Chevron plans budget cuts to save cash for dividend

NEW YORK: Oil and gas major Chevron Corp. will slash its budget by as much as 36 percent in 2017 and 2018 in a cash-saving bid to preserve its 90-year-old dividend as it copes with crude prices near 10-year lows.

The outlook highlights the unease permeating the energy industry as executives try to contend with what many are forecasting to be crude prices below $50 per barrel through at the end of the decade.
Wall Street has pressured many oil producers to slash their quarterly payouts as a way to weather the low-price storm. Already, Noble Energy Inc, ConocoPhillips and Anadarko Petroleum Corp. have done so.
Chevron’s dividend, like that ofExxon Mobil Corp. , is considered near-sacrosanct by retail investors and wealth managers alike, being a steady source of cash in a time of low interest rates and stagnant wages.
“Preserving and growing the dividend is important to our shareholders and to management,” Chevron CEO John Watson said at the company’s annual investor day in New York.
“We will grow our dividend as the pattern of earnings and cash flow permit.”
San Ramon, California-based Chevron has paid a dividend since 1926 and raised its annually for more than 28 years, paying out $8 billion to shareholders in 2015 alone.
Exxon paid out $12 billion in dividends last year, and has also not cut its payout. Both companies, however, have curtailed share buybacks.
Chevron is paying its dividend partially with debt. While executives had outlined a plan last fall to cover the dividend with cash flow by next year, that requires oil prices at $50 per barrel, roughly $12 per barrel below current levels.
Chevron plans to spend to between $17 billion to $22 billion annually in 2017 and 2018. For 2016, the company has already announced it would spend $26.6 billion.
Part of the spending reduction will come as construction projects are finished around the world, including major liquefied natural gas (LNG) projects in Australia and Angola, as well as oil projects in the US Gulf of Mexico.
Chevron said on Monday it had started producing LNG at its Gorgon facility in western Australia and would begin shipping next week, a major milestone for a long-delayed and over-budget project.