Chevron, the second-largest U.S. oil producer, announced it will incur up to $1.5 billion in charges during the fourth quarter of 2024. These charges stem from restructuring efforts, asset impairments, and property sales costs. This announcement comes as the company grapples with a prolonged period of declining profits and increased borrowing to maintain shareholder payouts.
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Cost-Cutting Measures Amidst Profit Decline
A significant portion of the charges is attributed to planned job cuts and relocations over the next two years. While the exact number of affected employees among Chevron’s 45,000-strong workforce remains undisclosed, the move underscores the company’s commitment to cost reduction. This restructuring initiative aligns with Chevron’s previously stated goal of slashing up to $3 billion in costs by 2026.
The oil and gas industry has witnessed a trend towards acquisitions to bolster reserves and production, thereby reducing the need for substantial investments in new field development. Following its $53 billion bid to acquire Hess Corporation, Chevron intends to reduce its 2025 project spending by $2 billion from the approximately $19 billion allocated for this year.
Strategic Shift in Capital Allocation
CEO Michael Wirth emphasized the company’s dedication to “cost and capital discipline” through the reduced 2025 capital budget and structural cost reductions. The lower project spending also reflects the completion of major investments in Kazakhstan operations, recent divestitures of assets in Canada, Alaska, and Congo, and decreased spending on U.S. shale operations.
Specifically, new expenditures on oil and gas production are projected to decrease by about $1 billion, while refining expenditures will see a reduction of approximately $300 million compared to the current year. It’s important to note that these figures exclude any potential costs associated with Chevron’s proposed acquisition of Hess, which faces ongoing challenges due to objections from Exxon Mobil and CNOOC, Hess’s partners in a Guyana oil venture.
Breakdown of the Charges
Of the total after-tax charges, up to $900 million will be allocated to severance pay and relocation expenses. Asset impairments and property sales will account for the remaining $600 million. Chevron clarified that these asset impairments will not impact adjusted earnings. Financial analysts at LSEG forecast Chevron’s fourth-quarter profit to be $4.35 billion, or $2.42 per share, compared to $6.45 billion, or $3.45 per share, in the same period last year.
Such charges have become a recurring theme for Chevron. The company recorded a $3.7 billion impairment charge in the previous year, a $1.1 billion charge in 2022, and a substantial $4.8 billion charge in 2020.
Conclusion: Navigating a Changing Energy Landscape
Chevron’s decision to implement significant cost-cutting measures, including job reductions and asset sales, reflects the challenges faced by the oil and gas industry amidst fluctuating market conditions and a shift towards strategic acquisitions. While the company’s commitment to capital discipline aims to enhance long-term profitability, the success of this strategy will depend on navigating the complexities of the evolving energy landscape and overcoming hurdles in its pursuit of growth through acquisitions.
