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Chevron’s Third-Quarter Profit Falls Short of Expectations

Last updated on October 29, 2023

In the third quarter, Chevron reported a profit that significantly undershot Wall Street estimates, causing its pre-market share price to decline. Oil company earnings have declined from their record levels a year ago due to a decrease in crude prices and increased costs that have impacted refining and chemical profits. While the results remain strong when evaluated in a historical context, they are notably lower than the figures from the previous year.

The company reported earnings of $6.5 billion, a notable decrease from the $11.2 billion reported during the same period in the prior year. The adjusted profit amounted to $3.05 per share, in contrast to the $3.75 per share anticipated by analysts, as per LSEG data.

The earnings shortfall follows Chevron’s prior warning in the second quarter about the adverse impact of maintenance activities in its oil and gas production and refining divisions on its financial results. Additionally, the company experienced a setback in a Kazakhstan project, which resulted in a roughly six-month delay in expanding oil and gas production at its Tengizchevroil operation.

Consequently, Chevron’s shares experienced a 5.4% decline, reaching $146.40 during early trading.

Exxon and TotalEnergies also reported lower third-quarter results due to weakened profits in crude oil and refining. Exxon’s profit decreased by 54%, while TotalEnergies’ earnings declined by 35%.

Furthermore, Chevron entered into an all-stock acquisition agreement to purchase its U.S. counterpart, Hess Corp (HES.N), for $53 billion, aiming to expand its shale and deepwater oil production and reserves. In addition to the acquisition of Hess, Chevron acquired a U.S. shale oil and gas producer, PDC Energy, and secured a majority stake in ACES Delta, a U.S. hydrogen storage firm.

While RBC analyst Biraj Borkhataria acknowledged the earnings miss as “disappointing,” they attributed it to non-recurring items, emphasizing the impact on CVX shareholders.

Capital expenditures during the quarter surged by more than 50% to $4.7 billion, partly due to the ACES Delta acquisition. The total cost of the Tengizchevroil expansion project is expected to increase by $1 billion.

Profit derived from oil and gas production decreased by approximately 38% to $5.76 billion in the quarter, compared to $9.3 billion in the prior year.

Overall, production volumes increased by 4% to 3.15 million barrels of oil and gas per day (boed) following the PDC Energy deal, which also resulted in a 25% increase in the production of less lucrative natural gas. Chevron had pumped 3.03 million boed a year ago.

While oil prices have rebounded recently after a mid-year decline, Chevron’s cash flow from operations decreased from $15.3 billion a year ago to $9.7 billion.

The company’s refining division reported an operating profit of $1.68 billion, a decrease from the $2.53 billion in the prior year, primarily due to weaker results outside the United States. Despite gains in its U.S. refining business, these gains were offset by weaknesses in overseas operations, where both margins and inputs declined.

Significant Terms:

  • Refining and Chemical Profits: Earnings generated from the processing and manufacturing of petroleum products and chemicals.
  • Adjusted Profit: Earnings adjusted for specific factors to provide a more accurate representation of a company’s performance.
  • Capital Expenditures: Funds allocated for long-term investments, such as infrastructure, equipment, and acquisitions.
  • Cash Flow from Operations: The inflow and outflow of cash from a company’s core operating activities.
  • Margins: The difference between the cost and selling price of a product, indicating profitability.
  • All-Stock Deal: An acquisition transaction where the purchasing company offers its own shares as payment for the target company.

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