Chevron Posts Strong 2Q’17 Results Backed By Improved Upstream Operations; Cuts Capex Guidance For 2017

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Unlike its rival Exxon MobilChevron (NYSE:CVX), one of the world’s largest integrated energy companies, surprised the market by posting a strong improvement in its June quarter results on 28th July 2017((Chevron Announces June Quarter Results, 28th July 2017, www.chevron.com)), beating the consensus expectations for both revenue and earnings, by a small margin. The US-based company’s revenue rose sharply on a year-on-year basis, as it delivered a solid production growth at lower operating costs and capital investment, augmented by higher price realizations during the quarter.

In the light of the growing uncertainty, the oil and gas company has reduced its capital expenditure budget for 2017 from $19.8 billion to $19 billion, while upholding its production guidance for the year. Also, the company expects to realized higher cost savings in 2017, which should boost its profits for the year.

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Key Takeaways From 2Q’17 Results

  • Chevron’s upstream operations witnessed a steep recovery in the second quarter, as its production volumes rose almost 10% to 2,780 MBOED during the quarter. The rise in output was driven by higher volumes from major capital projects, and shale and tight oil properties in the Permian Basin in Texas and New Mexico, partially offset by normal field declines and the impact of asset sales. This, coupled with a strong improvement in realization of oil and gas prices compared to the last year, enabled the company to post a solid growth of 18% its in top-line during the quarter.
  • The company’s international upstream operations performed much better than its US operations. While the company’s US upstream operations continued to make losses of $102 billion, its international upstream division generated earnings of $955 million in 2Q’17, resulting in an overall profit of $853 million from its upstream business, as opposed to a loss of $2.5 billion reported in the year ago quarter.

  • Similar to its peers, Chevron realized higher margins on its refined product sales during the second quarter. However, this was more than offset by higher tax charges and the absence of asset sales compared to the previous year. Consequently, the company’s downstream earnings for 2Q’17 stood at $1.2 billion, slightly lower than profits of $1.3 billion generated in 2Q’16.
  • Despite this, Chevron has delivered successfully on its divestment program. The company completed asset sales of $2.8 billion in 2016, and closed deals worth $2.5 billion in the first half of 2017, keeping it on track to meet its divestment goal of $5-10 billion by the end of this year.
  • The company generated cash flows of $8.9 billion from its operations in the first six months of 2017, compared to $3.7 billion generated in the same period last year. Further, the oil and gas producer has reduced its long term debt from $46.1 billion at the end of 2016 to $42.8 billion at the end of the June quarter of 2017.

Going Forward

  • Due to the continued uncertainty in the commodity markets, Chevron expects to spend $19 billion as capital investment in 2017, as opposed to its previous guidance of $19.8 billion. Earlier this month, exploration and production (E&P) companies, such as Anadarko Petroleum and ConocoPhillips, had reduced their capital spending budget in order to be better prepared for the volatility in the commodity markets.
  • That said, the company continues to hold its production targets for the year. Chevron estimates its production volumes to grow by 4%-9% (without the impact of asset sales) in the current fiscal year. The production numbers could vary depending upon the start-up and ramp-up of the Wheatstone project, baseline declines, or unexpected operational issues or turnarounds.
  • Given the success of its cost control measures, Chevron expects its full year 2017 operating costs (including SG&A) to come in $1.5-$2 billion lower than its 2016 costs.

Chevron’s Production Target For 2017

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