Chevron: Hoping for a Turnaround

Like all the oil and gas companies, Chevron (CVX) has also been directly affected by the collapse of crude oil prices that has continued for more than last one year. Crude oil prices have declined more than 50% from where it was a year ago. This has created a negative impact on the company’s finances.

A look at the weakness

Chevron reported revenue of $37 billion in the most recent quarter which was 34% lower than last year’s $56 billion. The company’s net income was $571 million in the second quarter of 2015 i.e. 90% down compared with the income of $5.7 billion in second quarter of last year.
After adjustments the earnings were $1.8 billion. Cash flow from operations was $7.2 billion. The company sold assets worth $1.80 billion in the last quarter.

The company’s upstream operations were affected more by the decline in crude oil prices since it resulted in reduced revenues and impairments worth $1.96 billion triggered by a downward revision in the company’s longer-term crude oil price outlook. The company reported a loss of $2.2 billion from its upstream business.

Production in the upstream segment increased 2% from 2.55 million barrels per day to 2.60 million barrels per day in the second quarter. This increase in production was the result of increased production capacity in the facilities in US, Bangladesh and Argentina and lower maintenance downtime partially offset by normal field declines and certain asset sales.

On the other hand, Chevron’s downstream business continued strong growth and earned $2.95 billion during the quarter against $0.721 billion earned during the same period last year. Refined product sales done by US downstream operations were 1.23 million barrels per day, 3% more than last year. Sale of gasoline was 535,000 barrels per day, 2% up from the same period of last year. The international downstream operations of the company sold 1.48 million barrels per day in the last quarter which was 4.5% down from a year ago quarter.

Expectations of a turnaround

However, the industry has reached a consensus on the opinion that oil demand is bound to increase enough over the next one decade and beyond to call for more supply. And the production slash going on all over the industry will aid oil in achieving a very attractive price level. So, investors must look at the decline in Chevron stock price over the past 5 months as a phenomenon that will continue for at least few more months before recovering.

Therefore, investors holding Chevron must continue to hold it. On the other hand for buyers, there is some time still remaining for a trend reversal in this sector.
Published on Oct 13, 2015
By Harsh Singh Chauhan

Copyrighted 2016. Content published with author's permission.

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