Chevron to write down up to $11 billion on lower commodity price outlook

Chevron Corp. said Dec. 10 that it plans to write down $10-11 billion in asset value in fourth-quarter 2019 and that it is considering selling some natural gas projects in preparation for long-term low prices. The move has become the largest write-down of the energy industry in recent years.

As a result of a disciplined approach to capital allocation and a downward revision in its longer-term commodity price outlook, Chevron will reduce funding to various gas-related opportunities including Appalachia shale, Kitimat LNG, and other international projects, according to the press statement. More than half of that non-cash charge is related to natural gas properties in Appalachia.

Chevron is also writing down the value of a major Gulf of Mexico deepwater oil drilling project, which requires higher oil prices to generate profits.

Chevron plans to maintain a 2020 organic capital and exploratory spending program of $20 billion. The 2020 budget is highlighted by Chevron’s Permian basin position, the company’s major capital project at TCO in Kazakhstan, and an advantaged queue of deepwater opportunities in the Gulf of Mexico.

“We are positioning Chevron to win in any environment by ratably investing in the highest return, lowest risk projects in our portfolio. This will be the third consecutive year with organic capital spending held flat at $20 billion, continuing our capital discipline through the cycle. Our emphasis on short cycle investments is expected to deliver improved returns on capital and stronger free cash flow over the long-term,” said Chevron Chairman and Chief Executive Officer Michael Wirth.

“We believe the best use of our capital is investing in our most advantaged assets,” Wirth continued. “With capital discipline and a conservative outlook comes the responsibility to make the tough choices necessary to deliver higher cash returns to our shareholders over the long term.”

Speaking after Chevron’s impairment announcement, Tom Ellacott, senior vice president of corporate analysis at Wood Mackenzie, said the charge “reflects a downward revision to its longer-term price outlook and reduced future investment in gas opportunities…The announcement continues a wave of write-downs related to price downgrades. US shale gas assets have been hardest hit, reflecting the weak outlook for US gas prices. We expect the trend of write-downs to continue as price outlooks are adjusted down.”