Chevron hints at selling or reducing natural gas production in Appalachia
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Chevron, one of the largest producers of natural gas in the region, may begin divesting in its gas operations in Appalachia, the company announced Tuesday.
In Chevron’s exploratory budget for 2020, the company announced a flat spending budget of $20 billion. Domestic projects include the Permian Basin, which spans much of Texas and part of New Mexico, and deepwater sites in the Gulf of Mexico. Internationally, Chevron highlighted its ongoing project in Kazakhstan.
These projects are considered high return and low risk, according to a company press release. As a result, Chevron will allocate fewer resources to Appalachian shale, and is considering divestment in the region altogether.
“We believe the best use of our capital is investing in our most advantaged assets,” said Michael Wirth, Chevron chairman and CEO. “With capital discipline and a conservative outlook comes the responsibility to make the tough choices necessary to deliver higher cash returns to our shareholders over the long term.”
Veronica Flores-Paniagua, an external affairs advisor at Chevron, said the area’s assets will be marketed for sale. Chevron is soliciting interest from potential buyers and, if there is a sale, she said, divestment will be the next step. In the meantime, she said, assets that generate a return will continue to operate.
Chevron employs about 400 people in the region — 300 of which are located at the regional headquarters in Moon. Flores-Paniagua said it’s too soon to know what will happen to those employees if the Appalachian assets are sold, but no immediate changes to headcount are expected.
Chevron’s announcement is another blow to natural gas in the region, which has seen a general decline in prices in recent years. The Energy Information Administration (EIA) valued natural gas at an average $2.69 per thousand cubic feet of gas in 2019 — down from the 2018 average of $3.27.
Flores-Paniagua confirmed that deteriorating commodity prices was a large reason for the decision.
“An element of Chevron’s continued success is routinely evaluating our enterprise-wide portfolio,” the company’s official statement reads. “We’ve been asking the hard questions about which assets will serve us today and into the future.When Chevron evaluates its portfolio to determine where to invest its capital, the Appalachian assets do not compete for capital.”
David Spigelmyer, president of the Marcellus Shale Coalition, said the news of the possible divestiture is extremely concerning, given Chevron’s leadership in natural gas production and community initiatives throughout the region. Chevron has invested in STEM-related educational programs, made partnerships with regional nonprofits and universities, supported first responders and more.
“By every measure, this is very tough news, as Chevron has been a true leader on any number of fronts in the communities across Pennsylvania and the broader region,” said Spigelmyer.
Natural gas production has grown in 2019 from last year, but EIA is forecasting much less growth in the natural gas industry in 2020. According to a recent report, this is due to a “lag between changes in price and changes in future drilling activity.”
For Spigelmyer, Chevron’s decision to allocate money away from Appalachia, while still providing resources to the Permian Basin and other projects, is indicative of a fragile “commodity landscape” and a nationwide competition for capital.
“Pennsylvania is in a fierce fight for these job-creating capital resources,” he said. “We must continue to work as hard as possible to ensure we’re making the commonwealth more competitive, not less.”
In 2016, the shale industry accounted for more than 39,000 jobs in Pennsylvania, Ohio and West Virginia, according to the Bureau of Labor Statistics.