Chevron boosts annual share buyback rate to $17.5 billion

Source: Chevron

Chevron Corp. increased its annual rate of share buybacks in a show of confidence in its cash-generation goals, even after crude prices declined by more than 30 per cent since June.

Chevron will repurchase stock at a rate of $17.5 billion annually beginning in the second quarter, up from a previously planned $15 billion, the San Ramon, California-based company said in a statement Tuesday. The top end of its buyback target range rose by a third to $20 billion a year, giving Chevron scope to raise even further in the future. 

Chief Executive Officer Mike Wirth is keen to show that the cash returns promised to shareholders last year when oil soared to more than $100 a barrel are sustainable despite much lower crude prices today. Before today, analysts questioned whether the second-largest US oil company has enough production growth in its existing portfolio to keep generating the money needed for shareholder payouts.

Chevron sought to ease these concerns by pledging production growth of three per cent annually, with nearly 900,000 barrels a day extra coming from the Permian Basin, Kazakhstan, Gulf of Mexico and elsewhere by 2027. The Permian will lead the charge with half the expected increase while TCO, its major Kazakh operation, will also provide significant new production once its Future Growth Project is running by 2025.

This growth will come despite a flat capital budget, with annual free cash flow increasing more than 10 per cent at $60-a-barrel Brent prices, Chevron said. The stock climbed 1.3 per cent in premarket trading in New York, matching the rise in Brent.

US President Joe Biden has repeatedly criticized Chevron and its rivals for what he says is excessive spending on buybacks following Russia’s invasion of Ukraine. The administration has called for more investment in oil production instead, to boost supply and curtail prices.

But Wirth and the US oil industry have pushed back, arguing that production is increasing, and in any case shareholders are entitled to higher payouts after a decade of poor stock market returns.

Chevron’s stock has dropped 9.3 per cent this year, compared with a 3.7 per cent decline in the S&P 500 Energy Index. The company recently pulled back this year’s growth targets for the Permian Basin, in part due to weaker-than-expected oil well performance. Chevron still expects the biggest US shale basin to be the cornerstone of its medium-term growth. Production will rise by more than 35 per cent to nearly 1.2 million barrels per day of oil equivalent by 2027, it said.

© 2023 Bloomberg L.P.

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