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Chevron Goes For Deeper Cuts, More Asset Sales

Summary

Chevron Corporation announced that it plans to potentially scale its capex spending levels to as low as $20 billion by 2017, versus $35 billion this year.

Structural changes will help the Oil Major get there, but in the meantime Chevron will need asset sales and debt issuance to help cover its cash flow shortfall.

Bringing the Lianzi oilfield online is a nice operational gain after several disappointing mishaps.

Successful appraisal of its Anchor discovery in the Gulf of Mexico gives the company a possible farm-out opportunity.

Chevron still has plenty of cash and liquidity on hand and can continue to payout its dividend to shareholders if it chooses to do so.

Nearing the end of the year, Chevron Corporation's (NYSE:CVX) management team sought to reassure investors with plans for deeper capex cuts going into 2016 (larger cuts than initially stated). For reference, Chevron spent $42 billion on capital expenditures in 2013, $40 billion in 2014, and is guiding to spend $35 billion this year. That is just the tip of the cost cutting iceberg.

Depending on where oil prices go, Chevron seeks to cut that down to just $25-$28 billion next year, falling further to $20-$24 billion by 2017. News that management will cut $10 billion off of Chevron's capex budget is bullish for the company's financial standing. It may not be enough to achieve cash flow neutrality by itself, but it will go a long way. On top of that, Chevron spends around $2 billion a quarter on its dividend payments.

Structural adjustments at the company have enabled it to survive in the current environment, as have asset sales and debt issuance. Ultimately, Chevron needs higher realized oil, NGLs (natural gas liquids), and natural gas prices to bolster its cash flow streams. As you can see below, Chevron is operating at a hefty cash flow deficit.

Source: Chevron Corporation Presentation

Controlling costs is Chevron's primary objective, with third-party cuts and workforce reductions representing a large chunk of that. Management announced that Chevron would shed another 6,000 - 7,000 jobs during its release, as the carnage leaves no stone unturned.

A few days after releasing its Q3 results, the Wall Street Journal reported that Chevron was going to lay off 1,000 people who work in the Partitioned Zone between Kuwait and Saudi Arabia. Disputes have shut down production from the region for the past...


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