Chevron Writedown Underscores Glut In Fossil Fuels

By Glenn Dyer | More Articles by Glenn Dyer

In what could be the first of many reports from US energy companies, the giant Chevron Corp says it will write down the value of its US gas assets by more than $US10 billion when it reveals its 4th quarter figures next January.

The company said in a short statement that write down has been made necessary by lower long-term prices for oil and natural gas which Chevron says will reduce the value of its assets.

More than half the write-down is related to gas drilling operations in Appalachia region of Eastern US.

Other companies with recent big investments in US gas include Exxon Mobil, Apache, and BP which bought most of the assets BHP was selling in 2018. (Chevron’s impairment makes the BHP decision last year look far-sighted).

The huge write-down — between $US10 billion and $US11 billion — underscores the challenge posed by rising production that has prevented energy prices from increasing.

OPEC and Russia for example last week boosted their production cap from early January to 1.7 million barrels a day (and as much as 2.1 million including voluntary cuts by Saudi Arabia.

That’s because oil prices are projected to dip in the first half of 2020 at least because of the continuing rise in output in the US and sluggish global demand.

In fact, the US Energy Information Administration this week forecast that oil prices could very well be lower in 2020 – especially the first half – than in 2019.

“EIA forecasts Brent spot prices will average $61/b in 2020, down from a 2019 average of $64/b. EIA forecasts that West Texas Intermediate (WTI) prices will average $5.50/b less than Brent prices in 2020,” the agency said in its latest short-term energy outlook this week.

The EIA also forecasts a fall in the price of US gas – it sees prices averaging $US2.45 per million British Thermal Units (MMBtu) in 2020, down 14 cents/MMBtu from the 2019 average.

At the same time a continuing oversupply of gas has seen US prices slump by more than 20% year to date – but US oil futures are up 29%.

Chevron said it will reduce spending on some investments including Appalachian shale, a liquefied gas terminal in British Columbia, and other international projects. The company said it is evaluating options including selling those assets.

Chevron also revealed that capital and exploration spending next year will be held flat at $US20 billion with the company focussing on operations in the Permian Basin of west Texas and New Mexico, a big project in Kazakhstan, and deepwater drilling opportunities in the Gulf of Mexico.

It’s huge spending on LNG projects in Western Australia is over.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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