Chevron Profits Drop on Weaker Refining Margins, Storm Hit

Chevron Corp’s first-quarter profit fell 29% from the same period a year ago as gains from oil and gas prices were undercut by weaker refining margins, production losses and the impact of an asset sale that benefited results last year.

Oil companies are generally enjoying a recovery in energy prices, up at least a third this year, after the pandemic hammered demand at the start of 2020. Chevron and its peers slashed spending, paving the way for several firms to post sharply better results.

But as European rivals topped forecasts, Chevron's earnings declined on winter storm production losses, weaker margins and the absence of asset and tax items that benefited year-ago profit.

“Results were down from a year ago due in part to ongoing downstream margin and volume effects resulting from the pandemic and the impacts of winter storm Uri,” Michael Wirth, Chevron’s chief executive officer, said, referring to the plunging temperatures that hit Texas and other states in February.

The winter storm cost $300 million in lost production and repairs, said finance chief Pierre Breber. "That's lost production in the Permian Basin and lost production in refining and chemicals," he said.

Chevron, the second-largest U.S. oil producer, reported a profit of $1.72 billion, or 90 cents per share, compared with $2.45 billion, or $1.31 per share, a year earlier. Year-ago results included about $680 million in asset sales and favorable tax items. Net profit was $1.4 billion, or 72 cents a share, down from $3.6 billion, or $1.93 cents a share, a year earlier. Shares dipped 2% to $104.69 in morning trading on Friday.

Chevron's cash flow from operations, at $4.2 billion, was more than $1 billion below Wall Street estimates, according to Refinitiv IBES data. Its expenses for debt costs, employee pensions and benefits more than doubled to $978 million.

Weaker-than-expected cash generation "left a slightly higher net debt position than expected," of $38.3 billion, said analyst Biraj Borkhataria at RBC Europe Limited. While Chevron boosted its dividend this week, "investors will need to be patient" for share repurchases, Borkhataria said.

The 3.9% dividend increase was a surprise as "most investors expected a more modest 2% dividend hike later in the year," said Manav Gupta, analyst at Credit Suisse.

The weaker earnings contrasted with those at BP, Royal Dutch Shell and Total, which reported results that topped year-ago levels. BP nearly tripled earnings while Total posted a 69% gain.

Chevron's refining eked out a $5 million profit, down from $1.1 billion a year ago, as the pandemic continued to mute demand for jet fuel, diesel and gasoline, and the winter storm hurt U.S. operations. Earnings from oil and gas production fell 20% despite price gains as non-U.S. operations suffered from declining volumes, foreign currency impacts and the absence of an asset sales gain. The unit benefited from higher oil volumes from the acquisition of Noble Energy in October.

Chevron said capital spending for the first quarter was $2.5 billion, down from $4.4 billion in the same period last year. The company will restrain spending this year, including in U.S. shale. "The stock markets are not sending a signal to us or our sector to increase capital," Breber said. Chevron is looking toward a "sustained global recovery" before increasing activity, Breber said, adding that OPEC and allies are easing their oil production curbs.

The United States accounts for more than half of Chevron's capital spending, up from one-quarter five years ago, with last year's Noble purchase increasing the company's U.S. focus, said Peter McNally, analyst at Third Bridge Group. The winter storm meant "results did come up short on production volumes, particularly in the U.S.," McNally said.

(Reporting by Jennifer Hiller)