Chevron (CVX) Overcomes Low Oil Prices To Q2 Earnings Beat

U.S. energy giant Chevron Corp. (NYSE:CVX) reported strong second-quarter earnings, buoyed by the success of its cost savings initiatives. The company reported earnings per share (excluding special items) of 49 cents, higher than the Zacks Consensus Estimate of 31 cents and the year-ago earnings of 30 cents.

However, quarterly revenue fell 27.4% year over year to $29,282 million and was unable to beat the Zacks Consensus Estimate of $29,799 million on weak crude prices and refining income.

Chevron becomes the fourth integrated supermajor after BP plc (NYSE:BP) , Royal Dutch Shell (LON:RDSa) plc RDS.A and Exxon Mobil Corp. (NYSE:XOM) in reporting second quarter numbers.

Segment Performance

Upstream: Chevron’s total production of crude oil and natural gas edged down 2.6% from the year-earlier level to 2,528 thousand oil-equivalent barrels per day (MBOE/d). The U.S. output decreased 6.6% year over year to 682 MBOE/d, while the company’s international operations (accounting for 73% of the total) fell 1.1% to 1,846 MBOE/d.

Contribution from project ramp-ups (in the U.S., Angola, Canada and other regions) were more than offset by normal field declines, the effect of asset sales, the Saudi Arabia-Kuwait Partitioned Zone shut-in, maintenance downtime and disruptions in its Nigerian operations.

What’s more, decline on the production front were accompanied by sharp downfall in oil and gas prices, the net effect resulting in a huge loss for the upstream division – to the tune of $2,462 million.

Despite continued pricing pressure, Chevron’s production outlook remains one of the most robust in its peer group, with a number of major initiatives scheduled to come online during the next few years. Major start-ups during the year include the Chuandongbei Project in China and the Gorgon natural gas project in Australia.

Downstream: Chevron’s downstream segment achieved earnings of $1,278 million, 56.8% lower than the profit of $2,956 million last year. The results were dragged down by lower margins on refined product sales.

Costs & Expenses

Exploration costs nosedived from $1,075 million in the second quarter of 2015 to just $214 million. The second-largest U.S. oil company by market value after Exxon Mobil spent $5,523 million in capital expenditures during the quarter, a considerable decline from the $8,724 million incurred a year ago. Approximately 91% of the total outlays pertained to upstream projects.

Balance Sheet

As of Jun 30, 2016, the San Ramon, CA-based Zacks Rank #2 (Buy) company had $8,764 million in cash and total debt of $45,085 million, with a debt-to-total capitalization ratio of about 23.5%.