Feeling the impact of falling oil prices and weaker gas markets, Chevron is working to improve capital and operating efficiency by tapping technology among other efforts aimed at cash generation.

Using deepwater U.S. Gulf of Mexico operations as an example, the company’s top executives pointed out how technology is driving improved economic performance.

“Enhanced seismic captured through ocean bottom nodes help optimize both the placement and the number of wells, ultimately lowering costs and increasing recovery,” Jay Johnson, senior vice president for Chevron’s upstream operations, told analysts on March 10. “In deepwater drilling, we’ve delivered a 25% reduction in drilling days per 10,000 feet over the last two years.”

On the completion side, development and implementation of the single-trip multizone frack pack has increased completion efficiency and lowered rig time, saving nearly $200 million so far with the potential for continued savings as more wells are drilled and completed, he continued.

In addition, seafloor pumps are reducing pressure on deep reservoirs, resulting in more recovery.

“In the case of Jack/St. Malo it is expected to yield an improvement of 10 to 30%, which equates to 50 to 150 million barrels of additional oil recovery,” he said. “Successful application of technology is lowering costs and increasing recovery and improving the economic outcomes from our deepwater projects.”

Technology is one of several areas the company is focusing on in today’s low-price environment.

Oil prices have plummeted from highs of $112/bbl (Brent) and $105/bbl (WTI) in June 2015 to just more than $56/bbl (Brent) and $48/bbl (WTI) today. About 80% of Chevron’s production is linked, directly or indirectly, to oil.

In January, Chevron announced a capex budget of $35 billion, down 13% from 2014. Spending on projects under construction will continue to drop through 2017 as megaprojects such as Gorgon and Wheatstone LNG projects in Australia come online. Spending on these two projects alone will decrease from $8 billion this year to less than $1 billion in 2017, Chevron CEO John Watson said.

“The near-time business environment has changed dramatically since last year with lower oil prices and weaker gas markets, and you’ll see that our actions are aligned with this reality,” Watson said.

In addition to reducing capital spending, the company has a cost reduction program underway targeting supply chain and internal costs as well as expanded asset sale goals.

“We’re expecting to deliver net upstream volume growth of 20%, or more than 500,000 barrels of oil equivalent per day at cash margins that are accretive to the portfolio. Second, we intend to reduce capital spending as the construction on these new projects is completed,” Watson continued. “From 2015, we see $8 billion or more in downward annual spending capability by 2017 and significant expense savings as well. Third, asset sales are expected to contribute $9 billion in proceeds over the next three years.”

The company is targeting assets at the end of life and others that no longer fit into its portfolio. Assets at the beginning of their lifecycles are also candidates.

Chevron realized $6 billion in proceeds from asset sales, including divestitures of assets in Chad and the Canadian Duvernay, resulting from its three-year $10 billion asset sale program announced in 2014.

The program has now been extended to four years targeting a total $15 billion.

Hopes are that the proceeds, combined with cash drawdowns and borrowing, will help cover the $31 billion cash portion of the company’s capital spending program plus dividends.

Higher oil prices also could bolster cash flow, considering Watson said $10 more per barrel could add $3 billion to $4 billion of cash flow on existing production, while more than 500,000 bbl/d of net new production and other operations could add up to $11 billion of cash flow.

This is among the reasons why, despite the spending reductions, Chevron plans to push forward plans to boost production 20% to about 3.1 MMbbl/d by year-end 2017.

“Our new LNG and deepwater projects have relatively low operating expenses, early tax benefits and deliver accretive cash flow per barrel to the portfolio” Watson added.

Currently, four wells are producing at the Jack/St. Malo Field in the GoM, and the company anticipates six of 10 Stage 1 wells will go online this year. The Gorgon LNG project is more than 90% complete, with 18 wells completed. LNG cargo is expected this year. The Wheatstone LNG project is nearly 60% complete, progressing toward a 2016 startup.

“The long-term outlook for the energy business is favorable. Virtually, every independent assessment of energy demand shows it growing significantly over the next 20 years. … The challenge for industry will be to meet the demand,” Watson said, noting that oil fields can decline at 10% to 15% annually without reinvestment. He later turned to today’s environment. “Low prices should spur demand to some degree, but with weak world economic growth it’s going to take more to balance markets in the near term.”

Contact the author, Velda Addison, at vaddison@hartenergy.com.