Chevron Corp., the second-largest U.S.-based producer behind ExxonMobil Corp., said Friday it would lay off up to 7,000 people, about 11% of its workforce. It also has reduced long-term production targets and capital spending to cope with the worst industry slump in close to 40 years.
Besides the employee cutbacks, the San Ramon, CA-based oil major also plans to eliminate as many as 7,000 contractors, CEO John Watson said during a conference call Friday to discuss third quarter results. The job reductions are the largest since predecessor Chevron merged with Texaco Inc. in 2001. Watson explained that many of the job losses would impact Australian liquefied natural gas (LNG) projects, which are nearing fruition.
"With the lower investment, we anticipate reducing our employee workforce by 6,000-7,000," he said. Chevron has close to 65,000 now employed around the world.
In addition to job losses, production forecasts were trimmed to growth of 13-15% through the end of 2017 from 20%. Capital spending next year is set 25% below 2015 at $25-28 billion. Spending in 2017 and 2018 is set to decline to $20-24 billion.
"We expect further reductions in spending for 2017 and 2018," Watson said. "We are focused on improving results by changing outcomes within our control."
For instance, Chevron reported that capital spending actually fell 15% year/year on efficiencies and lower service costs. The $7.97 billion savings almost matched the cost savings by ExxonMobil, which also reported quarterly earnings on Friday (see related story). Chevron's operating and administrative costs were 7% lower year/year and more reductions are likely, Watson said.
Earnings plunged year/year to $2.04 billion ($1.09/share) from $5.6 billion ($2.95). Revenue slumped 37% to $34.3 billion. Net cash from operating activities fell to $15 billion from $25 billion. Within the upstream business, earnings fell to $59 million from profits of $4.65 billion in 3Q2014.
U.S. upstream earnings swung to a loss of $603 million versus year-ago profits of $929 million. The downstream arm reported strong earnings, up 59% year/year to $2.2 billion, led by higher margins on refined products.
Worldwide net production was 2.54 million boe/d, versus 2.57 million boe/d a year ago.
In the United States, natural gas production increased 6%, with net output of 1,351 Mcf/d from 1,278 MMcf/d. Domestic net liquids production also increased 9% to 505,000 b/d from 464,000 boe/d. Total production in the United States was 730,000 boe/d, compared with 677,000 boe/d a year ago. Production increases in the United States followed project ramp-ups in the deepwater Gulf of Mexico (GOM), along with growth from the Permian Basin and the Marcellus Shale in Western Pennsylvania.
Chevron has successfully appraised its Anchor discovery in the Lower Tertiary Trend of the deepwater GOM, which indicates "a significant discovery of potentially hub class scale," said upstream Executive Vice President Jay Johnson. The original Anchor discovery well in Green Canyon Block 807 is 140 miles off the coast of Louisiana in 5,180 feet of water. It was drilled late last year to a depth of 33,750 feet and encountered 690 feet of net pay.
"Our view is that this is a hub class development," Watson said. With tiebacks, the venture could be more economic. Deepwater ventures take years and millions in investment before they deliver, so Anchor won't ramp up any time soon, he said. Chevron U.S.A. Inc. is the operator and holds a 55% stake with with co-owners Cobalt International Energy LP (20%), Samson Offshore Anchor LLC (12.5%) and Venari Resources LLC (12.5%).
Until commodity prices cooperate, some projects may have to wait. "We're going through our plans now," the CEO said. "We're trying to decide what to move and what will have to wait."
Not a lot of activity is planned for the U.S. natural gas portfolio. In the Marcellus, one of Chevron's big gas developments, work has almost ceased, Watson said. "We're not shifting down activity completely there, but we’re not running six to eight rigs in these kind of conditions." Chevron now has "a couple rigs running there."
During 3Q2015, Chevron also sold 3,896 MMcf/d of its U.S. gas, higher than year-ago levels of 3,697 MMcf/d. The company’s average realized U.S. gas sales price was $1.96/Mcf, versus a year-ago price of $3.46. Crude oil and natural gas liquids prices were $42 versus $87 a year ago.