CVX Chevron Corporation

By Bradley Olson and Anne Steele 

Chevron Corp. posted its second consecutive quarterly profit Friday, reaping the benefits of a modest market rebound and significant cost cuts, but the results disappointed investors, who sent shares down nearly 3% in early trading.

The second-largest U.S. energy company, Chevron has reached the point where it will be able to pay for new investments and dividends with cash from operations, a significant milestone for major oil companies that has been elusive as crude fell from highs of more than $100 a barrel to around $50 today.

Still, earnings came in sharply below estimates due to lower refining margins and one-time tax charges, and shares were down 2.7% to $113.46 as of 10 a.m. Eastern time. For 2016, Chevron had an annual loss of about $500 million, its first in more than 25 years.

While most major oil company executives have sounded a cautious note about 2017, many have signaled that they expect a better year after the Organization of the Petroleum Exporting Countries agreed to cut oil production last year.

"Most of these companies plan to keep spending in line, and I expect many of them to keep selling assets and bringing costs down" so they can generate enough cash to pay for operations and dividends, said Brian Youngberg, an analyst at Edward Jones in St. Louis. "For Chevron, the focus will be on" finishing gas export projects in Australia, he said.

Chief Executive John Watson said Chevron should show improved earnings and be cash-flow-balanced in 2017 through continued tight spending and cost control as well as additional revenue from expected production growth.

"We responded aggressively to those conditions, cutting capital and operating expenses by $14 billion," he said.

Chevron replaced about 95% of the oil and gas it produced in 2016, according to the company. Such reserve figures will be closely watched in the coming weeks as companies may be forced to recognize that some of the wells they expected to drill in the future are no longer profitable to produce.

Exxon Mobil Corp. warned in October that as much as 4.6 billion barrels of its reserves, primarily in Canada, may be too expensive to tap based on last year's average prices. Exxon is set to report earnings next week.

Chevron increased its 2016 annual dividend payout for the 29th consecutive year, raising the payment for the fourth quarter by a penny, or 0.9%, to $1.08.

During the latest quarter, the company's average sales price per barrel of crude oil and natural gas liquids was $40, up from $35 in the year-ago period.

Pressured by the prolonged swoon in oil prices cutting into profitability, the San Ramon, Calif.-based company has looked to cut costs. Chevron has said it would cut about 8,000 jobs -- up to 12% of its workforce -- and slash billions of dollars from its capital-spending budget to deal with market conditions.

In all for the December period, Chevron reported a profit of $415 million, or 22 cents a share, compared with a loss of $588 million, or 31 cents a share, the year before, and well below the 64 cents analysts polled by Thomson Reuters were looking for.

Profit in Chevron's downstream, or refining, operations plunged 65% to $357 million in the latest quarter. In the U.S., the company made no money in that business.

Write to Bradley Olson at Bradley.Olson@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

January 27, 2017 10:38 ET (15:38 GMT)

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