Chevron Posts Profit on Deep Cost Cuts, Better Oil Prices

Chevron Corporation posted a surprise Q3 profit on Friday. Oil prices recovered from spring lows and spending cuts contributed to operating results.

Chevron, along with its peers have slashed spending budgets in 2020 on plummeting demand. Moreover, on crude oil prices that remain about 40% below where they began the year. 

Royal Dutch Shell Plc and BP Plc also posted higher quarterly results than expected after deep expense cuts this year.

The second-largest U.S. oil producer reported earnings of $201 million, or 11 cents per share. This was excluding one-time items. That compared with a profit of $2.9 billion, or $1.55 per share, a year prior.

Wall Street analysts had expected a loss of 27 cents for the quarter. Shares gained a fraction in premarket trading to $68.97.

It was too soon to say the worst of the pandemic-related decline in oil demand was over. This was a statement from Chief Financial Officer Pierre Breber.

He said, Chevron is near the end of a year-long restructuring of its operations to reflect a prolonged period of low prices. The effort will reduce its workforce by up to 15% of its 45,000 person staff, Breber said.

Despite lower volumes, it posted modest operating profit in oil and gas production and refining. That is by cutting expenses 12% and spending on new projects by 48%, excluding acquisitions, both from year-ago levels.

That helped in offsetting cheaper fuel. Last quarter, its oil sold for 63% more than in the second quarter. It was still well below the $47 a barrel price received a year ago.

Chevron in the Third Quarter

Chevron’s oil and gas production in the Q3 was down 7%, compared with a year earlier. This reflects asset sales, curtailment due to low prices and contract agreements. Refining volumes recovered from a sharp Q2 drop, while remaining below year-ago levels.

It continues to prioritize its shareholder dividend even as cash flow from operations fell 57% from a year ago. It turned negative in Q3.

Edward Jones analyst Jennifer Rowland said, Chevron generated enough cash flow to cover its capital spending. It had only a modest deficit after funding its dividend.

She said the company’s strong balance sheet and liquidity position supports its dividend during this difficult period. They view the company as a defensive holding in a challenging industry, Rowland added.