By Ernest Scheyder
NEW YORK, March 11 Chevron Corp, the second-largest U.S.
oil company, cut its 2017 production forecast on Tuesday by 6 percent, citing
project delays and asset sales, while saying high prices have pushed its new
baseline for oil to north of $100 a barrel.
The company, like many of its peers, has seen mixed results from heavy
spending to lift oil and natural gas production, and shareholders in the sector
are pushing for more cost discipline.
Chevron trimmed its 2017 production outlook to 3.1 million barrels of oil
equivalent per day (boepd) from a previous forecast of 3.3 million boepd, but
stuck to plans to spend $40 billion this year on capital projects, about as much
as last year.
"Our growth strategy remains intact, though some things have changed," Chief
Executive John Watson said at the company's analyst day in New York.
Despite the more cautious production forecast, Chevron raised the oil price
used in its planning models to $110 a barrel from $79. Exxon Mobil, the
largest U.S. oil company, is using a similar level of $109 a barrel in its
budgets, based on 2013 average prices.
"There comes a point when some projects just won't be able to compete for
capital" below $110 per barrel, Watson told reporters after the analyst meeting.
Watson cautioned that not all price rises go to Chevron.
High crude oil prices have, paradoxically, cut Chevron's cost
reimbursement in some contracts and increased costs, Watson said. An increase in
the price of oil can entitle Chevron's partners to a higher share of production.
"When prices increase, it's just arithmetic at that point," he said.
In January, Chevron said it expected production of 2.6 million boepd this
year, up 0.5 percent from last year.
LOW NATURAL GAS PRICES
Chevron has slowed development of its holdings in the Marcellus shale
formation in the eastern United States due in part to low natural gas prices
, which are making it less economical to extract the fuel.
Exxon lowered its production outlook for 2017 by 500,000 boepd last week,
partly due to lower spending on North American natural gas.
Chevron plans to sell about $10 billion of assets in the next three years,
an increase from the $7 billion in asset sales in the previous three years,
which will also cut production.
Most of the new asset sales will be uncompetitive assets in the company's
oil and natural gas exploration and production business, Watson and other
While Chevron has insisted on keeping capital expenditures high, many of its
peers have cut spending, bowing to investor demand for reduced spending on
exploration projects and boosts to dividends and share repurchases.
Royal Dutch Shell took the most drastic step earlier this year,
vowing to cut $9 billion from its capital spending this year and increase the
money it sends shareholders.
Watson defended Chevron's capital budget, saying targeted spending is in
shareholders' best interest.
"What underpinned the original growth estimate we talked about is still
there," Watson said. "The best investments produce strong earnings and cash
margins, which in turn sustain a strong balance sheet."
Chevron's stock fell $1.33, or 1.1 percent, to close Tuesday trading at