Oil industry giant Chevron Corp. (CVX – Free CVX Stock Report) has reported surprisingly strong first-quarter 2018 earnings per share of $1.90, versus $1.41 a year ago, on rising production and prices. The investment community viewed the news positively, pushing the stock a bit higher in early market trading. Wall Street's expectations had been on the rise in recent months, given higher crude oil quotations, and the company delivered an encouraging performance. We have raised our 2018 share-net estimate by $1.00, to $6.80.
The improvement in operating conditions was readily apparent in the drilling business, where earnings more than doubled to $3.4 billion. Downstream, results held their own stateside, but slipped internationally on lower margins. Breaking it down by region, domestic drilling profits jumped to $648 million, from $80 million in the previous year, as realized prices in the United States climbed to $56 per barrel, from $48. The rise in prices has pushed results well above breakeven, after which higher prices flow directly to the bottom line. U.S. production rose a very healthy 9%, driving worldwide production 6% higher, with nice gains in the Permian Basin region of Texas. Chevron's noteworthy legacy position in that major producing basin is serving it very well.
Overseas earnings gains from pumping operations were also very impressive, with the company generating $2.7 billion, up from $1.4 billion in the prior year. International oil price realizations climbed to $61 a barrel, up from $49. Production from a pair of major liquefied natural gas (LNG) projects in Australia helped fuel the earnings advance. Chevron spent years developing those assets, which are now contributing to production. With the Australian LNG ventures due to be fully ramped up this year, the company should generate significant cash flow.
How cash flow is allocated may influence investor sentiment. Chevron's first consideration is a rising annual dividend. The company boosted its cash distribution in this year's first quarter, and healthy raises appear very likely to decade's end, assuming oil quotations remain favorable. Project spending is another priority, although capital expenditures probably do not need to be increased, given that the Australian LNG projects are nearly completed. While Wall Street would like to see a push to buy back shares, it may be earlier in the cycle for oil companies to be repurchasing stock. Chevron may instead strengthen the balance sheet in the near term.
Overall, the company delivered an upbeat progress report for the quarter. Chevron shares have a place in the portfolio of many conservative investors looking for a stake in the energy industry.
About The Company:Chevron is the world’s fourth-largest oil company based on proven reserves. The company’s Upstream operations consist primarily of exploring for, developing, and producing crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transporting crude oil by major international oil export pipelines; transporting, storage, and marketing of natural gas; and a gas-to-liquids plant. Downstream operations consist primarily of refining crude oil into petroleum products; marketing of crude oil and refined products; transporting crude oil and refined products by pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives.
— Robert Mitkowski
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
