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Chevron Saddles Up for More Permian Spending in 2018, Even as Total Capex Reduced

Chevron Corp. is ramping up its capital spending in the Permian Basin next year, while total global expenditures are set to decline for the fifth year in a row.

The second-largest U.S. oil and gas producer is earmarking $18.3 billion in capital expenditures (capex) for 2018, about 4% lower than 2017’s total spend of $19.8 billion. About $5.5 billion is set aside for affiliated company spending.

While capex overall is trending down, spending in the United States is sharply accelerating, to $4.3 billion from $2.5 billion this year. Three-quarters of domestic spending  -- $3.3 billion -- is pledged to activity in West Texas and southeastern New Mexico.

“With production currently exceeding guidance in the Permian, our 2018 plan should deliver both strong production growth and solid free cash flow, at prices comparable to what we’ve seen this year,” CEO John Watson said.

The legacy Permian player holds an estimated two million acres in West Texas and New Mexico, and the region was at the top of its development list this year. However, not all of the acreage is considered core, with bits and pieces marketed outside the focus. About 150,000-200,000 acres are to be monetized in the Permian, and through mid-September, it had executed deals totaling about 80,000 acres.

At midyear, Chevron was running 13 rigs in the Permian, with a rig scheduled to be added to the West Texas region every eight to 10 weeks. Twenty rigs were expected to be running by the end of this year.

“Our 2018 budget is down for the fourth consecutive year, reflecting project completions, improved efficiencies, and investment high-grading, said Watson, who is retiring in February.

“We’re fully funding our advantaged Permian Basin position and dedicating approximately three-quarters of our spend to projects that are expected to realize cash flow within two years.”

Total upstream spend is set at $15.8 billion, with the U.S. arm set to receive $6.6 billion and $9.2 billion aligned for international operations.

About $8.7 billion is forecasted to sustain currently producing upstream assets. Around $5.5 billion of the upstream program is to be directed to major capital projects underway, including $3.7 billion associated with a future project at the Tengiz field in Kazakhstan.

Global exploration capex is expected to be about $1.1 billion. The remaining upstream spend would be for early stage projects that support “potential future developments.”

For the downstream business, the San Ramon, CA-based oil major is budgeting $2.2 billion for 2018, with the U.S. arm set to garner $1.4 billion and international operations budgeted at $800 million.
 

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