Chevron posts $3.11 billion profit fueled by cost cuts, rising energy prices, tax reform

Chevron Pascagoula Refinery
Chevron Pascagoula Refinery Sun Herald File

Chevron’s profits soared in the fourth quarter after it slashed costs and curbed spending, the energy giant reported Friday.

During the October-through-December quarter, Chevron earned $3.11 billion — more than seven times greater than its profit of $415 million in the similar period a year ago.

“Earnings and cash flow grew significantly in 2017,” said Michael Wirth, Chevron’s chief executive officer.

For all of 2017, Chevron earned $9.2 billion, a stark contrast to its loss in 2016 of $497 million.

“Deliberate actions to reduce capital expenditures, lower our cost structure, start and ramp-up projects, and conclude planned asset sales” were the primary factors behind the profits throughout 2017, Wirth said. “Higher commodity prices helped as well.”

San Ramon-based Chevron earned $1.64 a share, but the company’s profits included a $2.02 billion tax benefit due to the federal government’s recent tax cut and tax overhaul legislation. Wall Street had projected profits of $1.27 a share. Excluding benefits from the tax overhaul, Chevron’s profits were roughly 73 cents a share.

Chevron’s shares nose-dived more than 3 percent in mid-session trades.

The company’s upstream exploration, development and production operations harvested a profit of $5.29 billion in the fourth quarter, a more than five-fold increase from the year-ago quarter.

Downstream refining and retailing operations posted a $1.28 billion profit in the final three months of 2017, more than three times greater than the previous fourth quarter.

U.S. downstream operations, which include Chevron’s Richmond refinery, generated a fourth-quarter profit of $1.2 billion, up dramatically from zero profit in the year-ago quarter.

“The disappointment was from the downstream earnings, which were too low,” said Pavel Molchanov, an analyst with investment firm Raymond James.

However, Chevron was able to operate the Richmond refinery during the final three months of the year without taking units at the East Bay plant out of service for maintenance or upgrades.

Chevron has now posted profits for six consecutive quarters. Its last loss occurred in the second quarter of 2016.

During the fourth quarter, Chevron produced 2.74 million barrels per day of energy, up 2.6 percent from the year before.

“Production for Chevron was as expected, and Chevron’s production has been much better when compared to Exxon,” Molchanov said. “Chevron’s production has been much better throughout 2017, while Exxon has been a complete train wreck when it comes to production.”

Chevron major projects are liquefied natural gas fields in western Australia, and oil and natural gas production in the Permian Basin region of the southwestern United States.

“This is a real success story,” Wirth told analysts during a conference call to discuss the company’s earnings. “We anticipate another strong year of production growth.”

Chevron believes profits were undermined by some one-time challenges in the fourth quarter. These included rising crude oil prices that squeezed profit margins at refineries, as well as adverse impacts on refineries and other operations in the Gulf Coast in the wake of hurricanes Harvey and Nate.

“These fourth-quarter impacts are not structural, they are transitory,” Patricia Yarrington, Chevron’s chief financial officer, told analysts.

The company’s quest to chop expenses remains a vital part of its strategy.

“We are becoming more efficient in all that we do,” Wirth said during the call. “Capital discipline always matters. Costs always matter.”

Further improvements beckon, Chevron said.

“I feel good about 2018,” Wirth told the analysts.