Chevron Posts Second Consecutive Quarterly Profit
28 January 2017 - 2:53AM
Dow Jones News
By Bradley Olson and Anne Steele
Chevron Corp. posted its second consecutive quarterly profit
Friday, reaping the benefits of a modest market rebound and
significant cost cuts, but the results disappointed investors, who
sent shares down nearly 3% in early trading.
The second-largest U.S. energy company, Chevron has reached the
point where it will be able to pay for new investments and
dividends with cash from operations, a significant milestone for
major oil companies that has been elusive as crude fell from highs
of more than $100 a barrel to around $50 today.
Still, earnings came in sharply below estimates due to lower
refining margins and one-time tax charges, and shares were down
2.7% to $113.46 as of 10 a.m. Eastern time. For 2016, Chevron had
an annual loss of about $500 million, its first in more than 25
years.
While most major oil company executives have sounded a cautious
note about 2017, many have signaled that they expect a better year
after the Organization of the Petroleum Exporting Countries agreed
to cut oil production last year.
"Most of these companies plan to keep spending in line, and I
expect many of them to keep selling assets and bringing costs down"
so they can generate enough cash to pay for operations and
dividends, said Brian Youngberg, an analyst at Edward Jones in St.
Louis. "For Chevron, the focus will be on" finishing gas export
projects in Australia, he said.
Chief Executive John Watson said Chevron should show improved
earnings and be cash-flow-balanced in 2017 through continued tight
spending and cost control as well as additional revenue from
expected production growth.
"We responded aggressively to those conditions, cutting capital
and operating expenses by $14 billion," he said.
Chevron replaced about 95% of the oil and gas it produced in
2016, according to the company. Such reserve figures will be
closely watched in the coming weeks as companies may be forced to
recognize that some of the wells they expected to drill in the
future are no longer profitable to produce.
Exxon Mobil Corp. warned in October that as much as 4.6 billion
barrels of its reserves, primarily in Canada, may be too expensive
to tap based on last year's average prices. Exxon is set to report
earnings next week.
Chevron increased its 2016 annual dividend payout for the 29th
consecutive year, raising the payment for the fourth quarter by a
penny, or 0.9%, to $1.08.
During the latest quarter, the company's average sales price per
barrel of crude oil and natural gas liquids was $40, up from $35 in
the year-ago period.
Pressured by the prolonged swoon in oil prices cutting into
profitability, the San Ramon, Calif.-based company has looked to
cut costs. Chevron has said it would cut about 8,000 jobs -- up to
12% of its workforce -- and slash billions of dollars from its
capital-spending budget to deal with market conditions.
In all for the December period, Chevron reported a profit of
$415 million, or 22 cents a share, compared with a loss of $588
million, or 31 cents a share, the year before, and well below the
64 cents analysts polled by Thomson Reuters were looking for.
Profit in Chevron's downstream, or refining, operations plunged
65% to $357 million in the latest quarter. In the U.S., the company
made no money in that business.
Write to Bradley Olson at Bradley.Olson@wsj.com and Anne Steele
at Anne.Steele@wsj.com
(END) Dow Jones Newswires
January 27, 2017 10:38 ET (15:38 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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