Business news - Savings, Earnings & Economic

Chevron pivots to Permian shale as mega project era fades


Nearly a century after Chevron Corp amassed the No. 2 stake in America's largest oilfield, Chief Executive John Watson is hitting the accelerator on developing the company's vast Permian Basin holdings. In an interview, Watson made clear his desire to put the West Texas to New Mexico expanse in the ranks of Chevron's biggest ventures. That is a stark change from just five years ago, when Chevron executives rarely mentioned the shale basin. But with low oil prices, the company is now spending more than it makes to cover its prized dividend and find new reserves. Now, those 2 million Permian acres have emerged as to way to help fund both goals."Some of the best things we have in our portfolio are the shales," Watson said during an interview on the 48th floor of the company's Houston office tower. "My employees in the Permian know I'm featuring it as something very important."Gone, for the next few years at least, are plans for any new multi-billion-dollar mega-projects, he said. To survive and grow, San Ramon, California-based Chevron is turning to acreage it has always controlled and that largely is free of royalties to landowners."We're just in a period now where markets are weak and everyone is focused on controlling costs," Watson said. Within a decade, Watson expects Chevron's production in the Permian to grow eightfold to more than 700,000 barrels of oil per day. By the end of next year, nine drilling rigs will join the 11 that Chevron already has poking holes into Permian land. It is all part of Watson's plan to methodically pump Chevron's more than 9 billion barrels of Permian oil, most of it owned outright by the company. That gives Chevron a cost advantage over rival Permian producers as the region in the past year has become the epicenter for the U.S. shale resurgence. Chevron's Permian portfolio, which was acquired in stages by predecessor companies, is worth at least $43 billion, Chevron believes, greater than the market value of Pioneer Natural Resources Co, Concho Resources and other Texas producers.

Watson bristles at critics who say the company is moving too slowly in the Permian. "We're growing our portfolio in the Permian as fast as anyone," said Watson, an economist by training who has worked at Chevron his entire career."We're focused on growing value and growing the dividend over time."Chevron is valued more highly by investors than rival Exxon Mobil Corp partly because of that dividend, which has risen annually for the past 29 years. Watson has called protecting the $1.08 quarterly payout his top priority."We like inexpensive, recurring revenue streams" such as the Permian, said Oliver Pursche of wealth manager Bruderman Brothers LLC, which holds shares in the company.

Chevron, which does not hedge oil production, is boosting spending in the Permian by 67 percent this year to $2.5 billion, an implicit bet that oil prices will rise and lift the company to a profitable year after an annual loss in 2016. That makes the Permian the second-largest area for spending this year for Chevron after the Tengiz project in Kazakhstan, which is not expect to come online until next decade. CARBON TAX WOULD ADD COST Watson said he is not worried about demand for oil hitting a ceiling for at least the next 20 years, despite the rising popularity of electric cars. Rising petroleum needs for air travel and petrochemical production should buffer any drop in demand from the automobile sector, he said. "There is no sign of peak demand right now," Watson said.

Like Exxon, BP and other oil peers, Chevron supports the Paris climate accord, a 2015 agreement between nearly 200 nations that aims to limit the rise in global temperatures to "well below" 2 degrees Celsius

Credit Suisse scandal threatens Swiss efforts to clean up reputation


An anonymous tip to Dutch authorities on thousands of suspicious accounts at Credit Suisse (CSGN. S) could hardly have come at a worse time for Switzerland and its banks. The information that triggered raids in five countries raises new doubts about the effectiveness of Switzerland's efforts to shed its decades-old reputation as one of the world's major tax havens."It's a wake-up call not only for the banking community but also for authorities," said Mark Pieth, an anti-corruption expert and criminal law professor at the University of Basel."Instead of really just being angry at others they should ask, have we really been zealous enough?"Switzerland is among the countries that signed up to a global data-sharing program led by the Organisation for Economic Cooperation and Development, known as the Automatic Exchange of Information, which was designed to root out tax dodgers. Swiss banks, having paid more than $5 billion to settle allegations of helping wealthy Americans evade taxes, have trumpeted their reformed ways, publicly encouraging clients to sign up to government programs allowing them to declare untaxed assets. But last week's raids of Credit Suisse's offices in London, Paris and Amsterdam as part of a coordinated investigation in five countries show Switzerland still has a way to go to break with its past.

It is a wake-up call for financial markets as well."People really thought that, with the upcoming Automatic Exchange of Information and the cleanup of the European client portfolio completed, this stuff shouldn't be an issue anymore," Andreas Venditti, banking analyst at Vontobel, said. "Now the market seems to be confused about what to think."Mark Branson, head of Swiss financial watchdog FINMA, said last week's news was unwelcome at a time when Switzerland is presenting itself as a reformed financial center whose selling point is stability and reliability rather than tax perks. "These headlines will not vanish overnight although the business model has fundamentally changed," said Branson, speaking to reporters on Tuesday.

Another sign that Switzerland has to work harder to improve its reputation was the apparently deliberate efforts by Eurojust, the European Union judicial agency which helped coordinate last week's raids, to keep Swiss prosecutors out of the loop on enforcement actions. Switzerland's Office of the Attorney General on Friday demanded a written explanation for the snub."PART OF DOING BUSINESS" In the new investigation, raids began on Thursday in the Netherlands, Britain, Germany, France and Australia, with visits also made at three of Credit Suisse's offices. This followed a tip-off to Dutch prosecutors about 55,000 "suspect accounts".

One of the big questions is how many of the accounts represent existing client relationships at Credit Suisse, Switzerland's second-biggest bank, and how many are legacy accounts from when Swiss banking secrecy shielded customers' money from tax authorities. Iqbal Khan, the head of Credit Suisse's International Wealth Management division, said in an interview he did not know where the 55,000 figure referred to by the Dutch office for financial crimes prosecution had come from as the bank had fewer accounts than that for all of Europe. Khan, who is responsible for Credit Suisse's private banking operations outside of Switzerland and Asia Pacific, said it was not certain if existing clients would be implicated. Branson said FINMA had been in contact with Credit Suisse about the raids but was not in a position to say what portion of the case related to old accounts. One thing that does seem certain is legal and regulatory issues are increasingly considered as a cost of investing in Swiss private banks. Moritz Baumann, bank analyst and client adviser at Swiss wealth manager Albin Kistler, said: "The fact is that legal issues are practically part of doing business as a bank."