Chevron on Friday revised slightly lower an earlier future production target due to prolonged but uncertain lower oil prices, while at the same slashing its capital spending for 2016 by 25% compared to this year.
The company now sees production at 2.9 million-3 million b/d of oil equivalent in 2017, down from an earlier target of 3.1 million boe/d, mainly due to slower growth in US shales, less near-term spending in the Marcellus Shale natural gas play and no output from the Gulf of Mexico Big Foot project, Chevron CEO John Watson said in a quarterly earnings call.
At the same time, Chevron slashed its 2016 budget to $25 billion-$28 billion, down from $35 billion this year, and further expects ranges of $20 billion-$24 billion in 2017 and 2018. Some of that will come from naturally lower spending as its giant LNG Gorgon and Wheatstone LNG projects come online next year and Angola LNG restarts, and elsewhere from a tight focus on reining in and wringing costs out of the system, Watson said.
"We've taken about $15 billion of capital out of the business in go-forward projections from 2016 and 2017 total, so that impacts our base declines" for production, Watson said. "So if you add [the company's natural decline rate of] 2% to that, it's 100,000 boe/d over a couple of years."
Also, work force reductions of 6,000-7,000 people are also expected due to the lower investment levels, or about 10% of the 61,000 employees worldwide, he said, adding a similar amount of contractor reductions are expected.
In addition, the company is high-grading its shale oil operations, notably the Permian Basin of West Texas and New Mexico, Watson said. So "while the growth profile [in shales] is nice, it will be a little lower" than originally envisioned.
Less natural gas spending in the Marcellus Shale -- even while costs are trending lower in that unconventional play in Pennsylvania and surrounding US states -- is also in store for the near-term, he said.
"We can compete with anybody there, but no one makes money that I'm aware of at $1.50/Mcf gas," Watson said, adding gas futures prices also remain low. "So for the time being we're scaling back investment there."
As for Big Foot, the project's tension-leg platform was moved to sheltered waters earlier this year when several pre-installed tendons lost buoyancy. The platform was designed for 75,000 b/d of crude and 25,000 Mcf/d gas at peak. Watson said the company has not built-in any production from the field in its 2017 estimates.
But the company's production from the neutral zone between Saudi Arabia and Kuwait, which Chevron shut in during May due to an administrative dispute between the countries that resulted in halted issuance of work visas and permits, is included in 2017 production estimates.
A year ago, Chevron's output there was 80,000 b/d and was expected to be "somewhere" under 70,000 b/d in 2017, the CEO said. "Our plan is for that production to come back by 2017," he said, adding Kuwait is being hurt by the the production shut-in of a gross 200,000 b/d and therefore has motivation to begin issuing work permits and visas while resolution of disputes continue.
"It has been pretty perplexing to me why we remain shut-in," he said.
Going forward, Chevron will continue to move new projects forward as they come up and economics warrant, Watson said, although he cautioned the company is not likely to sanction back-to-back massive multi-year behemoths at one time such as occurred with the two Australian LNG projects.
On balance, there will likely be a higher proportion of spending on shorter-cycle projects. "Over time, you'll see greater money go to the shale developments," which likely includes the Permian Basin in West Texas and and the Duvernay play in Canada, where a horizontal drilling program has begun, Watson said.
"I think you'll see a more balanced portfolio [with] projects that have good economics with moderate prices as we standardize and take costs down," he said.
The Anchor deepwater field could also mature into a project, Watson said. On Thursday, the company announced a successful appraisal of Anchor, a late 2014 discovery offshore Louisiana in 5,180 feet of water.
To date, Chevron said it has confirmed a hydrocarbon column of at least 1,800 feet in Lower Tertiary reservoirs at Anchor, located in the US Gulf's emerging Lower Tertiary trend found in deep waters and at very deep total depths.
The discovery well encountered 690 feet of net oil pay, at 33,750 feet. The appraisal well this week found 694 feet of net oil pay.
Jay Johnson, Chevron's executive vice president of upstream, said the appraisal work indicates a "significant discovery of potentially hub-class scale" which for the company are 400 million-500 million boe developments. Said Watson: "We feel pretty good about this one," meaning Anchor.
As for the workforce reductions, some have already happened or are ongoing, Watson said. They will come from Australia as spending on the LNG projects ramps down, and a "significant" reorganization in Angola, and places where spending cutbacks will occur such as the Marcellus Shale.
A minor portion, about 10% will come from some of the earlier-stated $15 billion in asset disposals the company expects between 2014 and 2017, of which $11 billion have been realized so far.
