Oil and natural gas stocks are under intense scrutiny/criticism, particularly by younger generations, as the sustainable investing movement gains momentum, but it’s unfair to compare the oil sector to other much-maligned areas of the market given the role oil production has played in societal development, Chevron’s CEO said Friday.

Chevron prepared for current energy challenge - oilandgas360“The reality is the world runs on the energy system that we have today,” Wirth said Friday on CNBC’s “Squawk Box” (monitored by Kallanish Energy). “If we ceased use of all hydrocarbon products today, the world would not be fine, and I think that’s the reality.”

Energy was the worst-performing sector in 2019, and, amid the combination of low oil prices pressuring profit and the sector falling out of favor with investors, some believe the sector’s best days are over.

The oil sector can and will recover

But Wirth said the sector can and will recover, and that the stocks will head higher once again. “Commodity prices had a historic collapse last decade. They’re still very low because we’ve got a well-supplied market, and I think companies have had to re-size their investments accordingly,” he said.

Chevron reported a fourth-quarter $6.6 billion loss, due to a $10.4 billion write-down related to its shale gas production, primarily in the Appalachian Basin. Wirth said the assets Chevron wrote down could not compete for capital with other assets within its worldwide portfolio.

But Wirth said Chevron is spending “several billion dollars” a year in the Permian Basin in West Texas, and its operations in that region will be cash flow positive this year.

The company recently raised its dividend by 8% and is buying back shares and reducing debt. Wirth said that in 2019, the company produced more oil than at any point in its 140-year history.

Chevron prepared for current prices

Despite U.S. West Texas Intermediate crude now trading just north of $50 a barrel, and international benchmark Brent roughly $5/Bbl higher, Wirth said Chevron has prepared for just such a price scenario.

The California-based oil supermajor has focused on capital discipline, and has rightsized its operations to compete across a “range of oil prices.” “I think we just need to continue to deliver results quarter after quarter and I think the investment will be there,” he said.

Oil prices continue to fall as Wall Street fears the coronavirus outbreak will lead to a slowdown in the global economy, which will reduce crude demand. “It’s clear that demand for air traffic, marine freight in and out of china is off considerably.” Wirth said.

In January, WTI fell 15.56% — its worst monthly performance in nine months — and prices are currently trading around one-year lows. “We really invest for the long term, so we don’t swing our activities around until we see a long-term change. We’ve built our company for the kind of environment we see today,” Wirth said.


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