Another Top Energy Story Of The Week? Chevron Cuts CAPEX Another 36% -- March 9, 2016

I posted/linked this article earlier but really didn't stop to consider the implications. This is a big story that hardly got a footnote in the business pages today, it seems. From any number of sources, this one from oilprice:

The California-based multinational just announced that it would cut its capex in 2017 and 2018 by another 36 percent, bringing annual spending down to between $17 and $22 billion.

That is down from an October 2015 estimate, when Chevron said that it expected to spend $20 to $24 billion each year in 2017 and 2018. It is also sharply lower than the $26.6 billion Chevron is spending this year, which itself is a 25 percent reduction from last year’s levels.

The severe cuts come as Chevron has had to take on debt in order to afford shareholder dividends, as the company has not generated enough cash flow to cover the payouts with oil prices as low as they are. Dividends cost the company $8 billion in 2015 alone. Chevron would need oil trading at $50 in order to cover the dividend with cash flow.

So, to recap, CVX CAPEX:

• 2015: $35.5 billion
• 2016: $26.6 billion
• 2017: first estimate -- $24 billion (max)
• 2018: first estimate -- $24 billion (max)
• 2017: new estimate -- $22 billion (max)
• 2018: new estimate -- $22 billion (max) 

The cut in CAPEX in percent has a broad range because the estimates Chevron provides are quite broad.

CAPEX in 2017 and 2018 ranges as low as $17 billion to as high as $22 billion.

In a worse case situation, a cut from $35.5 billion (2015) to $17 billion (next year) would represent a 52% cut in two years. My arithmetic could be wrong. If the numbers are right, that's huge. A 50% cut in CAPEX in two years by a major.

I think 2017 will be a most interesting year for US consumers when it comes to the price of oil.