Chevron to Make Sweeping Job Cuts as Oil Demand Plummets

Chevron Corp (CVX) plans to cut 10 to 15% of its worldwide workforce as part of restructuring by the second-largest US oil producer. This represents the biggest headcount cut yet among global oil producers following the Covid-19 pandemic.

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The company previously disclosed a 30% reduction in its 2020 spending and voluntary job cuts amid this year’s plunge in oil prices and lower demand for oil and gas due to the virus pandemic.

Chevron was among the first to make significant budget cuts as oil demand plummeted. The company expects to remove about 10 to 15 per cent of its global staff to “match projected activity levels”, a spokeswoman confirmed.

The 4,500 to 6,750 job cuts are to “address current market conditions” with different impacts on each business unit and region. Most reductions will take place this year. Chevron currently has 45,000 non-gas station employees. Chevron also said it would reduce planned US shale output by about 125,000 bpd.

US crude oil prices have nearly halved this year to about $33 a barrel as the pandemic hurt travel demand and led to stay-at-home orders. Oil demand has been hit by as much as two million barrels per day.

On Wednesday, top US oil producer Exxon Mobil Corp (XOM) said it had not yet taken steps to reduce its workforce, although it has cut its planned spending for the year by 30%.

Chevron’s cuts will be “across the board but heavy on the corporate functions and the support functions,” said CFO Pierre Breber in an interview.

Jon Rigby, analyst at UBS, recently downgraded Chevron from Buy to Hold, noting that it had gained some 70% from its March lows. The rally speaks to the “leading reputation for capital discipline and the highly resilient, yet flexible financial model that CVX is running,” according to Rigby.

Chevron stock fell sharply with the onset of the coronavirus pandemic, but in the last two months has gained back most of its losses. Overall the stock is down 21% for the year and currently trades for $92.

Analysts are strongly bullish on the stock. In the last 3 months, out of 16 analyst ratings, 4 have been Holds and 12 have been Buys, for an average analyst price target of $101. This represents 10% upside from Chevron’s current stock price over the next 12 months. (See Chevron stock analysis on TipRanks).