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Chevron Tries to Build Value as It Cuts Costs

Stocks in this article: CVX XOM HES

NEW YORK (TheStreet) -- Chevron (CVX) has cut its 2017 production forecast by 6% to 3.1 million barrels per day. You'd think that means bad things ahead for the second-largest U.S. oil company.

However, the company thinks it can boost its value to shareholders through a combination of lowering  capital expenditures by 5% and higher production through five major projects that could come online within the next two years.

Chevron's cut in its forecast followed assets sale, rising costs, falling natural gas prices and project delays. Still, the projected production would be a significant improvement from last year when the company reported net oil equivalent production of 2.6 million barrels per day.

Chevron's shares, at around $119, have fallen by 4.5% for the year to date and by 0.2% for the last 12 months. Its biggest rival, Exxon Mobil (XOM), trades at $97.50, is down 3.7% for the year to date but up 7.4% for the last 12 months. By comparison the S&P 500 is up1.7% for the year to date at 20.3% for the past 12 months.

Chevron is trying to rein in capital expenditures at $40 billion per year through 2016, a 4.8% drop from $42 billion in 2013.

Interestingly, despite the cut in capital expenditure, Chevron could still outspend its bigger rival Exxon Mobil in the coming years. Exxon Mobil has planned to spend an average of $37 billion on capital expenditures between 2015 and 2017, which is considerably lower than Chevron's budget for 2016.

Meanwhile, Chevron is eying growth on the back of rising demand coming from the energy hungry Asian economies that meet 40% of their natural gas demands through imports.

As a result, Chevron has forecast a 45% increase in its production from Asia Pacific by 2017 to 1 million barrels of oil equivalents per day. The demand for natural gas from Asia could continue to grow by 75% by 2025. Chevron could, therefore, continue to enjoy high levels of demand in this region.

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