Integrated petroleum industry leader Chevron Corp. (CVX - Free Chevron Stock Report) has reported second-quarter earnings per share of $2.27, boosted by a couple of one-time items, versus $1.78 a year ago and our estimate for $1.80. The company benefited from the payment of a breakup fee following its merger termination with Anadarko and from the reduction of taxes in Alberta. Not counting those items, we figure share net was roughly flat with the year-earlier performance.
A flat showing operationally was not bad considering the industry environment has not been particularly favorable lately. The company's per-barrel U.S. oil prices fell to $52 in the latest quarter, down from $59 a year earlier. The decline in natural gas prices stateside was more severe, with realizations falling to a slim $0.62 per thousand cubic feet (mcf) versus $1.61 in 2018. International pricing held up better, with crude oil averaging 9% less and natural gas realizations coming in 4% lower than a year ago. Natural gas pricing overseas is much higher, at $5.43 per mcf, since liquefied natural gas (LNG) quotations are supported by long-term contracts. Meanwhile, the refining sector has been suffering from subpar fuel product margins, although there was some improvement in the latest quarter from the start of 2019.
The less-than-stellar backdrop aside, Chevron is making progress toward its long-term goal of raising oil production steadily. The company's footprint in the Permian Basin is providing a strong base to build on in that regard, as are a pair of LNG development projects in Australia. Combined oil and natural gas production jumped 9% in the June quarter, indicating the potential of Chevron's portfolio. Annual increases are likely to be more moderate, possibly in the 3%-5% range, since the company plans to sell mature assets. Most likely, $5 billion-$10 billion of assets will be sold in the next couple of years. But there is clearly promise for higher volume ahead, both in the pumping business and in refining, where the company recently completed the purchase of a Houston complex for $350 million.
On the whole, Chevron turned in a decent quarterly report, with the company performing well compared to its peers. Notably, capital spending was up only slightly, enabling the company to use excess cash to repurchase stock. Buybacks were suspended when negotiations to purchase Anadarko Petroleum were ongoing, but have restarted at around a $5 billion annual pace. A merger bid for another independent producer could eventually be forthcoming, although there is no rush to do so. For investors, the shares remain a high-quality, good-yielding selection that provides modest upside potential over the long term.
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
