Oil giant Chevron (CVX - Free Chevron Stock Report) delivered a bottom-line turnaround in the first quarter of 2017 that pleased Wall Street, sending its shares modestly higher. The $1.10 adjusted per-share result easily bested our estimate for $0.90 a share and the prior-year loss of $0.39 a share. It was mainly higher oil prices that allowed the company to record $2.1 billion in operating profits, versus a loss of $725 million a year earlier. Note: Chevron also recorded a $600 million gain, or an estimated $0.31 a share, on the sale of its geothermal business in Indonesia, which is not included in our comparison.
In general, Chevron is in good position these days to benefit from improved market conditions. The company has completed major spending initiatives, and can reap the rewards of those investments as oil and natural gas prices recover. One very positive sign was the driller's profitable domestic operations, which generated $80 million in earnings for the first three months of 2017, versus a sizable loss in 2016. That speaks to both the quality of Chevron's U.S. assets and the hard-nosed cost reductions implemented following the lengthy oil market downturn that ended early in 2016.
Internationally, the pumping business also showed major improvement, turning in $800 million in operating profits, compared to a $600 million loss a year earlier. Overseas oil and natural gas price realizations averaged $49 a barrel and $4.36 per million cubic feet (Mcf) during the quarter, respectively, versus $29 a barrel and $3.91 an Mcf in 2016. Those figures clearly point to a price-driven recovery, given that Chevron's combined oil and gas production rose only marginally.
Production gains would be greater, except for asset sales. The volume gains achieved by recent project start-ups are allowing the company to sell mature drilling assets. In particular, Chevron has focused on building its liquefied natural gas (LNG) portfolio in the Asia/Pacific region. There is room for expansion of the LNG business in the coming years, as well. That provides an element of growth at Chevron, supporting prospects for higher volumes in the coming years to meet rising demand.
In refining, Chevron showed improved results stateside, as a result of lower operating expenses and better margins. Volumes fell, though, in view of the sale of the Hawaii refinery since the first quarter of 2016. International refining profits declined 6%, though, owing to lower margins.
On the whole, the tone of Chevron's earnings report was positive, and provided room for optimism that profits can continue to recover under stable market conditions. These high-quality shares can be held for income and long-term total return potential.
About The Company: Chevron has daily gross crude oil and natural gas liquid production of about 2.594 million barrels. Natural gas production averages around 5.252 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.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
