Chevron CEO: $50 oil will not meet world’s energy need

HOUSTON — The CEO of oil giant Chevron Corp. said Friday that $50 crude oil wouldn’t be enough to meet the global economy’s longer-term energy needs.

Crude oil has fallen by more half since highs reached this summer as global supply has outpaced demand. But on fourth-quarter earnings call with investors, Chevron CEO John Watson said that long-term prices would have to be high enough to support the kinds of billion-dollar projects his company – and other majors – pursue.

For the quarter, the news was bleak: Chevron reported falling profits, slashed its budget and hinted at layoffs on the way. Longer-term, Watson was more optimistic for big oil.

“It’s very clear that the incremental barrels are coming for more complex developments over time,” Watson said. “With all the enthusiasm around shale, I think it’s important to remember, it’s 4 million barrels a day out of a 92 million barrel base.”

The majority of the barrels produced still come from conventional fields, he said, many of which continue to decline each year.

“The 3-5 percent decline on a 90-plus million barrel-a-day base is significant, so you need investments in new fields,” he said. “And $50 does not support large, new-field developments.”

In the short run though, Watson indicated things would be painful until the crude markets are able to rebalance by bringing the supply of crude back into line with demand. The San Ramon, California-based company reported $3.47 billion or $1.85 per share  in total net income Friday, down from $4.93 billion in the same period last year.

The company’s upstream segment took a beating: Profit for oil and gas production was down about 45 percent compared to last year, at $2.67 billion in 2014 compared to $4.85 billion in 2013. Downstream, net income softened the blow by growing to $1.5 billion recently from $390 million in the last year’s final quarter.

Chevron said its U.S. average sale price for a barrel of crude oil and natural gas liquids was $66 in the fourth quarter, down from $90 a year ago. Internationally, the company was able to make about $68 per barrel, compared to $101 per barrel in the last quarter of 2013.

The earnings-per-share results beat analyst’s estimates of $1.64, but traders sent Chevron’s stock down by $2.15 or 2.1 percent in early trading Friday, to $100.85.

Chevron said it would cut a number of costs to shore up its balance sheet. The company said it would spend $35 billion drilling and searching for natural gas in 2015 — a  13 percent reduction from 2014. Chevron had previously pushed back the announcement of its budget because of volatile prices, and said it has already cut about 20 rigs or 15 percent of its worldwide count.

Other producers have also made significant cuts to budgets. On Thursday, ConocoPhillips cut its exploration and production budget a second time to $11.5 billion, an about one-third cut in total from 2014 levels.

Chevron also indicated that it may cut workers in the future, but offered few details. The company said in late January it would cut 162 from its Pennsylvania staff and announced cuts at its U.K. operations last summer.

“We have other reviews underway in multiple other operating and corporate units,” Watson told analysts, “Managing costs aggressively is not new to us.”