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Dow-30 Earnings: Chevron Corp.– Fourth Quarter 2013
Chevron Corp., (CVX - Free Chevron Stock Report) the world’s fourth-largest oil company based on proven reserves, and a Dow-30 member, reported fourth-quarter sales and share net of $56.2 billion and $2.57, respectively. Sales came in 4% below the year-ago tally of $56.3 billion, and share earnings were a whopping 30% lower. The stock dropped quickly on the news even though analysts were expecting weak results. We were looking for share net of $3.45 and sales of $62.6 billion. Like its industry peers, Shell and Exxon Mobil, (XOM - Free Exxon Mobile Stock Report) Chevron’s operations suffered from lower crude oil prices, and slimmer refining margins. Higher expenses from major E&P projects also took a toll on results.
Upstream (Exploration and Production) profits were 30% lower, at $4.852 billion. Foreign Upstream earnings constitute the bulk of profits in this segment (82%). Net oil equivalent production, and oil and gas prices were basically similar to 2012’s final-quarter numbers, but 2013’s fourth-quarter results suffered from the absence of a $1.4 billion gain on an asset exchange in Australia, and higher exploration expenses. Despite E&P gains in the company’s North American shale gas holdings, the natural decline of mature oil fields meant that overall production didn’t climb in the fourth period.
In the Downstream (Marketing & Refining) operation, profits were 58% lower, at $390 million. This was due to lower margins on refined products, as well as repair and maintenance activity, and lower gains on asset sales.
Chevron is oil weighted, and therefore hasn’t been able to take advantage of rising natural gas prices over the past couple of months. However, unusually frigid weather conditions across most of North America over the past month should aid Chevron’s oil sales in the first quarter. Still, the likelihood of no real rise in global demand for oil means that earnings for the remainder of the year aren’t likely to be stellar, particularly since China has indicated that its rate of GDP growth is expected to fall this year. Too, recent manufacturing activity in the world’s second-largest economy has been a bit weaker, of late. If this trend was to continue, it could weigh on near-term oil sales to the Asian powerhouse. Furthermore, European demand will probably be lackluster at best.
To its credit, Chevron is directing more of its capital resources to expanding its presence in the global liquid natural gas markets, and selling off non-productive assets to fund these projects. The company should continue to undertake huge liquid natural gas projects in the Wheatstone and Gorgon fields in Australia, and in its Angolan LNG plant in North Africa.
We look for Chevron to generate share net of $12.00 in 2014 on sales of about $235 billion. These figures are considerably lower than our previous estimates of $15.70 and $281 billion, respectively. It should be remembered, however, that the stock’s above-average dividend yield, backed by top-notch finances, is a major reason for holding this issue over the longer term.
About The Company: Chevron has daily gross crude oil and natural gas liquid production of about 1.734 million barrels. Natural gas production averages around 4.782 billion cubic feet. Net proved reserves at 12/12 were 7.089 billion barrels of oil. The company operates a multitude of well sites all over the globe, as well as owning/leasing about 4,100 gas stations, mostly in the United States.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned