Chevron (NYSE: CVX) is already a free cash flow machine. The oil giant produced $5.7 billion in cash last quarter. These funds and its strong balance sheet enabled the company to return a record $7.7 billion to shareholders through dividends and buybacks.
The oil company wants to generate even more money next year. who would give the more money to return to shareholders. Here’s a look at it Chevrons plans for the coming year.
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Chevron recently unveiled its 2025 investment plans. The oil giant expects organic capital expenditures to be between $14.5 billion and $15.5 billion. Additionally, the company expects capital expenditures at its subsidiaries to be between $1.7 billion and $2 billion. General, these spending margins represent a $2 billion decrease from Chevron’s 2024 capital expenditures.
The oil company expects to spend approximately $13 billion of that capital on upstream projects (oil and gas production), with two-thirds focused on developing its US commodities portfolio. Chevron plans to reduce capital expenditures in the Permian Basin to between $4.5 billion and $5 billion. It slows production growth in favor of increasing free cash flow. The remaining funds will be split between the DJ Basin and the Gulf of Mexico, with the latter area on track to deliver several projects that will boost production in the Gulf by 300,000. barrels of oil equivalent per day in 2026.
Other notable investments include $1 billion in projects related to Gorgon LNG in Australia: $1.2 billion in downstream projects (refining) and $1.5 billion to reduce the company’s carbon intensity and grow its new business energies companies. Chevron is also investing capital in its joint venture in Kazakhstan in a project that will start producing oil in the first half of next year and to expand its chemicals joint venture with Phillips 66 (CPChem).
In addition to reducing its investment budget, Chevron is also working to reduce some of its structural costs. The company previously set a goal of achieving $2 billion to $3 billion in cost savings by the end of 2026. To achieve that goal, the company expects some short-term costs related to the restructuring of its activities and the sale of non-core activities and assets with higher costs. It expects to record $700 million to $900 million in restructuring charges and $400 million to $600 million in impairment and other charges in the fourth quarter.
Some of these costs are related to the company’s portfolio optimization strategy. Chevron has agreed to sell its Canadian assets for $6.5 billion. It also agreed to sell assets in Congo and Alaska. These sales are part of a plan to divest $10 to $15 billion of higher-cost, lower-carbon assets by 2028. These sales will increase financial flexibility. The company is also working to replace these assets through acquisitions with higher margins and lower carbon emissions Hess in a deal that could close next year. This deal would improve and extend production and free cash flow growth prospects into the 2030s.
Chevron’s 2025 capital plan will trade some production growth for higher free cash flow growth in the coming year. The company already generates a lot of money. Free cash flow after capital expenditures was $10.7 billion in the first nine months of this year. This allowed the company to return significant cash to shareholders while maintaining a strong balance sheet. Are leverage ratio was 11.9% at the end of the third quarter, well below the target range of 20% to 25%.
The company’s strong free cash flow and balance sheet have helped it increase its cash return to shareholders this year. It increased its dividend by 8%, an acceleration from the annual pace of about 6% in recent years. Chevron also repurchased $4.7 billion worth of stock in the third quarter. That quarterly buyback rate is at the high end of the $10 billion to $20 billion annual target range for buybacks.
With expenses falling and free cash flow likely to rise next year, Chevron should return even more money to shareholders. It will undoubtedly increase its dividend (it has increased the payout for more than 35 years in a row) and could buy back shares at or near the top of its target range, especially if it acquires Hess.
Chevron’s low-cost operations make a lot of money. It expects to generate even more free cash flow next year by cutting capital expenditure and structural costs. That should allow the oil giant to return even more money to shareholders. who could give it is the fuel to generate strong total returns. Additionally, Chevron has a huge upside catalyst from its pending deal to acquire Hess, which could finally happen next year if it wins the arbitration case. These factors combine to make Chevron look like one terribly attractive oil stocks to buy as we head into 2025.
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Matt DiLallo holds positions in Chevron and Phillips 66. The Motley Fool holds and recommends positions in Chevron. The Motley Fool has a disclosure policy.
Chevron’s plan to cut billions in spending to boost its already robust free cash flow and cash earnings by 2025 was originally published by The Motley Fool
