US Oil Industry Faces Prolonged Challenges... "Chevron and Exxon Slash Capital Expenditures Significantly"

Chevron and Exxon Significantly Scale Back Capital Expenditure Plans
Investment Plans Revised Amid Forecasted Weak Oil Prices

[Asia Economy Reporter Naju-seok] The American oil company Chevron has significantly cut its medium- and short-term capital expenditure plans. This move was explained as a reflection of the worsened market conditions following the outbreak of the novel coronavirus disease (COVID-19). By lowering its medium-term capital expenditure plans based on oil price forecasts, it suggests that difficulties in the oil industry will persist for some time.

[Image source=EPA Yonhap News]

According to U.S. media on the 3rd (local time), Chevron plans to invest $14 billion (15.28 trillion KRW) in capital expenditures next year and intends to keep investments below $16 billion until 2025. This is significantly lower than the investment plans before COVID-19. Previously, Chevron had announced plans to invest $19 billion in capital expenditures next year and $22 billion by 2024.

Earlier, ExxonMobil also announced plans to drastically cut capital expenditures. On the 30th of last month, ExxonMobil revealed plans to invest $19 billion in capital expenditures next year and outlined a capital expenditure plan ranging from $20 billion to $25 billion annually from 2022 to 2025. This represents a significant retreat from its earlier business plan, which had pledged investments exceeding $30 billion by 2025.

Pierre Breber, Chevron's Chief Financial Officer (CFO), mentioned that the reduction in capital expenditure plans is related to lowered oil price forecasts over the next five years. CFO Breber explained, "(The reduction in capital expenditures) reflects the expectation that the oil industry will underperform compared to other investment opportunities."

The Wall Street Journal (WSJ) reported that by some measures, the energy sector has suffered more damage this year than any other sector of the U.S. economy. Many companies have already filed for bankruptcy protection, corporate market values have declined, and large-scale restructuring has taken place. The fact that Chevron and ExxonMobil have drastically cut capital expenditures means that the business outlook for various oil-related companies in the U.S. will also be reduced.

Meanwhile, Chevron also stated that it will prioritize cash flow towards dividends.