Chevron Posts A Strong Quarter Backed By Improved Upstream Operations

by Trefis Team
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Unlike its competitor Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) witnessed a surge in its stock price post the announcement of its 2Q’18 results. As expected, the integrated energy company posted a solid improvement in its earnings, backed by robust production growth and improved upstream price realization. Further, the company’s relentless efforts to control its operating costs and capital spending augmented its bottom-line for the quarter. Given an improving cash flow position backed by strong production growth and asset sale proceeds, Chevron plans to repurchase $3 billion annually in the coming years, while restricting its capital expenditure in the $18-$20 billion range.

We currently have a price estimate of $133 per share for the company, which is 4% higher than its market price. View our interactive dashboard for Chevron and modify the key drivers to see the impact on the company’s valuation.

Key Highlights of 2Q’18 Results

  • As expected, Chevron’s 2Q’18 upstream earnings jumped sharply to $3.3 billion, significantly higher from $0.85 billion in the same quarter of last year, driven by improved price realizations and higher production during the quarter. The company’s year-to-date production stood at 2.84 million barrels per day (bpd), which is 4.5% higher compared to the average production for full year 2017. This is in line with the company’s guidance for the year.
  • On the contrary, the downstream operations dragged down the company’s bottom-line due to higher operating expenses, lower Asia margins, and the absence of Canadian refining and marketing business. Yet, Chevron’s net earnings for the quarter stood at $3.4 billion, or $1.78 per share, nearly $2 billion or roughly $1 per share higher than the year ago quarter.

Going Forward

  • Chevron expects its production to increase strongly in the second half of the year, allowing it to meet the upper end of its guidance range for the full year.
  • Further, the company also anticipates an improvement in its operating cash flow position backed by higher production, strong upstream cash margins, additional proceeds from asset sales, and some reversals of working capital requirements.
  • The company plans to restrict its capital spending between $18 to $20 billion through 2020, while generating $5-$10 billion in asset sales annually through 2020.
  • Given the improving outlook on cash flows and ongoing commitment to capital discipline, Chevron initiated its share repurchase program with a target of $3 billion per year. The company also increased its annual dividend by 4% earlier this year, indicating its willingness to share its growth with its shareholders.

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