Chevron Corp. plans to curtail new investments for the next two years and boost its asset sales plans as low oil prices squeeze cash flow for the second-largest U.S.-based producer.

Chevron last year had planned to sell $10 billion of assets through 2017. That’s been hiked to $15 billion, CEO John Watson said Tuesday at the company’s annual analyst meeting in New York City. Capital spending, set at about $30 billion for 2015, is set to decline over the next two years, in part as big expenditures wind down.

“We’re quite sober about prices in 2015,” Watson said of declining oil prices. “We know we have to manage costs, both in the short-term and the long-term environments.” Investment cuts made across the industry should “bring supply and demand into balance in 2016,” moving oil prices upward. “I don’t think $50 oil is sustainable.

The “fundamentals” of the oil and gas business remain attractive, and Chevron is positioned to manage. However, it has to take “responsive actions, including curtailing capital spending and lowering costs.”

The San Ramon, CA-based oil major in January had said it would reduce spending for 2015 by 13% to $30 billion (see Daily GPI, Jan. 30). Last year Chevron budgeted $35 billion for capital expenditures.

Some of the capital costs would be made up from lower costs for oilfield services (OFS) providers and vendors, said Senior Vice President Jay Johnson. He is taking over the upstream arm when Vice Chairman George Kirkland retires later this year. Johnson was blunt about what the company also expects from the OFS contracting. Service costs should decline by at least 10% and up to 40%, depending on the service. If they don’t, “we will re-bid contracts.”

Johnson’s veiled comments mirrored similar remarks by ExxonMobil Corp. CEO Rex Tillerson earlier this month, who said he expected OFS costs to drop because of the amount of business (see Daily GPI, March 4).

Still, by 2017, “we expect to achieve 20% production growth…a rate which is simply unmatched by our industry peers,” Watson said. “More importantly, our new production is expected to have considerably higher margins than in our existing portfolio…Over the next few years, we expect to deliver significant cash flow growth as projects currently under construction come online.”

This year production is expected to average 2.57 million boe/d but climb to 3.1 million boe/d by the end of 2017. Annual capital spending is set to drop steadily through 2017 as big projects are completed, such as two liquefied natural gas export projects in Australia: Gorgon and Wheatstone. However, partly on lower spending, production volume growth may slow to only 1% after 2017.

Lower capital spending “does make a difference,” the CEO said. “If you spend less, you’ll receive less over time.”

The GOM deepwater developments continue to accelerate, however. Four wells currently are producing from the Lower Tertiary Trend’s Jack/St. Malo project. Another six wells should ramp up this year. The project could average 100,000 b/d by the end of this year, Watson said.

As well, the company continues to ramp up production from shale and tight oil and natural gas assets, “particularly from our very attractive Permian Basin acreage position.”

The Permian legacy leasehold, which covers about two million net acres, has been held for decades, requiring an overall royalty rate of less than $5.00/bbl, less than half that of other operators. What that means is while other operators are trimming their plans in the Permian, Chevron is able to accelerate.

In addition, technology and efficiencies have trimmed Permian drilling costs per foot by 20%, with completion costs down 28% from 2013. Up to 375 wells are planned for the Permian this year with years of work ahead, with an estimated 7 billion boe.

The Marcellus Shale in Pennsylvania also could see some growth, said executives.

Expansions are a priority over acquisitions, Watson stressed. Asked about whether the producer might be shopping for distressed properties, he said, “that’s not something we need to do right now and not my first priority…I wouldn’t want to signal that we’re looking for an acquisition in any one play.”

Also a priority is the dividend. “Our intention is to demonstrate performance that will allow our 27-year history of successive increases in our annual dividend payout to continue,” Watson said.

Chevron participated in 35 discoveries last year, adding 1.4 billion boe to its portfolio, Kirkland told analysts. Included were deepwater finds in the GOM, as well as in North America’s onshore.

The “base business is performing exceptionally well and is profitable, even in a lower-price environment,” Kirkland said. “Our large, diverse resource base allows us to be very responsive to market conditions, with flexibility to select only the most attractive opportunities to move forward.”