Surging crude oil and natural gas prices pumped up Chevron’s profit, leaving the US energy supermajor flush with cash.
The company reported fourth-quarter net income of $5.1bn on Friday, reversing a $665m loss in the same period a year earlier when a coronavirus pandemic-driven market downturn gutted oil and gas industry finances.
But the profits missed Wall Street expectations of $5.9bn, according to estimates compiled by S&P Capital IQ. Chevron’s stock fell about 4 per cent on the miss.
Despite the rise in profits, analysts at Jefferies called the results a “weak performance across the board”, particularly in the company’s international production business where earnings from the sale of liquefied natural gas were lower than expected.
Chevron’s shares still remain up nearly 9 per cent in 2022 after touching a record intraday high of almost $137 a share on Thursday. They have been supported by rising energy prices. Brent crude oil prices topped $90 a barrel this week for the first time since 2014.
A chorus of Wall Street analysts has argued that oil prices were likely to reach $100 a barrel in the coming months, amid lagging supplies and the risk that a Russian invasion of Ukraine will disrupt the market.
“It’s pretty clear we’re in an upcycle and these happen when demand grows faster than supply,” Pierre Breber, Chevron’s chief financial officer, said in an interview on Thursday. “We also have some geopolitical uncertainty and risk that’s priced into the market.”
The company said it generated record free cash flow of $21.1bn in 2021, 25 per cent higher than the previous annual high in 2018. Free cash flow surged as prices rose but Chevron kept capital spending at much lower levels than in recent years.
“We’re generating much more cash than we even generated at $100 [a barrel],” said Breber.
Even as crude supplies lagged a surging recovery in fuel demand, Chevron and other oil companies remained under pressure from investors to limit capital spending and funnel the influx of cash from rising prices back to shareholders rather than into new output.
The company said on Wednesday that it was increasing its quarterly dividend 6 per cent to $1.42 a share. It also said its share buyback programme for this year would be at the high end of the $3bn to $5bn laid out earlier.
Still, Breber said the company’s output would increase 2-5 per cent this year, with operations in the Permian shale basin in West Texas a big driver of production growth.
“We’re right back on a growth trajectory that looks very much like what it looked like pre-Covid,” he said of the company’s Permian business.
Chevron and rival US supermajor ExxonMobil have been market standouts during this month’s sell-off in the S&P 500 stock index.
Exxon said in a regulatory filing in December previewing its results that higher oil and natural gas prices would lift profits in its production business as much as $1.9bn over the third quarter. The company will report its earnings on Tuesday.
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