Chevron’s 4Q: Don’t Panic, Next Year Will Be Better



To its credit, at least Chevron (NYSE:CVX) tried to take the bite out of its year-end results ahead of time. The oil and gas super major, the eleventh largest company in the world, reported in an interim update at the beginning of January telling investors that net liquids production fell in the fourth-quarter, and along with it, that earnings likely suffered.

On Friday, Chevron followed through, reporting fourth-quarter and full-year results that were pretty much exactly as bad as analysts expected. Fourth-quarter earnings fell 32 percent on the year to $4.9 billion, or $2.57 per diluted share, matching the mean analyst estimate — full-year earnings fell 18 percent to $21.4 billion, or $11.09 per diluted share, below the mean analyst estimate of $11.21 per share. Fourth-quarter sales and other operating revenues fell 3.6 percent to $54 billion — full-year revenues fell 4.5 percent to $220.16 billion, both lighter than the mean analyst estimate.

“Global crude oil prices and refining margins were generally lower in 2013 than 2012,” commented Chair and CEO John Watson in the earnings report. “These conditions, as well as lower gains on asset sales and higher expenses, resulted in lower earnings.” Chevron reported an average U.S. sale price per barrel of crude oil and natural gas liquids of $90 in the fourth-quarter, down from $91 in the year-ago period — in the international market, a barrel of crude oil and natural gas liquids fetched $101, up from $100 in the year-ago period.

U.S. net oil-equivellant production fell 4 percent on the year to 650,000 barrels per day as production in the Marcellus Shale and Delaware Basin failed to totally offset “normal field declines” elsewhere. International net oil-equivellant production fell 3 percent to 1.93 million bpd, also due to normal field declines that outpaced production ramp-ups.

Chevron’s year-end results echo data released by Exxon Mobil (NYSE:XOM) on Thursday. Facing many of the same headwinds, Exxon Mobil also posted a deep earnings contraction and production slowdown. Both firms are tied up in an increasingly competitive and expensive fight for the same resources at a time when developed nations are looking to meet their energy needs through increased efficiency instead of increased consumption.

One of the problems facing the U.S. super majors is that regulations make it difficult — often, outright impossible — to export natural gas from the country. This has led to a domestic glut of the fuel that, until recently, had driven prices so low as to be unattractive to producers. Meanwhile, companies like Exxon Mobil and Chevron haven’t been able to capitalize as effectively as possible on the ravenous demand for energy in emerging markets where most of the industry’s growth is expected to occur in the coming years.

But despite the headwinds, many analysts are bullish on the super majors for 2014. The group had an introspective 2013 — both Chevron and Exxon Mobil have highlighted to investors investment and restructuring programs that, ostensibly, have helped set the stage for better performance in the future. Analysts at Goldman Sachs wrote recently that Exxon Mobil (and other super majors) are expected to organically increase production volume in 2014 for the first time since 2006.