Chevron tops profit estimates, joins share buyback stampede

Chevron Corp on Friday reported its highest profit in six quarters and joined an oil industry stampede to reward investors with share buybacks, as rebounding crude oil prices carried earnings and cash flow to pre-pandemic levels. 

Oil and gas are trading near multi-year highs as fuel consumption has thrown off pandemic losses and natural gas has soared on weather demand. OPEC’s decision to carry production curbs into next year has kept oil trading above $70 per barrel.

Ticker	Security	Last	Change	Change %
CVX	CHEVRON CORP.	161.93	-0.18	-0.11%

The company cut its annual capital spending forecast. At about $13 billion, it is now below what it had spent last year. It had earlier budgeted $14 billion to $16 billion a year in annual capital spending through 2025.

Chevron last year cut expenses to allow profits to flow at above $50 a barrel. Lower costs and higher prices generated the highest cash flow in two years, enabling the company to pare debt and resume share repurchases, officials said. Share buybacks will resume this quarter at an annual rate of between $2 billion and $3 billion, said Chief Executive Michael Wirth, about half the annual rate it had planned.

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The company and its rivals had halted purchases early last year as the pandemic cut oil demand. Chevron now joins Royal Dutch Shell, TotalEnergies and Equinor in resuming buybacks.

"We’ve always said we would begin buybacks when we were confident that we could sustain it, and our breakeven is $50 per barrel and we are now well above it," Chief Financial Officer Pierre Breber told Reuters.

"We’re trying to win back investors...demand for our products has fully recovered, demand for our stock is recovering."

The company’s shares were up 1.4% at $104 in premarket trade.

The second-largest U.S. producer’s oil and gas production earned $3.18 billion in the quarter ended June 30, compared with a loss of $6.09 billion a year ago.

Total oil and gas production rose 5% over a year ago to 3.13 million barrels of oil equivalent per day (boepd), while Chevron sold its U.S. oil for $54 a barrel last quarter, compared with $19 a year earlier.

Chevron expects output from the Permian basin to be almost same as last year’s, but said it will add drilling rigs in the second half. Its production rate from the top U.S. shale basin is expected to be 600,000 boepd by the end of 2021.

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Anish Kapadia, director of energy at London-based Palissy Advisors said Chevron’s Permian additions "still seem measured... as it appears to be focusing on free cash flow generation".

Meanwhile, top U.S. oil producer Exxon Mobil said it expects more spending on key projects, including Guyana and Permian, in the second half of this year after posting a strong quarterly profit.

Crude oil prices this year through June were up 57%, while hard-hit refining and chemicals improved with better plant utilization rates and margins.

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The United States accounted for most of a $839 million profit at Chevron’s refining operations in the quarter, as Asia units suffered from weak margins.

CFO Breber said cost-cuts are largely over and it has achieved targeted savings from its 2020 takeover of Noble Energy. It is aiming to raise as much as $2 billion from asset sales this year. The company’s adjusted profit of $1.71 per share beat Wall Street estimates of $1.59, according to Refinitiv IBES data.