Chevron slashes capital spending by $4bn

As oil industry reels. 

Chevron cut its capital spending budget by $4 billon on Tuesday, leading a wave of cost-cutting announcements across the oil and gas industry as it reels from declining demand in the face of the coronavirus pandemic and a dramatic slide in prices.

Crude oil prices have crashed by 60 percent since January as Saudi Arabia and Russia pump full-bore to grab share in a dwindling market, and petrol and jet fuel use has slumped. Demand worldwide is expected to fall by more than 12-million barrels per day, more than 10 percent of daily demand.

The reset is being felt across the industry, as Chevron was joined on Tuesday in reducing expenses by oilfield service leaders Halliburton and Schlumberger, independent refiner Phillips 66, and Canada's Suncor.

“This is as unprecedented an oil price environment as I can recall seeing,” Chevron CEO Michael Wirth said in an Reuters interview.

Chevron will spend $16 billion in 2020, down from a planned $20 billion, halving its spending in the Permian Basin, the top US shale field. It is the lowest spending level for the company since 2005.

This is the first indication from an oil major of how sharply it would pull back in the Permian, which has made the US the world’s largest oil producer. The Permian accounts for about 4.8-million bpd of crude production, or more than a third of daily US oil output.

Dozens of smaller US shale companies have curtailed spending, and analysts at Goldman Sachs expect a roughly 35 percent drop in capital expenditure in 2020, and for US oil production to fall by 1.4-million bpd by the third quarter of 2021.

Shale companies have been pressuring US service companies for discounts, which is cutting into those firms' earnings as well. Halliburton said it was testing the possibility of cutting as much as 60 percent to 65 percent in spending.

“The industry is facing an unprecedented dual impact on demand and supply side that none of us have witnessed over our professional lifetimes,” Halliburton CFO Lance Loeffler told investors on a Tuesday webcast.