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UPDATE 4-Chevron opts to keep massive budget in bid to boost output

Fri, 31st Jan 2014 20:02

By Ernest Scheyder Jan 31 (Reuters) - Chevron Corp plans to keepspending roughly $40 billion per year for the next several yearson new oil and natural gas projects in a bid to lift productionthat is on track to be flat for the third straight year. That stay-the-course approach, announced on Friday after thesecond-largest U.S. oil company said its quarterly profitdropped 32 percent, spooked investors and prompted the stock tofall 3.5 percent, the most of any large energy producer thisquarter. Like Exxon Mobil Corp, Royal Dutch Shell and other international energy companies, Chevron has tried tooffset declining production at its existing oil and natural gaswells by spending massively on new exploration projects. But Shell announced earlier this week that it would focusmore on energy projects that have the best chance of success,cutting spending and also selling underperforming assets. Thenews boosted Shell's stock. Chevron has taken the opposite approach and plans to keepthe cash flowing. It spent $41.9 billion last year on energyprojects, a 23 percent increase from 2012. Chevron ChiefExecutive John Watson said he expects capital spending to be inthe $40 billion range for the next few years. Chevron is betting that its relatively high dividend yieldfor the energy industry and its large stock buyback program willappease investors until five of its major projects, includingtwo massive liquefied natural gas projects in Australia anddeepwater wells in the U.S. Gulf of Mexico, are online. "Basically it's a treadmill," said Oppenheimer & Co analystFadel Gheit. "Yes, all these new projects will add oil. Butguess what, until they hit that goal, their base line productionis declining." Chevron's oil and natural gas production fell 3.4 percent inthe fourth quarter to 2.6 million barrels of oil equivalent perday (boed). Rising production in the United States and Nigeria wasn'tenough to offset declining production at legacy fields aroundthe world, which typically see production slip 4 percentannually, Chevron said. For 2014, Chevron expects total production of 2.6 millionboed, up only 0.5 percent from 2013 levels. The estimate missedWall Street's expectations and disappointed investors, who hadhoped 2014 would be a "positive transition year" toward 2017when new projects come online, Credit Suisse analyst EdwardWestlake said in a note. Even if Chevron hits its 2014 production goal, it would onlybe on par with 2012 levels. Looking forward, Chevron said it has made significantprogress on its five main growth projects. In total, the fivenew protects will add 500,000 boed in production, the companyestimates, once fully online. "We are in a depleting resource business, and you do need toadd to the portfolio," Watson said on a conference call withinvestors. The company reported net income of $4.93 billion, or $2.57per share, compared with $7.25 billion, or $3.70 per share, inthe year-ago period. The quarterly profit met expectations of Wall Streetanalysts, according to Thomson Reuters I/B/E/S. The results were not a total surprise to Wall Street, asChevron hinted earlier this month that its fourth-quarter profitwould be "comparable" with third-quarter results, when it postednet income of $4.95 billion. In refining, profit plunged 58 percent due to shrinkingmargins, largely due to price differentials between differenttypes of crude oil. Refiners make more money when the price difference betweenvarious types of crude oil is wide. When the gap narrows in theprice differences, costs tend to rise. Exxon on Thursday postedweakness in its own refining unit. Profit also fell in Chevron's smallest unit, the powergeneration and mining unit. Chevron shares fell $4.02, or 3.5 percent, to $112.40 inafternoon trading. The stock is down about 2.4 percent over thepast 52 weeks.

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