Chevron to keep big budget to boost output, in contrast to Shell's new path

Chevron's (CVX) stay-the-course approach to keep spending ~$40B/year for the next several years on new gas projects to lift continually flat production, even after a 32% drop in quarterly earnings, spooked investors today, sending shares -4.1% to 52-week lows.

CVX is betting that its relatively high dividend yield and its large stock buyback program will appease investors until some of its major projects, including two massive liquefied natural gas projects in Australia and deepwater wells in the Gulf of Mexico, are online.

"It's a treadmill," says Oppenheimer's Fadel Gheit. "Yes, all these new projects will add oil. But... until they hit that goal, their base line production is declining."

Meanwhile, Shell (RDS.A, RDS.B) said this week it will move in a different direction, focusing more on energy projects with the best chance of success, cutting spending and selling weaker assets.

Shell's "capitulation to activist investors" promises to send shivers through the big oil industry where underperformance has become endemic, FT's Nick Butler writes.

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Comments (4)
  • PalmDesertRat
    , contributor
    Comments (3792) | Send Message
    What large stock buyback program? In the last four years the total number of diluted shares has shrunk by a whopping 4.1% Hardly large.
    31 Jan 2014, 07:05 PM Reply Like
  • cfg3450
    , contributor
    Comments (86) | Send Message
    Seems I remember that Big Oil (XOM, CVX, RDS, BP and TOT) has always had a difficult time increasing their crude oil reserves. Buying other smaller oils has been one of their methods of growing reserves.
    These E&P groups - in Big Oil- is usually made up of a group (maybe 10 or more) who make the decisions.
    In the smaller E&P companies, EOG, PXD, CXO, SN,SM, XEC,
    and AREX to name a few (perhaps 3 or 4 with 1 or 2 , making the final decisions) and have a good record of finding a lot of new crude oil.
    1 Feb 2014, 12:31 AM Reply Like
  • User 353732
    , contributor
    Comments (5161) | Send Message
    CVX has what Shell seems to lack: strategic vision; executives depth and execution capacity. Capital by itself has never been enough to underwrite success in the oil and gas takes the right culture, mix of operating skills, financial discipline and strategic leadership to create long term value.
    Shell knows how to spend money.; CVX knows how to invest money...there is a big difference.
    1 Feb 2014, 12:44 PM Reply Like
  • cfg3450
    , contributor
    Comments (86) | Send Message
    CVX's long term strategic/culture is a big plus and I agree with 353732 above.
    Hopefully this will lead to long term value and increased dividends.
    Maybe, RDS will find it's way with in ext couple year and keep paying the big dividend.
    However, they all will have a problem of increasing their oil/gas reserves and
    will probably end up buying them.
    1 Feb 2014, 06:59 PM Reply Like
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