(Bloomberg) — Chevron Corp. (CVX) is adjusting its approach to oil production, planning to scale back its growth in the largest US oil field next year. This move is perhaps the clearest indication yet that President-elect Donald Trump may face challenges in his ambition to boost American energy output.
In a statement released Thursday, Chevron announced it would lower its capital spending in the Permian Basin to between $4.5 billion and $5 billion by 2025. This represents a decrease of up to 10%. On a global scale, the company plans to allocate about $17 billion for its operations, down from $19 billion this year, marking the first time since 2021 that the budget has been cut.
The company explained this shift in priorities, stating, “Production growth is reduced in favor of free cash flow.”
The announcement prompted analysts from Goldman Sachs and Truist Securities to raise their price targets for Chevron shares, despite the stock dipping 1.2% early Thursday as oil prices dropped for the third consecutive day.
Over the past decade, the Permian Basin, which spans West Texas and New Mexico, has emerged as one of the globe’s fastest-growing oil sources. With output exceeding 6 million barrels a day, it has even surpassed Iraq, OPEC’s second-largest producer. Initially driven by independent drillers, the shale boom eventually attracted large corporations like Chevron to tap into its potential.
This planned slowdown might be welcomed by OPEC and its allies, who have been grappling with an oversupply of crude from the US and elsewhere, leading to an 18% decline in oil prices since the end of April. It also poses a challenge to Trump’s policy promises to drastically increase US oil production and bring energy prices down.
Crude oil prices saw West Texas Intermediate decline 0.4% to $68.30 per barrel in New York on Thursday, marking a nearly 5.6% loss over the past year. While US shale remains profitable at these levels, many executives are opting to return capital to shareholders and pursue growth through acquisitions rather than boosting production, especially with slow demand growth.
Chevron is still set to raise its output from the Permian Basin next year, but the growth rate will slow significantly from the 15% annual increase seen since 2021, as the company approaches its target of producing one million barrels per day.
Mike Wirth, Chevron’s CEO, hinted last month that production in the Permian will level off in the late 2020s, allowing the company to substantially free up cash flow. Until then, overall US production is expected to grow, supported by projects in the Gulf of Mexico over the coming years.
Recent surveys of analysts and traders by Bloomberg projected the US would add just 251,000 barrels per day through 2025, marking the slowest pace since the pandemic-induced slump in 2020. Similarly, Exxon Mobil Corp. predicted a slowdown in US output growth in the coming years, as companies prioritize profitability over raw production. Exxon is slated to reveal its 2025 spending plans on December 11.
Looking ahead, Chevron intends to spend under $1 billion on the Tengiz oil field next year, as the Kazakhstan expansion project nears its conclusion. This project is crucial for raising Chevron’s free cash flow and underpins its $17.5 billion annual share buyback program, despite encountering delays and cost overruns. Worth noting is that the $45 billion development is co-owned, with Chevron holding a 50% stake, while Exxon and KazMunayGas own 25% and 20%, respectively.
