Chevron, the second-largest US oil group, has promised further steep cuts in capital spending and operating costs this year as it works to reduce a huge cash outflow caused by the slump in crude prices.
The company was the first of the large international oil groups to report earnings for the final quarter of 2015, and showed the mounting financial strains created by the fall in crude, reporting its first quarterly loss since 2002. Brent crude was trading at about $34 per barrel on Friday, down about 70 per cent since its peak in mid-2014.
John Watson, chief executive, said the company’s number one financial priority was “to maintain and grow the dividend”, suggesting that Chevron would keep adding to its borrowings to finance the distribution to shareholders.
He also said the company would cut its operating costs and its investment in new projects to strengthen its financial position. “Obviously at $30 [oil], every business is stressed,” he added.
The results showed a pattern that is expected to be repeated by other large international oil groups next week, with Chevron’s profits from oil and gas production plunging, but being offset by robust income from refining and chemicals operations.
The company reported a $588m net loss for the fourth quarter of last year, compared to a $3.5bn profit for the same period in 2014.
The results for the last three months of 2015 included a $1.1bn charge for asset write-down’s and other costs that it identified as one-offs.
Stripping out that charge, the earnings were below analysts’ average expectations. Revenues for the quarter were slightly better than anticipated, however, down 33 per cent at $28bn.
Chevron’s capital expenditure of $34bn for 2015 far exceeded its cash from operations of $19.5bn. Combined with dividend payments of $8bn for the year, and offset partially by asset sales that raised $5.7bn that meant Chevron’s net debt almost doubled during the year, rising from $14.6bn to $27.3bn.
Oil and gas production in the US was Chevron’s weakest division, reporting a $4.1bn loss for 2015, compared with a $3.3bn profit in 2014. Profits from production outside the US dropped 85 per cent to $2.1bn.
The average price Chevron received for its oil dropped from $68.32 a barrel in the fourth quarter of 2014 to $38.71 in the equivalent period of 2015. The average price for its gas dropped from $5.38 per thousand cubic feet to $3.99.
However, earnings from downstream operations such as refining were up 75 per cent at $7.6bn for 2015.
Mr Watson said Chevron had cut $9bn from its operating costs and capital spending last year, and planned a similar reduction for 2016.
He added that Chevron’s wave of large projects coming on line or ramping up output was making good progress.
The company plans to cut capital spending to about $26.6bn this year, part of a reduction of between 13 and 18 per cent in its combined capital and operating expenses.
Total oil and gas production, which rose 2 per cent last year to 2.62m barrels a day, was forecast to grow by up to 4 per cent this year.
The company said it had replaced 107 per cent of its oil and gas production with additions to its proved reserves, coming from areas including the Permian Basin shale region of west Texas and the Wheatstone LNG project in Australia.
Ed Crooks, FT
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