Chevron (NYSE:CVX) announced today that it has updated its long-term capital spending outlook. The oil giant expects to invest $14 billion into organic capital and exploratory projects in 2021. Meanwhile, it sees capital spending averaging between $14 billion to $16 billion per year through 2025. That's roughly 25% below its prior long-term guidance range of $19 billion to $22 billion, which excluded the recently acquired Noble Energy.

Chevron plans to prioritize investments that should grow its long-term value, deliver higher returns, and lower its carbon intensity. The oil company expects to invest more than $300 million in 2021 on investments that advance the global economy's transition to cleaner energy sources. Meanwhile, the bulk of its capital spending will be on its world-class position in the Permian Basin, other unconventional oil and gas basins, and the Gulf of Mexico.

An oil pump with the sun in the background and snow on the ground.

Image source: Getty Images.

The decision to reduce capital spending mirrors the approach taken by rival ExxonMobil (NYSE:XOM), which also recently unveiled a reduced long-term capital spending plan. Exxon anticipates investing $16 billion to $19 billion on capital and exploration projects in 2021 and between $20 billion to $25 billion per year through 2025. That's a roughly $10 billion reduction from the long-term investment outlook it issued before the COVID-19 outbreak.

Both U.S. oil giants have shifted their focus from increasing production to protecting their dividends. Chevron's payout yields 5.7%, while Exxon's dividend is at 8.7%. That contrasts with the approach taken by some of their international peers. BP and Shell both reduced their payouts and put a greater emphasis on investing in the energy transition. Chevron's decision to stay its course, albeit at a lower investment rate, could cause it to underperform rivals that are trying to stay ahead of the curve.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.