10-Q: Chevron's Q3 2024 Earnings Decline Amidst Lower Downstream Margins and Upstream Realizations

Chevron's third-quarter earnings for 2024 decreased compared to the same period last year, primarily due to lower downstream margins and upstream realizations.

Summary

• Chevron's net income attributable to the corporation for the third quarter of 2024 was $4.5 billion, or $2.48 per diluted share, a decrease from $6.5 billion, or $3.48 per diluted share, in the third quarter of 2023.
• The company's net income for the first nine months of 2024 was $14.4 billion, or $7.88 per diluted share, compared to $19.1 billion, or $10.14 per diluted share, in the same period of 2023.
• Upstream earnings decreased to $4.6 billion in Q3 2024 from $5.8 billion in Q3 2023, due to lower realizations and unfavorable foreign currency effects, partially offset by higher sales volumes.
• Downstream earnings fell to $595 million in Q3 2024 from $1.7 billion in Q3 2023, primarily due to lower margins on refined product sales.
• Worldwide net oil-equivalent production averaged 3.33 million barrels per day in the first nine months of 2024, a 10% increase from the same period in 2023, mainly due to the acquisition of PDC Energy, Inc. and production growth in the Permian and Denver-Julesburg Basins.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with strong production growth offset by significant earnings declines and ongoing risks. The sentiment is cautiously negative due to the financial results and the uncertainty surrounding the Hess merger.

Positives

• Worldwide net oil-equivalent production increased by 10% in the first nine months of 2024.
• U.S. upstream production set a new quarterly record.
• The company is actively managing its contracting, procurement, and supply chain activities to effectively manage costs and facilitate supply chain resiliency and continuity.
• Chevron cleared the Federal Trade Commission antitrust review of the pending merger with Hess Corporation.

Negatives

• Net income attributable to Chevron Corporation decreased significantly in Q3 2024 compared to Q3 2023.
• Upstream earnings were negatively impacted by lower realizations and unfavorable foreign currency effects.
• Downstream earnings were significantly lower due to decreased margins on refined product sales.
• The company's effective tax rate increased from 25% in 2023 to 31% in 2024.
• The company recognized an after-tax loss of $1.9 billion in Q4 2023 related to abandonment and decommissioning obligations from previously sold oil and gas production assets in the U.S. Gulf of Mexico.

Risks

• Crude oil and natural gas prices are subject to external factors and volatility.
• The company faces risks related to climate change and potential regulatory changes.
• The company is involved in ongoing litigation related to climate change and coastal erosion.
• The acquisition of Hess Corporation is subject to various conditions and may be delayed or not completed.
• The company is exposed to risks related to supply chain disruptions and inflation.
• The company is exposed to risks related to political unrest in countries where it operates.

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 is targeting $10-15 billion of asset sales over the 5 year period ending in 2028 and expects share repurchases in the fourth quarter 2024 to be between $4.0-$4.75 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 report highlights the impact of fluctuating crude oil and natural gas prices on Chevron's earnings, reflecting the broader volatility in the energy sector. The company's focus on lower carbon initiatives and renewable fuels aligns with the industry's increasing emphasis on sustainability and the energy transition. The ongoing conflict in Israel and the global response to these hostilities are also impacting the industry.

Comparison to Industry Standards

• Chevron's production increase of 10% year-over-year is a strong result compared to some of its peers, but the decrease in earnings is a concern.
• ExxonMobil, another major oil company, also reported a decrease in earnings in their Q3 2024 results, indicating a broader trend in the industry.
• The company's focus on asset sales and share repurchases is a common strategy among major oil companies to enhance shareholder value.
• The company's investment in lower carbon technologies is in line with the industry's move towards sustainability, but the pace of this transition varies among companies.

Legal Proceedings

• Chevron entities are defendants in 31 separate lawsuits filed by various U.S. cities and counties, four U.S. states, the District of Columbia, the Commonwealth of Puerto Rico, two Native American tribes, and a trade group in both federal and state courts, seeking legal and equitable relief to address alleged impacts of climate change.
• Chevron entities are defendants in 37 cases in Louisiana, seeking damages for coastal erosion in or near oil fields located within Louisianas coastal zone.
• The DOJ, EPA and the State of Colorado have requested payment of $1.5 million in stipulated penalties accrued under the Consent Decree, which was paid in August 2024.

Stakeholder Impact

• Shareholders may be concerned about the decrease in earnings and the potential risks associated with the Hess merger.
• Employees may be affected by potential cost reduction initiatives and restructuring.
• Customers may be impacted by changes in product prices and availability.
• Suppliers may be affected by changes in procurement and supply chain activities.
• Creditors may be impacted by changes in the company's debt levels and credit ratings.

Next Steps

• The company will continue to develop oil and gas resources to meet customer demand.
• Chevron will continue to maintain flexibility in its portfolio to be responsive to changes in policy, technology, and customer and consumer preferences.
• The company will continue to take actions to help lower the carbon intensity of its operations.
• Chevron will continue to monitor the ongoing conflict in the region around Russia and Israel, and any future impacts on the companys results of operations and financial condition remain uncertain.
• The company will continue to work to complete the merger with Hess Corporation as soon as practicable.

Key Dates

Keywords

Chevron, earnings, oil and gas, production, downstream, upstream, Hess Corporation, merger, capital expenditures, climate change, litigation, financial results, asset sales, share repurchases