Chevron Corp. (IW 500/5) posted its first annual loss since at least 1980, signaling the difficulties faced by the world’s biggest oil companies as they struggle to emerge from the worst collapse in a generation.
The company had a $497 million loss last year and failed to replace all of the crude and natural gas it pumped with new reserves, San Ramon, Cali.-based Chevron said on January 27. Shares slumped the most in five months.
As the first so-called supermajor oil company to post year-end results, Chevron’s results may herald bleak news for an industry battered by the oil-market crash that began in mid 2014. After hundreds of thousands of job cuts, billions of dollars in asset sales and the accumulation of staggering debt loads to endure the collapse, investors have been optimistic that oil producers who survived the darkest days are on the cusp of a new era of growth.
After the 2016 loss, Chevron probably will be able to cover all of its costs this year with cash flow and generate excess cash as soon as 2018, said Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis. Major oil and gas projects that required huge cash infusions during the past several years are mostly complete and poised to begin contributing profits, he said.
Fourth-quarter net income of $415 million, or 22 cents a share, was lower than all 20 estimates from analysts in a Bloomberg survey. During the final three months of 2016, the company’s refineries earned $357 million, less than half the $762 million expected by analysts at Barclays Plc. Narrower margins and downtime at a California plant eroded performance in the business, according to the statement. Shares fell as much as 3.2%, the most since Aug. 1, and were down 2.4% at 11:09 a.m. in New York.
Chevron added the equivalent of 900 million barrels of oil to its reserves last year, or 95% of what it produced. The new reserves involved oil and gas fields in Kazakhstan, Australia and the Permian Basin beneath Texas and New Mexico. Reserves are a key indicator of future profit potential for investors.
Chevron announced plans last month to curtail spending on drilling and other projects for a fourth straight year, a stark contrast to U.S. shale explorers who are responding to the uptick in crude prices with ambitious expansion plans. While Chevron is cutting its budget for 2017 by 15%, shale drillers Continental Resources Inc. and Diamondback Energy Inc. are lifting spending by 77% and 106%, respectively.
Despite the belt-tightening, Chevron is on pace to spend about $2 billion on shareholder dividends each quarter. That equates to about $1 million an hour. Bigger rival Exxon Mobil Corp. is set to disburse about $3.1 billion per quarter in payouts.
Chevron’s disclosure will be followed by a slew of oil company earnings releases in the next two weeks: Exxon is scheduled to report results on Jan. 31, followed by Royal Dutch Shell Plc on Feb. 2, BP Plc on Feb. 7 and Total SA on Feb. 9.
Brent crude, the international benchmark, averaged $51.06 a barrel in the final three months of 2016, 14% higher than a year earlier, according to data compiled by Bloomberg. U.S. natural gas posted an even stronger 42% gain to average $3.177 per million British thermal units for the quarter.
By Joe Carroll