Chevron’s (CVX) second-quarter earnings didn’t hit the mark, with lower refining margins and natural gas prices taking a toll on profits. The company’s shares dipped 1.5% in premarket trading after the news broke on Friday. Additionally, the oil and gas giant is moving its HQ to Houston.
CVX’s Earnings Miss and Refining Woes
Chevron reported earnings of $4.4 billion, or $2.43 per share, down from $6 billion a year ago. Adjusted earnings came in at $4.7 billion, or $2.55 per share, below analysts’ expectations of $2.93 per share. “Results were disappointing,” noted Peter McNally, energy sector lead at Third Bridge, stating that the international upstream segment missed expectations by about 11%.
CEO Mike Wirth remains optimistic, saying, “Despite recent operational downtime and softer margins, we remain poised to deliver significant long-term earnings and cash flow growth.”
Chevron’s Profits Breakdown
Chevron’s U.S. production segment posted a profit of $2.16 billion, a 31% increase over $1.64 billion in the year-ago period, thanks to higher sales volumes and oil prices. However, international production profits fell about 30% to $2.3 billion compared with $3.29 billion a year ago, impacted by lower sales and natural gas prices as well as negative foreign currency effects.
Overall, Chevron’s global oil-equivalent production rose 11% to 3.29 million barrels per day, driven by record production in the Permian Basin. On the refining front, the U.S. business saw profits of $280 million, a significant 74% decrease from the $1.1 billion posted last year due to lower margins. International refining profits also dropped 25% to $317 million compared to $426 million in the same quarter last year.
Relocating to Houston
In an important move, Chevron announced it’s shifting its headquarters from San Ramon, California, to Houston. This relocation is set to happen over the next five years, with CEO Mike Wirth and Vice Chairman Mark Nelson moving by the end of 2024. “Houston is the epicenter of our industry,” Wirth told CNBC’s Squawk Box.
The company has had ongoing disputes with California’s state regulations on oil production and refining. However, Wirth insists the move isn’t politically motivated but rather a strategic decision given the industry’s concentration in Houston.
Hess Deal Delays
Adding to Chevron’s challenges, its $53 billion acquisition of Hess Corporation has hit a roadblock. An arbitration panel won’t make a decision on Exxon Mobil’s challenge to the deal until the second half of 2025. Exxon expects a ruling by September 2025. This delay has fueled speculation about potential negotiations between Exxon and Chevron to expedite the resolution.
Chevron’s share performance has lagged behind Exxon (XOM) and the S&P 500 (SPX) this year, partly due to the delays with the Hess deal. The acquisition is crucial for Chevron to secure a stake in Guyana’s lucrative oil reserves and counterbalance issues in Australia and Kazakhstan.
Is Chevron a Buy, Sell or Hold?
Analysts remain cautiously optimistic about CVX stock, with a Moderate Buy consensus rating based on nine Buys and four Holds. Over the past year, CVX has decreased by 3%, and the average CVX price target of $185.09 implies an upside potential of 24.5% from current levels. These analyst ratings are likely to change following CVX’s results today.
