Slowing Down: Chevron’s Shift in Oil Production Strategy
A Reality Check for Trump’s Energy Policy
Chevron Corp., a leading oil explorer, has announced plans to slow down production growth in the Permian Basin, the largest US oil field, in 2025. This move marks a significant shift in the company’s strategy, prioritizing free cash flow over production growth. The decision is a clear indication that President-elect Donald Trump’s goal of ramping up American energy output may face significant challenges.
* Permian Basin: A Key Player in Global Oil Production*
The Permian region, spanning West Texas and New Mexico, has been one of the world’s fastest-growing sources of oil over the past decade. Currently, it produces over 6 million barrels a day, surpassing Iraq, the second-largest OPEC producer. Independent drillers initially drove the shale revolution, but supermajors like Chevron eventually capitalized on the basin’s potential.
Reducing Capital Expenditures
Chevron plans to reduce capital expenditures in the Permian Basin to between $4.5 billion and $5 billion in 2025, a decrease of up to 10%. Globally, the company expects to spend around $17 billion, compared to $19 billion this year, marking its first budget cut since 2021. This reduction in spending will result in slower production growth, a welcome development for the Organization of Petroleum Exporting Countries (OPEC) and its allies, who have been struggling to contain a glut of crude from the US and elsewhere.
A Shift in Focus
The slowdown in production growth is a reflection of the changing priorities of oil executives. With oil prices down 18% since the end of April, many companies are focusing on returning cash to shareholders and growing through acquisitions rather than investing in increased output. West Texas Intermediate, a key benchmark, fell 0.4% to $68.30 on Thursday, bringing the 12-month loss to almost 5.6%.
Chevron’s Plans
Despite the slowdown, Chevron still plans to increase production from the Permian next year, albeit at a significantly slower rate than the 15% annual increase since 2021. The company’s overall US production is expected to increase until the late 2020s, driven in part by projects in the Gulf of Mexico. Chevron’s CEO, Mike Wirth, has indicated that production from the basin will eventually plateau, allowing the company to focus on generating free cash flow.
Industry Trends
Chevron’s decision is not an isolated one. Exxon Mobil Corp. recently forecast a deceleration in US output over the coming years as companies prioritize profits over production. Analysts and traders surveyed by Bloomberg expect the US to add only 251,000 barrels of daily output from the end of this year through 2025, the slowest pace since the pandemic-driven drop in 2020.
Other Projects
In addition to its Permian Basin operations, Chevron is also investing in the Tengiz oil field in Kazakhstan, which is nearing completion. The project will increase Chevron’s free cash flow and support its $17.5 billion-a-year share buyback program, despite a series of delays and cost overruns.
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