As a result of the “oil price meltdown” Raymond James Analyst Pavel Molchanov says oil producers are cutting spending by as much 50%. As one of the largest oil & gas companies in the world, Molchanov says Chevron Corporation’s (CVX) cuts are likely to be more modest, potentially in the 10% to 20% range.
“As far as where precisely spending will be reduced, well, that’s an interesting question. Chevron, like many companies in the multinational peer group, has a significant amount of spending on long-lead-time projects,” Molchanov says “That includes LNG projects in Australia and some deepwater developments in the Gulf of Mexico, for example. Those are very difficult to cut while they are being built because the fact of the matter is, if a project like that is in construction, in almost every instance it’s going to be taken to its completion.”
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Instead, Molchanov says Chevron will likely curtail short-cycle spending. He says that could include drilling in the Permian Basin of West Texas and the Vaca Muerta shale in Argentina.
“But the long-lead-time projects for Chevron and for anybody globally, whether it’s in Brazil or in Australia or in the Gulf of Mexico, or in the North Sea, those projects are going to be taken to fruition,” he says.
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