Chevron Announces Restructuring Plans Amid Profit Slide
The US oil giant Chevron has revealed plans to take a significant hit of up to $1.5 billion in the fourth quarter, largely due to restructuring efforts, asset impairments, and property sales costs. This move comes as the company struggles to reverse a year-long profit decline that has forced it to rely on borrowing to meet shareholder payouts.
Job Cuts and Relocations Ahead
A substantial portion of the charges will be attributed to job cuts and relocations planned for the next two years. Although Chevron has not disclosed the exact number of jobs that will be lost among its 45,000-strong workforce, the move is expected to significantly impact the company’s operations.
Cost-Cutting Measures
Chevron’s cost-cutting efforts are part of a larger strategy to reduce expenditures by up to $3 billion through 2026. The company aims to achieve this by slashing project spending, selling off assets, and streamlining its operations. This approach is becoming increasingly common in the oil industry, as companies turn to acquisitions to boost reserves and output, rather than investing in new fields.
Capital Discipline
Chevron’s CEO, Michael Wirth, emphasized the company’s commitment to cost and capital discipline, citing the reduced 2025 project spending and announced structural cost reductions as evidence of this commitment. The lower project spending is also a result of the completion of major outlays in Kazakhstan, recent sales of oil and gas operations in Canada, Alaska, and the Congo, and reduced spending on US shale operations.
Budget Breakdown
The budget for 2025 will see a significant reduction in expenditures, with new oil and gas output investments falling by around $1 billion, and refining investments decreasing by approximately $300 million compared to this year. Notably, the budget does not include any costs associated with Chevron’s proposed deal for Hess, which has been stalled due to challenges from Exxon Mobil and CNOOC.
Severance Pay and Asset Impairments
Severance pay and relocations will account for up to $900 million of the after-tax charges, while asset impairments and sales of properties will add up to $600 million. However, Chevron has assured investors that the asset impairments will not affect adjusted earnings.
Fourth-Quarter Profit Projections
Financial firm LSEG predicts that Chevron’s fourth-quarter profit will reach $4.35 billion, or $2.42 per share, a significant decrease from $6.45 billion, or $3.45 per share, in the same quarter last year. This marks a continued trend of declining profits for the company.
A Familiar Pattern
Unfortunately, this is not the first time Chevron has taken significant charges. In recent years, the company has taken impairment charges of $3.7 billion, $1.1 billion, and $4.8 billion in 2020, 2022, and 2023, respectively. As the company navigates the challenges of the oil industry, investors will be watching closely to see if these efforts will be enough to turn the tide.
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