Chevron the US oil group, expects a sharp slowdown in its production growth towards the end of the decade as it cuts investment in response to the fall in oil prices.
The capital spending cuts that have been announced by energy companies worldwide point to a tightening of oil markets and a potential recovery in crude prices.
Speaking at a presentation to analysts in New York, John Watson, Chevron’s chief executive, said investment cuts across the industry would “bring supply and demand into balance in 2016, moving prices upward”. He said the company was “sober about the current realities of low prices”, but added: “I don’t think $50 oil is sustainable.”
Oil prices have fallen about 50 per cent since last summer.
Mr Watson’s assessment contrasted with that of Rex Tillerson, ExxonMobil’s chief executive, who last week said the world should “settle in” for a period of relatively weak oil prices.’
Chevron’s production volume growth was expected to be 6-7 per cent each year from 2015 to 2017, Mr Watson said, but would slow to annual increases of just 1 per cent after that.
Its expansion is being driven by large projects starting up over the next few years — in particular Gorgon and Wheatstone, two liquefied natural gas developments in Australia that will come on stream this year and next.
After that the additional volumes of oil and gas that Chevron brings into production will drop sharply.
The company expects to approve a final investment decision for just one large project this year — an increase in output at its Tengiz oilfield in Kazakhstan.
Chevron’s annual capital spending is planned to drop steadily from $40.3bn last year to about $30bn in 2017.
Mr Watson said: “It does make a difference. If you spend less, you’ll receive less over time.”
He added that Chevron was cutting capital spending in part because rates and prices for drilling rigs and other products and services used by oil companies were expected to fall, “so there’s an opportunity to capture lower cost”.
However, he added the cuts also reflected financial constraints created by the fall in Chevron’s revenues.
For the long term, Mr Watson suggested, Chevron would probably be able to invest enough to maintain 1 per cent annual production growth while covering its dividend from its free cash flow, but plans were still taking shape.
One area where Chevron expects rapid growth to continue is in the shale oilfields of the Permian Basin of west Texas, where it has the second-largest land position with 2m acres.
The acreage is a largely legacy position that the company has held for decades, meaning that there are little or no royalties to pay on most of it. That made it relatively low-cost, and economically viable even at a time when many other shale producers were cutting back, the company said.
Mr Watson added: “Everyone’s technology is improving, everyone’s efficiency is improving. But there is some acreage that is better than others.”- reported http://www.ft.com.
