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Chevron's Goal for Record Output Slips as Production Falters

Friday, 02 May 2014 01:11 PM

Chevron Corp. Chairman and Chief Executive Officer John Watson’s goal of breaking a production record three years from now just got harder to reach.

After spending more than $100 million a day on average during the first three months of the year on new oil wells and other projects, Chevron posted its lowest first-quarter crude and natural gas output since 2006 today. The company pumped the equivalent of 2.59 million barrels a day during the period, 1 percent below the average estimate of three analysts in a Bloomberg survey.

The output disappointment comes less than two months after Watson scaled back his 2017 output target to 3.1 million barrels a day from 3.3 million amid low gas prices that stalled some drilling and scant new discoveries. For Chevron, the world’s third-largest energy company by market value, production in the era after its 2001 takeover of Texaco Inc. peaked at 2.78 million a day in 2010.

“They are having to battle quite hard to get bottom-line production growing,” Stephen Clark, who helps manage $305 billion, including Chevron shares, at Standard Life Investments in Boston, said in a telephone interview today. “The sheer size of some of the projects is an issue.”

Watson cited winter weather in Kazakhstan, the source of one in every eight barrels Chevron pumps worldwide, and a storm in Thailand for the production decline. “We continue to advance our key development projects” that will begin boosting output next year, he said in a statement today.

Still Viable

The Chevron-operated $10 billion Angola LNG complex in Africa that chills gas for shipment to overseas markets has been shut since a pipe failure in mid-April, Chief Financial Officer Pat Yarrington said during a conference call today.

An internal investigation into the incident should be concluded in a matter of days, she said. Yarrington didn’t provide an expected restart date, though she said the outage will have a negative impact on Chevron’s overall production.

Watson’s 2017 goal “still seems viable because they have a lot of big projects coming on,” said Stewart Glickman, an equity analyst at S&P Capital IQ in New York who rates Chevron a buy and doesn’t own any shares. New contributions to output will include fields beneath the Gulf of Mexico and off the Australian coast, he said in an interview today.

First-quarter net income was $4.51 billion, or $2.36 a share, compared with $6.18 billion, or $3.18, a year earlier, San Ramon, California-based Chevron said in the statement. Sales fell 6.1 percent to $50.98 billion. The company increased capital spending 5.6 percent to $9.4 billion during the quarter.

Russia Pipeline

Chevron is among international energy explorers caught in the middle of an intensifying row between the U.S. and its European allies on one side, and Russian President Vladimir Putin on the other. Putin put foreign oil companies on the spot on April 29 when he said they may be shut out of his country if their governments continue to ratchet up sanctions against Russian nationals and institutions.

Chevron and its partners are in the midst of a $5.4 billion expansion of a pipeline that carries oil across Russia’s Caucasus region from fields in neighboring Kazakhstan that account for 12 percent of the company’s global supplies.

Spending, Selling

Watson is spending almost $40 billion this year to drill for new discoveries and transport oil, gas and fuels such as diesel to markets. In tandem with exploration forays that span the globe from Argentina to China, Watson is overseeing $10 billion in asset sales to narrow the company’s focus on its highest-profit projects.

Brent crude futures, the benchmark for more than half the world’s oil, declined by 4.2 percent to an average of $107.92 a barrel during the quarter, according to data compiled by Bloomberg. U.S. gas prices climbed 35 percent to average $4.712 per million British thermal units during that period.

Chevron rose 0.1 percent to $124.77 at 12:27 p.m. in New York.

Exxon Mobil Corp. is the world’s largest energy company by market value, followed by Royal Dutch Shell Plc.

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Chevron Corp. Chairman and Chief Executive Officer John Watson's goal of breaking a production record three years from now just got harder to reach.
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Friday, 02 May 2014 01:11 PM
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