By Sabrina Valle
HOUSTON (Reuters) - Wall Street analysts are trimming their earnings estimates for Chevron Corp (NYSE:CVX) and employees are preparing for potential job cuts as a series of operational setbacks are poised to bleed into 2024.
Chevron in 2023 was hit by reversals at two key oil producing regions - the U.S. Permian and Kazakhstan - and its hopes for a quick approval of a $53 billion acquisition of rival Hess Corp (NYSE:HES) have dimmed.
The company's shares year to date are down 15%, lagging the stock performance at its four big rivals - BP (NYSE:BP), Exxon Mobil (NYSE:XOM), Shell (LON:SHEL) and TotalEnergies (EPA:TTEF). The weak share returns contrast with its performance compared with the same companies in the five years to December 2022.
Seven Wall Street firms have lowered their fourth quarter earnings estimates for Chevron by an average 12% in the last 30 days, according to investment firm LSEG. None of the 15 firms that LSEG tracks raised their forecast.
"Chevron is a performance-driven company and recognizes that we have not been performing to our potential," a spokesperson said in an emailed response. He did not comment on whether the company is considering job cuts next year.
Estimates for Chevron's 2024 profit have been cut by an average 10.3% in the last 30 days, to $14.17 per share, according to LSEG. Its larger U.S. rival, Exxon Mobil, also had estimates lowered, but by less than 4%.
Investors historically awarded Chevron a valuation premium on good operational delivery and capital allocation, said Citibank analyst Alastair Syme, who this month cut his target price on the company to $148 from $170, rating it as neutral.
WILL 2024 BE AN INTERLUDE?
Restoring investor confidence in the company’s operational targets "could well take time," Syme said, characterizing 2024 as "a hiatus year in terms of growth."
The first half of 2024 "is muddied by M&A", said UBS analyst Josh Silverstein, who this month cut his Chevron target price to $185 from $194. Still, he rates the company a buy because of its "discounted share price" and prospects for new oil production after the second quarter of 2024.
Chevron Chief Financial Officer Pierre Breber admonished workers in an email this month, saying its oil and gas production, refinery operations and carbon abatement projects were each below plan.
"We can - and must - do better," he said, in an unusually harsh message that alarmed some employees who saw the note as an indication the company was preparing for cost and job cuts to improve 2024 results.
Breber's reprimand came together with a second request from U.S. antitrust regulators for information on its pending Hess acquisition.
CEO Michael Wirth said the request means the deal's closing "will extend further out in the year" from his hope of a first quarter completion. The delay will push back Chevron's access to the about 400,000 barrels of oil and gas per day (bpd) Hess would add to Chevron's output.
In October, Wirth disclosed a more than six-month delay and higher-than-expected costs for a 260,000 bpd expansion at its massive Kazakhstan oil project. Production at the facility will fall by 50,000 bpd compared to 2023 on maintenance and equipment changes.
In its Permian shale operations, Chevron's production fell 2% in the third quarter from the second. But it expects to complete the year with a 10% year-over-year increase, officials said.
The company in August closed the acquisition of shale producer PDC Energy (NASDAQ:PDCE) Inc that added 285,000 bpd to Chevron's U.S. production. It reaffirmed previous guidance to increase output by 3% annually, now on a higher basis.
The "recent underperformance", said Bank of America analyst Doug Leggate, "positions the stock as potentially favored among the global oil majors in 2024".