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Chevron's (NYSE: CVX) Annual Analyst Meeting Warns of Lingering Shifts in LNG Prices, Oil Prices

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Chevron (NYSE: CVX), the nation's second-largest oil company and the world's fourth-largest energy producer by market value, cut expectations for its 2017 production by 6.1% at its annual security analyst meeting today (Tuesday), citing a drop in LNG prices and an increase in oil prices.

Over the last several months, the petrochemical company, along with industry competitors, has been shelling out huge amounts of cash to raise natural gas and oil production.

For instance, on Dec. 13, Chevron announced a $39.8 billion capital and exploratory investment program for 2014 – that's 12% more spending in those areas than Chevron committed last year.

But now production is being stymied by lower liquefied natural gas (LNG) prices.

"Our growth strategy remains intact, though some things have changed," Chevron Chairman and Chief Executive Officer John Watson said at the meeting today.

CVX has curtailed work on its Marcellus shale formation development because it's become less economical to extract fuel.

Last week, we saw LNG prices drop Exxon Mobil's 2017 production output by 500,000 barrels of oil equivalent per day (boepd). The largest U.S. oil company specifically cited the cause as a decrease in spending on North American natural gas.

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Meanwhile, higher crude oil prices have a negative impact on output – production agreements in some nations entitle its partners to a higher share when oil prices go up, diminishing the company' share.

"When prices increase, it's just arithmetic at that point," Watson said.

Chevron expects the trend in oil prices to continue. It's adopted a new price assumption of approximately $110 per barrel – a 39% increase from its previous forecast of $79 per barrel.

Here are the other highlights from today's meeting:

  • CVX cut its production outlook from 3.3 million boepd by 2017 to 3.1 million boepd.
  • Chevron projects $10 billion in asset sales over the next three years. The company says more than 80% of the sum will involve upstream asset sales, as it nears the end of rationalising its downstream portfolio. Compare this to $7 billion taken between 2011 and 2013, with a little over $2 billion of that coming from the upstream sector.
  • It still intends to spend around $40 billion this year on capital projects, including
    gas-export terminals and offshore crude platforms, with a goal of reversing a three-year drop in production.
  • The company plans to increase drilling in the U.S. Permian Basin by 8.6% this year to 505 wells. Its production from the formation that straddles the Texas-New Mexico border is projected to double by the end of 2020.
  • Chevron is the only company forecasting a production increase in 2014 among the world's three-largest energy companies, according to the slides.

"We believe this compelling growth profile, combined with flattening capital spending levels these next few years, should serve as a strong catalyst for value creation for our shareholders in the years ahead," Watson said. "What underpinned the original growth estimate we talked about is still there. The best investments produce strong earnings and cash margins, which in turn sustain a strong balance sheet."

Chevron scored the third spot on the latest Fortune 500 list by pulling in $233.9 billion in revenue in fiscal 2012.

"I think Chevron's management is in tune with the reality of the energy markets, perhaps better than most," Money Morning Chief Financial Strategist Keith Fitz-Gerald remarked.

Chevron stock closed down 1.15% Tuesday at $114.51 per share. It has a 52-week low of $109.27 per share, and a high of $116.23 per share.

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