Chevron to Expedite Asset Sale as Crude Price Stays Soft - Analyst Blog
U.S. energy giant Chevron Corporation CVX has decided to accelerate its asset divestment program and lower cost. The decision rests on the company’s golf of maintaining regular cash flows to its shareholders amid low crude prices.
Moreover, John Watson, chairperson of the integrated player, reaffirmed during an analyst meeting that Chevron will trim capital spending this year. Other energy players that also slashed 2015 capital spending include Royal Dutch Shell plc RDS.A, BP plc BP and Exxon Mobil Corp. XOM.
Owing to abundant supply and lackluster global demand, crude prices have plummeted more than 55% since last June. On top of that, most analysts do not expect an oil price recovery any time soon. Hence, the company’s decisions to weather unfavorable business environment are quite justified.
Chevron is planning to divest $15 billion worth assets through 2017, 50% higher than the prior target of $10 billion. The company is also willing to lower its 2015 capital expenditure by 13% to $35 billion from $40 billion invested during 2014. Watson added that the company’s $54 billion worth Gorgon project in Australia is now nearing completion and should lead to capital expenditure reduction.
Both measures reflect Chevron’s intension to increase liquidity and strengthen balance sheet especially when oil price is low. With the proceeds from the asset sale and cost reduction, the company will be able to provide significant cash flows, in the form of strong dividend, to the shareholders in an adverse business scenario.
For investors, Chevron has more good news. By 2017, the energy major intends to increase its production by 20% to 3.1 million barrels of oil equivalent per day.
San Ramon, CA-based Chevron currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.
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