Oil industry leader Chevron (CVX - Free Chevron Stock Report) has reported adjusted fourth-quarter 2017 share net of $0.67, on profits of $1.27 billion. The per-share figure was well short of our projection for $1.04, but much improved from the $0.22 a share earned in the prior-year quarter. A tax benefit of $2.02 billion muddied the waters for comparison purposes. The stock is falling on the news on a day when the broader market is selling off sharply. Results looked good on a full-year basis though. Excluding items, earnings per share rose to $3.88, versus a loss of $0.27 a share for all of 2016.
Chevron made progress on a couple of fronts. For the quarter, results were enhanced by improved performance at its domestic refining and marketing operations, while higher oil prices lifted profitability notably in the international pumping division. For the year as a whole, both the drilling and refining businesses made clear strides. Given the positive momentum, we have tentatively raised our 2018 earnings-per-share estimate by $0.60, to $5.75.
Broadly, the company is in good position to reap the benefits of past investments. Chevron has largely completed the funding of a couple of major liquefied natural gas (LNG) initiatives in Australia. Output from those projects helped to lift natural gas production by 11% in the fourth quarter and 15% for all of 2017. Including crude oil, combined production rose 5% on an annual basis, while capital spending fell 16%. Importantly, in 2017, Chevron replaced more than 150% of the oil and natural gas reserves it produced. That is a good indicator for future production. Looking ahead, production gains of a similar order (4%-7%) are possible in 2018. Some of the higher amounts pumped will come from the Permian Basin of West Texas and eastern New Mexico, where the company has an enviable legacy position.
The improved backdrop overall has allowed Chevron to raise the quarterly dividend by $0.04 a share, to $1.12, payable in March. The company held back on boosting the payout much the past few years, coming out of the steep, 2014-2016 industry downturn. The increase now seems appropriate, with major projects completed, higher oil prices, and improved earnings prospects. Overall, these share offer modestly attractive total return potential on a risk-adjusted basis.
About The Company: Chevronhas 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.
— Robert Mitkowski
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
