By Daniel Gilbert And Chelsey Dulaney
Chevron Corp. posted its lowest quarterly profit in five years
and said it would trim its ambitious spending plans as the collapse
in oil prices erased billions of dollars in cash flow.
The oil company reported $3.5 billion in profit for the last
three months of 2014, down 30% from a year ago and its lowest since
the 2009 recession.
Chevron said it would spend $35 billion in 2015 to find and tap
oil and gas, a 13% cut from last year's budget, in response to oil
prices that have slumped more than 60% since the summer to less
than $50 a barrel.
The company is suspending its share buyback program for 2015,
Patricia Yarrington, the company's chief financial officer, said
Friday. Chevron had been buying about $5 billion of its own stock a
year. That news helped send the company's stock down more than 3%
before noon, to under $100 a share, though the company's earnings
beat analysts' expectations.
"We believe long-term market fundamentals remain attractive,"
John Watson, Chevron's chief executive, said in a statement, adding
that the company's new projects "are expected to measurably
increase our production and cash generation." The company will
continue to push for cost reductions, he said.
But Chevron's spending plans remain ambitious relative to its
rivals and its shrinking cash flow. On Thursday, Occidental
Petroleum Corp. said it would spend a third less on producing oil
and gas this year; ConocoPhillips said it would chop 15% off its
capital budget, on top of a 20% cut in December. Exxon Mobil Corp.,
the biggest U.S. energy company, reports results Monday.
Chevron generated $6.5 billion from its operations in the fourth
quarter of 2014, down 38% from a year ago. Unless oil prices
rebound significantly, that cash may not be enough to cover the
company's spending on exploration and production, plus dividend
payments that totaled $7.9 billion last year.
Even before oil prices fell, Chevron has been spending at a
deficit, dipping into its pile of cash and borrowing more money.
The company's debt rose to $27.8 billion by the end of 2015,
doubling in two years and marking the highest it has been in at
least 20 years, according to data compiled by S&P Capital
IQ.
The company still has $12.8 billion in cash, but that is about
$3.5 billion less than at the beginning of 2014.
Overall, Chevron reported earnings of $3.47 billion, or $1.85 a
share, down from $4.93 billion, or $2.57 a share, a year earlier.
Results included a net $570 million gain on asset sales. Revenue
fell 18% to $46.1 billion.
Analysts polled by Thomson Reuters had forecast earnings of
$1.63 a share and revenue of $30.65 billion.
Chevron's bottom line was helped by foreign-currency effects,
which have been a drag on many U.S. companies' results recently.
Chevron said foreign currency helped its earnings by $432 million
in the quarter, up from $202 million a year earlier.
The fall in oil prices masked the company's success at pumping
more oil, as it began reaping petroleum from two major projects in
the Gulf of Mexico's deep waters in the last months of 2014.
Chevron's oil output rose a modest 1.1% from a year ago, but its
quarterly profit from tapping oil and gas fell 45%.
The pain from lower oil prices was cushioned, however, by
Chevron's business of refining crude into fuels like gasoline and
diesel. The refining business, which in recent years has accounted
for less than 15% of its profits, provided $1.5 billion in
earnings--44% of the company's total haul. Refining profits nearly
quadrupled from a year ago, due to a combination of better margins
and asset sales.
Chevron has set its sights on pumping the equivalent of 3.1
million barrels a day by 2017, underpinned by major projects like a
$54 billion gas plant in Australia that is scheduled to start up
later this year. That represents a hefty increase from the
company's current production of 2.58 million barrels a day, which
rose slightly from a year ago but averaged less than in 2014.
In a presentation released Friday, Chevron said its production
could increase up to 3% in 2015 or remain flat. Mr. Watson,
Chevron's chief executive, reaffirmed that its goal to increase
production by 2017 "remains on track."
Write to Daniel Gilbert at daniel.gilbert@wsj.com and Chelsey
Dulaney at Chelsey.Dulaney@wsj.com
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