OREANDA-NEWS. Chevron took a non-cash impairment of $1.96bn and $670mn in charges for deferring several projects as the US major revised its long-term crude price outlook.

The move suggests the major is bracing itself for a lower-for-longer oil price environment following the 50pc drop in prices since last year. The impairment and the charge were largely a result of the company lowering its long-term price outlook, which lowered the valuation of its Papa-Terra field off Brazil. The field came on stream in November 2013.

"Multiple efforts to improve future earnings and cash flows are underway," chief executive John Watson said. "We're getting our cost structure down through re-negotiations across the supply chain and by sizing our contractor and employee workforce to reflect lower activity levels going forward. We're actively managing to a smaller capital program."

Chevron didn't share its new oil price expectations, but weak global economic growth and resilient US shale oil output prompted the producer to make the cut. Most key US shale producers like Hess, Anadarko and Occidental have raised their output guidance for the year amid lower services costs and improving efficiencies.

Chevron's global net output was 2.6mn boe/d in the second quarter, up from 2.55mn boe/d a year earlier, with the increase coming from project ramp-ups in the US, Bangladesh and Argentina.

Net income for the quarter fell to $571mn from $5.7bn a year earlier.

The US upstream business incurred a loss of $1.04bn in second quarter compared with an income of $1.05bn a year earlier, as output increased by 9pc to 730,000 boe/d. This was largely driven by project ramp ups in the GoM, the Permian Basin in Texas and New Mexico, and the Marcellus Shale in western Pennsylvania. Chevron's average sale price for crude and natural gas liquids (NGL) was $50/bl in the second quarter versus $92/bl a year earlier. For natural gas the realized price was $1.92/1,000 cf compared with $4.09/1,000 cf a year earlier.

The Non-US upstream business incurred a loss of $1.18bn in the quarter compared to a profit of $4.21bn. The average sales price for crude oil and natural gas liquids fell to $56/bl versus $101/bl. Output decreased by 12,000 boe/d to 1.87mn boe/d because of natural decline rates.

US downstream operations earned a profit of $731mn in the quarter compared with $517mn a year earlier, while non-US downstream profits were $2.23bn compared with $204mn a year earlier.

Chevron also sold $1.8bn in assets in the second quarter, helping stem the fall in profits. This includes a 50pc stake in Caltex Australia and its New Zealand refining operations.

Capital expenditure (capex) in the quarter was $8.7bn compared with $10.2bn, and $17.3bn in the first six months from $19.6bn a year earlier. Like ExxonMobil, Chevron's capex is declining as most major projects near completion.

Recent operational updates include progress on commissioning its Gorgon LNG project, construction of the Wheatstone LNG project, both in Australia. It started up the sixth production well at the Jack/St Malo deepwater field in the US Gulf of Mexico (GoM), which ramped up output to about 80,000 b/d oil equivalent (boe/d). In the US, it is on track to drill 325 gross well this year, including multiple horizontal wells in the Midland and Delaware Basins in Texas and New Mexico.