Chevron will lay off thousands more workers, slash spending

After investing billions on some of the world’s largest oil and gas projects in recent years, Chevron plans to pare back its spending, place some proposed projects on the back burner and trim thousands from its payrolls as it prepares to cope with the prolonged downturn in the oil and gas industry.

“We are completing the projects we’ve got and working to preserve the options we have on some of the nice opportunities,” CEO John Watson said Friday on an earnings call with investors. “We do have to live within our means here.”

As some of its largest investments start to cross the finish line in the coming months and years, the multinational oil giant headquartered in San Ramon, California will ratchet back its spending plans, focusing heavily on “high-return, short-cycle investments”, deferring some projects, and reducing its workforce to match lower levels of activity, Watson said.

The company plans to cut between 6,000 and 7,000 total jobs across the globe, some of which will happen in Australia, where two projects — the Gorgon and the Wheatstone — are starting to wind down.

“As we ramp down these projects, obviously, you need fewer people,” Watson said.

That total job loss number includes the 1,500 positions already trimmed from Chevron’s payroll, including 950 in Houston, spokesman Cam Van Ast said. Chevron has also cut jobs in the Marcellus Shale, where it has pared back drilling, and the North Sea. But other jobs may be lost as Chevron continues selling off assets that no longer fit into the company’s portfolio or strategy.

In addition to its in-house job cuts, Chevron plans to slash an equal number of contractors as it hustles to reduce costs and revamp its spending budget amid the worst industry downturn in years.

With crude and natural gas prices showing no signs of rebounding soon, Chevron plans to trim its capital and exploratory expenditures in 2016 by roughly 25 percent and will consider curtailing spending plans in 2017 and 2018 as well, depending on the market conditions.

Related: Exxon earnings take a hit

Not included in Chevron’s immediate spending plans are the Rosebank project offshore the Shetland Islands, which Chevron has said could hold a significant portion of the United Kingdom’s undeveloped oil and gas, and two natural gas developments known as the Indonesia Deepwater Development. The company is also scaling back its investment in the Marcellus Shale, although it won’t shut down activity completely.

“Don’t get me wrong, we’re not going to be running six to eight rigs or anything like that in these kinds of conditions,” Watson said. “Right now we have just a couple of rigs that are running there.”

Chevron still expects to grow production this year by up to 15 percent, but its output outlook has been affected in part by the sudden shutdown of its Big Foot platform in the Gulf of Mexico, which was towed back to South Texas earlier this year following the failure of equipment used to latch the platform to the seafloor. The company is not planning for production from Big Foot through 2017, Watson said.

Chevron was also forced to shut-in production in the Partioned Zone between Saudi Arabai and Kuwait amid a dispute between the two countries over administrative matters. That shutdown in May has cost the company 80,000 barrels of oil per day since.
The prolonged pain in oil fields across the globe forced Chevron’s profits down 64 percent in the third quarter, despite a surge in profits for its refining sector.

Chevron saw a 59 percent uptick in its downstream segment’s profits but the boost wasn’t enough to offset a dramatic collapse in earnings from exploration and production. Chevron’s upstream earnings tumbled 99 percent to $59 million in the third quarter.

Related: Houston refiner sees profits jump

The company posted net income of $2 billion, or $1.09 per diluted share, for the three-month period ending Sept. 30. That’s down from $5.6 billion, or $2.95 per diluted share, during the same time last year.

Chevron continues to make progress on selling off assets, generating $11 billion in the past two years, with plans to rake in another $5 to $10 billion on asset sales by the end of 2017.