Petroleum industry leader Chevron (CVX - Free Chevron Stock Report) has reported lower-than-expected fourth-quarter profits, sending its shares moderately lower on the news. The investment community was broadly looking for earnings in the same neighborhood as third-quarter net of $0.68 a share. Instead, Chevron turned in a per-share gain of just $0.22 for the final three months of the year. For all of 2016, the company reported a loss of $0.27 a share, but a considerable improvement in the latter half of the year.
The disappointing quarterly results largely arose from lower margins on domestic and international refined product sales, and a significantly higher amount of corporate tax items. Volatility in the refining business is commonplace when crude oil prices move up or down in a big way. The fourth quarter of 2016 saw oil prices rise as optimism about OPEC output reductions gained sway. The cartel's subsequent global oil pact limiting production sent quotations higher still. Those conditions meant Chevron's refining segment had to pass along a higher cost of crude, which can take time. Even so, earnings might have met the bar Wall Street had set. But the extra taxes in the corporate segment, an item that cannot be tracked by external market indicators, weighed heavily on performance.
There is still room for optimism, particularly with respect to volume and pricing in the oil and gas pumping division. While flat year over year, Chevron's combined fourth-quarter production rose 6.2% from the third quarter, meeting its stated target. Especially promising was the profit generated by domestic operations, which had been struggling with losses until late in the year. Chevron also looks to have replaced 95% of its production with fresh reserves. That would be a very respectable showing in a down year for drilling.
The oil and natural gas line has achieved some notable milestones, with major projects having commenced in Australia, China, and the United States in 2016. Their completion puts Chevron in position to benefit from the cash flow they produce at a time when oil prices appear set to be higher, on average, than the prior year. That should be good news for earnings, which we peg at $4.00 a share in 2017.
Overall, an improved business outlook led the company to raise its quarterly dividend in late 2016 for the first time in couple of years. The stock offers a generous yield and the company's strong finances make Chevron shares suitable for conservative investors seeking a weighting in the oil patch.
About The Company: Chevron has daily gross crude oil and natural gas liquid production of about 2.622 million barrels. Natural gas production averages around 5.269 billion cubic feet. The company operates a multitude of well sites all over the globe, as well as owning/leasing about 3,955 gas stations, mostly in the United States.
