Facing $25 oil prices and a stock price that has been cut in half, America’s second-largest oil company is also considering laying off workers.
“Our financial priorities remain intact. And the dividend is at the top of that list of priorities,” Chevron CEO Michael Wirth told CNN Business on Tuesday. “Our shareholders depend on that dividend.”
Chevron, which traces its roots to 1879, hasn’t cut its dividend since 1932 during the Great Depression. In late January, Chevron boosted its dividend by 8%, marking the 33rd straight year of increases.
At the same time, Saudi Arabia and Russia are in the middle of an epic price war that is flooding the market with supply at the worst possible time.
Protecting the dividend at all costs
Against that uncertain backdrop, a slew of major companies have cut or even abandoned their dividends.
Goldman Sachs predicted earlier this month that the biggest oil companies, including Chevron and ExxonMobil, will avoid dividend cuts because they no longer need high oil prices to break even.
“Big Oils enter this downturn stronger and more resilient,” the Goldman Sachs analysts wrote in the report to clients.
Still, Chevron is aiming to slash its expenses by $1 billion. Wirth said the company is moving forward with a restructuring plan that began long before the oil crash. He added that Chevron has not “finalized” specific numbers around potential layoffs.
Russia’s oil war against America
Like many of its peers, Chevron is reining in spending, including in the Permian Basin, the West Texas epicenter of America’s shale oil boom. Chevron is slashing its Permian spending by $2 billion, resulting in 20% less production there at the end of 2020 than previously expected.
“I don’t know what Russia wanted,” the Chevron CEO said. “They didn’t phone me up and tell me.”
“I don’t have time to point fingers or get frustrated with things I can’t control,” Wirth said. “We can’t control oil markets or what other countries choose to do.”
Bailouts, production caps
“We’re not in favor of bailouts,” Wirth said.
Yet such a cap would go against the oil industry’s free-market ethos — and could backfire by keeping alive inefficient companies.
“We believe in free markets. We don’t expect unique assistance from governments,” Wirth said.
What if Chevron won the Anadarko bidding war?
That’s easy for a company the size of Chevron to say. It’s the smaller drillers and the ones that took on excess debt that are most at risk.
“We’ve moved on from that,” Wirth said of the Anadarko bidding war. “The market offers its own lessons. Anyone in this industry needs to be conscious of price discipline and capital discipline.”
Given where oil prices have plunged to, it increasingly looks like Chevron won that bidding war by losing it.