Chevron Lowers '17 Production Guidance - Analyst Blog

U.S. energy behemoth Chevron Corporation CVX reaffirmed its long-term growth strategies in its annual analyst meeting. The company also announced its divestment plans and the revised 2017 production outlook.   

Chevron now expects to produce 3,100 thousand barrels of oil equivalent per day (MBoed) in 2017 against 3,300 MBoed stated earlier. The decline is primarily due to an expected slowdown in the natural gas price, higher costs and project delays. The projected output is based on an assumed realization of $110 per barrel of oil, higher than the previous estimate of $79 per barrel. The Asia-Pacific region is expected to be the major contributor to this 2017 output, pushing North America to the second place.

The company's 2014-16 divestment plan involves sale of assets worth about $10 billion. This marks an increase from the earlier three-year plan of $7 billion. The divestment would mostly involve the sale of non-core assets.

Chevron also revealed that over 90% of the 2014-16 upstream capital budget would focus on oil-linked assets, with international oil comprising 42%. A mere 2% has been kept for the U.S. natural gas assets.

The company's long-term strategy involves resource additions and prioritization and development of projects, leading to production growth. Management believes that this growth profile and flattish capex should be value additive for shareholders. Chevron's value-focused investment strategy puts it is a competitive place with other integrated majors like Exxon Mobil Corp. XOM and Royal Dutch Shell Plc (RDS.A).

San Ramon, California-based Chevron has an impressive business model. Its current oil and gas development project pipeline is among the best in the industry, boasting large, multi-year projects. However, due to its integrated nature, Chevron is particularly susceptible to downside risk from any weakness in the global economy.

Chevron currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months. Meanwhile, one can consider the Zacks Ranked #1 (Strong Buy) stock of Range Resources Corporation RRC.