Chevron Promises Higher Returns, Lower Carbon

Chevron promised investors on March 9 that it would double the return on capital by 2025 while reducing its carbon intensity, following a similar pledge by rival ExxonMobil earlier this month.

The US major reaffirmed its annual plan for organic capital and exploratory expenditure at $14-16bn in 2021-2025, and said it had doubled its estimate for annual cost synergies created from its takeover of Houston-based Noble Energy last year to $600mn. This contributes to an expected reduction in 2021 operating costs of 10% year on year, it said.

As a result, Chevron expects to double capital returns, achieving a compound annual growth rate that is 10% of free cash flow by 2025, assuming Brent crude averages $50/barrel.

Chevron's message to investors is "higher returns, lower carbon," CEO Michael Wirth said in a statement. "We're building on our track record of capital and cost discipline to deliver higher returns. And we're taking action to advance a lower carbon future."

Chevron expects capital requirements at the Tengiz oilfield expansion in Kazakhstan to fall in the coming years. The project, whose cost has ballooned from $37bn to over $45bn, is now 81% complete and is on track for first oil in 2023, a year behind schedule. Delays were partly caused by several coronavirus outbreaks at the construction camp.

"Executing our 2021 work programme amidst the pandemic will be an important signpost for the project's budget and schedule," Chevron's vice president for upstream, Jay Johnson, said.

As less cash is needed at Tengiz, Chevron will be able to increase investment in other attractive assets including in the US Permian basin where it says its assets are "advantaged". The long-term outlook is positive and capital efficiency is improving," Johnson said. "We expect to grow production while generating strong free cash each year along the way."

Chevron has exceeded its 2023 upstream carbon intensity reduction target three years early, it said, and has announced tougher targets for 2028. It wanted to lower its greenhouse gas intensity for oil and gas by 35% versus the 2016 to 24 kg CO₂ equivalent/barrel of oil equivalent (boe), cut overall flaring intensity by 65% to 3 kg CO₂e/boe and methane intensity by 50% to 2 kg CO₂e/boe.

"Our energy transition strategy is focused on actions that are good for both society and shareholders," Bruce Niemeyer, vice president of strategy and sustainability, said. "Achieving our 2028 goals is expected to keep Chevron a top quartile oil and gas producer in terms of carbon intensity."

Chevron also launched its second Future Energy Fund earlier this year with an initial commitment of $300mn. The fund will invest in low-carbon technologies such as hydrogen and carbon capture, use and storage. Chevron expects to invest over $3bn in its energy transition strategy in the coming years.