Chevron Posts Quarterly Loss to Cap Worst Year Since 2016 -- 2nd Update
January 29 2021 - 11:14AM
Dow Jones News
By Christopher M. Matthews and Dave Sebastian
Chevron Corp. posted its third consecutive quarterly loss Friday
to close its worst year since 2016, as the global pandemic
continues to weigh on the oil-and-gas industry and cloud hopes for
renewed economic growth in 2021.
Chevron is looking to turn the corner on one of the most painful
years in modern history for oil-and-gas companies. For the fourth
quarter, it posted $665 million in losses. For all of 2020, it lost
$5.5 billion as the coronavirus sapped global demand for fossil
fuels. Chevron reported nearly $3 billion in profits in 2019.
"We've demonstrated that we can survive a year unlike any other
and come through it even stronger," Chevron Chief Executive Mike
Wirth said in an interview. "Now we've got to come through this
pandemic and see what the real state of the global economy is, and
I think it's going to be uneven."
Chevron's oil-and-gas-production unit posted $501 million in
profit for the fourth quarter, but the company's results were
weighed down by its refining and chemical businesses, as well as
higher pension expenses and costs related to its $5 billion
acquisition of Noble Energy last year.
Chevron's share price has fallen about 20% over the past year, a
steep decline but better than many of its peers. Investors have
expressed more faith in Chevron than rival Exxon Corp. because it
entered the downturn with a stronger balance sheet. Exxon had about
$69 billion in debt as of September, while Chevron had around $35
billion, according to S&P Capital IQ.
Chevron's stock has been buoyed recently by oil prices climbing
about 5% over the past month, as Brent Crude, the global index,
rose more than 8% over the same period.
Oil traders have been shrugging off expanding
coronavirus-related lockdowns in Asia and Europe, anticipating
increased oil and gas demand in 2021 as vaccines are distributed,
according to analyst Rystad Energy. Oil prices have also been
boosted by Saudi Arabia's pledge to cut another one million barrels
a day of oil production in February and March.
Some analysts believe Chevron is poised for a much stronger
year. The company could generate about $12 billion in free cash
flow in 2021 if Brent oil prices are around $50 a barrel, according
to JPMorgan Chase & Co., more than enough to cover its roughly
$10 billion in annual dividend payments.
Chevron can now break even if oil is at $46 a barrel, said
JPMorgan, after it made steep spending cuts and reduced its
workforce in 2020. Last year, Chevron lowered its 2020 capital
expenditures to $14 billion from $20 billion, and said it would
spend between $14 billion and $16 billion annually through 2025. It
had previously said it could spend as much $22 billion a year over
that period.
Chevron's loss of $665 million in the fourth quarter compared
with a loss of $6.6 billion during the same period in 2019, which
was driven by a roughly $10 billion write-down. The company's
revenues were much higher in the fourth quarter of 2019, at about
$36 billion compared with $25 billion in the last quarter of
2020.
Chevron leaned on its strong balance sheet to complete one of
the largest oil-and-gas deals in 2020, its acquisition of Noble
Energy, which was completed in October.
The company's oil and gas production increased 1% in 2020 from
the previous year to 3.08 million barrels a day, in part because
Chevron added Noble's output. Morgan Stanley estimates Chevron will
produce nearly 3.3 million barrels a day in 2021.
Despite some optimism for an industry rebound in the coming
year, long-term questions hover over oil-and-gas companies' future
profitability. Earlier this week, S&P Global Ratings warned it
could cut the credit rating of Chevron and many other major oil
companies over growing risks to the industry from a transition to a
lower-carbon economy spurred by concerns about climate change. Such
a credit downgrade could increase borrowing costs for the sector,
making it more difficult to finance large projects.
On Wednesday, President Biden issued an executive order
temporarily suspending new oil and gas leases on federal land,
which analysts said signaled a more restrictive U.S. policy outlook
for the industry. About 25% of U.S. oil production is tied to
federal lands and waters, according to Morgan Stanley, and Chevron
has a large presence in both.
Mr. Wirth said the world is moving to a lower-carbon energy
system and that Chevron's strategy is to simultaneously lower its
carbon footprint and generate higher returns. He said he supports
President Biden's desire to reduce carbon emissions, but said some
of the executive orders were broad and risked erecting barriers to
responsible energy development.
"The current energy system is not the enemy," Mr. Wirth said.
"Emissions are what we should focus on."
Write to Christopher M. Matthews at christopher.matthews@wsj.com
and Dave Sebastian at dave.sebastian@wsj.com
(END) Dow Jones Newswires
January 29, 2021 10:59 ET (15:59 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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