That stay-the-course approach, announced on Friday after the
second-largest U.S. oil company said its quarterly profit dropped 32
percent, spooked investors and prompted the stock to fall 3.5
percent, the most of any large energy producer this quarter.
Like Exxon Mobil Corp <XOM.N>, Royal Dutch Shell <RDSa.L> and other
international energy companies, Chevron has tried to offset
declining production at its existing oil and natural gas wells by
spending massively on new exploration projects.
But Shell announced earlier this week that it would focus more on
energy projects that have the best chance of success, cutting
spending and also selling underperforming assets. The news boosted
Chevron has taken the opposite approach and plans to keep the cash
flowing. It spent $41.9 billion last year on energy projects, a 23
percent increase from 2012. Chevron Chief Executive John Watson said
he expects capital spending to be in the $40 billion range for the
next few years.
Chevron is betting that its relatively high dividend yield for the
energy industry and its large stock buyback program will appease
investors until five of its major projects, including two massive
liquefied natural gas projects in Australia and deepwater wells in
the U.S. Gulf of Mexico, are online.
"Basically it's a treadmill," said Oppenheimer & Co analyst Fadel
Gheit. "Yes, all these new projects will add oil. But guess what,
until they hit that goal, their base line production is declining."
Chevron's oil and natural gas production fell 3.4 percent in the
fourth quarter to 2.6 million barrels of oil equivalent per day (boed).
Rising production in the United States and Nigeria wasn't enough to
offset declining production at legacy fields around the world, which
typically see production slip 4 percent annually, Chevron said.
For 2014, Chevron expects total production of 2.6 million boed, up
only 0.5 percent from 2013 levels. The estimate missed Wall Street's
expectations and disappointed investors, who had hoped 2014 would be
a "positive transition year" toward 2017 when new projects come
online, Credit Suisse analyst Edward Westlake said in a note.
Even if Chevron hits its 2014 production goal, it would only be on
par with 2012 levels.
[to top of second column]
Looking forward, Chevron said it has made significant progress on
its five main growth projects. In total, the five new protects will
add 500,000 boed in production, the company estimates, once fully
"We are in a depleting resource business, and you do need to add to
the portfolio," Watson said on a conference call with investors.
Last year the company said by 2017 it expects daily production to be
3.3 million boed.
The company reported net income of $4.93 billion, or $2.57 per
share, compared with $7.25 billion, or $3.70 per share, in the
The quarterly profit met expectations of Wall Street analysts,
according to Thomson Reuters I/B/E/S.
The results were not a total surprise to Wall Street, as Chevron
hinted earlier this month that its fourth-quarter profit would be
"comparable" with third-quarter results, when it posted net income
of $4.95 billion.
In refining, profit plunged 58 percent due to shrinking margins,
largely due to price differentials between different types of crude
Refiners make more money when the price difference between various
types of crude oil is wide. When the gap narrows in the price
differences, costs tend to rise. Exxon on Thursday posted weakness
in its own refining unit.
Profit also fell in Chevron's smallest unit, the power generation
and mining unit.
Chevron shares fell $4.02, or 3.5 percent, to $112.40 in afternoon
trading. The stock is down about 2.4 percent over the past 52 weeks.
(Reporting by Ernest Scheyder; editing
by Jeffrey Benkoe, Sofina Mirza-Reid and Meredith Mazzilli)
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