Petroleum industry leader Chevron (CVX – Free Chevron Stock Report) has turned in improved, but somewhat less than expected, second-quarter profits. Earnings per share of $1.78 more than doubled versus the prior year, as higher crude oil prices helped the bottom line notably. The performance came in short of our view for $1.90 a share, though, as a $270 million writedown in receivables and $265 million in foreign exchange headwinds kept a lid on the advance. Nevertheless, prospects are bright for a strong annual earnings gain this year. We are raising our share-net forecast by $0.50 at this time, to $7.90, on the assumption that sustainably higher oil quotations will provide a lift.
The good story at Chevron mainly revolves around the stepped-up performance of its oil and natural gas pumping business. The company boosted year-over-year production by 1.8% in the June quarter, which represents a solid showing in an industry where a number of its competitors are struggling to make headway. The centerpiece of the Chevron's expansion in recent years was a pair of LNG (liquefied natural gas) plants in Australia that are now fully operational. The completion of those initiatives is allowing the company to keep capital spending relatively contained. That is the blue print investors prefer to see for the big oil companies these days, since in the past too many large industry projects did not produce the desired shareholder returns.
The modest uptick in volume aside, improved oil and natural gas pricing provided most of the fuel for Chevron's profits during the quarter. Internationally, the company realized $68 a barrel for oil, versus $45 a barrel in the year-earlier period, and natural gas pricing comparisons improved 28%. In the United States, oil prices averaged $59 a barrel, up from $45 a barrel in 2017, although natural gas prices slipped. The company retains one of the industry's most enviable legacy drilling positions in the Permian Basin, where we figure breakeven costs are around $45 a barrel.
Elsewhere, profits fell moderately in the company's less prominent refining division. Business stateside held steady, but lower margins on the international side cut into the bottom line's progress.
Overall, Chevron's quarterly report card indicated that it is on track to benefit from improved pricing conditions. While the company's favorable prospects appear to be largely reflected in its stock price, the shares still offer appeal for income and dividend growth, particularly for conservative investors, in view of the issue's high quality. The initiation of a $3 billion annual stock-repurchase program indicates that good times are at hand.
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
