Downstream Weakness Mutes Chevron's Recovery

Chevron's CVX first-quarter earnings rebounded from weak fourth-quarter results thanks to higher commodity prices but failed to match first-quarter 2020 levels as downstream results declined substantially. Chevron reported headline earnings of $1.4 billion compared with $3.6 billion last year. Adjusted earnings were $1.7 billion compared with $2.5 billion last year. Although adjusted upstream earnings increased to $2.4 billion from $1.8 billion, downstream earnings fell to $56 million from $1.0 billion last year. OPEC+ cuts have balanced the oil markets and increased prices, but downstream margins remained poor as demand continues to suffer from the pandemic. Other segment losses also increased to $728 million during the quarter from $364 million last year. Excluding working capital, operating cash flow fell to $5.1 billion from $5.8 billion last year but was sufficient to cover capital spending and dividends. Leverage remains one of the lowest of the sector at 22.5% net debt to capital. With strong cash flows and a healthy balance sheet, Chevron announced a 4% dividend increase making it the first integrated oil to grow the dividend after not cutting it in 2020. Share repurchases are likely in the future given the current oil price outlook, but in the near term, Chevron plans to direct excess cash to the balance sheet. Its strong cash flow, oil price leverage, and shareholder returns continue to make Chevron a safe pick in the sector even if its valuation is not the most attractive. Production for the quarter fell to 3,121 million barrels of oil equivalent a day (mmboe/d) from 3,235 mmboe/d the year before as asset sales, base decline, and turnarounds offset volumes added with the Noble acquisition. Production growth guidance remains 0%-3% for 2021 depending on prices and activity levels, while Chevron plans to grow to 3.5 mmboe/d by 2025 as guided in its analyst day in March.

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