Chevron Corp (CVX) said on Tuesday that it would reduce its 2020 guidance for organic capital and exploratory spending by 20% to $16 billion amid a drop in oil prices.
Chevron shares closed higher for the fifth time in the past ten trading sessions in New York on Tuesday. The stock went up 22.74% ($12.33) to $66.55, after touching an intraday high at $67.50, or a price level not seen since March 17th ($72.98).
Shares of Chevron Corp have retreated 44.78% so far in 2020 compared with a 24.25% loss for the benchmark index, S&P 500 (SPX).
In 2019, Chevron’s stock went up 10.77%, thus, it again underperformed the S&P 500, which registered a 28.88% gain.
Expected reductions are estimated as follows:
– $2 billion in upstream unconventionals, primarily in the Permian Basin,
– $700 million in upstream projects and exploration,
– $500 million in upstream base business spread broadly across the company’s US and international assets,
– $800 million in downstream & chemicals.
The oil major expects a drop by $3.3 billion to $10.5 billion in cash capital and exploratory expenditures during 2020. It also projects total capital and exploratory spending of roughly $7 billion during the second half of the year, an annual run rate 30% lower compared to the approved budget announced in December.
Without taking into account 2020 asset sales and price related contractual effects, this year’s production is expected to remain roughly flat compared to 2019. Production in the Permian Basin is expected to be nearly 125 000 barrels of oil equivalent per day by the end of this year.
“With an industry leading balance sheet and a flexible capital program, we believe Chevron is resilient and positioned to withstand this challenging environment,” Michael Wirth, Chevron’s Chairman and Chief Executive Officer, said in a press release.
“Given the decline in commodity prices, we are taking actions expected to preserve cash, support our balance sheet strength, lower short-term production, and preserve long-term value,” Wirth added.
Analyst stock price forecast and recommendation
According to CNN Money, the 21 analysts, offering 12-month forecasts regarding Chevron Corp’s stock price, have a median target of $90.00, with a high estimate of $140.00 and a low estimate of $65.00. The median estimate represents a 35.24% upside compared to the closing price of $66.55 on March 24th.
The same media also reported that at least 18 out of 24 surveyed investment analysts had rated Chevron Corp’s stock as “Buy”, while 4 – as “Hold”.