Chevron, Exxon Expected to Continue Aggressive Spending

HOUSTON (Dow Jones), Mar. 8, 2010

U.S. oil giants Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) are expected to unveil this week business plans that point toward continued aggressive capital spending and improved production.

But the oil giants are also seen as highlighting in their annual analyst meetings in New York their increasingly bearish view of the marketing and refining business, which has become a money loser due to weak demand for fuel.

Analysts expect Chevron to say next Tuesday that despite having a new Chief Executive Officer, there is no major change in the San Ramon, Calif.-based company's strategy. Chevron, the second-largest U.S. oil company after Exxon Mobil, is likely to confirm its previously announced 2010 capital expenditure budget of $21.6 billion, and that it expects its annual production to increase 1% from last year.

The company will also flesh out details of plans announced last January to restructure its marketing and refining business. Chevron said that it will exit some markets and reduce its work force in the third quarter. However, it didn't say how many people would be laid off, which markets it is planning to leave, and whether it is thinking about shutting down or divesting any refineries.

Analysts from UBS said in a note to clients that the company is more likely to announce more aggressive divestitures of the retail assets and vigorous cost cutting than the closure of any of its refineries. In 2009, Chevron exited multiple international downstream retail markets, including Nigeria, Brazil, Uganda and Kenya. Chevron, which is more vulnerable than other major U.S. oil companies to the low-return marketing business, is likely to continue that strategy, UBS said.

The company could also announce the reinstatement of its share repurchase program, suspended in the fourth quarter of 2008 when oil prices drastically fell, said Phil Weiss, an analyst at Argus Research.

"With a stronger commodity price environment than last year, we estimate Chevron could spend $4 billion in share repurchases," UBS said.

Irving, Texas-based Exxon Mobil is unlikely to offer much detail about the impact in its financial and operational outlook of the pending acquisition of U.S. natural gas producer XTO Energy (XTO), according to analysts.

The $31 billion transaction will not close until the second quarter. Exxon is also unlikely to talk much about its $4 billion bid for Kosmos Energy LLC's stake in a giant oilfield in offshore Ghana, one of the world's most promising regions for oil exploration. The deal has met with stiff resistance from that country's government.

Exxon Mobil, however, is seen highlighting its strong financial results and its positive production grow outlook. Exxon is expected to reaffirm it will continue spending $25 billion to $30 billion a year through 2014. UBS estimates the company can invest $28.5 billion in 2010, up 5% from last year.

Investors would also be anxious to know if Exxon Mobil is planning to keep buying back shares at a time when its net cash position decreased from $31 billion to $10.7 billion in 2009.

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