Chevron eliminates 20% of its workforce to fund shareholder returns

Chevron announced this week that it will lay off 20 percent of its workforce after a disappointing fourth quarter that was dragged down by weak fuel demand and shrinking refining margins. The American oil giant said the industry is not going back to the days of explosive growth and it would instead focus on continuing to funnel billions of dollars in profits to shareholders.

Chevron reported $3.6 billion in profits for the fourth quarter of 2024 and $17.7 billion for the full year. 2024 earnings were down 17 percent from 2023.

Part of the earnings slide can be chalked up to weak demand, which weighed on downstream earnings. Chevron’s refining unit posted a loss for the first time since 2020.

“I’m not going to call it the perfect storm, but it was a quarter where there were a lot of things that all went in one direction, and it was a negative direction,” Chevron CEO Mike Wirth told investors on an earnings call in January, referring to poor refining margins.

Chevron’s management put a positive spin on the results, calling it a “record year” in terms of production and cash returned to shareholders.

“Compared to our peers, we’re delivering growth with less capital and returning more cash to shareholders,” Chevron’s CFO Eimear Bonner said on the earnings call. “In the past three years, we’ve returned $75 billion in cash to shareholders via dividends and share buybacks.”

In 2024 alone, Chevron returned $27 billion to shareholders. The company also announced a 5 percent increase in its dividend.

“We’re committed to capital discipline,” Bonner said.

Chevron, like many of its peers, has spent several years aggressively increasing share buybacks and dividends to attract investors to a sector widely seen as falling out of favour because it is entering an era of long-term decline.

The focus on investor returns also comes after a decade of frenzied growth in U.S. shale, which resulted in an enormous wave of oil and gas output but also led to tremendous capital destruction.

Between 2010 and 2019, the U.S. shale industry collectively posted $300 billion in negative cash flow, wrote off more than $450 billion in invested capital, and 190 companies went bankrupt, according to a 2020 report from Deloitte.

The pandemic decisively ended the growth-at-all-cost mindset in the industry. Investors, wary of getting burned by reckless spending, began demanding a shareholder-focused strategy in the oil industry.

Chevron’s CEO Mike Wirth reiterated this approach in January on his company’s earnings call.

“I don’t see anybody that is kind of heading back to what the industry was doing a decade ago, which is kind of throwing all the cash right back into growth,” he said.

Chevron announced that it would trim its CAPEX budget for 2025, which was the first spending reduction since 2021.

Job cuts and industry questions

Chevron has spent several years differentiating itself from its European competitors. While BP, Shell, and TotalEnergies face widespread criticism of greenwashing over their claims of low-carbon investment, Chevron hardly pretends to be transitioning at all. A 2024 report from Oil Change International rated Chevron’s climate plans as “grossly insufficient” on every criteria evaluated.

In December, Chevron cut its relatively modest low-carbon spending even further, slashing it by 25 percent.

Wirth routinely criticised the climate policies of the Biden administration. In recent years, public dialogue has been “skewed toward environmental protection,” he told investors in January, and Trump’s recent executive orders, which amount to a brazen campaign of deregulation, were a “welcome change,” he said.

However, the return of Trump is not a cure-all for the oil majors, who still need to navigate the global energy transition.

Wirth said Chevron’s relatively poor fourth quarter for refining was cyclical, rather than a more permanent problem. “I wouldn’t assume there’s anything structurally in that business that says it’s deteriorating,” he said. “You have these quarters every now and again in that business.”

But the rapidly-growing market share for electric vehicles will continue to weigh on fuel demand. On February 13th, the International Energy Agency said that China’s demand for refined products may have passed its peak. 

Chevron is not alone in experiencing some turmoil and skepticism from investors. Others in the industry are reporting weaker earnings now that the period of extreme war-time profits stemming from Russia’s invasion of Ukraine — which created a global energy crisis — has now faded.

Following Chevron’s disappointing earnings, Wirth said the company would be pursuing $2 to $3 billion in “structural cost reductions,” which would help Chevron afford continued increases in shareholder returns.

In mid-February, Chevron revealed more specifics, announcing a drastic 20 percent cut to its workforce. Chevron employs more than 45,000 people, so the company may eliminate as many as 9,000 jobs.

“We do not take these actions lightly and will support our employees through the transition,” Mark Nelson, vice chairman of Chevron, told Gas Outlook in an email. “But responsible leadership requires taking these steps to improve the long-term competitiveness of our company for our people, our shareholders and our communities.”

Chevron’s Mike Wirth earns more than $26 million per year in total compensation. Assuming that he was paid around that amount in 2024, then Wirth has collected approximately $180 million in the last seven years.

There are further signs of trouble. Chevron’s oil and gas reserves have also declined to their lowest level in a decade, according to Reuters, which some analysts have said is a “red flag” for the company’s long-term prospects.

Chevron recently moved its headquarters out of California, decrying excessive regulation. The Wall Street Journal reported that Chevron is considering ending refining production in the state. The company operates two of the state’s largest refineries, and it’s unclear if those jobs would be affected.

“We are aware of Chevron’s impending plans, but we’re still gathering details regarding the specific impacts they have on our members,” a spokesperson for the United Steelworkers told Gas Outlook in an email.

The job cuts are consistent with a long-term trend in the industry. Employment in the oil and gas industry is far below the peak in the 1980s, and down sharply from a more recent high reached a decade ago. In 2014, more than 200,000 people worked directly in oil and gas extraction in the U.S., but that figure has declined sharply to just 120,000 at the end of last year.

Companies have automated away a lot of jobs and are able to produce more with fewer workers. More automation is on its way, with a long list of oil companies eagerly trying to figure out ways to deploy artificial intelligence to cut costs further.

That could result in more job losses. But a top priority for oil executives is to keep shareholders happy. However, with the energy transition continuing to unfold, it will be increasingly difficult for companies like Chevron to eliminate jobs in order to fund payouts to shareholders, while also maintaining the image of a growth industry.