Oil giant Chevron Corp. (CVX – Free Chevron Corp. Stock Report) has reported 2019 first quarter earnings per share of $1.39, compared to $1.90 a year earlier and our estimate of $1.55. Results were hurt by lower crude oil prices and weak refining margins, offset to an extent by rising production from domestic oil fields. The shares eased slightly on the news, although recently the stock has been affected to a greater degree by its proposed move to purchase driller Anadarko Petroleum.
The most impressive part of Chevron's quarterly performance was that it was able to boost U.S. oil production by more than 20%. The company's major push in the Permian Basin of Texas and New Mexico is paying off in a big way. The impressive volume gain boosted profits from stateside drilling by 15%, despite a dip in the average price realized for domestic oil from $56 a barrel to $48 a barrel. International drilling volume also rose a bit, although profits from that line dipped moderately as a result of the lower pricing environment. Still, Chevron's 7% increase in combined oil and natural gas production is noteworthy, as are possibilities for mid-single-digit gains ahead. In contrast, a number of competitors are having trouble making headway raising their production profile.
The notable weak spot early in 2019 for Chevron, and the industry as a whole, was the downturn in margins on refined product sales both in the United States and internationally. The refining business is known for its volatile nature, and that feature came to the forefront early in 2019. High gasoline inventories were a negative, as was a mild winter in certain regions that kept a lid on heating oil sales. Performance from the refining line could be choppy going forward, if product inventories remain high.
Meanwhile, overshadowing Chevron's normal operations has been its now-contested bid to acquire Anadarko Petroleum. The company made a $33 billion offer to buy the major independent driller, with both boards approving the deal. The merger would likely provide sizable long-term benefits if it comes to pass, but there is greater uncertainty now that rival Occidental Petroleum has made a higher bid. Occidental's aggressive pursuit could result in a bidding war, the prospect of which may weigh on Chevron's good-yielding shares until the final outcome is known. The concern is that, if it prevails, Chevron could end up paying too much for Anadarko.
About The Company:Chevron is one of the world’s 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
