Chevron to take up to $11 billion writedown in fourth quarter

Oil major Chevron has announced that its organic capital and exploratory spending program for 2020 will be $20 billion, the same as this year. Chevron has also decided to reduce spending on gas-related projects and expects to take up to $11 billion charge in 4Q 2019. 

Big Foot platform; Image source: Chevron

Chevron said on Tuesday that the 2020 budget supports a robust portfolio of upstream and downstream investments, highlighted by Chevron’s Permian Basin position, the company’s major capital project at TCO in Kazakhstan, and an advantaged queue of deepwater opportunities in the Gulf of Mexico.

Chevron Chairman and CEO, Michael Wirth, said: “We are positioning Chevron to win in any environment by ratably investing in the highest return, lowest risk projects in our portfolio. This will be the third consecutive year with organic capital spending held flat at $20 billion, continuing our capital discipline through the cycle. Our emphasis on short-cycle investments is expected to deliver improved returns on capital and stronger free cash flow over the long-term.”

The company said it would reduce funding to various gas-related opportunities, including Appalachia shale, Kitimat LNG, and other international projects. Chevron is evaluating its strategic alternatives for these assets, including divestment.

In addition, the revised oil price outlook resulted in impairment at Big Foot. Combined, these actions are estimated to result in non-cash, after-tax impairment charges of $10 billion to $11 billion in its fourth quarter of 2019 results, more than half related to the Appalachia shale.

“We believe the best use of our capital is investing in our most advantaged assets,” Wirth continued.

“With capital discipline and a conservative outlook comes the responsibility to make the tough choices necessary to deliver higher cash returns to our shareholders over the long-term.”

According to Chevron’s plan, a total 0f $16.8 billion will go to the U.S. upstream and International upstream business.

In the upstream business, approximately $11 billion is forecasted to sustain and grow currently producing assets, including about $4 billion for Permian unconventional development and about $1 billion for other international unconventional development.

Approximately $5 billion of the upstream program is planned for major capital projects underway, of which about 75 percent is associated with the Future Growth Project and Wellhead Pressure Management Project (FGP / WPMP) at the Tengiz field in Kazakhstan. Global exploration funding is expected to be about $1 billion.

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