Chevron promises to slow carbon emissions and increase oil production with modest spending

Chevron Corp on Tuesday presented a plan to expand oil and gas production through 2025, but without spending much more, and pledged to limit the rate of growth of its carbon emissions.

Falling energy demand due to lockdowns due to a pandemic caused the industry to drop in 2020 and lead Chevron to an annual loss of $ 5.54 billion, its first since 2016.

Investors have pressured Chevron and other oil companies to keep spending stable and reduce emissions that contribute to climate change. Competitors Royal Dutch Shell, BP Plc and Exxon Mobil have pledged to keep production at a stable level or to allow it to decline to meet its climate or financial targets.

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CEO Michael Wirth told analysts on Tuesday in a presentation that Chevron can meet its production and carbon targets regardless of fluctuations in oil prices.

“We’re not betting on higher prices to bail us out,” he said during an apparent dig at Exxon and others counting on the rebound in oil to cover dividends and debt repayments. By 2025, Chevron will be able to more than double its return on capital employed, a measure of how efficiently a company invests, to more than 10%.

Yet some analysts were unimpressed by the climate and emissions targets, seeing them as too modest. Shares fell a fraction from a one-year high at $ 109.50.

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A forecast of $ 25 billion in free cash flow through 2025 after dividends and project spending is “disappointing,” said Biraj Borkhataria, analyst at RBC Capital Markets.

Carbon intensity targets “lag behind the industry average” and “focus on its controllable elements” rather than building new lines of business, “which could contribute to profits, at -he adds.

The goal of investing around 2% of the project’s overall spending on reducing carbon emissions indicates that Chevron is not pivoting its underlying operations, said Pavel Molchanov, analyst at Raymond James.

Other oil majors have presented plans to invest in renewable energies and carbon capture and storage.

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Still, Chevron said through 2025 it would set annual capital spending at around $ 14 billion and increase oil and gas production by about 3.5% on a compound annual basis.

It plans to increase its investments through 2025 in the Permian Basin of Texas and New Mexico, the first American shale field, as the costs of a major expansion in Kazakhstan decline.

Globally, it aims to increase production to around 3.5 million barrels of oil and gas per day (mb / d) by 2025, up from around 2.98 mb / d last year. Permian production could reach 1 million barrels per day.

Chevron will be the largest player in the Permian Basin with a “large margin on production volumes over ExxonMobil, around 40% more,” said Peter McNally, analyst at Third Bridge.

Its climate focus includes a 35% reduction in its rate of carbon emissions per unit of output by 2028. Routine flaring of natural gas, a contributor to global warming, will stop by 2030, officials said.

The intensity target is less ambitious than competitors seeking to reduce absolute carbon dioxide emissions. Overall discharges can increase if production increases, and Chevron has failed to set a net zero emission target like its European and US peers.

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Chevron is on a “path to net zero emissions,” Wirth said on Tuesday, but added that technological breakthroughs, carbon markets and policy changes are needed.

“We will make more specific commitments over time,” he said.

Chevron, which acquired Noble Energy during last year’s market lows, raised the expected cost savings from the operation to $ 600 million, helping to reduce operating expenses by 10% this year. compared to 2019.