One of the world’s largest energy companies, Chevron Corp. (CVX, Financial), posted its third quarter earnings on October 31, surprising analysts with its impressive numbers, despite the sudden fall in oil prices. While analysts have been speculating whether the earnings of the second largest energy company could be hit by the downward spike in the crude oil prices, the decent report card removed a lot of concerns and worries linked with investors invested in the stock. In fact, Chevron’s performance during the quarter could be compared with the performance of Exxon Mobil (XOM, Financial) which has also beaten analyst expectations. Let’s take a sneak peek into the financial highlights of Chevron’s third quarter and assess its performance in the presence of macroeconomic headwinds.
The number game
The oil and gas super major posted revenue of $54.68 billion which was a bit lower to $58.5 billion reported in the similar quarter last year. Earnings stood at $2.95 a share, from $2.57 a share reported a year ago. However, both the top and bottom line beat the Thomson Reuters’ analyst consensus of $2.55 a share as earnings and $52.97 billion in revenue. Net income rose to $5.6 billion from $5.0 billion reported a year back, as refining business line grew at a phenomenal rate this quarter.
Production fell 1% to 2.57 barrels of oil equivalent per day as new wells failed to offset the decline at old wells and were affected by asset sales. While the company’s downstream refining and marketing business posted earnings of $1.39 billion in the quarter, compared to $380 million in the year-ago period, the upstream revenue fell from $5.09 billion a year earlier to $4.65 billion during this quarter.
U.S. refining profits rose from $249 million a year ago to $809 million this quarter, and this could be mainly attributed to the rise in margins on refined product sales, primarily reflecting higher production volumes in refining and higher marketing and trading margins. Outside the U.S., refining profits jumped from $131 million to $578 million during the third quarter due to higher margins on refined product sales.
CEO John S. Watson stated during the earnings call, “Despite a decline in crude oil prices, our third quarter earnings were higher than a year ago. Overall downstream results improved, reflecting the benefits of lower feedstock costs and better refinery reliability, particularly in the U.S. … Cash generation in the quarter was solid, and our financial strength enables us to both reward our investors through distributions and fund value-adding projects.”
Investors are well-rewarded
Cash flow from operations stood at $25 billion, compared to $24.6 billion in the first nine months of the previous fiscal year. However, capital expenditure has gone up an inch from $28.9 billion a year ago to $29 billion in the first nine months of this year. Expenditures for upstream represented 93% of the companywide total capex in the first nine months of the fiscal year.
Irrespective of the rise in capex, Chevron has kept its investors well rewarded by the share repurchase program as the company purchased $1.25 billion of its common stock in the third quarter of the fiscal year.
Quarterly dividend at the rate of $1.07 per share was announced during the earnings call which would be paid out to the investors on December 10 of the fiscal year. The dividend yield stands at 3.7% for the American oil company after this dividend announcement of the quarter.
Developmental projects well scheduled in pipeline
Watson commented during the earnings conference, “We continue to make good progress on our key development projects. New production was recently achieved at the Bibiyana Expansion Project in Bangladesh. The Tubular Bells and Jack/St. Malo projects in the deepwater Gulf of Mexico are expected to start up during the fourth quarter and important construction milestones continue to be reached on our Gorgon and Wheatstone LNG projects in Australia. In addition, we continue to make steady progress on the development and ramp-up of production from our shale and tight resources, particularly in the Permian. These and other major capital projects are expected to deliver significant growth in production, earnings and cash flows in the years ahead.”
Some of the upstream highlights projected during the quarter are:
· Australia – Completed construction and testing of the first LNG tank for the Gorgon Project and installed the offshore platform gravity-based structure for the Wheatstone Project.
- Canada – Chevron announced the sale of a 30% interest in the Duvernay shale play for $1.5 billion.
- United States – Announced a significant crude oil discovery at the Guadalupe prospect in the deep-water Gulf of Mexico, reached a final investment decision for the Stampede Project in the deep-water Gulf of Mexico and drilled approximately 460 wells year-to-date in the Permian Basin and continued the horizontal pad-drilling program. Also reached an agreement to sell natural gas liquids pipeline assets in Texas and southeastern New Mexico for $800 million.
Concluding note
Chevron’s shares were up about 1.2% in premarket trading, at $118.75 in a 52-week range of $106.65 to $135.10. The oil company has showed exemplary growth when it’s facing challenges in the oil production sector so investors can stay calm and stay hooked to its upcoming projects which will give further impetus to the growth curve.
