Company Reports

Chevron's first-quarter reported adjusted earnings of $5.4 billion compared with $6.7 billion the year before, meeting market expectations. The earnings decline was largely attributable to weaker refining margins, which weighed on downstream results. Production increased to 3,346 thousand barrels of oil equivalent per day from 2,979 mboe/d the year before due largely to the acquisition of PDC Energy and continued growth in the Permian, which offset weaker natural gas realizations to increase upstream earnings year over year.

We expect Chevron to deliver higher returns and margin expansion thanks to an oil-leveraged portfolio as well as the next phase of growth, which is focused on developing its large, advantaged Permian Basin position.

Chevron's fourth-quarter adjusted earnings of $6.5 billion fell from $7.9 billion a year before but modestly exceeded market expectations. Adjusted earnings exclude a previously announced $1.8 billion upstream impairment charge, mainly in California, and $1.9 billion in decommissioning obligations from previously sold assets in the Gulf of Mexico. The earnings decline was largely attributable to lower oil and natural gas prices that offset an increase in production volumes to 3,392 thousand barrels of oil equivalent per day from 3,011 mboe/d the year before due largely to the acquisition of PDC Energy and continued growth in the Permian. Both also lead to a record annual production of 3,120 mboed. Management expects volume growth of 4%-7% in 2024 thanks to a full year of PDC volumes and 10% Permian growth that should offset divestments. The continued volume growth demonstrates Chevron’s hydrocarbon-focused strategy.

Chevron's third-quarter earnings not only fell below market expectations, but management also announced a further delay and cost increase to its two major projects at its TCO asset in Kazakhstan. Both the Wellhead Pressure Management Project and Future Growth Project will start about six months later than previously expected, in first-half 2024 and first-half 2025, respectively, while the projects’ total costs will be 3%-5% higher than expected. Production in 2024 will be lower than in 2023 because of heavier turnarounds as well. Finally, TCO cash flow will be about $1 billion lower in 2025 than previous guidance, given lower volumes from the project delays. The combined news of weaker-than-expected earnings and delays to Chevron’s major projects sent shares lower. However, we think the selloff (about $17 billion in lost market cap) is short-sighted and largely an overreaction.

On Oct. 23, Chevron announced its intention to acquire Hess for $171 per share, or $53 billion, in an all-equity deal (1.025 Chevron shares per Hess share) based on Chevron’s closing price on Oct. 20. With Hess, Chevron gains meaningful positions in Guyana and the Bakken, including Hess’ midstream assets, as well as smaller positions in the Gulf of Mexico and natural gas assets in Southeast Asia. Given its size and economics, Guyana is the most attractive of the group and likely the key driver of the deal, as it adds a source of long-term growth Chevron had been lacking.

ExxonMobil confirmed prior Wall Street Journal news reports by announcing on Oct. 11 its intention to acquire narrow-moat Pioneer Natural Resources in an all-stock transaction valued at $59.5 billion or $253 per share, based on ExxonMobil’s closing price on Oct 5. ExxonMobil shares have been slightly lower since then, implying a per-share value of about $247 based on ExxonMobil’s closing price on Oct. 11 and the exchange ratio of 2.3234 for every one Pioneer share. That is a 22% premium to our Pioneer fair value estimate of $203 per share, which assumes a long-term oil price of $60/barrel. This suggests a modest reduction in our fair value estimate for ExxonMobil once the deal is considered, but that is largely offset by higher oil prices since our last update as well as value assigned to synergies, which nets out leaving our fair value estimate unchanged. The acquisition price implies a long-term oil price of about $70/bbl, which we don't consider unreasonable, suggesting the valuation for Pioneer, while above our fair value estimate, is fair. We see no impediments to the deal closing in first-half 2024 as expected.

We expect Chevron to deliver higher returns and margin expansion thanks to an oil-leveraged portfolio as well as the next phase of growth, which is focused on developing its large, advantaged Permian Basin position.

Chevron's second-quarter earnings held little surprise after the firm issued an announcement earlier in the week, but they did exceeded market expectations with adjusted earnings of $5.8 billion compared with $11.4 billion a year before. Earnings fell from last year on lower price realizations and weaker global refining margins. Production increased to 2,959 thousand barrels of oil equivalent per day from 2,896 mboe/d the year before due largely to the Permian, which hit a record 772 mboe/d.

In an unusual move, Chevron prereleased second-quarter results while announcing management changes. Second-quarter adjusted earnings fell to $5.8 billion from $11.4 billion a year ago as lower oil and natural gas prices offset higher production. Production increased to 2,959 thousand barrels of oil equivalent per day from 2,896 mboe/d a year ago, with an 11% increase in Permian Basin volumes to a record 772 mboe/d. During the quarter, Chevron repurchased $4.4 billion in shares, in line with guidance. It expects to close the PDC Energy acquisition in August. Our fair value estimate and narrow moat rating are unchanged. More detail will be available with the full earnings release on July 28.

Chevron's first-quarter earnings exceeded market expectations with adjusted earnings of $6.7 billion compared with $6.5 billion a year before. A decline in upstream earnings from lower price realizations was more than offset from higher downstream earnings, thanks to stronger global refining margins, and lower corporate charges. Production fell to 2,979 thousand barrels of oil equivalent per day from 3,060 mboe/d the year before due to the Eagle Ford asset sale and contract expiration in Thailand, which offset Permian growth. Permian growth will be modest in the first half of the year, but will accelerate in the second half.

We expect Chevron to deliver higher returns and margin expansion thanks to an oil-leveraged portfolio as well as the next phase of growth, which is focused on developing its large, advantaged Permian Basin position.

Apart from an increase in its repurchase guidance, there was little news from Chevron’s annual analyst day on Feb 28. It now expects to repurchase $10 billion-$20 billion in shares annually, at oil prices ranging from $50/bbl-$70/bbl, compared with a previous maximum of $15 billion, which was a midyear 2022 increase from $10 billion at last year’s update. Although oil prices are above $70/barrel currently, it is only increasing its current second-quarter repurchase amount to an annual rate of $17.5 billion. Meanwhile, it extended to 2027 from 2026 and slightly increased its long-term target for a return on capital employed to more than 12% from 12% last year and rebased its cash flow targets to a more than 10% total free cash flow growth target from a more than 10% operating cash flow per-share amount last year. Also of note, both targets still assume $60/bbl for oil, but Henry Hub and international gas prices increased, meaningfully. Importantly, capital-expenditure guidance of $13 billion-$15 billion per year plus $2 billion in affiliate spending, as well as the Permian production target of 1 million barrels of oil equivalent per day, remains unchanged.

Chevron's fourth-quarter earnings fell slightly short of market expectations, but that is largely noise compared with the signal that was the large dividend and repurchase authorization announced earlier in the week.

ExxonMobil and Chevron announced their 2023 capital spending plans with each increasing spending relative to 2022, but remaining within their prior long-term guidance. Exxon went a step further by increasing its share repurchase guidance. Our fair value estimates and narrow moat ratings are unchanged, leaving both trading at a premium. Of the two, we continue to prefer Exxon given its long-term growth outlook and ability to increase cash returns.

Although the third quarter brought record earnings for Exxon and nearly a record for Chevron, including both exceeding market expectations, we do not plan any material increases to our fair value estimates. As a result, both trade at a premium of 9% and 21%, respectively.

More of the same from Chevron as third-quarter earnings easily topped market expectations, demonstrating the company’s leverage to commodity prices and relatively low-cost position that underpins our narrow moat rating. Earnings surged to $11.2 billion, slightly below record levels in the second quarter, from $6.1 billion the year before. Higher commodity prices offset slightly lower production volumes to drive upstream adjusted earnings to $8.9 billion from $4.7 billion the year before. Production fell to 3,027 thousand barrels of oil equivalent per day from 3,034 mboe/d the year before as contract expirations outweighed Permian production growth of 12% from a year ago. Downstream earnings improved to $2.4 billion from $1.2 billion a year ago due to higher margins that offset lower chemical earnings.

Following blowout second-quarter earnings, we have increased our fair value estimates for Chevron (by 5%) and Exxon (by 6%) as we incorporate the latest financial results and updated commodity prices into our models. Exxon remains our preferred play of the two, trading at price/fair value estimate of 0.92, while Chevron trades at a premium at 1.07. Our narrow moat ratings are unchanged.

We expect Chevron to deliver higher returns and margin expansion thanks to an oil-leveraged portfolio as well as the next phase of growth, which is focused on developing its large, advantaged Permian Basin position.

Chevron reported second-quarter earnings that easily topped market expectations and demonstrated the company’s leverage to commodity prices and relatively low cost position that underpins our narrow moat rating. Adjusted earnings surged to $11.4 billion from $3.3 billion the year before. Higher commodity prices offset lower production volumes to drive upstream earnings to $8.4 billion from $3.2 billion the year before even as production fell to 2,896 mboe/d from 3,126 mboe/d the year before, largely on contract expirations. However, Permian production has grown more than 15% from a year ago. Downstream earnings improved to $3.4 billion from $838 million a year ago thanks to higher margins that offset lower chemical earnings.

Chevron reported first quarter earnings that fell just short of market expectations but still increased significantly from the year before thanks to higher commodity prices. Adjusted earnings increased to $6.3 billion from $1.4 million the year before. Upstream earnings were responsible for the improvement demonstrating Chevron’s leverage to oil and gas prices, increasing to $6.9 billion from $2.4 billion the year before even as production slipped to 3,060 mboed from 3,121 mboed the year before, largely on contract expirations. However, Permian production grew to a record 692 mboed during the quarter and the company increased its 2022 guidance to 700-750 mboed, implying growth of 15% from 2021. Downstream earnings improved to $331 million from $5 million a year ago but remain relatively weak due to losses in the international segment from higher expenses and lower margins. Timing effects related to a rising price market were also responsible for the weaker performance, but should be made up in subsequent quarters.