Ramp Up Of Permian Basin Operations To Drive Chevron’s 3Q’18 Results

by Trefis Team
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Chevron (NYSE:CVX), one of the world’s largest integrated energy companies, is slated to release its September quarter financial performance on 2nd November 2018, the same day Exxon Mobil (NYSE:XOM), its closest competitor, announces its results for the quarter. Similar to the last quarter, the market expects the company to post a solid improvement in its earnings, backed by improved price realization. Further, the ramp up of its operations in the Permian basin, which is one of the most coveted oil plays in the US, is likely drive its production growth and, in turn, its bottom-line for the quarter as well as the full year.

We currently have a price estimate of $125 per share for the company, which is 4% higher than its market price. View our interactive dashboard – Chevron’s Price Estimate and modify the key drivers to visualize the impact on the company’s valuation.

Key Trends To Watch For In 3Q’18

  • Commodity prices have witnessed a rebound since the beginning of 2018 due to the extension of the Organization of Petroleum Exporting Countries’ (OPEC) production cuts until the end of the year. Brent crude oil price rose sharply in the third quarter and averaged at $75.07 per barrel, 44% higher compared to the same quarter of last year. Given the jump in commodity prices, we expect Chevron to witness higher price realization in the quarter, which will drive its top-line growth.

  • Chevron’s strategy to expand its Permian operations to leverage the low cost of production and high quality reserves will work in its favor. At the end of 2Q’18, the company had 19 rigs operating in the region, and aims to increase this number to 20 rigs by the end of 2018. With the use of petro-physical technology and applying data analytics in the region, the company is expected to witness better-than-expected production for the quarter. This will allow the company 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.

Do not agree with our forecast? Create your own price forecast for Chevron by changing the base inputs (blue dots) on our interactive dashboard.

 

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