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Where Will Chevron (CVX) Spend the Bulk of Its 2020 Capex?

Zacks Equity Research

Chevron Corporation CVX recently announced its capital and exploratory spending program for 2020. The budget for capital projects is reserved at $20 billion, in line with the company’s projected investment for 2019.

While maintaining its capital discipline, management projects an estimated $10-$11 billion write-down for the fourth quarter, majorly from the Appalachian natural gas assets due to the commodity’s price plunge. In fact, the integrated major is even contemplating the sale of certain natural gas-focused shale projects plus its Kitimat LNG development in Canada.

Chevron’s upstream spending in 2020 is expected to dip 2.9% from 2019 while downstream expenditure will likely increase 12% next year.

Per the chairman and CEO Michael K. Wirth, the company intends to concentrate on high-return, low-risk projects, boosting its returns on capital and free cash flow.

This second-biggest U.S. oil and gas group's $20 billion worth organic capital spending will be flat for the third consecutive year while continuing with its capital discipline through the cycle.

Upstream: Chevron allocated 84% of its total budget to upstream operations. The company has plans to invest $7.6 billion in the upstream projects located in the United States and $9.1 billion in the international upstream programs. It will use around $11 billion to develop and grow its present producing assets, of which $4 billion will be reserved for the Permian Basin and $1 billion for other international unconventional developments.

Moreover, for the major capital projects underway, the company plans to allot $5 billion, of which 75% will likely be spent on Kazakhstan’s Future Growth Project, located in the Tengiz field. Chevron also plans to fund nearly $1 billion for its global exploration.

Downstream: Capital spending on the downstream segment is expected to be $2.8 billion in 2020, higher than 2019’s budget of $2.5 billion. Of this, 57.14% will be used for the projects in the United States and the rest will be allocated to international downstream activities. The company’s downstream businesses include refining, marketing and transporting fuels. It also manufactures and distributes additives, lubricants plus petrochemicals.

Other: The company is expected to spend approximately $400 million on other activities in 2020, which is double the 2019 budget value.

Price Performance

San Ramon-based Chevron is one of the largest publicly traded oil and gas companies in the world. It has inched up 1.9% in the past year versus the 8.5% fall of the industry it belongs to.

 

Zacks Rank & Key Picks

Chevron currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the energy space are Valero Energy Corporation VLO, RGC Resources Inc. RGCO and Phillips 66 PSX, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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