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Chevron Vows To Slow Carbon Emissions, Raise Oil Output With Modest Spending

A forecast of $25 billion in free cash flow through 2025 after dividends and project outlays is "underwhelming," said Biraj Borkhataria, an analyst with RBC Capital Markets.

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Chevron Corp on Tuesday outlined a plan to expand oil and gas production through 2025, but without spending significantly more, and pledged to limit the pace of growth of its carbon emissions.

Falling energy demand due to pandemic-driven lockdowns sent the industry into a tailspin in 2020 and led Chevron to a $5.54 billion annual loss, its first since 2016.

Investors have been pressuring Chevron and other oil companies to hold spending flat and reduce emissions that contribute to climate change. Competitors Royal Dutch Shell, BP Plc and Exxon Mobil have vowed to hold output flat or allow it to decline to meet climate or financial goals.

Chief Executive Officer Michael Wirth told analysts in a presentation on Tuesday that Chevron can achieve its output and carbon goals regardless of oil price fluctuations.

"We're not betting on higher prices to bail us out," he said in an apparent dig at Exxon and others counting on oil's rebound to cover dividends and debt repayments. By 2025, Chevron can more than double its return on capital employed, a measure of how efficiently a company invests, to more than 10%.

Still, some analysts were unimpressed with the climate and emissions goals, viewing them as too modest. Shares dipped a fraction from a one-year high to $109.50.

A forecast of $25 billion in free cash flow through 2025 after dividends and project outlays is "underwhelming," said Biraj Borkhataria, an analyst with RBC Capital Markets.

The carbon intensity goals "lag the industry average" and "focus on its controllable elements" rather than building new business lines," that could contribute to profits, he added.

The goal of investing about 2% of overall project spending on lower carbon emissions, indicates Chevron is not pivoting its underlying operations, said Pavel Molchanov, analyst at Raymond James.

"Others have longer-dated goals," Chevron Chief Financial Officer Pierre Breber said in an interview. Chevron's climate targets for this decade are "going to be very competitive with anybody," he said.

Other oil majors have outlined plans to invest in renewable energy and carbon capture and storage.

Still, Chevron said through 2025 it would fix annual capital outlays at around $14 billion and increase oil and gas output by about 3.5% on a compound annual basis.

It plans to beef up investments through 2025 in the Permian basin of Texas and New Mexico, the top U.S. shale field, as costs of a major expansion in Kazakhstan decrease.

Overall, it aims to boost output to around 3.5 million barrels of oil and gas per day (mbpd) by 2025, from about 2.98 mbpd last year. Permian production could reach 1 million barrels per day.

Chevron will be the largest player in the Permian basin with a "wide margin on production volumes over ExxonMobil, roughly 40% greater," said Peter McNally, analyst at Third Bridge.

Its climate focus includes a 35% reduction in its carbon emissions rate per unit of production by 2028. Routine flaring of natural gas, a contributor to climate warming, will halt by 2030, officials said.

The intensity target is less ambitious than rivals that look to reduce absolute emissions of carbon gases. Releases overall can increase if production rises, and Chevron failed to set a net zero emissions target like European and some U.S. peers.

Chevron is on a "pathway toward net zero" emissions, Wirth said on Tuesday, but added that technology breakthroughs, carbon markets and policy changes are needed.

"We'll make more specific commitments as time unfolds," he said.

Chevron, which acquired Noble Energy during last year's market lows, raised to $600 million its expected cost savings from the deal, helping lower operating expenses 10% this year compared with 2019.