10-Q: Chevron's Q1 2024 Earnings Dip Amidst Lower Downstream Margins, Upstream Production Rises

Chevron's first quarter 2024 earnings decreased to $5.5 billion, primarily due to lower downstream margins, despite an increase in upstream production.

Summary

• Chevron reported net income attributable to the company of $5.5 billion for the first quarter of 2024, a decrease from $6.6 billion in the same period of 2023.
• The company's upstream earnings were slightly higher at $5.2 billion, driven by increased sales volumes in the U.S., but offset by lower natural gas prices.
• Downstream earnings significantly decreased to $783 million, compared to $1.8 billion in the first quarter of 2023, primarily due to lower refining margins.
• Worldwide net oil-equivalent production averaged 3.35 million barrels per day, a 12% increase year-over-year, mainly due to the acquisition of PDC Energy and production growth in the Permian and Denver-Julesburg Basins.
• Capital expenditures for the quarter totaled $4.1 billion, up from $3.0 billion in the same period last year, due to increased upstream investments.
• The company repurchased 19.7 million shares for $3.0 billion during the quarter as part of its $75 billion share repurchase program.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While production is up, earnings are down, and there are significant risks and uncertainties related to the Hess acquisition and legal proceedings. The company is also facing challenges in the downstream segment.

Positives

• Upstream earnings saw a slight increase due to higher sales volumes in the U.S.
• Worldwide net oil-equivalent production increased by 12% year-over-year.
• The company continues to progress with its share repurchase program, buying back 19.7 million shares in the quarter.
• Tengizchevroil LLP (TCO) achieved start-up of the Wellhead Pressure Management Project (WPMP).

Negatives

• Downstream earnings decreased significantly due to lower refining margins.
• Natural gas realizations were lower, impacting both upstream and downstream earnings.
• Operating expenses increased due to higher employee benefit expenses and transportation costs.
• Income from equity affiliates decreased due to lower earnings from Angola LNG and GS Caltex.

Risks

• The company's earnings are heavily influenced by volatile crude oil and natural gas prices.
• The ongoing conflict in Israel could impact the company's operations and financial results.
• The company faces potential liabilities from climate change-related lawsuits and coastal erosion claims.
• The acquisition of Hess Corporation is subject to regulatory approvals and arbitration proceedings, which could delay or prevent the transaction.
• The company is exposed to risks related to supply chain disruptions, inflation, and changes in government policies.
• The company is subject to ongoing discussions with tax authorities regarding the resolution of tax matters in various jurisdictions.

Future Outlook

Chevron aims to grow its oil and gas business, lower the carbon intensity of its operations, and grow lower carbon businesses in renewable fuels, carbon capture and offsets, hydrogen, and other emerging technologies. The company expects share repurchases in the second quarter of 2024 to be between $2.5-3.0 billion.

Management Comments

• The company's objective is to safely deliver higher returns, lower carbon and superior shareholder value in any business environment.
• Chevron supports the Paris Agreements global approach to governments addressing climate change and continues to take actions to help lower the carbon intensity of its operations while continuing to meet the demand for energy.
• Chevron believes that broad, market-based mechanisms are the most efficient approach to addressing GHG emission reductions.

Industry Context

The results reflect the broader industry trend of fluctuating oil and gas prices and refining margins. The company is also navigating the energy transition, with investments in lower carbon technologies while maintaining its traditional oil and gas business. The company is also managing the impacts of global supply chain issues and inflation.

Comparison to Industry Standards

• Chevron's production increase of 12% is notable compared to some peers who have seen more modest growth or even declines.
• The decrease in downstream earnings is consistent with the challenges faced by other refiners due to lower margins.
• The company's capital expenditure increase reflects a strategic focus on upstream growth, similar to other major oil and gas companies.
• The company's share repurchase program is a common practice among large energy companies to return value to shareholders, but the scale of Chevron's program is significant.
• The company's focus on lower carbon technologies aligns with the industry's broader efforts to address climate change, but the pace and scale of these investments vary among companies.

Legal Proceedings

• Chevron entities are involved in 30 separate lawsuits related to climate change.
• Chevron entities are defendants in 39 cases related to coastal erosion in Louisiana.
• The company paid a civil penalty of $5.6 million related to seeps in the Cymric Oil Field.
• The company paid a civil penalty of $7.5 million related to oil spills in Kern County, California.
• The company paid a civil penalty of $20 million related to violations at its refinery in Richmond, California.
• The company is in negotiations regarding a potential resolution that will result in the payment of stipulated penalties of $1.0 million or more related to a consent decree with the DOJ, EPA and the State of Colorado.

Stakeholder Impact

• Shareholders may be concerned about the decrease in earnings and the potential delay in the Hess acquisition.
• Employees may be affected by potential cost-cutting measures or changes in operations.
• Customers may experience changes in product availability or pricing due to market fluctuations.
• Suppliers may be impacted by changes in the company's procurement and contracting activities.
• Creditors may be affected by changes in the company's debt levels and credit ratings.

Next Steps

• Chevron and Hess are working to complete the merger as soon as practicable and continue to anticipate obtaining all requisite stockholder and regulatory approvals by the middle of 2024.
• Hess is seeking to have the merits of the arbitration heard by the third quarter of 2024 and to complete the arbitration by the end of 2024.
• Chevron expects share repurchases in the second quarter 2024 to be between $2.5-3.0 billion.

Key Dates

Keywords

Chevron, Earnings, Upstream, Downstream, Oil and Gas, Production, Refining, Capital Expenditures, Share Repurchase, Hess Corporation, Climate Change, Tengizchevroil