Chief Executive Officer John Watson. New discoveries and acquisitions only added enough oil and gas to reserves to replace 85 percent of the company’s production last year, according to data compiled by Bloomberg.
“Our growth strategy remains intact, though some things have changed,” Watson said during a presentation to analysts in New York today. Higher crude prices will also have a negative impact on output under production agreements in some nations that curb a company’s share as prices escalate, he said.
About 80 percent of the assets to be sold by the end of 2017 will involve so-called upstream properties such as oil wells and gas fields, the San Ramon, California-based company said in a slide presentation prepared for today’s meeting. Chevron also plans to divest some pipelines, storage terminals and fuel-marketing businesses.
The $10 billion sales target dwarfs the $7 billion raised during the past three years through divestments in the company’s refining and marketing unit. Chevron is shedding assets that are past their primes or new prospects too small to generate the returns the company seeks, Watson said in a meeting with reporters today.
“These are all assets that are late in their lives or very early in life and won’t compete for capital inside our company,” Watson said.
Chevron is spending $39.8 billion this year on gas-export terminals, offshore crude platforms and other capital projects to reverse a three-year drop in output.
Chevron’s 2017 output target assumes crude prices will average about $110 a barrel, according to the presentation. That compares with the $79 price assumption that underlaid the prior forecast from March 2013.
The company plans to increase drilling in the U.S. Permian Basin by 8.6 percent this year to 505 wells, according to the slides. The company’s production from the formation that straddles the Texas-New Mexico border will double by the end of 2020.
Exxon Mobil Corp. is the world’s largest energy producer by market value.