Is Chevron's $11B Write-Down an Oilpatch Warning?
https://www.rigzone.com/news/is_chevrons_11b_writedown_an_oilpatch_warning-14-jan-2020-160788-article/In December 2019, American oil major Chevron announced a major write-down of some $11 billion in the value of its assets, including its gas holdings in the Appalachia region, a deep-water Gulf of Mexico project and its proposed Kitimat LNG export project in British Columbia. In fact, Chevron’s Appalachian shale projects contributed to more than half of a massive impairment charge that the company reported for the last quarter.
This write-down is in response to Chevron’s own long-term forecast for oil and gas prices, which predicted much lower energy prices than previously. In December Chevron Chief Executive Mike Wirth in an interview with the Wall Street Journal said: “We have to make the tough choices to high-grade our portfolio and invest in the highest-return projects in the world we see ahead of us; and that’s a different world than the one that lies behind us.â€
Decision makers at Chevron have realized the company is facing a market surplus in both oil and gas worldwide, which is impacting profit margins. As a result of such factors, it is becoming increasingly difficult to justify investment in large gas fracking projects, especially with the prospect of slowing demand. Is it time to change the industry’s exploration strategy to more profitable targets?
It is likely that this California-based oil major will not be alone amongst oil companies announcing that their holdings in terms of market value are likely to be worth significantly less than previously estimated. This is because of current market conditions that are resulting in many American fracking projects failing to break even, and fluctuating public/investor concerns about the long-term future of the industry....