Chevron's Permian Production Pays Off With A Strong Beat

Chevron Corporation CVX reported its second quarter financial results before markets opened on August 2. Earnings per share of $2.27 crushed Wall Street's consensus expectations of $1.76. Earnings totaled $4.3 billion for the quarter, up more than 20 percent from the same quarter in the prior year.

Chevron breaks out its financials into three reporting units: Upstream, Downstream and ‘All Other,' which includes cash management, debt finance, insurance, corporate, real estate and technology.

Upstream is separated into U.S. Upstream and International Upstream. Worldwide net oil production was up 9 percent year-over-year to an average of 3.08 million barrels per day and earnings were up 6.5 percent to $896 million.

"Net oil-equivalent production was the highest in the company's history, driven by continued growth in the Permian Basin and at Wheatstone in Australia," said Michael Wirth, Chevron chairman and chief executive officer, in a statement.

Chevron said it would resume buybacks, which had been suspended while the Andarko deal was pending (the deal was canceled and Chevron received a payout).

In the United States, the average sale price of liquids was $52/barrel, down from $59/barrel last year, but the real pain was felt on the natural gas side, where realized prices collapsed from $1.61 per thousand cubic feet in the second quarter of 2018 to $0.68 per thousand cubic feet in the second quarter of 2019. U.S. production was up 21 percent, or 159,000 barrels per day, to 898,000 barrels/day, on the back of increased shale production in the Permian Basin and the Gulf of Mexico. Net liquids production increased 23 percent and natural gas production increased 15 percent, year-over-year.

International Upstream earned $2.59 billion in the second quarter, up 5.2 percent from the prior year. 

"The increase in earnings was mostly due to higher natural gas sales volumes, tax benefits mostly associated with a reduction in the Alberta, Canada corporate income tax rate, lower operating expenses, and higher gains on asset sales," Chevron said in a statement.

The average sales price for crude oil and natural gas liquids in International Upstream for the second quarter of 2019 was $62 per barrel, down from $68 a year earlier. The average sales price of natural gas was $5.43 per thousand cubic feet in the quarter, compared with $5.64 in last year's second quarter.

Chevron's Downstream operations are also broken out into U.S. and International segments. U.S. Downstream earnings contracted by 30 percent to $465 million due to lower margins on refined product sales and lower equity earnings from Chevron's 50 percent stake in Chevron Phillips Chemicals. International Downstream earnings, though a smaller part of the business, grew earnings by an impressive 45.8 percent to $264 million, though the year-over-year growth was partially attributable to the sale of a refinery in South Africa. Also due to that sale, refinery inputs and sales were down.

Globally, capital and exploratory expenditures increased 8.6 percent to $10 billion for the quarter on a year-over-year basis. Year-to-date, Chevron's upstream business has accounted for 85 percent of capital and exploratory expenditures (the $400 million acquisition of the Pasadena refinery in Texas counted as ‘Downstream').

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